New York City Department of Finance (“NYC DOF”) recently began notifying property owners by mail that they may be subject to the City’s new Non-Primary Residence Surcharge, which will be imposed annually on certain high-value residential properties that are not used as primary residences.[i] Although the surcharge is commonly referred to as the “Pied-à-Terre Tax,” it applies to a broader range of non-primary residences. Receipt of a notice does not necessarily mean that the surcharge applies. Rather, it reflects the NYC DOF’s preliminary determination that the property may be subject to the surcharge unless the owner establishes that an exemption applies. Property owners who qualify for an exemption must timely submit the required application and supporting documentation. For the initial 2026 notices, the exemption application deadline is: (a) August 21, 2026 for residential homes and condominiums, and (b) August 24, 2026 for cooperative apartments. In addition to mailing notices, the NYC DOF has published a supplemental market value roll identifying properties that may be subject to the surcharge.  As with the initial notices, inclusion on the supplemental market value roll does not necessarily mean that a property is subject to the surcharge or that an exemption is unavailable. The supplemental market value roll is available here. Which Properties Are Subject to the Surcharge? The surcharge generally applies to the following properties, provided that an exemption does not apply: Tax Class 1: One-, two-, and three-family homes with a market value of at least $5 million; and Tax Class 2: Condominium units and cooperative apartments with a market value of at least $1 million. The amount of the surcharge depends on the property’s market value as determined annually by the NYC DOF. The surcharge will be added to the property’s statement of account (i.e., the property tax bill) and will be due and payable in the same manner as property taxes.[ii] How Is Market Value Determined? During so-called “Phase 1” of the tax (July 1, 2026 through June 30, 2028), there is a different method for determining market value depending on the tax class.  For Tax Class 1, the NYC DOF generally estimates market value by analyzing the sale prices of similar properties.  For Tax Class 2, New York law requires the NYC DOF to value the property as though it were a rental apartment building, using the income and expenses of comparable rental properties.[iii]  Following June 30, 2028, “Phase 2” begins, and the valuation methodology and the applicable market value thresholds for condominium units and cooperative apartments will change to align with the Tax Class 1 approach.[iv] How Much Is The Surcharge? The applicable rate depends on the property’s tax class and market value.[v] Tax Class NYC DOF Market Value Surcharge Tax Class 1 (one-, two-, and three-family homes) $5 million to less than $15 million 0.8% $15 million to less than $25 million 1.05% $25 million or more 1.3% Tax Class 2 (condominiums and cooperative apartments) $1 million to less than $3 million 4.0% $3 million to less than $5 million 5.25% $5 million or more 6.5% During Phase 1, the Tax Class 2 surcharge is five times as much as the Tax Class 1 surcharge.  This seems to reflect the view that the market value for condominiums and cooperative apartments under the current methodology are a fraction of their potential sale value. Once Phase 2 begins and the market values for Tax Class 2 properties are determined in a manner similar to the Tax Class 1 properties, the perceived undervaluation will be addressed and the Tax Class 1 rates will apply to all properties subject to the surcharge. Common Exemptions Many property owners who receive a notice will nevertheless qualify for an exemption. Common examples include: the property is the owner’s primary residence; the property is occupied as the primary residence of a qualifying tenant under a bona fide lease; the property is occupied as the primary residence of a qualifying immediate family member; the property is owned by a limited liability company and occupied as the primary residence of a majority owner; or the property is held in trust and occupied as the primary residence of a qualifying beneficiary or trustee, as provided in the NYC DOF’s rules.[vi] The availability of an exemption depends on the specific facts and ownership structure. How Does the NYC DOF Determine Whether a Property Is a Primary Residence? The NYC DOF makes an initial determination each year based on the available information. In determining whether a property is a primary residence, the NYC DOF considers certain factors, including whether the owner occupied the property for a majority of the days during the calendar year.  If the NYC DOF’s initial determination is that the property may not qualify as the owner’s primary residence, it will issue the notice described herein. The owner then has an opportunity to submit an exemption application and supporting documentation before the NYC DOF makes a final determination.[vii] What Should I Do If I Receive a Notice? If you receive a notice from the NYC DOF: review the notice carefully; determine whether an exemption applies; gather the required supporting documentation; timely submit your exemption application and supporting documentation (you can access the application here); if your initial exemption application is denied, you may submit one additional exemption application with additional supporting information or documentation before the applicable deadline; and retain copies of all materials submitted to the NYC DOF for your records. If you do not receive a notice but believe that your property might be subject to the surcharge, you should review the supplemental market value roll published by the NYC DOF (here). For More Information Sullivan & Worcester LLP advises clients on a broad range of private client, estate planning, trust and estate administration, tax, and real property matters. Questions regarding the Non-Primary Residence Surcharge, its application to a particular property or ownership structure, exemption eligibility, valuation issues, or related compliance matters may be directed to your regular Sullivan & Worcester attorney or any member of our Private Client Group. This Client Alert has been prepared by Carole M. Bass, Esq., a Partner, Douglas P. Schneidman, a Partner, Steven M. Cunningham, a Partner, and Molly E. Depew, an Associate, in the Private Clients/Trusts & Estates practice group of the international law firm of Sullivan & Worcester LLP. For more information, Ms. Bass may be reached in our New York Office by calling +1 (212) 660-3047 or by email at cbass@sullivanlaw.com; Mr. Schneidman may be reached in our New York Office by calling +1 (212) 660-3086 or by email at dschneidman@sullivanlaw.com; Mr. Cunningham may be reached at our Boston Office by calling +1 (617) 338-2432 or by email at scunningham@sullivanlaw.com; Ms. Depew may be reached at our New York Office by calling +1 (212) 660-3091 or by email at mdepew@sullivanlaw.com. This Client Alert is provided for general informational purposes only and does not constitute legal advice.  [i] See N.Y. Tax Law art. 30-C; N.Y.C. Admin. Code §§ 11-3202–11-3205; N.Y.C. Dep’t of Fin., Non-Primary Residence Surcharge, available at https://www.nyc.gov/site/finance/property/non-primary-residence-surcharge.page   [ii] Id.   [iii] N.Y. Real Prop. Tax Law § 581, available at https://www.nysenate.gov/legislation/laws/RPT/581   [iv] N.Y. Tax Law § 1350, available at https://www.nysenate.gov/legislation/laws/TAX/1350   [v] Id.   [vi] See N.Y.C. Dep’t of Fin., Non-Primary Residence Surcharge, supra note i.   [vii] N.Y. Tax Law § 1352, available at https://www.nysenate.gov/legislation/laws/TAX/1352

In March 2021, the American Rescue Plan Act of 2021 (the “Act”) was signed into law. The Act provides for $1.9 trillion of relief to many individuals and businesses overcoming the economic impact caused by the COVID-19 pandemic. Among the Act’s intended recipients are food service providers and adult beverage producers, who may be eligible for grants under the newly established Restaurant Revitalization Fund (the “Fund”). The Small Business Administration (“SBA”) will administer the Fund and distribute up to $28.6 billion in grants to eligible restaurants and similar establishments, $5 billion of which is preliminarily earmarked for eligible businesses with gross receipts during 2019 of not more than $500,000. Which Businesses are Eligible? As you might guess from the name of the Fund, restaurants are of course eligible. Eligible to receive a grant in addition to conventional restaurants are food stands, food trucks and carts, caterers, bars and saloons, taverns, inns, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of a beverage alcohol producer where the public may taste, sample or purchase products, or other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink, including those located in an airport terminal or businesses that are tribally-owned. As a result, the Fund may prove critical for many businesses, including struggling craft breweries, distilleries and wineries. While many businesses are eligible for a grant from the Fund, businesses with more than twenty locations, public companies and government-operated providers are ineligible. In addition, some live venue operators who applied for certain grants under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act are also ineligible. How much Money can a Business Receive from the Fund and How must it be Spent? A single-location business may receive a grant in an amount of up to $5 million. A business with two or more locations may receive a grant in an amount of up to $10 million. Generally, the amount a business will receive will be equal to the pandemic-related revenue loss of the business. In calculating the amount of the grant to a business, the SBA will generally compare a business’ 2019 and 2020 revenues. Funds may be used in a similar manner to those funds received for Paycheck Protection Program (“PPP”) loans. That is, funds from a grant must be spent on certain payroll costs, payments of principal or interest on mortgage obligations, rent payments, utilities, maintenance expenses, supplies, food and beverage expenses, covered supplier costs, operational expenses, paid sick leave and any other expenses the SBA determines to be essential to maintaining the business. It is also important to note that funds must be used by December 31, 2021 or may need to be returned to the U.S. Treasury. Can PPP Loan Recipients Receive Grants from the Fund? Yes, an otherwise eligible business may receive a Fund grant even if it previously received a loan under the PPP; the SBA will deduct any PPP loan amounts from such grant, however. It is important to note that the Fund’s distributions are grants. By contrast, previous relief programs, such as the PPP, generally provided loans (though potentially forgivable loans) to eligible businesses. How can a Business Apply for a Grant? The SBA will administer the Fund’s distribution. Unfortunately, as of the date of this advisory, the SBA’s application process is not yet open. Nonetheless, we expect the application to be available on the SBA’s website and, once available, that applications will be submitted directly through the SBA’s website (as opposed to being submitted through approved banks as is the case for the PPP). Similar to that for the PPP, however, applicants will need to make a good faith certification along with their application that the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the business. In addition, businesses owned and controlled by women and veterans and certain other socially and economically disadvantaged small businesses will receive priority for the first three weeks of the application period. Even if your business is not expected to receive priority, any eligible business should prepare to submit its application as soon as possible, as grants are otherwise made on a first-come first-served basis. Your business can prepare for the Act’s application process and keep up-to-date on other pandemic relief programs by consulting with your primary Sullivan attorney or reaching out to the authors of this advisory.