Riddle me this: when do New York condo owners lose out? Answer: when they try to get the same garage tax exemption as co-op owners. Because of a bizarre twist in the law, they can't. Unfair? You bet. Can anything be done? It depends.
First, the facts: anyone who hires a garage to store a car in New York City is subject to 10.25 percent combined city and state sales tax. Manhattan has an additional 8 percent tax, with the total sales tax being 18.25 percent.
Recognizing that these taxes can be significant (see box on page 34) and also trying to eliminate a situation in which co-op and condo owners who park in their own buildings would be paying sales taxes on payments they make to themselves, the state legislature and the governor have granted exemptions.
First, they eliminated the New York State sales tax of four percent for parking charges paid to homeowners associations. Then, in September 1998, they expanded the exclusion to all sales taxes including the Manhattan eight percent tax
(Any Manhattan resident whose car is registered to his/her home address can get a Manhattan parking tax exemption certificate by annually registering with the city's department of finance. The certificate is submitted to the garage, which adjusts the billing to eliminate that tax.)
To be eligible for the exclusion according to the memo (TSB-M-98S issued on September 1, 1998 by the New York State Department of Taxation and Finance), the following conditions must be met:
(1) The homeowners' association must own or operate the garage, parking lot, or other parking facility (whether or not it is operated exclusively for its members).
(2) The homeowners' association must be an association whose membership is comprised exclusively of owners or residents of residential dwelling units (such as single-family homes, condominium units, or cooperative housing or apartments).
(3) The dwelling units must be in a defined geographical area, such as a housing development or subdivision, and the parking facility must be located within that defined geographical area.
(4) The parking charges must be paid to the homeowners' association by its members.
This means that homeowners who rent parking spaces from their own association are exempt from all New York State and local parking taxes.
On January 26, 2001 the Department of Taxation and Finance issued another memo (TSB-M-01(3)S). This expanded the exemption to include "receipts paid by the members to a person leasing the parking facility from the homeowners' association." In that memo, the last qualification point was changed to read: "The members must pay the parking charges to the homeowners' association, or to a person leasing the parking facility from the homeowners' association."
This expansion benefited co-op owners whose corporation owns a garage and leases it to private operators. Whereas in the past the parking services had to be purchased directly from the cooperative, the exemption now applied when the payments were made to a garage operator.
Condominium owners were not so fortunate, however. Because of the legal differences between a co-op and a condo, they are not eligible for the exemption when the garage is itself a condominium unit owned by a person or company other than the homeowners association. Also, under the eligibility criteria, a condo association that included a garage owner in its membership would not qualify.
"It's pretty straightforward," says Matthew Newman, senior vice president of Maxwell-Kates, which manages a number of co-op and condo buildings with garages. "A garage is one of the condominium units, it has a separate block and lot number. It pays its own real estate taxes. If it is not owned by the condo association, then the garage operator has to collect the sales taxes and pass them through to the state and city."
"We have one condo building where the garage is owned by the condo association," says Elliot Brownstein of Mutual Parking Management. "We don't collect the taxes there because they qualify for the exemption. In another condo building, though, where the garage is not owned by the association we do collect the taxes and pass them on."
While this wrinkle in the state's treatment of co-op and condo owners is real, it is probably unintended. According to Michael Bucci, a spokesman for the New York State Department of Taxation and Finance, "The exemption is very narrow. It was primarily intended to relieve residents of cooperative housing and condos from paying tax on parking services that they were, in effect, providing to themselves through their own association."
However, there seems to be no going back. "The situation described, (1) where a parking garage is not owned or operated by the homeowners' association (and doesn't meet the special leasing rule) and (2) where a homeowners' association is not comprised exclusively of residential units does not meet the criteria spelled out in the TSB-M," says Bucci.
How can this be fixed? "This is really just an anomaly that came up when they wrote the exemption," says Newman. "There is something called a technical corrections act which legislators put in place after a law is written to correct inaccuracies and make sure that the law has its intended effect. They need to do this."
So far this issue has not received a lot of attention. "I was not previously aware that this was a problem," observes Mary Ann Rothman, executive director of the Council of New York Cooperatives & Condominiums (CNYC). "I'm certain that [Assemblyman] Ivan Lafayette, who authored the original legislation (plus the two subsequent laws that have already fine-tuned it) will be happy to introduce any more clarifying legislation that is required."
Off the record, one of the assemblyman's staffers confirmed that the intent of the legislation was to treat co-op owners equally with homeowners and that they will look into the issue to see if any further effort is warranted.
"In my opinion, whether or not this is an issue depends on the situation," says Margaret Walsh, first vice president of Parkchester South Condominiums in the Bronx and a member of the executive board of the CNYC. She notes that residents in a condo where the garage space is in disrepair and in need of improvement might be better off having a private owner of the garage who would pay the costs to repair and maintain the facility. Even though they miss out on the sales tax exemption, the residents avoid the capital and maintenance costs.
Some people believe that garage operators have an incentive to move Albany on this. Once the tax comes off, the customer's monthly out-of-pocket parking costs go down. That's a good time to hit him with a rate increase that is less than the tax saving, so he still feels like he is saving money.
With the state and city fiscal crisis dominating the headlines it's hard to see condo owners getting the parking tax exemption their co-op neighbors already enjoy anytime soon. "I don't see that happening," says Brownstein. "In this market, it's very tough to get a rate increase. Also, we manage garages in co-ops where the rates are kept well below the rate of competitors across the street in order to ensure that the residents get the benefit of having a garage in their building."