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NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A10512A SPONSOR: Farrell
TITLE OF BILL: An act to amend the administrative code of the city of New York, in relation to the taxation of the transfer of real property   SUMMARY OF PROVISIONS: : Section one of the bill would amend Section 11-2106 of the Administra- tive Code of the City of New York (the "Code") by adding a new paragraph 9 to subdivision (b). The new paragraph would provide a real property transfer tax exemption (an "RPTT exemption") for a qualifying deed, instrument or transaction conveying or transferring real property or an economic interest therein (each, a "Transfer") by or to any housing development fund company ("HDFC") organized pursuant to Article 11 of the Private Housing Finance Law or to an entity the controlling interest of which is held by an HDFC. To qualify, a regulatory agreement must restrict more than 50% of the floor area to residential real property and at least two-thirds of the residential real property to use by persons of low income and families of low income, within the meaning of Section 2 of Article 1 of the Private Housing Finance Law (collectively, "Persons of Low Income"), for a term of 30 years or more. The regulatory agreement must be with the state of New York or a municipal corporation or any other public corporation created by or pursuant to any law of the state of New York, and must require mutual consent for revocation or amendment. If the regulatory agreement restricts less than 100% of the current or future floor area to Persons of Low Income, then the Transfer would be taxable in proportion to the floor area that is not so restricted. If the regulatory agreement is not in place at the time of the Transfer, tax must be calculated and paid without application of this RPTT exemption. However, if the property is made subject to a qualifying regulatory agreement within 2 years of the Transfer, the Commissioner of Finance may subsequently issue a refund, determined as if the qualifying regulatory agreement were in place at the time of Transfer. The applica- tion for this refund must be made within 12 months of the qualifying regulatory agreement's effective date. Section two would make the bill effective immediately and would apply the new paragraph retroactively to all transfers occurring on or after January 1, 2010.   REASONS FOR SUPPORT: Under current law, section 11-2106(b)(2) of the Code permits an RPTT exemption for Transfers to or from entities that are organized and oper- ated for charitable purposes, and that do not operate primarily to carry on a trade or business for profit. A Transfer to or from an HDFC may accordingly qualify for an RPTT exemption under section 11-2106(b)(2) when the HDFC itself meets the organizational and operational tests for exemption, and does not otherwise operate for the primary purpose of carrying on a trade or business for profit. The bill would supplement Code Section 11-2106(b)(2) for other Transfers that are subject to regulation under Article 11 of the Private Housing Finance Law. Section 577 of Article 11 of the Private Housing Finance Law explicitly exempts HDFCs from mortgage recording tax and authorizes a real property tax exemption for property they own, but it does not specifically exempt them from real property transfer tax. This bill would accordingly provide an RPTT exemption for transfers to or from HDFCs or to entities in which HDFCs hold controlling interests that are subject to regulatory agreements that bind the underlying property in whole or in part to purchase, lease, license or other use by Persons of Low Income for a 30-year term. If a qualifying regulatory agreement does not encumber the property at the time of Transfer, a 2 year window would be available to obtain such regulatory agreement, at which point the Commissioner of Finance would be authorized to issue a refund as if it were in place at the time of Transfer. The period for requesting this refund would be 1 year from the effective date of the qualifying regula- tory agreement. Expertise and equity investment from private interests are necessary to provide housing for Persons of Low Income on a large scale, and they serve a vital government purpose in that role. Over time, private inter- ests have partnered with HDFCs to provide this housing, and HDFCs have, in turn, developed ownership and financing structures for private inter- ests that reflect their participation and compensate them for their expertise and investment. New York state and local government agencies regulate these collaborations and oversee the housing that they provide. The bill would therefore provide an RPTT exemption for Transfers to and from HDFCs that engage with private interests to provide housing to Persons of Low Income pursuant to a qualifying regulatory agreement. The new RPTT exemption would also account for joint ventures formed by HDFCs and private interests and include Transfers to entities in which HDFCs hold controlling interests. Because housing for Persons of Low Income is often mixed with housing for other persons, the bill would limit the new RPTT exemption in proportion to the floor area actually devoted to Persons of Low Income. To account for instances in which a property may be acquired prior to having an affordable housing plan in place, the bill provides a 2 year window for an HDFC or an entity in which an HDFCs holds a controlling interests to obtain a qualifying regulatory agree- ment and then request a refund. The bill would update the RPTT to account for the collaboration between public and private interests to deliver housing to Persons of Low Income. The bill would be effective immediately and would apply retroactively to all transfers occurring on or after January 1, 2010. This would allow the City to apply the exemption to transfers that are currently under audit, or that may be selected for audit, and will promote affordable housing. If enacted, open audits that are entitled to this exemption would be settled by applying it. This bill is revenue neutral for the City.   EFFECTIVE DATE: Section two would make the bill effective immediately and would apply the new paragraph retroactively to all transfers occurring on or after January 1, 2010.