New York City Mayor Mamdani must redo the rollout of his new pied-à-terre tax, a state judge ruled Tuesday, dealing a major blow to one of the mayor's signature policies.
Justice Wayne Ozzi, of Staten Island, sided with plaintiffs who said the rollout of the surcharge unlawfully put the burden on homeowners to prove their residency status, when city officials should have verified that information themselves.
He didn't strike down the tax itself, and the city is expected to appeal his decision.
"No crime is involved here, but homeowners are being substantially harmed and penalized needlessly by [the city's] method of implementing the tax law," Ozzi wrote in his 22-page decision.
Separately, a lawsuit from two prominent businessmen challenges the constitutionality of New York City's pied-à-terre tax, in what they say is the first suit to allege that the tax is illegal.
Former Commerce Secretary Wilbur Ross and casino mogul Steve Wynn filed their complaint in state court Monday, alleging that New York state lawmakers violated state and federal constitutions.
A mayoral spokesman said the city planned to appeal the ruling-a move that would temporarily block the judge's decision from taking effect. "Our administration is fighting every day to deliver for working New Yorkers," the spokesman said. "The ultra-wealthy are fighting in court to avoid paying their fair share."
The court ruling and new lawsuit are fresh setbacks for the mayor and his effort to plug budget holes by raising taxes on the rich, which has intensified his clash with the city's business and financial elite.
"This is an important victory," said James Whelan, president of the Real Estate Board of New York. "The legal challenges are far from over."
The pied-à-terre tax applies to homes worth $5 million or more and don't serve as the owner's primary residence. The city's Department of Finance is in charge of determining who is subject to it using information such as tax returns and property value assessments.
Opponents of the tax rollout said the city shirked its responsibility to evaluate the status of each homeowner and didn't use tax data that would have shown that thousands of people weren't eligible. As a result, they said, New Yorkers had to jump through administrative hoops and give the city their private financial information.
"City Hall botched this rollout and should have just admitted error and fixed its own mistake, instead of wasting time and taxpayer dollars by fighting it in court," said Randy Mastro, a lawyer for the plaintiffs.
Ozzi's ruling blocks the city from taking any further action on the notices that have already been sent to about 17,000 New Yorkers, and forces the administration to take down the tax roll of about 900,000 properties that it published online as part of the rollout.
However, the judge said the city may publish a more limited list online that actually reflects who will be subject to the surcharge.
Ozzi ordered city officials to take a more targeted approach, using the latest tax records and other available information to determine whether a property is a second home. The city must explain in the new notices it sends out how it reached its conclusion.
The Mamdani administration already had begun to tweak the rollout. In August, city officials mailed out 1,210 follow-up letters to New Yorkers who received the initial tax notice to let them know that they were wrongly identified and don't owe the tax.
The lawsuit from Ross and Wynn goes a step further. They are challenging the constitutional basis of the tax to block the tax as a whole, not just delay the rollout. On Tuesday, another group of New York City homeowners filed a complaint that also alleges the tax is unconstitutional.
Ross and Wynn allege that the levy intentionally discriminates against nonresidents of New York City who "by definition, cannot vote against lawmakers imposing that new tax."
Nonresidents like themselves, they argue, already pay property taxes and shouldn't shoulder additional taxes to fund city resources, such as public schools and transit, because they inherently use less of those services than full-time New Yorkers.
"By definition, we're here less than half the year," said Ross, who oversaw a private-equity firm before serving in the first Trump administration. "How could I possibly use more services than my neighbor who's here 12 months of the year? That just seems cuckoo."
Ross also owns property in the Hamptons, Palm Beach, London and Paris. He said he doesn't have "any contingency plans" for his New York City residence and is betting that this lawsuit will void his pied-à-terre tax bill.
The plaintiffs also argue that New York lawmakers aimed to bypass restrictions on how much they can raise real-estate taxes each year. The state is only allowed to raise New York City property taxes to 2.5% of the five-year average market value of the city's taxable real-estate.
According to the lawsuit, New York lawmakers excluded this new fee from the 2.5% limit by referring to the pied-à-terre levy as a "surcharge" instead of a tax.
Ross and Wynn are asking the court to overturn the tax and reimburse them for the costs of this lawsuit.
New York Gov. Hochul says the state is prepared to defend it in court.
"When Steve Wynn and Wilbur Ross try to cast themselves as sympathetic figures in a fight over paying their fair share on multimillion-dollar second homes, they're making the case for the pied-à-terre tax as well as anyone could," said Hochul's spokeswoman Jennifer Goodman.
Both Ross and Wynn live in Florida but own second homes in New York City at a prewar co-op building by the East River and at a Ritz Carlton, respectively. In July, they received letters notifying that their New York City residences would be subject to the pied-à-terre tax. Ross would have to pay around $83,500 while Wynn would have to pay about $183,000.
In their 40-page complaint, the plaintiffs cite several instances of Hochul and Mamdani casting the pied-à-terre tax as a target on nonresidents. They mention Mamdani's controversial video standing outside of the Manhattan tower where hedge fund billionaire Ken Griffin has a penthouse.
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