Nearly 2,000 homeowners who the Mamdani administration threatened with a new pied-à-terre tax have already been told they won’t have to pay because their primary residences were erroneously tagged as possible second homes, city officials admitted this week.
They were among the 4,290 owners who got pied-à-terre tax warning letters early this month and immediately contested the city Department of Finance’s designation of their properties as possible second homes.
The rollout of the new tax has already triggered a lawsuit that raises questions about whether the city did proper due diligence before mailing out warning letters to 17,000 property owners across the five boroughs asserting their property “may be subject to the new surcharge.”
The disclosures came as Associate Justice Phillip Hom of the state Appellate Division on Thursday quashed a temporary restraining order issued by a state Supreme Court justice on Staten Island that had paused the troubled rollout of the tax on luxury second homes.
The new tax, passed by the state Legislature in May, applies to all New York City one-, two- and three-family homes worth more than $5 million and all condos and coops worth more than $1 million that are not the owner’s primary residence. The Mamdani administration has estimated it will raise $500 million to help plug a projected $5.4 billion budget deficit in fiscal year 2027, while the city comptroller has pegged the potential receipts to a more modest range of $340 million to $380 million.
The tax and its botched implementation have been condemned by President Donald Trump and opponents of Mayor Zohran Mamdani and Gov. Kathy Hochul. The lawsuit seeking to stop the tax was filed by Randy Mastro, who served as first deputy mayor to Eric Adams and, in the 1990s, Rudolph Giuliani.
The statute creating the surcharge requires the Department of Finance to perform an “initial determination” as to whether a property is a second home. It also requires the state Department of Taxation and Finance to provide the city with state income tax information that would reveal if a property is an owner’s primary residence.
It appears, however, that the city did not request and obtain the state tax filings of these owners before sending the warning letters.
Spokespersons for the mayor and DOF declined to respond to questions about that, but in court filings, the agency noted homeowners could use state income tax documents showing their properties were primary residences to get out of paying. City officials asserted this was information for which “DOF may not have current access.”
During a Monday court hearing, state Supreme Court Justice Wayne Ozzi asked city Corporation Counsel Steve Banks, “Did you indicate personal income tax returns?”
Banks dodged the question, replying, “We looked at a whole variety of information, including were there other exemptions, 420-a [tax abatements], veteran [exemptions], all the different things that we were told we should look at” to determine if a property was a primary residence.
‘The Agita’
Martha Stark, who served as finance commissioner from 2002 through 2009 during the Bloomberg administration, said DOF “should have asked the state to do a match for them … using the state income tax returns to see whether there’s public record indicating these properties are a primary residence.”
Had the city done so, she said, “That would have cleared a lot of properties, especially homeowners. That would have basically saved a lot of people the agita.”
Stark told The City Reporter the city’s list of 17,000 owners who got warning letters “is overbroad. It’s scary. It’s requiring people to provide information the government already has.”
Mastro filed suit last week to pause the rollout, alleging the city’s Finance Department hadn’t done its homework before sending out the letters.
Mastro noted he received a warning letter despite the fact that his own income tax forms showed his Upper West Side townhouse is his primary residence.
“The city never did that,” he told The City Reporter. “They appear to have intentionally overincluded sending threatening notices to New York City homeowners that they’re going to be presumed to owe the tax unless they prove to the city they don’t.”
Justice Ozzi on Monday granted Mastro’s request to temporarily halt the implementation of the warning letters, but the city formally appealed on Wednesday, and the restraining order was quashed Thursday.
In an affidavit, Michael Smilowitz, general counsel to DOF, revealed 1,906 homeowners who got the letters had by Tuesday been informed they were not subject to the surcharge. That amounted to 45% of those who’d contested the second-home designation as of this week.
That included Simon Hedley, one of three plaintiffs Mastro is representing. Hedley alleged he got a warning letter for a West 20th Street home in Chelsea, where he says he has lived for more than 15 years and which he lists as his primary address on state income tax forms.
Smilowitz confirmed DOF has already exempted Hedley’s property from the surcharge.
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