Why Billionaires Don't Pay Property Taxes in New York (2015)

https://www.bloomberg.com/news/articles/2015-05-11/why-billionaires-don-t-pay-property-taxes-in-new-york

by fh973 • 5 years ago

110 103 5 years ago

bloomberg.com

_rpd• 5 years ago

tl;dr: it is a deliberate consequence of the NYC tax code to encourage real estate development.

pmoriarty• 5 years ago

Does NYC need more untaxable real estate for billionaires?

JAlexoid2• 5 years ago

No. It needs more permits for mid tier buildings. And stopping the 80/20 tax exemption(20% of affordable housing)

Because it's very clear that the middle class in NYC ends up paying for the lower middle class... while the richest people get away with laughable taxes.

Take the Hudson Yards redistricting example...

imtringued• 5 years ago

Assuming all those condos actually sell and its not just an architectural competition where half the building is sitting unsold because everyone wants their apartment to be in the top half then yes.

Are there unsold apartments? Then no because it means there are too many of those.

If you don't give Billionaires what they want they will just buy up the next best thing, like the apartment that you are currently renting.

parenthesis• 5 years ago

Because they've moved to Miami?

Joking aside, I wonder if there is any other nation with as much tax variation between regions as the US? (Excluding special economic zones.)

spikengineer3• 5 years ago

In Most countries, the National legislature can restructure states, impose nationwide simplification of tax policy etc within the limits of the federal structure they have. US is one of the few countries the relationship is the other way around.

In most countries, the states get their power from the delegation of powers dictated by the union/federal constitution. In US, The union gets their power from the few matters that were delegated to them from the states.

For example, India used to have such disparity in consumption taxes (not income tax) which was recently removed and simplified. The federal govt collects all consumption and income taxes and devolves the receipts to states based on pre-defined formulae enshrined in law.

Edit: In an ideal world, instead of filing separate state and federal tax returns US should move to a common system where tax can be collected/enforced by one entity and the receipts devolved to states as per certain rules. This will remove income tax disparity between states and equalise business/opportunity costs (No more Delaware tax havens for companies to skirt taxation). This will simplify a lot of things. Most countries including mine have such a singular system.

visualradio3• 5 years ago

The federal government has the authority to appoint federal assessors to local property tax districts, to generate valuations for a national property taxation, and then share these updated valuations with state and local governments, which may then independently decide to use the same valuations for purposes of state and local taxation. It did so in order to collect the 1798 national property tax under John Adams and the three 1813-1816 national property taxes under James Madison.

The federal government also has the ability to regulate state and local taxes using the interstate commerce clause. After the provision in the Articles of Confederation limiting the federal government to collecting direct taxes in proportion to state land values was abandoned, the supporters of direct taxation influenced by the French Physiocrats lobbied for the interstate commerce clause in order to ban state and local governments from collecting excise and sales taxes on goods sold across state lines, so that state and local governments would be forced to rely more heavily on property tax.

ceilingcorner• 5 years ago

This would not be ideal because it would go against the very concept of the United States. It’s a union of states, full stop.

djbebs• 5 years ago

The tax and income disparity between states is kind of the point. It's a real live AB testing of the tax code.

You just don't like it because it's clear that low tax is a better and more democratically supported policy.

gamblor9562• 5 years ago

Yes, Switzerland (cantons), India (states), and Canada (provinces), to name three I am familiar with, though the U.S. has the widest variation of tax burdens (at the local level).

Tax variation like this is generally a side effect of federalized systems of government.

hervature• 5 years ago

Not sure why people down vote factual statements if they are wrong and not comment a correction. I can confirm that Canada does have different tax rates across the provinces across all types of taxes: corporate, income, sales, etc. Even at the local level, Canada doesn't have municipality based taxes so to speak but you can certainly find fees charged only in that city which is of course a type of tax. For example, Toronto used to force retailers to charge for plastic bags even though it wasn't collected by the city. This bylaw was removed in 2012.

lostlogin2• 5 years ago

When I have visited the US I have been mystified by the way sales taxes work. The prices on labels exclude tax, but the percentage changes depending on where I go (or what I buy?). It surprises me that residents tolerate that.

“How much is it?” would seem a simple question.

visualradio3• 5 years ago

A move towards making sales taxes less transparent in the United States is unlikely, because many U.S. founders associated with the Democratic-Republican party such as James Madison were influenced by the French Physiocratic school economics, which considered broad-based sales taxes to be a quite harmful method of taxation that should never be relied on as a permanent source of revenue.

This opinion is most clearly expressed by Joel Barlow in "Letters Addressed to the Yeomanry of the United States: Showing the Necessity of Confining the Public Revenue to a Fixed Proportion of the Net Produce of the Land; and the Bad Policy and Injustice of Every Species of Indirect Taxation and Commercial Regulation" (1791).

johncessna• 5 years ago

Americans in the states that haves sales tax, which is most states, basically ignore it. It's known that the price tag isn't what you pay but it's generally not much. No one here looks twice when your 2 dollar coke suddenly becomes $2.16.

Of course, depending on where you are, your 2.16 coke could also jump up to 2.21 or 2.26 because of the bottle deposit. And then another 2.34-2.42 if there's a sugar tax. It could even go up to 2.46 - 2.54 depending on if you buy that coke in a store vs a restaurant.

There's some hyperbole there, but the cities and states get to tack on their own taxes for whatever reason and the public largely doesn't care.

coryrc• 5 years ago

Depends, if I get something delivered, the sales tax can be based on my home, but if I pick it up it's based on the seller's location.

Mountain_Skies2• 5 years ago

Local sales taxes are some of the easiest to get passed. Even in very conservative areas they tend to get passed and renewed. They are popular because the public gets to vote on them existing and because it's much easier to see how the taxes are being spent.

I live in a conservative area right now and can't remember a local sales tax ever being voted down. The only case I can think of was when I lived in the middle of a large city (very left leaning) and the local sales tax was voted down because the politicians pushing for it had not said exactly what it would be spent on other than "special projects". They had previously diverted a good chunk of property tax revenues to building a new sport stadium because the billionaire owner was threatening to move the team to another state. The public wasn't given an opportunity to vote on that gift of their taxes to a billionaire so there probably was both mistrust and a degree of blowback. Other than that case, local sales taxes, dedicated to a local purpose or project list, are popular here.

If the sales taxes all went to DC to be piled together and subject to the whims of whatever party was in charge at the time, they'd be far less popular. Asking locals to pay an extra 1% to renovate and expand the local schools is pretty easy. Asking the entire country to pay an extra 1% to "Make American Schools Great Again" is a much more difficult sell.

timonoko• 5 years ago

They have tried to introduce this practice to European countries several times. People just refused to accept that the real price is something else than advertised. I distinctly remember I was buying rather pricey welding machine in 1995 and it was suddenly +25% "with tax". I have never moved so fast, I just left every piece of shit on the checkout desk and run out.

post_break• 5 years ago

Please add 2015 to the title.

MrApathy• 5 years ago

Very important. The centerpiece of this article is the 421-a exemption which was repealed last year. New condos being sold today are subject to the full assessed amount. All stock currently in the 421-a program is subject to a phased increase over a period of 25 years.

SirSourdough• 5 years ago

Where the "full assessed value" is still only 5 or 10% of the price paid though? Doesn't seem like it hits at the heart of the issue.

Seems like the sales price should be far more of factor in these ultra-luxury sales; the market says a house is worth $100m and an assessor looks at that and says the value for tax purposes is $5m, how does that make any sense?

etrabroline• 5 years ago

Whatever course the de Blasio administration decides to pursue, it cannot afford to do nothing.

This is a misdirection. de Blasio can no more screw over the real estate interests that control NYC politics than anyone else. He's an unpopular ineffective weak leader propped up by their system. His job is to take up space and be a punching bag, and he's doing a great job.

rmk3• 5 years ago

A lot of these tax codes have evolved over time and accumulated a lot of handouts from whoever was in power to the people who put them there. The US federal tax code is filled to the brim with all sorts of exceptions inserted by a congressman here, a senator there over decades, either as quid-pro-quos or as politically expedient moves to protect their constituents' interest. A lot of it is couched as 'we are encouraging investment and providing incentives for that'. In many cases, this is true. If Uncle Sam does not want to make calls about where to allocate capital, he encourages private enterprise to make such calls via the tax code. I do not see why this is such a bad thing after all. Of course, this may not make sense for residential real-estate, but overall, it's surprising that people do not realise this simple fact when they complain loudly about how Warren Buffet pays a lower effective tax rate than his secretary --- of course that's by design because Warren Buffet has directed orders of magnitude more capital towards the 'right' ends than his secretary could, in several lifetimes.

The whole article reads like a screed against the hyper-rich who 'aren't paying their fair share', but you have to ask, if they are merely taking advantage of (and helping shape) the tax code that incentivizes this behavior, who's really responsible here? Isn't it time we looked at our elected representatives much more critically?

seattle_spring2• 5 years ago

This an outrage! We should increase taxes on the middle and upper middle class to compensate. That'll show em.

jgalt212• 5 years ago

And that's why the billionaires are democrats and the millionaires are republicans.

dmoy2• 5 years ago

only about 1/3 of US billionaires are democrats

(That said, I could definitely believe that NYC billionaires would have a very different distribution)

cheriot• 5 years ago

Except Charles Koch, David Koch, Sheldon Anderson, Peter Thiel... and all the rest?

Both parties had prominent billionaires in the last presidential election so I think it's safe to say this is pervasive.

seriousquestion• 5 years ago

Both have their billionaires, but dems do have the majority of rich households in broad terms.

"Democrats now represent 65% of taxpayers with a household income of $500,000 or more, according to pre-pandemic Internal Revenue Service statistics."

https://www.bloomberg.com/news/articles/2021-04-19/democrats...

chollida1• 5 years ago

Well the numbers would disagree with your assertion.

https://www.forbes.com/sites/katiasavchuk/2014/07/09/are-ame...

jedberg2• 5 years ago

Billionaires tend to be much more pragmatic about their politics than dogmatic. They support politicians on both sides of the aisle, because they know the value of having a politician owe you a favor. They don't really care if that person is R or D because at the end of the day as long as that representative votes for the policies they like, they don't really care about the rest.

turbinerneiter• 5 years ago

I guess a millionaire has to pick one party to buy, while the billionaires can just pay off both.

rmk3• 5 years ago

Billionaires are not paying their fair share! Everyone who makes over $400k will now pay 45% total tax to fix this (never mind that you could have written the law to specifically target people with assets > $1B. Who has time for that?)

adolph2• 5 years ago

precept that a law should address a particular form of behaviour rather than a specific individual or group

https://en.wikipedia.org/wiki/Bill_of_attainder

paxys• 5 years ago

Looking back, state lawmakers who passed the bill resetting property taxes for New York couldn't have dreamed of a skyscraper boom almost 35 years later.

Really? New York politicians didn't realize that skyscrapers and luxury condos were a thing in the 1980s?

This article lays out all the tax code shortcomings and writes it off as expensive condo sales being a new and unique phenomenon in NYC, which is bizarre.

Here's a simpler explanation – these laws are working exactly as designed.

Scoundreller• 5 years ago

Kinda like land-transfer taxes that we have in Ontario Canada.

Except corporations and trusts don’t transfer the land from generation to generation, so it’s basically a tax on people who’s living situation changes (upsizing, downsizing, death, divorce).

So much for being a tax on speculators.

auxym• 5 years ago

Add to that list: being laid off and having to move for a new job.

ceejayoz• 5 years ago

In fairness, the phenomenon of Russian, Chiinese, Middle Eastern etc. oligarchs parking funds in unused apartments and buildings in places like NYC, London, Vancouver, etc. is fairly recent, and has indeed triggered a boom:

https://en.wikipedia.org/wiki/Billionaires%27_Row_(Manhattan...

WillPostForFood• 5 years ago

Really? New York politicians didn't realize that skyscrapers and luxury condos were a thing in the 1980s?

I think that's overly cynical, and lacks historical context. In 1981, New York had gone through a decade of population decline. It was famously on the brink of bankruptcy before being bailed out by the federal government in 1975. There was New York City blackout of 1977. It was a much different, distressed, city at that time, and the idea of 90 million dollar condos would have seemed ludicrous.

bobthepanda3• 5 years ago

In that sense the tax code is working as designed but now overcharging the real estate market, given that NYC has traded Detroit-existential issues for gentrification ones.

coliveira2• 5 years ago

The oldest "industry" in NYC is to give free handouts to millionaires/billionaires in the form of cheap land and real state subsidies. It is in reality a form of corruption that has been tolerated in NYC for as long as it has existed, and it is still practiced through the real estate tax benefits that apply only to high end buildings.

ryanlol• 5 years ago

Corruption, or reasonable policy?

kbenson• 5 years ago

Those are orthogonal. Whether a policy is reasonable or not does note necessarily relate to whether it was achieved through corruption.

Corruption is about why, not about the outcome. It's possible for a policy to be enacted through corruption that is good, and it's possible for a bad policy to be enacted with no corruption at all.

While corruption often leads to bad policies and outcomes, what this actually means is that you can't point to a bad policy and know it was bad because of corruption any more than you can point to a good policy and know it's good because of lack of corruption.

cletus• 5 years ago

There's a nuance here the article mentions in passing but missed the significance of (IMHO):

The ARV (assessed rental value) system that produces low effective tax rates for ultra-luxury condos is state legislation that predominantly impacts NYC. This is what makes reform so difficult. Most of NYS are SFH owners who simply don't pay their share of the property tax burden so resist any attempt to reform the system.

Here's what NYC needs:

1. Ultra-luxury condos need to pay a higher effective property tax rate than where normal people live;

2. SFHs and condos owned by corporations or those not tax resident in NYC need to pay a higher rate. NYC shouldn't be simply for billionaires parking money in a city they visit for 2 days a year;

3. No tax abatements (421a) for ultra-luxury properties. Why are we subsidizing this at all?

4. SFHs and condos of similar property value should pay a similar rate of tax.

Currently developers build ultra-luxury property because it's way more profitable than building affordable property. This needs to change.

mullingitover• 5 years ago

Currently developers build ultra-luxury property because it's way more profitable than building affordable property. This needs to change.

It's possible that developers build 'ultra-luxury' because building affordable property isn't profitable at all. Developing real estate in any major metro area in the US is insanely regulated and time-consuming.

zip1234• 5 years ago

I'm with you on removing tax incentives like that, but do not think requiring affordable housing is very useful.

I have a friend that lived in a rent controlled unit that did not have hot water for almost an entire year. Requiring 'affordable' units creates really strange incentives. New York should just fix the root cause: zoning.

Upzone the entire city or just remove zoning restrictions everywhere.

jskrn• 5 years ago

I don't know NYC rent control policies but my experience with it in Berkeley was excellent. I negotiated down (in 2010) to $945/mo. After 5 years of rent controlled increases I was still paying less than $1,050/mo. In the same time, the identical next door apartment (new tenant) rented for $2150. When I left, my unit was rented out for $2,500/mo. Professional management company, owner lived on other side of the country, old but everything worked and they always fixed anything that came up. I'm realizing now that you are talking about affordable housing while this was open market but wanted to comment on the power and usefulness of rent control.

gnopgnip• 5 years ago

What is the purpose of using rental income instead of comparable sales to set the market value for condos?

ALittleLight2• 5 years ago

This seems incredibly dumb. Why not just create a tax category for condos and set a fair percentage for that, based on sale price?

The whole matter of finding an analogous rental unit and extrapolating effective tax value is absurd. It seems like the kind of kludge you'd invent to live with an incomplete process. The solution is not to complain about the results but to fix the process.

Also absurd is blaming the problem on how old the relevant laws are. Are these laws written in stone? "Law makers didn't anticipate this" is an excuse for a problem that is months old, not decades. Disgraceful.

I wonder if the situation is still as described here or if anything has changed in the intervening years.

credit_guy• 5 years ago

I just went to streeteasy.com and looked at 10 random condos in Manhattan with a price between $20 and $30 MM and then 10 others between $1 and $2 MM. The average tax rate for the first category was 0.37%. For the second 1.07%. In both cases the standard deviation was about one third of the average.

outworlder• 5 years ago

Why Billionaires Don't Pay Property Taxes in New York

Same reason as everything else.

https://www.youtube.com/watch?v=rStL7niR7gs (CGP Grey: Rules for Rulers)

kleiba• 5 years ago

In Germany, another sweet way for a company to avoid paying property taxes is that a good percentage of relevant properties are owned not by the company itself but by a subsidiary "company" specifically founded solely for that purpose.

Then, when a property is to change hands, it isn't actually sold at all. Instead, the subsidiary company changes owners. Actually not even that, only the majority of the ownership is transferred, or else some other tax laws would kick in. But this way, if you do it right, almost no taxes need to be paid by either party.

dahfizz• 5 years ago

Doesn't the subsidiary which owns the property still have to pay the tax for the property they own? I don't understand how this decreases total tax paid.

akiselev• 5 years ago

They still pay the annual property tax but avoid the real estate transfer tax and the speculative tax, which can be 5-10 years worth of the property tax.

compsciphd• 5 years ago

my guess: in some places there are "purchase taxes" on real estate. so if you don't purchase the real estate, just the company that owns it, you don't pay the purchase tax as the real estate itself never changed hands.

joshlemer• 5 years ago

You avoid land-transfer taxes.

philsnow• 5 years ago

There's some sort of similar law in California where transferring whole ownership or majority ownership triggers re-assessment of value for tax purposes, and if you can manage to somehow sell a house without triggering a re-assessment / the property keeps the old assessment even though years of appreciation have happened, the buyers can save a ton of money on property taxes. (at least, this was my completely amateur reading of the law at the time)

The last time I bought a house, I thought about creating one or more LLCs solely to own the house, so that when it came time to sell the house, I would sell each LLC one at a time to the buyer. Of course the idea falls down completely in practice in a number of ways [0], but for some reason my mind can't help but consider the law as a puzzle.

[0] you'd never find a buyer who was willing to do this weird LLC purchase instead of buying it through a realtor. also, the buyer would have to have some assurance that, after selling you one or two of the LLCs, you'd sell the remaining ones to them as well under the same terms... but that sounds a lot like a contract to sell all three, which is transferring whole ownership. absolutely any judge would look at this and be very cross with me. All of this is completely aside from the question of whether it's immoral to try to dodge property taxes to begin with (though in this case, I wouldn't be, I would be facilitating the next buyer to do so).

sjg007• 5 years ago

The LLC trick doesn't work because you get reappraised when ownership changes at 50%. I am sure there are schemes to work around this but I think California is cracking down on it.

There are parent-child exclusions though and some weird rules with trusts.

varispeed• 5 years ago

I wonder why such laws exist when someone, who can afford solicitors who know these quirks, can avoid paying tax versus someone who does not have as much money to do such setup has to pay. Laws should have equal effect on the poor and the rich, so why German people don't demand that this is wholly scrapped? Either everyone should pay tax or no one* (the poor shouldn't pay tax).

autokad• 5 years ago

click bait tittle, they pay property taxes in NYC, just a much lower % rate.

"The combined 89th and 90th floor penthouse at One57 set the new high-water mark for a single-family residence sale in New York. While the owner paid nine figures for the penthouse, the city only taxed the unit for $17,000 in property taxes. That's an effective property tax rate of 0.017 percent—about one one-hundredth of the average national tax rate."

dheera• 5 years ago

Why don't we just get rid of property taxes, and just keep income tax and sales tax and be done with it?

I find it immoral to tax people on things they already own and have already paid taxes on in the form of the income they used to purchase said item.

A big part of the upside of this will be cheaper rents for the rest of us, because right now, ultimately, real estate owners just pass the property tax responsibility to us in the form of higher rents.

xur172• 5 years ago

A big part of the upside of this will be cheaper rents for the rest of us, because right now, ultimately, real estate owners just pass the property tax responsibility to us in the form of higher rents.

In the short term, maybe, but in the long term this will just drive property values up even further, and I imagine it will make people more likely to hold onto property they aren't actively using.

snidane• 5 years ago

Somehow taxing peoples' labor is not immoral?

From efficiency standpoint, property taxes will be more efficient than income taxes when it comes to expenditures for local infrastructure.

Having only income taxes and no property/land taxes implies a direct subsidy from the middle class to aristocracy billionaire class. The exact reverse of what your intention seems to be?

No property tax removes the need to return properties to the market, when underused. It would result in extremely high properry prices in the environment of zero interest rates. Pricing everybody out completely.

And no, property taxes are not passed down in higher rents. They do the opposite - decrease rents - by making the market more liquid. See "tax incidence".

gremlinsinc2• 5 years ago

All land in the united states should be collectively owned by the citizens. I think they should do away with or curtail other taxes for a Georgian style land-value-tax system that could also fully fund Universal Basic Income and Universal Healthcare.

Why Billionaires Don't Pay Property Taxes in New York (2015)

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