REBNY does its job, takes anti-social stance against tax consistency

the problem with REBNY
Because all agents in all firms that are members of the Real Estate Board of New York are required to be REBNY members, I got a bit of email propaganda from the president of REBNY on behalf of "our industry" last week. He’s just doing his job, but this one irked me enough to prompt a Manhattan Loft Guy rant. And it is not fair to pick this issue at as the problem with REBNY, but it is a start.

The issue is pretty simple. Sales of coops are transfers of stock, not sales of Real Estate, and are secured by a pledge of shares, not by a "mortgage". Thus, the "mortgage recording tax" that is levied upon the transfer of "real estate" (including townhouses and condominium apartments) is not levied on coop sales. (This is one reason that condo closing costs are much higher than for coop transfers.) The State is proposing to level this playing field by extending the recording tax to the pledge of coop shares. "The industry" is aghast.

where is Half-Term Governor Palin?
The REBNY rhetoric is straight out of this weekend’s Tea Party convention:

New York Observer ran a nicely balanced article on February 2, The Bell Tolls For Coops, featuring a very-different-in-tone comment from a very different industry group, the Council of New York Cooperatives and Condominiums:

"We’re opposed to it-let’s put it at that," said Marc Luxemburg, president of the co-op council. "The problem is, you have a huge budget deficit, and they’re looking around for any source of money they can find. Collectively, we’d have to reduce the size of government, which doesn’t look like it’s going to happen too quickly, or they’ve got to dig deeper into the taxpayers’ pockets."

history is incremental

I had always figured that the difference in tax treatment between sales of condos and coops was an oversight, an example of The Idiots In Albany not getting the details right. After all, if one were to create a new system, it seems (to me) to be inconsistent to not tax coop share pledges the same way as condo mortgages — especially since coop shareholders have an exception to normal tax treatment of corporate entities by being able to pass through real estate taxes paid by the coop to individual shareholders. But maybe this wan’t an oversight, so much as it was a recognition that — back in the day, at least — coop shareholders were different from condo owners.

The Observer describes coops as semi-socialistic, and maybe they were originally, as relatively rare collections of "cooperating" neighbors. But that train left the station not later than the mass conversion of rental buildings to coops in the 1970s. The Observer also notes that this tax anomaly has been considered for at least 20 years, but Albany did not ‘fix’ the ‘problem’. (Leading me to believe that The Idiots are idiots, but in this case because they could not fix something rather than because they were ignorant of what they were doing.) From The Observer:

"our industry"?
REBNY often turns my stomach, as it is a trade organization that serves a constituency much broader than coop or condo owners. In this instance, to be fair, REBNY is speaking on behalf only of coop shareholders but it is tainted (for me) for being the voice of those people who, you know, would otherwise find it hard to get the attention of our public officials, like the Rudin, Durst, Trump and Macklowe families. It is comforting to know that there is a mouthpiece with a broadly representative name that can Speak Truth To Power, even if usually done on behalf of Power. Not.

I don’t know who "our industry" is, in the sense of "Our industry already pays more than its fair share in taxes." I suppose it is far more politic to refer to "our industry" rather than to The People Who Own All The Land and Buildings; there might be less sympathy fr such a group.

But if REBNY is a sophisticated group (as you would hope that a group representing, among others, billionaires would be), you would have the right to expect that it would have some, you know, analysis, or a serious budget proposal to make. Instead, their argument is captured perfectly by the headline on their Action Center page: "Reduce Government Spending; No New Taxes!"

A serious consideration of local and state budget problems would acknowledge that not all budget problems can be solved by reducing "spending" without reducing "services". So … as a serious "industry" group, which "services" would REBNY cut instead of creating the playing-field-leveling recording tax on coop transfers?

Why should REBNY be taken seriously in demanding "no new taxes" as part of a serious budget solution? Why shouldn’t REBNY have to make the case that a 1% or 2% tax imposed when coop shares are financed is a worse bad thing than other bad things being considered to address current budget realities, such as the possibility that x,xxx public school teaching jobs will be eliminated. Indeed, why wouldn’t REBNY be out front in opposing the elimination of public school teaching jobs, on the theory that such cuts will impact property values??

snark alert: Spell Check works, Grammar Check fails
I can’t resist one more dig at the public voice of "my" industry. A professional lobbying group that represents The People Who Own All The Land and Buildings should have better editors than this on a call-to-action page (emphasis added):

in case you were wondering about deductibility

By the way, these mortgage recoding taxes are not deductible for federal income tax purposes, per Jay Romano’s NY Times Real Estate Q&A of January 14, 2009 (so if this tax is extended to coop share pledges their treatment should be the same):

end of rant
Resume normal discussions about the Manhattan loft market.

© Sandy Mattingly 2010