An appeals court ruled Wednesday that Mayor Zohran Mamdani’s administration can continue its efforts to collect a new tax on high-end second homes in New York, giving the mayor his first major legal victory on a key part of his progressive agenda.
Uncertainty had clouded the tax for weeks, after a Staten Island judge ruled in September that the city had mismanaged the rollout and ordered it to start again. The city immediately appealed and continued to impose the tax as the lawsuit progressed. Wednesday’s ruling by a panel of appellate judges in Brooklyn overturned the judge’s decision.
The tax still faces other legal challenges. But the decision is a victory for the mayor, whose lawyers also defend other policies he campaigned for, including freezing rents for rent-stabilized apartments.
Mr. Mamdani had adopted the tax as a way to fulfill his election promise to “tax the rich,” as well as a way to help close the city’s budget deficit.
The mayor said in a statement Wednesday that he was “encouraged” by the decision.
“From day one, those who have the most have attempted to use every legal avenue available to protect their wealth and avoid contributing more to our city,” he said.
Randy Mastro, an attorney representing the owners who filed the suit, did not say whether he plans to appeal. But in a statement, he lamented that the deployment of taxes, which he described as “anarchic and chaotic”, “would remain without remedy”. Mr. Mastro added that he believed challenges to the constitutionality of the tax itself — the main argument in other lawsuits, including the one he filed — would ultimately prevail.
The process of introducing the tax on second homes, also known as pied-à-terres, has been turbulent.
The tax was unveiled by Gov. Kathy Hochul in the spring with Mr. Mamdani’s support, and adopted in the state budget. It must be paid by people who live outside New York City most of the time while owning a high-value home in the city.
Levied extra on property tax bills, the tax applies to condos and co-ops that are used as second homes and have a “market value” — a complex measure determined by the city’s finance department — of at least $1 million. This also applies to one-, two-, and three-family second homes with a “market value” over $5 million. (The tax does not apply if the accommodation is rented to someone or if a relative of the owner resides there most of the time.)
It should raise some $500 million per year for the city.
The lawsuit that resulted in Wednesday’s ruling did not question the legality of the tax. Instead, he argued that the city sowed confusion by sending notices to about 17,000 New Yorkers informing them that their properties could be subject to the tax, without first ensuring that they were not full-time residents.
The suit also challenged the city’s publication of an online list of nearly one million “properties likely to be subject to the tax,” including the names of the owners.
The city argued it acted in accordance with the law that established the tax.
The notices asked homeowners to provide proof of residency, such as a driver’s license, or a copy of a lease to show the home was rented. As of Oct. 28, the city had approved about 8,800 applications from homeowners who said they were primary residents and should not be taxed.
The city has said in recent days that while that number has increased, it remains confident the tax will bring in the expected $500 million in annual revenue.
In a six-page ruling, the appeals court said the owners who sued had not demonstrated “that malicious actors misused the information” on the published listing of properties, “nor that the publication itself subjected them to crime, harassment or public ridicule.”
The court also said the mailed notices did not constitute prejudice, concluding that the owners lacked standing to sue.
Despite the ruling, there are two separate ongoing lawsuits seeking to overturn the tax itself. Both lawsuits argue that the law establishing the tax violates provisions of the state constitution that limit the amount the city can collect each year in property taxes. Among other allegations, they also claim that the tax is discriminatory under the U.S. Constitution because it only applies to residents of states other than New York.
One of the lawsuits was filed in September by former Commerce Secretary Wilbur Ross, his wife, Hilary Geary Ross, and casino mogul Steve Wynn, all of whom live in Florida but have a second home in New York.
The other was contributed by the company that owns an Upper East Side cooperative building known as Montclair, as well as a handful of owners, some of whom live in Florida and Suffolk County on Long Island. The lawsuit is backed by the Real Estate Board of New York, an influential lobbying group.
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