Gov. Kathy Hochul vetoes bill to close NY tax loophole for condo owners

New York Gov. Kathy Hochul has vetoed a bill that would have closed a loophole in state law that gives tax breaks to owners of big suburban homes classified as condominiums.

State lawmakers passed a bill in June to close the loophole, the subject of a series of stories published by syracuse.com | The Post-Standard since 2018.

The stories revealed that some home builders took advantage of the law, which allows all kinds of homes to be called condominiums.

The designation requires municipalities to assess condos at a lower tax value than traditional single-family homes, even if they’re comparable in size.

The syracuse.com investigation found more than 100,000 condo owners in Upstate New York benefited from the tactic, taking an average discount of 36% on their assessments.

As a result, condominium owners in Upstate New York avoided at least $330 million a year in property taxes, shifting the burden to their neighbors to pay for schools and local government, the analysis found.

The bill passed by lawmakers would have applied only to the construction of new homes. It would have allowed municipalities to decide if they want to assess higher tax rates on homes designated as condominiums or owned by a cooperative corporation.

Hochul, in a veto message, said many first-time homebuyers rely on affordable condos and co-ops to purchase a home. She said higher taxes allowed under the bill could make condos less attractive to potential homebuyers and lead to fewer units of housing being built.

“At a time when New York state is in the midst of a statewide housing crisis, this would be an unacceptable outcome,” Hochul wrote.

But Assemblywoman Sandy Galef, a Democrat who wrote the legislation, questioned whether the governor’s office understood the bill. She said the bill included an exemption for affordable housing.

The bill also exempts New York City and Nassau County, which have acute shortages of affordable housing, Galef said.

State Sen. John Mannion, D-Geddes, who voted for the bill in June, said he will work next year to come up with alternative legislation to end the tax break.

“As The Post-Standard astutely reported, there are loopholes in the state’s condo laws that are being abused to evade taxes, which is unethical and unfair to all those acting in good faith,” Mannion said in a statement Wednesday.

“This is a good-government issue, and I will be engaging with the governor’s office to better understand their concerns so we can find a legislative path forward,” Mannion said.

Hochul has pledged to make affordable housing a top priority for her administration next year. She is expected to detail a broad housing initiative in her 2023 State of the State address next month.

Sen. Elijah Reichlin-Melnick, D-Nyack, who sponsored the condo bill in the Senate, said he shares Hochul’s concern about disincentivizing new housing that’s attractive to first-time homebuyers.

But he added, “If the governor were really concerned about protecting New Yorkers, she would have worked with us to find a solution that ended the ‘condo’ tax scam perpetrated against New Yorkers while exempting denser attached units that make homeownership more attainable for working-class people.”

Reichlin-Melnick had used the syracuse.com stories to explain the issue to his colleagues in the state Senate.

“Right now, developers across the state are building detached single-family houses on large lots while exploiting the ‘condo tax loophole’ to only pay a fraction of the taxes that they owe – leaving municipalities on the hook to cover the cost for the basic services that these new homes require,” he said Wednesday.

New York state assessors have been pushing to close the condo loophole dating back to the 1980s.

Galef, the Assembly member from Ossining in Westchester County, tried for more than a decade to close the loophole after homeowners in her district complained condo owners were not paying their fair share of property taxes.

Galef, who is retiring from the Assembly at the end of the year, told syracuse.com that she hopes other lawmakers pass a revised version of the bill next year.

“I’m disappointed by the governor’s veto,” Galef said Wednesday. “We reworked this bill many times. It’s about fairness in taxation.”