Zohran Mamdani wins dismissal of pied-à-terre tax challenge

A state appellate court disagreed with the findings of a Staten Island judge, who ruled homeowners were “substantially harmed and penalized needlessly” by the surcharge’s rollout.MANHATTAN (CN) — A New York appeals court dismissed a challenge to a new tax on second homes in New York City on Wednesday, handing Mayor Zohran Mamdani a critical victory for a key piece of his populist agenda.In a six-page ruling, a panel of judges on the New York Supreme Court Appellate Division, Second Department, ruled that a lower Staten Island judge was wrong to give standing to the group of plaintiffs who challenged the rollout of the novel pied-à-terre tax, which targets high-value city properties used as secondary homes.The order comes after a group of homeowners sued the city in August. They claimed the Mamdani administration unfairly placed the burden on them to prove that they shouldn’t be targeted by the new surcharge when it sent them notices that they “may be subject” to it. New York Supreme Court Justice Wayne Ozzi agreed — the Staten Island jurist ruled in September that “homeowners are being substantially harmed and penalized needlessly” by this rollout process.But on Wednesday, the appellate court reached a different conclusion.“The mere receipt of the initial determination notices … does not qualify as an injury, in and of itself, as the notice instead serves an informational purpose,” the panel ruled. “By legal analogy, the receipt of debt collection letters, standing alone, does not rise to the level of an injury-in-fact.”The homeowners claimed they received these letters despite their New York City homes being their primary residence, and thus not subject to the new surcharge. Ozzi found that receiving these notices forced them to “expend time and money” to prove this—something he said the city should have done before sending them out.Again, the appellate panel disagreed.“All taxpayers incur time, effort and costs in determining and complying with their various tax obligations, which vary from person to person, entity to entity, and tax bracket to tax bracket, sometimes widely, depending on each taxpayer’s individualized circumstances within the broader federal, state and local tax matrix,” the court found.The panel also rejected the homeowners’ arguments that they were harmed by the administration’s mass publication of potentially targeted properties on a city website.“The petitioners did not allege for injury purposes that any bad actors have misused the information purveyed by the supplemental roll, or that the publication itself subjected them to any crime, harassment, or defined public ridicule,” the court found.Justices Phillip Hom, Deborah Dowling, Francesca Connolly and Mark Dillon reversed the ruling.In response to the order, Mamdani said in a statement on Wednesday that he was “heartened” the appeals court “rejected an attempt by the ultrawealthy to avoid paying their fair share.”“From day one, those with the most have attempted to use every legal avenue available to shield their wealth and avoid contributing more to our city,” the mayor said. “But owning a second home worth over 5 million dollars should come with a responsibility to the city that makes it valuable. The pied-à-terre surcharge asks those who can afford luxury second homes to contribute toward the safer streets, cleaner parks and essential public services that every New Yorker deserves.”Randy Mastro, who is representing the homeowners, said in a statement that they “remain confident” in their fight against the tax, despite Wednesday’s ruling.“It’s a shame that, after the city admittedly botched the rollout of this surcharge, the court today took the procedural off-ramp of standing to avoid addressing the merits of this case,” he said. “What the city has done here is unconscionable — trying to ensnare thousands of people who don’t owe this surcharge into having to prove they live in their own homes or else have to pay it.”The ruling is a major win for Mamdani’s administration, in which affordability has been the centerpiece, but the fight is far from over.While this complaint from homeowners targeted only specific elements of the tax’s rollout — not the lawfulness of the surcharge itself — Mamdani’s administration is also battling two other lawsuits that accuse the pied-à-terre tax of being discriminatory.Co-plaintiffs billionaire casino magnate Steve Wynn and former Commerce Secretary Wilbur Ross brought one of those challenges.According to Mastro, these lawsuits will be the real test.“To be clear, though, the ultimate day of reckoning for this ‘pied-à-terre’ surcharge will occur next month when its constitutionality will be decided,” he said. “We remain confident we will prevail and put an end to this unconstitutional surcharge altogether."New York Governor Kathy Hochul signed the pied-à-terre tax into law in late May as part of the state budget. She said the citywide surcharge, expected to generate at least $500 million annually, would help close the city’s budget gap and ensure the wealthiest New Yorkers contribute to city services.The tax applies to second homes valued at at least $5 million and second condos and co-ops valued at more than $1 million.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads