N.Y. Tax Law § 1402: Imposition of tax

§ 1402. Imposition of tax. (a) A tax is hereby imposed on each

conveyance of real property or interest therein when the consideration

exceeds five hundred dollars, at the rate of two dollars for each five

hundred dollars or fractional part thereof; provided, however, that with

respect to (A) a conveyance of a one, two or three-family house and an

individual residential condominium unit, or interests therein; and (B)

conveyances where the consideration is less than five hundred thousand

dollars, the consideration for the interest conveyed shall exclude the

value of any lien or encumbrance remaining thereon at the time of

conveyance. The rate of this tax shall be: (1) two dollars for each five

hundred dollars or fractional part thereof on all conveyances of real

property or interest therein; plus (2) an additional one dollar and

twenty-five cents for each five hundred dollars or fractional part

thereof of consideration on each conveyance of real property or interest

therein within any city in this state having a population of one million

or more (i) when the consideration for the entire conveyance of

residential real property is three million dollars or more, and (ii)

when the consideration for the entire conveyance of any other property

is two million dollars or more. For purposes of this section,

residential real property shall include any premises that is or may be

used in whole or in part as a personal residence, and shall include a

one, two, or three-family house, an individual condominium unit, or a

cooperative apartment unit.

(b) (1) Notwithstanding the provisions of subdivision (a) of this

section, in the case of any real estate investment trust transfer

occurring on or after the effective date of this subdivision, the tax

imposed under subdivision (a) of this section shall be imposed at the

rate of one dollar for each five hundred dollars or fractional part

thereof of consideration.

(2) (A) For purposes of this subdivision, the term "real estate

investment trust" (hereinafter referred to as a "REIT") shall have the

same meaning as in section 856 of the internal revenue code.

(B) For purposes of this subdivision, the phrase "real estate

investment trust transfer" shall mean any conveyance of real property or

an interest therein to a REIT, or to a partnership or corporation in

which a REIT owns a controlling interest immediately following the

conveyance, which conveyance (I) occurs in connection with the initial

formation of the REIT, provided that the conditions set forth in clauses

(i) and (ii) of this subparagraph are satisfied, or (II) in the case of

any real estate investment trust transfer occurring on or after July

thirteenth, nineteen hundred ninety-six and before September first, two

thousand twenty-nine, is described in the last sentence of this

subparagraph.

(i) The value of the ownership interests in the REIT, or in a

partnership or corporation in which the REIT owns a controlling

interest, received by the grantor as consideration for such conveyance

must be equal to an amount not less than forty percent of the value of

the equity interest in the real property or interest therein conveyed by

the grantor to the grantee and such ownership interests must be retained

by the grantor or owners of the grantor for a period of not less than

two years following the date of conveyance; provided, however, that in

the case of the death of the grantor or an owner of the grantor within

such two year period, this two year retention requirement shall be

deemed to be satisfied notwithstanding any conveyance of such ownership

interests held by such individual as a result of such death. The value

of the equity interest in such real property or interest therein shall

be computed by subtracting from the consideration for the conveyance

(determined in accordance with paragraph three of this subdivision) the

unpaid balance of any loans secured by mortgages or other encumbrances

which are liens on the real property or interest therein immediately

before the conveyance. For purposes of this computation, in the case of

a conveyance of real property or interest therein other than a transfer

or an acquisition of a controlling interest, the amount of the unpaid

balance of any loans secured by mortgages or other encumbrances to be

subtracted from consideration is determined by multiplying the total

unpaid balance of any loans secured by mortgages or other encumbrances

on the real property or interest therein by the percentage of the

ownership interest in the real property or interest therein being

conveyed to the grantee. In the case of a conveyance which is a transfer

or an acquisition of a controlling interest, such amount to be

subtracted is equal to the sum of the following amounts: (I) a

reasonable apportionment to the interests in real property owned by the

entity of the amount of any loans secured by encumbrances on the

ownership interests in the entity which are being transferred or

acquired and (II) the amount of any loans secured by mortgages or other

encumbrances on the real property of the entity multiplied by the

percentage interest in the entity which is being transferred or

acquired. Provided, however that, for purposes of this computation, any

mortgages or other encumbrances on the real property or interest therein

which are created in contemplation of the initial formation of the REIT

or in contemplation of the conveyance of such real property or interest

therein to the REIT or to a partnership or corporation in which the REIT

owns a controlling interest immediately following the conveyance shall

not be considered.

(ii) Seventy-five percent or more of the cash proceeds received by

such REIT from the sale of ownership interests in such REIT upon its

initial formation must be used: (I) to make payments on loans secured by

any interest in real property (including an ownership interest in an

entity owning real property) which is owned directly or indirectly by

such REIT; (II) to pay for capital improvements to real property or any

interest therein owned directly or indirectly by such REIT; (III) to pay

costs, fees, and expenses (including brokerage fees and commissions,

professional fees and payments to or on behalf of a tenant as an

inducement to enter into a lease or sublease) incurred in connection

with the creation of a leasehold or sublease pertaining to real property

or any interest therein owned directly or indirectly by such REIT; (IV)

to acquire any interest in real property (including an ownership

interest in any entity owning real property), apart from any acquisition

to which a reduced rate of tax is applicable pursuant to this

subdivision (without regard to this clause); or (V) for reserves

established for any of the purposes described in subclause (I), (II) or

(III) of this clause. For purposes of this clause, the term real

property shall include real property wherever located.

If a conveyance otherwise described in this subparagraph occurs other

than in connection with the initial formation of a REIT, the condition

set forth in clause (ii) of this subparagraph shall be disregarded and

such conveyance shall constitute a "real estate investment trust

transfer" if the condition set forth in clause (i) of this subparagraph

would be satisfied if "fifty percent" were substituted for "forty

percent" therein.

(3) For purposes of measuring consideration under this subdivision,

the fair market value of the real property or interest therein being

conveyed shall be calculated by dividing (i) the net cash flow from

operations with respect to such real property for the twelve-month

period ending on the last day of the second month preceding the date of

the conveyance by (ii) the sum of (A) the federal long-term rate

compounded semi-annually that is determined by the United States

secretary of the treasury under section 1274(d) of the internal revenue

code in effect thirty days prior to the date of the conveyance and (B)

two percentage points. Provided however, if the commissioner of taxation

and finance determines that either the amount in clause (i) of this

paragraph or clause (ii) of this paragraph does not result in an

accurate representation of the fair market value of such real property

or interest therein as such value is to be determined under this

paragraph, the commissioner may adjust either of such amounts. In lieu

of utilizing the method prescribed in this paragraph for determining

fair market value, the taxpayer may utilize any method for determining

fair market value that the commissioner of taxation and finance has

prescribed in rules or regulations or otherwise.