We're ESDC, developing the Harlem Center retail/office/hotel project on West 125th Street. A private developer will borrow from outside lenders, and we'll be named mortgagee on the financing before assigning our interest to the real lenders -- with the mortgage likely refinanced and modified over the years as the project moves from construction to permanent financing. Is all of that exempt from mortgage recording tax?

Plain-English summary

Empire State Development Corp. (ESDC, formerly the New York State Urban Development Corporation) adopted and affirmed a General Project Plan for the Harlem Center Land Use Improvement Project, on a site bounded by West 125th Street, Malcolm X Boulevard, and West 126th Street in Manhattan, within the Upper Manhattan Empowerment Zone. The Project called for acquiring the entire site (then divided between the state Office of General Services and ESDC) to build a 130,000-square-foot retail shopping center, plus infrastructure for a future roughly 200,000-square-foot tower with office space and a hotel -- aimed at removing substandard/unsanitary conditions, creating sustainable jobs, and expanding the tax base.

ESDC will acquire leasehold title to part of the site and retain fee ownership of another portion during construction. Harlem Center LLC (the developer) will construct the commercial buildings per the General Project Plan and lease the improvements from ESDC, with lease payments benefiting ESDC. Financing will combine a Metropolitan Economic Revitalization Fund loan from ESDC itself with additional borrowing from outside lenders, secured by mortgages against the developer's leasehold interest (ESDC's fee interest stays unencumbered). ESDC will initially be named mortgagee and record the mortgages, even though all economic rights inure to the lenders, to whom ESDC will assign its interest afterward. Over time, the mortgages may be further assigned, supplemented, modified, converted from construction to permanent financing, or reassigned between lenders.

Article 11 of the Tax Law (§ 253) taxes mortgage recording, and § 252 doesn't provide ESDC a specific exemption on its own terms. But the UDC Act (Unconsolidated Laws) fills that gap: § 6254(1) makes UDC/ESDC "a corporate governmental agency of the state, constituting a political subdivision and public benefit corporation," triggering common-law state-agency immunity (Hotel Waldorf-Astoria Corp. v. State Tax Commission); § 6262(2) extends UDC's exemptions to its subsidiaries; and § 6272 separately declares UDC and its subsidiaries "free from taxation of every kind" by the state and its political subdivisions. Because the UDC Act's 1968 tax exemption is a later, more specific enactment than the general 1909 mortgage recording tax statute (Williamsburgh Power Plant Corp. v. City of New York) -- reinforced by the Act's own controlling-statute clause (§ 6283) and liberal-construction mandate (§ 6284) -- and because courts have applied the exemption liberally even to "straw man" ownership arrangements (Wein v. Beame, upholding UDC's real property tax exemption on a hotel bought for one dollar and immediately leased back to the seller), the Department concluded mortgage recording tax is not due on any Project mortgage where ESDC is named mortgagee and presents it for recording.

As with the Department's parallel opinions for Battery Park City Authority, RIOC, and other UDC/ESDC subsidiary projects, later assignments, supplements, modifications, or amendments of the mortgage remain exempt as long as the secured principal debt doesn't increase (either because no new taxable mortgage is created under § 253, or because the instrument qualifies as a "supplemental mortgage" under § 255); if the debt does increase, tax applies only to that increase.

What this means for you

ESDC and its subsidiaries financing urban renewal projects through private developers

The pass-through mortgagee structure here is the Department's well-established, repeatedly-applied treatment for ESDC/UDC projects -- confirm your enabling authority and project plan documentation mirror this pattern (ESDC as initial mortgagee, later assignment to the true lender) to secure the same MRT exemption.

Private developers and lenders on Empowerment Zone or urban renewal redevelopment projects

Financing structured with ESDC as a pass-through mortgagee can reduce closing costs by avoiding mortgage recording tax, a savings the parties can build into the overall project economics (as ESDC did here through payments-in-lieu-of-taxes arrangements common to these projects).

Common questions

Q: Does the exemption depend on ESDC also funding part of the project itself (like the Metropolitan Economic Revitalization Fund loan here)?
A: No -- the exemption applies based on ESDC's role as named mortgagee and its statutory tax immunity, regardless of whether ESDC also happens to be one of the lenders.

Q: Does the exemption survive conversion from construction financing to permanent financing?
A: Yes -- as long as ESDC remains a party and the secured debt doesn't increase, the supplemental-mortgage exemption under Tax Law § 255 carries the exemption through that conversion.

Q: Can other ESDC projects rely on this specific opinion?
A: No. It binds the Department only as to this petitioner and these facts, though the same day the Department issued an essentially identical opinion for ESDC's companion Gateway Center project in Brooklyn (TSB-A-01(2)R).

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law § 250 (increases in secured indebtedness taxable as to the increase)
• Tax Law § 252 (no exemption by reason of any other statute, absent later specific enactment)
• Tax Law § 255 (supplemental mortgage exemption where no new/further indebtedness)
• Unconsolidated Laws § 6254(1) (UDC as a corporate governmental agency, political subdivision, public benefit corporation)
• Unconsolidated Laws § 6262(2) (UDC subsidiaries inherit UDC's privileges, immunities, and tax exemptions)
• Unconsolidated Laws § 6272 (UDC and subsidiaries free from taxation of every kind by state/local government)
• Unconsolidated Laws § 6283 (UDC Act controls over inconsistent other laws); § 6284 (liberal construction mandate)

Case law and prior opinions cited:

• Matter of Hamilton, 148 N.Y. 310 (state/municipal property for public purposes not subject to taxation)
• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330 (common-law state-agency immunity doctrine)
• Wein v. Beame, 43 N.Y.2d 326 (liberal interpretation of UDC's tax exemption; "straw man" ownership arguments rejected)
• Williamsburgh Power Plant Corp. v. City of New York, 255 App. Div. 214, aff'd 280 N.Y. 551 (later specific enactment governs earlier general enactment)
• Franklin Society for Home Building and Savings v. Bennett, 282 N.Y. 79; Matter of Silberblatt, Inc. v. Tax Comm., 5 N.Y.2d 635 (MRT taxes the recording privilege, not the instrument)
• City of New York v. State Tax Commission, 130 A.D.2d 890 (supplemental mortgage treatment under § 255)
• New York State Urban Development Corp., TSB-A-93(4)R (March 10, 1993) (UDC common-law and statutory immunity)
• One Park Place Associates, TSB-A-82(1)M (June 18, 1982) (industrial development agency legal-title mortgages exempt)

Related opinion (same day, same statutory framework, different project):

• TSB-A-01(2)R (April 12, 2001) (ESDC's companion Gateway Center Land Use Improvement Project, Brooklyn)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a01_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(1)R
Mortgage Recording Tax
April 12, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M010312B

On March 12, 2001, a Petition for Advisory Opinion was received from New York State
Urban Development Corporation d/b/a Empire State Development Corp., 633 Third Avenue,
New York, New York 10017.
The issues raised by Petitioner, the New York State Urban Development Corporation d/b/a
Empire State Development Corp. ("ESDC"), are whether:
(1) The taxes imposed by Article 11 of the New York State Tax Law and Chapter 26 of the
New York City Administrative Code (collectively, the "mortgage recording tax") are due
upon the recording of any mortgage of property that is part of ESDC’s Harlem Center Land
Use Improvement Project (the "Project") where (a) ESDC is named mortgagee (whether as
trustee, agent, nominee or otherwise); (b) ESDC records the mortgage; (c) the loan funds
secured by the mortgage are provided by one or more persons or entities other than ESDC;
and (d) the proceeds of the mortgage loan are used for Project development costs.
(2) The mortgage recording taxes are due if a mortgage referred to in issue (1) is assigned,
supplemented, modified or amended, or if the mortgage so assigned, supplemented, modified
or amended is thereafter from time to time assigned, supplemented, modified or amended
(upon recording of the applicable instrument or otherwise) to the extent that the then
outstanding principal indebtedness secured by the mortgage is not increased.
For the purposes of this opinion, the phrase "development costs" includes, without limitation,
all "hard" and "soft" costs with respect to acquisition and construction, all carrying costs, loan fees,
acquisition and construction period interest, start-up expenses, and all related costs and fees. The
terms "supplemented" and "supplement" include, without limitation, any spreader, consolidation,
substitution, severance, restatement and/or extension.
The Project Site is located in the Borough of Manhattan, City of New York. It is generally
bounded by West 125th Street on the south, Malcolm X Boulevard on the east, and by West 126th
Street on the north. The Project Site is currently divided into three parcels having two different
owners: New York State, acting through the Office of General Services (“OGS”) and the ESDC.
The Project Site is a portion of the Upper Manhattan Empowerment Zone. The Project contemplates
the acquisition of the entire Project Site by ESDC to cause the development of a 130,000-square foot
retail shopping center. The Project also includes construction of infrastructure necessary for the
future development of an approximately 200,000-square foot multi-story tower atop a portion of the

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retail base. The tower is expected to include 100,000 square feet of office space and a 100,000­
square foot hotel. ESDC has adopted and affirmed the General Project Plan.
The Project seeks to implement a range of public policy objectives including:
(1) The creation of sustainable jobs, thereby increasing business activity within the region;
the creation of new sustainable physical development; and stimulation of related economic
growth in the surrounding community.
(2) The expansion of the City’s and State’s tax base by opening hitherto underdeveloped
areas, generating new employment and business opportunities, and increasing potential
revenue generation.
(3) The removal of the substandard and unsanitary conditions that currently impede effective
and economic use of the Project Site and to replace these conditions with a viable
commercial development. As noted in The Harlem Center General Project Plan, dated
August 17, 2000, the Project Site is an area that has unsanitary and substandard conditions
and tends to impair or arrest the sound growth and development of the municipality.
Under the contemplated arrangements, ESDC will acquire leasehold title to part of the
Project Site from OGS and retain fee ownership in another portion during the construction period.
Harlem Center LLC will construct the commercial buildings on the site in accordance with the
General Project Plan and lease the improvements from ESDC. Any payments under the lease will
inure to the benefit of ESDC.
The contemplated financing arrangements for the Project are as follows. A portion of the
Project development costs will be funded by a Metropolitan Economic Revitalization Fund loan from
ESDC. The developer will borrow additional funds from sources (“Lenders”) other than ESDC,
which funds will be used for Project development costs. This borrowing will be secured by one or
more mortgages against the developer’s leasehold interest. ESDC’s fee interest will not be
encumbered by these mortgages. ESDC will initially be a named mortgagee and will record the
mortgages. Although ESDC will be named as a mortgagee, all of the rights under the mortgages will
inure to the benefit of the Lenders who will for all purposes be the beneficial owners of the
mortgages. Upon recording the mortgages, ESDC will assign to the Lenders all of ESDC’s right,
title and interest in and to the mortgages. After assigning its interest to the Lenders, ESDC will
continue to hold fee title, and will have enforcement rights under the lease.
After ESDC initially records the mortgages and assigns its interest to the Lenders, the
mortgages may from time to time be further assigned, supplemented, modified, or amended and, in
any such event, appropriate instruments reflecting such assignment, supplement, modification or
amendment will be recorded. For example, in accordance with customary mortgage financing

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practices, mortgages securing construction financing may be assigned, supplemented, modified and
converted to permanent financing upon completion of construction or the expiration of the term of
the initial loans. Permanent loans may be refinanced or assigned by one lender to another. The
identity of the mortgagor may also change either by reason of the assignment of the
lessee/mortgagor’s interest to an affiliate or to an unrelated person.
Applicable Law
Article 11 of the Tax Law imposes taxes on the recording of mortgages of real property
measured by the principal debt or obligation secured or which under any contingency may be secured
by the mortgage. Section 252 of Article 11 of the Tax Law, which sets forth the preponderance of
the exemptions from the mortgage recording tax, provides, with certain exceptions not relevant here,
that "[n]o mortgage of real property situated within this state shall be exempt, and no person or
corporation owning any debt or obligation secured by mortgage of real property situated within this
state shall be exempt, from the taxes imposed by this article by reason of anything contained in any
other statute."
Even though section 252 of the Tax Law does not provide a specific exemption for the
operations of UDC, it is well established that State agencies enjoy an immunity from taxation
independent of the statutory exemptions listed in section 252 of the Tax Law for property utilized
in the public interest. (New York State Urban Development Corp., Adv Op Comm T&F, March
10, 1993, TSB-A-93(4)-R.)
Subdivision (1) of section 6254 of the New York State Urban Development Act (the UDC
act) states in pertinent part as follows:
[t]here is hereby created the New York State urban development corporation.
The corporation shall be a corporate governmental agency of the state, constituting
a political subdivision and public benefit corporation. . . .
In addition, subdivision (2) of section 6262 of the UDC Act states:
[t]he corporation may transfer to any subsidiary corporation any moneys, real
or personal or mixed property or any project in order to carry out the purposes of this
act. Each such subsidiary corporation shall have all the privileges, immunities, tax
exemptions and other exemptions of the corporation to the extent the same are not
inconsistent with the statute or statutes pursuant to which such subsidiary was
incorporated. . . .

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In a March 29, 1913, opinion, the Attorney General opined that no mortgage recording tax
was due when New York State acted as mortgagor and quoted the following passage from Matter
of Hamilton, 148 NY 310, 313-314:
The property held by the state, or by any of its municipal divisions, for public
purposes, is not, and never has been, subject to taxation . . . The end and object of all
taxation is to raise revenue for the purpose of defraying the expenses of government,
and since no revenue could be raised by imposing taxes on property owned by the
state itself, or by any of its political divisions, such property is in no just or practical
sense the subject of taxation. . . .
This principle has been applied in exempting from the mortgage recording tax the recording
of mortgages on property the legal title of which is held by an industrial development agency and
the beneficial ownership of which is held by a non-exempt private party. (See 1982 Opns St Comp
No. 82-188, p 240; One Park Place Associates, Adv Op St Tx Comm, June 18, 1982,
TSB-A-82(1)(M) and New York State Urban Development Corp., supra.)
In Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 AD2d 330, 334, in
acknowledging that a $45 million mortgage secured by the Waldorf-Astoria hotel was exempt from
the mortgage recording tax because the mortgagee (the New York State Employees' Retirement
System) was a New York State agency, the court stated: "as a State agency, the Retirement System
enjoys an immunity from taxation independent of the statutory exemptions listed in Section 252 of
the Tax Law. . . ."
Furthermore, Section 6272 of the UDC Act provides, in pertinent part, that:
[t]he exercise of the powers granted by this act will be in all respects for the
benefit of the people of this state . . . and will constitute the performance of an
essential function . . . [UDC] and its subsidiaries shall not be required to pay any
taxes, other than assessments for local improvements, upon or in respect of a project
or of any property or moneys of [UDC] or any of its subsidiaries, levied by any
municipality or political subdivision of the state, nor shall [UDC] or its subsidiaries
be required to pay state taxes of any kind, and [UDC], its subsidiaries, projects,
property and moneys . . . shall at all times be free from taxation of every kind by the
state and by the municipalities and all other political subdivisions of the state. . . .
Section 6283 of the UDC Act states: "[i]nsofar as the provisions of this act are inconsistent
with the provisions of any other law, general, special or local, the provisions of this act shall be
controlling."

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Also, Section 6284 of the UDC Act provides: "[t]his act, being necessary for the welfare of
the state and its inhabitants, shall be liberally construed so as to effectuate its purposes."
Consistent with the legislative mandate of the UDC Act, courts have given liberal
interpretation to its tax exemption provisions. For example, in Wein v. Beame, 43 N.Y.2d 326, the
New York Court of Appeals upheld an exemption from real property taxes as applied to the
Commodore Hotel property in Manhattan. The hotel had been sold to ESDC for one dollar, then
leased back to the seller for 99 years. Arguments that ESDC had no real interest in the property, and
was a "straw man" brought into the project solely to provide a tax exemption, were rejected. The
court stated:
It is not for us to speculate as to the motive for UDC'S participation, nor to
delineate the amount of active participation which is necessary to denominate a
particular project a UDC project. Here, UDC will be the owner of the building, and
it is enough that UDC has to combat otherwise inevitable urban blight, and which is
thus clearly in accordance with the benign purposes of the Legislature in creating
UDC. . . . (emphasis added)
An apparent inconsistency exists between the Tax Law and the UDC Act. Where a conflict
exists between two enactments relating to the same subject matter, the latter specific enactment
governs the earlier general enactment. (Williamsburgh Power Plant Corp. v. City of New York,
255 App Div 214, affd 280 NY 551 and New York State Urban Development Corp., supra.)
As the pertinent provisions of section 252 of the Tax Law as cited previously in this opinion
were enacted in 1909, they must yield to the exemption provisions contained in the law creating
UDC which were enacted in 1968.
Furthermore, the UDC Act gives Petitioner the power to make mortgage loans, secured by
first mortgage liens. Having this power implies that Petitioner may also perform the activity of
recording mortgages. Section 253 of the Tax Law imposes the mortgage recording tax on the
exercise of the privilege of recording a mortgage not on the mortgage itself, as property. (Franklin
Society for Home Building and Savings v. Bennett, 282 NY 79; Matter of Silberblatt, Inc. v. Tax
Comm, 5 NY2d 635; and One Park Place Associates, and New York State Urban Development
Corp., supra.)
Also, in an informal opinion of the Attorney General, dated March 7, 1956, it was stated that:
[i]t should be noted that section 257 of Article 11 of the New York State Tax
Law is silent as to which party to the mortgage shall pay the tax. Under its terms the
taxes shall be payable on the recording of each loan subject to tax so that the party

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who records is the one upon whom the tax is imposed . . . . (1956 Atty Gen [Inf
Opns] 27, at 28.)
Furthermore, Section 6272 of the UDC Act, specifically provides that Petitioner or its
subsidiaries shall not be "required to pay taxes of any kind" and Petitioner, its subsidiaries, projects,
and moneys "shall at all times be free from taxation of every kind by the state and by the
municipalities and all other political subdivisions of the state."
Also, Section 255 of the Tax Law provides, in pertinent part, as follows:
[i]f subsequent to the recording of a mortgage on which all taxes, if any,
accrued under this article have been paid, a supplemental instrument or mortgage is
recorded for the purpose of correcting or perfecting any recorded mortgage, or
pursuant to some provision or covenant therein, or an additional mortgage is recorded
imposing the lien thereof upon property not originally covered by or not described
in such recorded primary mortgage for the purpose of securing the principal
indebtedness which is or under any contingency may be secured by such recorded
primary mortgage, such additional instrument or mortgage shall not be subject to
taxation under this article, unless it creates or secures a new or further indebtedness
or obligation other than the principal indebtedness or obligation secured by or which
under any contingency may be secured by the recorded primary mortgage. . . .
Also, Section 250 of the Tax Law provides that "[a] contract or agreement by which the
indebtedness secured by any mortgage is increased or added to, shall be deemed a mortgage of real
property for the purpose of this article, and shall be taxable as such upon the amount of such increase
or addition."
In addition, once a mortgage has been given and recorded, the recorded primary mortgage
may be changed by a supplemental mortgage and, under the provisions noted above, no additional
recording tax will be due as long as the amount secured remains the same. (City of New York v.
State Tax Commission, 130 AD2d 890, 891 and New York State Urban Development Corp., supra.)
Conclusions
Based on the foregoing, it is concluded that the mortgage recording tax is not due upon the
recording of any mortgage recorded in connection with the Project, if ESDC is named mortgagee
(whether as trustee, agent, nominee or otherwise) and ESDC presents the mortgage for recording.
Also, to the extent that the mortgage continues to secure the same principal debt or
obligation, the recording of any assignment, supplement, modification or amendment of a mortgage
described in the preceding paragraph is exempt from the mortgage recording tax, either because such

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instrument does not create a new mortgage subject to tax under section 253 of the Tax Law, or
because such instrument constitutes a "supplemental mortgage" under Section 255 of the Tax Law.
(New York State Urban Development Corp., supra.) To the extent that a new or further indebtedness
were secured in conjunction with the recording of any assignment, supplement, modification or
amendment of such mortgage, mortgage recording tax would be imposed only with respect to any
new or further indebtedness, and then only if mortgage recording tax would otherwise have been
required to be paid on such new or further indebtedness.

DATED: April 12, 2001
/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

NOTE:

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.