Tag Archives: indirectly

NY Mortgage Recording Tax and “related” parties

    Recently, a relative asked me about a tax that went into effect last year and I had never heard of; it’s called the a Recording Tax, and applies to certain types of mortgages presented for recording to the county clerk. If you what to look it up it’s in the NY code, Title 11, Chapter 26, Administrative Code, Tax Law § 253. What caused me concern is that a practitioner may be somewhat overwhelmed by the list of mortgages which this is applicable to that they may never reach the information contain in the following subsection. I am refering to NY Tax Law § 253a (this citation, should bring up the correct statute in Westlaw).
    I believe that part of the motivation for the creation of this tax is the taxation of transaction which are engineered to avoid paying income taxes by parties engaging in various forms of self-dealing. Traditionally, the money which came from a loan that was secured by a mortgage, or security interest on the real property, was not considered income as to the recipient of the loan because the recipient also incurred an equal and opposite obligation to repay the loan. google cloud . The most pertinent information for determining which mortgages are subject to this tax is subsection 2 of 253a, which states:

"2. (a) For the purpose of determining whether a mortgage is subject to the tax authorized to be imposed by paragraph (B) or (C) of subdivision one of this section ……. , where such mortgages form part of the same or related transactions and have the same or related mortgagors. …… For purposes of this subdivision, there shall be a presumption that all mortgages offered for recording within a period of twelve consecutive months having the same or related mortgagors are part of a related transaction, and such presumption may be rebutted only with clear and convincing evidence to the contrary. The commissioner of taxation and finance may require such affidavits and forms, and may prescribe such rules and regulations, as he determines to be necessary to enforce the provisions of this subdivision. "

The statute then goes on to specify in §253a(2)(b), what the term "related" means:

"(b) The term "related", when used in this subdivision with reference to mortgagors, shall include, but shall not be limited to, the following relationships:

(i) members of a family, including spouses, ancestors, lineal descendants, and brothers and sisters (whether by the whole or half blood);

(ii) a shareholder and a corporation more than fifty percent of the value of the outstanding stock of which is owned or controlled directly or indirectly by such shareholder;

(iii) a partner and a partnership more than fifty percent of the capital or profits interest in which is owned or controlled directly or indirectly by such partner;

(iv) a beneficiary and a trust more than fifty percent of the beneficial interest in which is owned or controlled directly or indirectly by such beneficiary;

(v) two or more corporations, partnerships, associations, or trusts, or any combination thereof, which are owned or controlled, either directly or indirectly, by the same person, corporation or other entity, or interests; and

(vi) a grantor of a trust and such trust."

The list of relationships, noted above, are ones in which self- dealing can occur. This observation is what lead me to believe that the policy which motivated it’s creation was not so much revenue generating as the purposeful closing of a perceived income tax loop hole.
    Though, I have yet to familiarize myself with the reset of the statute, practicing lawyers should note that the above section can be used, potentially, to save their clients in the taxes they will incur. Afterall, why look for an exemption to the statute, if the statute is inapplicable to your clients particular situation. So make a note, if the parties to a mortgage are not related, then this may apply to you. NY Tax Law § 253a(2)(a), even specifies that a presumption of "relatedness" may be rebutted by affidavit.