Two separately-owned residential housing cooperative corporations, each owning one tower of a two-tower building complex, want to legally merge under the Business Corporation Law so they can make joint decisions. After the merger, shareholders of the dissolving co-op will get equivalent new shares in the surviving co-op and keep occupying the same apartments under the same proprietary leases. Does this merger, or the resulting stock conveyance to the dissolving co-op's shareholders, trigger New York's Real Estate Transfer Tax?

Plain-English summary

Two legally separate residential housing cooperative corporations each owned one of two apartment towers built over a shared six-story office building base. Though separately owned with separate street addresses, the towers were operationally interdependent — sharing an entrance, lobby, heating plant, building staff, and management — but had no legal mechanism for joint decision-making, since each had its own independently elected board. Concerned that this structure risked dysfunction at a future critical moment, the two corporations wanted to legally merge under the New York Business Corporation Law, with one corporation (the "dissolving Petitioner") merging into the other ("Survivor") and ceasing to exist. Former shareholders of the dissolving corporation would receive newly issued Survivor stock, keeping the exact same number of shares and continuing to occupy their same apartments under their existing proprietary leases, with Survivor becoming their new lessor.

The Department's analysis had two independent taxable events. First, New York's Real Estate Transfer Tax (RETT) under Tax Law §1402(a) applies not just to conventional deed transfers but also to the "transfer or acquisition of a controlling interest" (50% or more of voting stock) in an entity holding real property, per Tax Law §1401(e)/(b). Because the merger transfers a 100% interest in the dissolving corporation's real property to Survivor, the merger itself is a taxable controlling-interest transfer. Ordinarily, mergers are taxed only once — the follow-on issuance of survivor shares to the dissolving corporation's former shareholders normally isn't separately taxed. But cooperative housing corporations are subject to a special rule: Tax Law §1405-B(a) makes both the original issuance of cooperative stock tied to a proprietary lease, AND later transfers of that stock in connection with a proprietary lease, independently subject to RETT "notwithstanding" the controlling-interest definitions that would otherwise limit taxation to one event. Because the newly issued Survivor stock to the dissolving corporation's former shareholders is issued together with new proprietary leases (making Survivor their successor lessor), that issuance is a second, independently taxable event.

The Department also addressed whether the general Tax Law §1405(b)(6) exemption for a "mere change of identity or form of ownership" (with no real change in beneficial ownership) could shelter either step, given that shareholders end up owning roughly the same overall economic stake (each Petitioner's former shareholders end up owning about 50% of both towers combined, rather than 100% of their own tower alone). The Department held that exemption does NOT apply here, because it's expressly carved out for conveyances of cooperative dwellings to a cooperative housing corporation — and the merger, which delivers a 100% interest in the dissolving corporation's real property to Survivor (a cooperative housing corporation), fits that carve-out. However, to avoid true double taxation, the Department allowed a credit: to the extent the controlling-interest transfer on the merger itself represented a mere change of form (not a real change in beneficial ownership) for a given proportional share, the RETT already paid on that portion can be credited against the tax due on the new stock issuance to the dissolving corporation's former shareholders.

What this means for you

A co-op-to-co-op merger is taxed differently — and more heavily — than an ordinary corporate merger

The general RETT rule taxes a corporate merger's controlling-interest transfer only once. Cooperative housing corporations lose that benefit: Tax Law §1405-B(a) independently taxes both the controlling-interest transfer AND the new stock issued to former shareholders in connection with their proprietary leases, because the general mere-change-of-form exemption is carved out for conveyances of cooperative dwellings to a cooperative housing corporation.

A credit exists, but doesn't eliminate the second tax entirely

If you're structuring a co-op merger, budget for RETT liability on both the controlling-interest transfer and the new share issuance — the available credit only offsets the proportional part of tax that represents a genuine mere-change-of-form overlap, not the full amount.

Operational interdependence and governance concerns don't change the tax analysis

The co-ops' practical need to merge (shared physical plant, no joint decision-making mechanism, risk of dysfunction) was relevant to why they wanted to merge, but had no bearing on the RETT analysis, which turned entirely on the statutory mechanics of controlling-interest transfers and the cooperative-specific stock-issuance rule.

Common questions

Q: If two cooperative corporations merge and shareholders end up owning the same overall economic interest, doesn't that count as a tax-free "mere change of form"?
A: No. The general mere-change-of-form exemption (Tax Law §1405(b)(6)) is expressly inapplicable to conveyances of cooperative dwellings to a cooperative housing corporation, so a co-op merger doesn't get that shelter even where shareholders' aggregate economic stake doesn't really change.

Q: Is RETT only owed once in a corporate merger, like with ordinary (non-cooperative) corporations?
A: Not for cooperative housing corporations. Tax Law §1405-B(a) makes new cooperative stock issued in connection with a proprietary lease independently taxable, on top of the tax on the controlling-interest transfer in the merger itself.

Q: Is there any relief from paying RETT twice on essentially the same underlying real estate?
A: Yes, partially -- a credit is allowed against the tax on the new stock issuance, equal to the proportional part of the RETT already paid on the merger to the extent that portion represented a mere change of form rather than a real change in beneficial ownership.

Citations and references

Statutes and guidance:

• Tax Law §1402(a)
• Tax Law §1402-a(a)
• Tax Law §1401(e)
• Tax Law §1401(b)
• Tax Law § 1405-B(a)
• Tax Law §1405(b)(6)
• 20 NYCRR §575.6
• 20 NYCRR § 575.6(e)
• 20 NYCRR §575.8
• 20 NYCRR §575.8(c)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a11_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-11(1)R
Real Estate Transfer Tax
February 22, 2011

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M100617A

A petition received by the Department asks whether names redacted (the Petitioners), two legally
separate residential private housing cooperative corporations, will be subject to New York State Real
Estate Transfer Taxes (RETT) if the Petitioners legally merge.
We conclude that the legal merger of the Petitioners is a transfer or acquisition of a controlling
interest in an entity with an interest in real property subject to the RETT, and that the conveyance of the
original shares in Survivor to the former shareholders in the dissolving Petitioner after the merger is also
subject to the RETT. A credit will be allowed for a proportional part of the amount of any tax paid upon
the conveyance of the real property to Survivor to the extent that such conveyance of shares to the former
shareholders in the dissolving Petitioner effectuated a mere change of identity or form of ownership of
such property and not a change in the beneficial ownership of such property.
Facts
Petitioners are two residential housing cooperative corporations, each owning one of two towers
constructed over a six-story office building that serves as a common base. Although each tower is
separately owned and has a separate street address, from an operational point of view, the Petitioners are
interdependent. They constitute and operate as separate portions of the same structure, sharing a common
entrance, lobby, heating plant and other facilities. They also share building employees and management.
By necessity, all significant decisions regarding Petitioners’ physical plant and operational matters must
be made jointly. However, there is no legal vehicle for joint decision-making. Each of the Petitioners has
an independently elected board, and each may amend its governing corporate document without the
other’s consent. Petitioners believe that if this structure continues, there is a substantial probability that
there will be dysfunction at a future critical junction with time-sensitive decisions delayed to the
detriment of the cooperative apartment owners. Thus, Petitioners wish to merge legally in accord with the
New York Business Corporation Law (BCL). Under the merger plan, one Petitioner (the dissolving
Petitioner) would merge into the other Petitioner (Survivor) and go out of existence. One Petitioner has
slightly more apartments and more shares of stock allocated to its apartments than the other Petitioner, but
we do not know which Petitioner will become Survivor – the larger or the smaller. Former shareholders
of the dissolving Petitioner will receive newly issued stock in Survivor. After the merger, the
shareholders of Survivor will be identical to the shareholders of Petitioners prior to the merger. Each
shareholder will continue to own the same number of shares as he or she owned prior to the merger, and
each shareholder will continue to occupy his or her apartment pursuant to his or her respective existing
proprietary lease. For the shareholders of the dissolving Petitioner, Survivor will become the successor
lessor.
The buildings owned by the Petitioners were each constructed by the same developer and are
virtually identical in size and layout. Each tower was originally designed with 167 apartments and a total

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Real Estate Transfer Tax
February 22, 2011

of 967 rooms.1 In the course of their cooperative organization, the same methodology was used to
allocate shares to apartments in each tower, with 107,350 shares allocated to apartments in one tower and
110,950 shares to apartments in the other tower.
Analysis
New York State imposes a tax (known as the real estate transfer tax or RETT) on each
conveyance of real property or interest therein when the consideration exceeds five hundred dollars or a
fractional part thereof.2 An additional tax is imposed on each conveyance of residential real property or
interest therein when the consideration for the entire conveyance is one million dollars or more.3 A
conveyance of real property or interest therein is not limited to a conventional deed transfer, but also
includes the transfer or acquisition of a controlling interest in any entity with an interest in real property.4
“Controlling interest” means, in the case of a corporation, either fifty percent or more of the total
combined voting power of all classes of stock of such corporation, or fifty percent or more of the capital,
profits or beneficial interest in such voting stock of such corporation.5 The transfer or acquisition of a
controlling interest in a corporation occurs when a person, or group of persons acting in concert, transfers
or acquires a total of 50% or more of the voting stock in such corporation.6 In this case, the merger of one
Petitioner into the other Petitioner is a transfer of a controlling interest in a corporation that owns an
interest in real property, and as such, the RETT applies. Generally, in a merger, the RETT is applied only
once. The conveyance of shares in the surviving corporation to the shareholders in the dissolving
corporation is not taxed, either because a controlling interest in the survivor is not being conveyed or
because the tax is imposed only once when there is a transfer and an acquisition of a controlling interest
in the same transaction.7 However, the law contains specific rules regarding transactions involving
cooperative housing corporations.
The Tax Law provides that (1) the original conveyance of shares of stock in a cooperative
housing corporation in connection with the grant or transfer of the proprietary leasehold by a cooperative
corporation or cooperative plan sponsor, and (2) the subsequent conveyance by the owner thereof of such
stock in a cooperative housing corporation in connection with the grant or transfer of a proprietary
leasehold for a cooperative unit are also subject to the RETT.8 This tax is due notwithstanding the
definition of “controlling interest in §1401(b) of the Tax Law or anything to the contrary contained in
§1401(e).”9 Thus, the conveyance of the original issue of stock in Survivor, in connection with the grant
of a proprietary lease to the former shareholders in the dissolving Petitioner, is also subject to the RETT.
You have asked whether the conveyances pursuant to the merger constitute a mere change of
identity or form of ownership or organization where there is no change in beneficial ownership. After the
merger, each Petitioner will own shares representing approximately 50% of both towers rather than 100%
of one tower. This conveyance will constitute a mere change of form of ownership or organization
1

During construction, two of the apartments in one of the towers owned by a Petitioner were divided into two
separate apartments, so that tower now contains 169 apartments.
2
Tax Law §1402(a).
3
Tax Law §1402-a(a) .
4
Tax Law §1401(e).
5
Tax Law §1401(b).
6
20 NYCRR §575.6.
7
20 NYCRR § 575.6(e)
8
Tax Law § 1405-B(a) and 20 NYCRR §575.8.
9
Tax Law § 1405-B(a) and 20 NYCRR §575.8.

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Real Estate Transfer Tax
February 22, 2011

where there is no change in beneficial ownership for the prorated percentage of the total amount of
Survivor’s stock attributable to the tower previously owned by the dissolving Petitioner.
Section 1405(b)(6) of the Tax Law provides a RETT exemption for conveyances to effectuate a
mere change of identity or form of ownership or organization where there is no change in beneficial
ownership. However, that exemption does not apply in the case of conveyances of real property
comprising the cooperative dwellings to a cooperative housing corporation.10 Because the merger of
Petitioners entails the conveyance of a 100% interest in real property comprising the cooperative
dwellings owned by the dissolving corporation to Survivor, and in fact results in the real property being
owned by Survivor, it is the equivalent of a conveyance to a cooperative housing corporation of the real
property comprising the cooperative dwellings. As such, it does not qualify for the mere-change
exemption. A credit, however, may be allowed for the proportionate part of the amount of any tax paid
upon the conveyance of the controlling interest in the dissolving Petitioner to the Survivor, to the extent
that the conveyance effectuated a mere change of identity or form of ownership of such property and not a
change in the beneficial ownership of the property.11 This credit is allowed against the tax due for the
conveyance of the original issue of stock of the Survivor to the shareholders of the dissolving Petitioner.

DATED: February 22, 2011

NOTE:

10
11

/S/
DANIEL SMIRLOCK
Deputy Commissioner and Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set
forth therein and is binding on the Department only with respect to the person or entity to
whom it is issued and only if the person or entity fully and accurately describes all relevant
facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect
as of the date the Opinion is issued or for the specific time period at issue in the Opinion.

Tax Law §1405(b)(6).
§1405-B(a) of the Tax Law and 20 NYCRR §575.8(c).