ALBANY, N.Y. (CN) - A couple that own adjoining Manhattan apartments, one in each name, must pay "mansion" taxes, a New York appeals court ruled.
Affirming the finding of the state Tax Appeals Tribunal, a five-judge panel said that the number of contracts mattered less than what was being conveyed: a three-bedroom, 2 1/2-bath apartment. And at the combined price of $1.525 million, the transaction was subject to the state's so-called mansion tax.
"While the units were purchased pursuant to separate contracts of sale, the determination as to the application of the mansion tax is not dependent upon the form of the underlying transactions but on the economic reality that characterizes the entire conveyance," Justice E. Michael Kavanagh wrote for the panel.
The case went to Kavanagh and his colleagues with the Third Judicial Department of the New York Supreme Court's Appellate Division after administrative appeals proved unsuccessful.
Michael and Frances Sacks separately purchased two units at 160 E. 38th St. in 2005, each paying under the $1 million threshold at which the state assesses an additional 1 percent tax on the price paid for one-, two- or three-family homes, condominium units, or cooperative apartments.
Michael Sacks paid $900,000 for Unit 34B; Frances Sacks paid $625,000 for Unit 34C. Each received shares in the cooperative apartment building after their purchase.
Because of the separate transactions and the cooperative shares they received, the couple had argued no mansion tax was due.
But the Tax Appeals Tribunal cited New York City building department documents that showed the two units were combined and renovated sometime between June 3, 1999, and Nov. 10, 2004. The work included removing walls, taking out appliances in the second kitchen and capping kitchen piping.
The combined units were used as a single apartment prior to the sale to the Sackses, and a real estate agent listed them for sale in August 2004 as a three-bedroom, 2 1/2-bath apartment, according to the tribunal. The original asking price was $1.575 million.
The tribunal said that the Sackses "occupy and use" the units as a single apartment "and intended at the time of the conveyances of the units on Jan. 12, 2005, to occupy and use the two units as a single unit."
Though the Appellate Division usually defers to the tribunal's expertise in interpreting tax statute, it noted that it affirmed after assessing the rationality of the Sacks decision.
"Viewing these transactions as an integrated whole, we find that a rational basis exists for the tribunal's determination that the entire conveyance was properly subject to the imposition of the mansion tax," Kavanagh wrote.
The tax added $15,250, plus interest. Though the Sackses faced a penalty after the state audited the transaction, that charge came off during a conciliation conference.
In challenging the tax, the Sackses called the state's action "an affront to a married woman's right to enter into transactions and have sole ownership over property as though she were unmarried," according to the tribunal.
That claim held little water with either the tax board or the appeals court.
"Contrary to petitioners' assertions, this tax was not imposed because they were married or due to Frances Sacks' gender, but, instead, because petitioners had purchased this residential property as a single-family residence for in excess of $1 million," Kavanagh wrote.
"Moreover, the imposition of this tax did not affect Frances Sacks' 'acquisition, use, enjoyment and(/or) disposition' of property in violation of General Obligations Law or adversely affect her ability to enter into a contract."
The Sackses argued their case pro se. Kate Nepveu, of counsel to the Attorney General's Office, represented the state.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.