We're an old-style membership housing association -- not a formally chartered cooperative corporation -- where each member owns one share of stock tied to their apartment and pays monthly maintenance. When a member sells their interest, do we owe New York Real Estate Transfer Tax the same way a formal co-op would, even though we're organized differently?

Plain-English summary

Parkside Association, a membership corporation formed in 1927, was the sole owner of a 41-unit apartment building at 549-561 41st Street in Brooklyn (40 residential units plus one superintendent unit), built by Norwegian immigrants and nicknamed "Finnish House." It was one of roughly fifty similarly structured buildings. Each apartment carried one share of Association stock of equal value, regardless of whether the unit had three or four bedrooms. Under the Association's bylaws, anyone of good moral character could become a member by buying one or more shares and agreeing to the Association's rules; members paid monthly charges the Board apportioned to cover building maintenance; and when a member's interest transferred by sale, gift, or inheritance, the Association could either accept the recipient as a new member or buy out the interest itself.

Parkside had already been requiring members to file Form TP-584 and pay transfer tax on member-to-member conveyances, but asked the Department to confirm whether it was actually subject to the tax as amended effective July 1, 1989 (which extended the transfer tax to cooperative apartment conveyances) -- since Parkside wasn't formally organized as a "cooperative housing corporation" or "cooperative corporation" under the statutes that specifically define those terms (the Business Corporation Franchise Tax Regulations' cooperative-housing-corporation definition, or the Cooperative Corporations Law's cooperative-corporation definition), and it didn't grant members formal "proprietary leases."

The Department looked past the formal labels to function: quoting a legal treatise (19 N.Y. Jur. 2d, Condominium and Co-operative Apartments § 51) explaining that in a typical co-op, the stock interest is "incidental," with the real substance being a long-term proprietary lease giving the shareholder a right to occupy a specific apartment, subject to forfeiture-type restrictions similar to any tenancy. Citing an analogous New Jersey case (Bluvias v. Winfield Mutual Housing Corporation) that treated a housing corporation as a cooperative even where owners held a mutual ownership contract instead of stock certificates, the Department held that Parkside membership functions exactly like a proprietary lease -- membership entitles each member to occupy a specific apartment, conditioned on paying monthly maintenance, just as a co-op shareholder occupies under a proprietary lease conditioned on maintenance payments. Because Parkside functions as a cooperative housing corporation, conveyances of its membership shares -- as allocated to each apartment -- are subject to the transfer tax under § 1405-B(a).

What this means for you

Older mutual-benefit or membership-based housing associations not formally chartered as co-ops

Don't rely on your organization's formal corporate label or the absence of a document called a "proprietary lease" to escape transfer tax. If membership functionally gives each member an exclusive right to occupy a specific unit, conditioned on paying maintenance -- the same economic substance as a proprietary lease -- the Department will treat transfers of that membership interest as taxable cooperative-housing-corporation stock conveyances, regardless of the entity's formal 1920s-era organizational structure.

Real estate attorneys advising unconventional or legacy housing cooperatives

This is a useful anchor for the functional (substance-over-form) test the Department applies to identify a "cooperative housing corporation" for transfer tax purposes when the entity doesn't fit neatly into the Business Corporation Franchise Tax Regulations' or Cooperative Corporations Law's formal definitions -- the touchstone is whether the ownership interest functions like a proprietary lease (exclusive occupancy right tied to the interest, conditioned on maintenance payments).

Accountants and tax professionals

This 1990 ruling interprets the transfer tax as amended effective July 1, 1989 to reach cooperative apartment conveyances for the first time -- confirm current guidance if advising on a similarly unconventional housing entity, since this functional test could interact with other exemptions (e.g., the Mitchell-Lama and co-op conversion doctrines) depending on the entity's history.

Common questions

Q: Does our housing association owe transfer tax on member share transfers if we're not formally organized as a "cooperative housing corporation"?
A: Possibly yes -- the Department looks at whether membership functions like a proprietary lease (an exclusive right to occupy a unit, conditioned on maintenance payments), not just at your formal corporate structure or documentation.

Q: What makes an interest function like a proprietary lease even without that exact document?
A: An exclusive right to occupy a specific unit that arises solely from owning the membership/stock interest, conditioned on paying assessed maintenance charges -- the same practical relationship a proprietary lease creates in a conventional co-op.

Q: Can I rely on this ruling for my own housing association?
A: No. This advisory opinion binds the Department only as to the petitioner and the specific facts described -- your organization's bylaws and practices need their own review.

Citations and references

Statutes, regulations, and case law:

• Section 1401(e) of the Tax Law (definition of "conveyance")
• Section 1401(b) of the Tax Law (definition of "controlling interest")
• Section 1405-B(a) of the Tax Law (transfer tax applies to cooperative housing corporation stock conveyances tied to a proprietary leasehold)
• Section 3-1.2 of the Business Corporation Franchise Tax Regulations (cooperative housing corporation definition, franchise tax context)
• Section 3(c) of the Cooperative Corporations Law (definition of "cooperative corporation")
• 19 N.Y. Jur. 2d, Condominium and Co-operative Apartments § 51 (proprietary lease as the substance of a co-op stock interest)
• Bluvias v. Winfield Mutual Housing Corporation, 224 N.J. Super. 515, 540 A.2d 1324 (functional cooperative-housing-corporation treatment absent formal stock certificates)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a90_7r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (7) R
Real Estate Transfer Tax
July 11, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M900419A

On April 19, 1990, a Petition for Advisory Opinion was received from Parkside Association,
549-561 41st Street, Brooklyn, New York 11232.
The issue raised by Petitioner, Parkside Association, is whether it is subject to the Real
Property Transfer Tax (the "transfer tax") as amended July 1, 1989 to include conveyances of
cooperative apartments.
Petitioner, a membership corporation since 1927, is the sole owner of a forty-one unit
apartment building located at 549-561 41st Street, Brooklyn, New York. The building consists of
forty residential units and one superintendent unit. Each apartment is allotted one share of stock of
equal value, although the building consists of three and four bedroom apartments.
The building is one of approximately fifty such buildings which have the same ownership
structure. It was constructed in the early part of the twentieth century by Norwegian immigrants and
nicknamed "Finnish House". Currently whenever a member wishes to convey his interest in the
building, Petitioner requires him to file Form TP-584, Combined Real Property Transfer Gains Tax
Affidavit, Real Estate Transfer Tax Return and Credit Line Mortgage Certificate, and pay the
applicable transfer tax.
Article II of the By-laws of the Petitioner, sets forth, in part, that the purpose of Parkside
Association, Inc. is to promote the improvement of the housing conditions of its members by
providing for the erection for them and their families of modern apartments.
Furthermore, Article III of the By-laws provides, in part, that membership shall be open to
the following:
"1. Any person of good moral character may become a member of
this Association, if he agrees to abide by the rules and the decisions
of the Association, and provided that the candidate shall buy one or
more shares in the property of this Association and pay all the
payments determined by the Association.

2. Each member shall receive a Membership Book where all his
   payments shall be recorded and receipted by the officers of the
   Association.
   TP-9 (9/88)

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Real Estate Transfer Tax
July 11, 1990

3. Whenever an ownership, interest in, or any right to a property of
   the Association is transferred by a member, or some other person,
   through sale, gift, or inheritance, the Association may accept the
   receiver thereof as its member or buy from such person the ownership
   or other rights or interests by paying him for such rights at the value
   obtaining at the time when such sale or transfer is made." (emphasis
   added)
   In addition, Article IX of the By-laws as relating to the real property, provides, in part, as
   follows:
   "Inasmuch as the principal purpose of the Association is to buy and
   receive lands and erect apartment buildings and prepare apartments
   for its members, the business shall be conducted according to the
   following rules:
   a) Every member shall take his apartments on the condition that he
   will comply with all the rules of the Association, which constitute an
   agreement between the Association and such a member.
   b) The Board of Directors shall determine the maintenance expenses
   of the building and apportion to every apartment a relative equitable
   share of such expenses. Every member shall pay the share charged
   against his apartment monthly at a time and in the manner to be
   ordered by the Board of Directors." (emphasis added)
   The transfer tax is imposed on each conveyance of real property or interest therein at the time
   that the instrument effecting the conveyance is delivered by a grantor to a grantee when the
   consideration for the conveyance exceeds five hundred dollars.
   Section 1401(e) of the Tax Law defines the term "conveyance" to mean:
   "the transfer or transfers of any interest in real property by any
   method, including but not limited to sale, exchange, assignment,
   surrender, mortgage foreclosure, transfer in lieu of foreclosure,
   option, trust indenture, taking by eminent domain, conveyance upon
   liquidation or by a receiver, or transfer or acquisition of a controlling
   interest in any entity with an interest in real property. Transfer of an
   interest in real property shall include the creation of a leasehold or
   sublease only where (i) the sum of the term of the lease or sublease
   and any options for renewal exceeds forty-nine years, (ii) substantial
   capital improvements are or may be made by or for the benefit of the
   lessee or sublessee, and (iii) the lease or sublease is for

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Real Estate Transfer Tax
July 11, 1990
substantially all of the premises constituting the real property.
Notwithstanding the foregoing, conveyance of real property shall not
include the creation, modification, extension, spreading, severance,
consolidation, assignment, transfer, release or satisfaction of a
mortgage; a mortgage subordination agreement, a mortgage
severanceagreement, an instrument given to perfect or correct a
recorded mortgage; or a release of lien of tax pursuant to this chapter
or the internal revenue code." (emphasis added)
Section 1401(b) of the Tax Law defines the term "controlling interest" to mean:
"(i) 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, and (ii)
in the case of a partnership, association, trust or other entity, fifty
percent or more of the capital, profits or beneficial interest in such
partnership, association, trust or other entity."
Section 1405-B of the Tax Law provides, in part, as follows:
"(a) Notwithstanding the definition of "controlling interest" contained
in subdivision (b) of section fourteen hundred one of this article or
anything to the contrary contained in subdivision (e) of section
fourteen hundred one of this article, the tax imposed by this article
shall apply to (1) the original conveyance of shares of stock in a
cooperative housing corporation in connection with the grant or
transfer of a proprietary leasehold by the cooperative corporation or
cooperative plan sponsor, and (2) the subsequent conveyance of such
stock in a cooperative housing corporation in connection with the
grant or transfer of a proprietary leasehold by the owner thereof...
(emphasis added)
The term "cooperative housing corporation" is not defined in the Real Property Transfer Tax
Law or in the regulations adopted pursuant thereto. However Section 3-1.2 of the Business
Corporation Franchise Tax Regulations defines the term for, Corporation Franchise Tax purposes,
as follows:
(b) For the purposes of this section a cooperative housing corporation means
a corporation:
(1) having one and only one class of stock outstanding (stock which is disregarded
under section 216 of the Internal Revenue Code will be disregarded);

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(2) each of the stockholders of which is entitled, solely by reason of his ownership
of stock in the corporation, to occupy for dwelling purposes a house, or an apartment
in a building, owned or leased by such corporation;
(3) no stockholder of which is entitled (either conditionally or unconditionally) to
receive any distribution not out of earnings and profits of the corporation except on
a complete or partial liquidation of the corporation; and
(4) 80 percent or more of the gross income of which for the taxable year is derived
from tenant-stockholders.
Furthermore, section 3(c) of the Corporative Corporations Law defines the term "cooperative
corporation", in pertinent part, to be:
The terms "cooperative," "cooperative association" and "cooperative
corporation" mean a corporation organized under this chapter, or
heretofore organized under any special or general law of this state, for
the cooperative rendering of mutual help and service to its members.
A cooperative shall be either a general cooperative, a membership
cooperative, an agricultural cooperative as defined in article six of
this chapter or a worker cooperative as defined in section eighty-one
of this chapter.
Section B(d) of the Cooperative Corporations Law adds that:
A cooperative corporation shall be classed as a non-profit
corporation, since its primary object is not to make profits for itself
as such, or to pay dividends on invested capital, but to provide service
and means whereby its members may have the economic advantage
of cooperative action, including a reasonable and fair return for their
product and service." (emphasis added)
Furthermore, 19NY Jur 2d, Condominium and Co-operative Apartments § 51, notes that:
The primary interest of every stockholder in a co-operative housing
corporation is a long-term proprietary lease, also known as an
occupancy agreement. The stock interest involved has been described
as incidental and affording the practical means of combining an
ownership interest with a method for sharing proportionately the
assessments for maintenance and taxes.
The lessee of the proprietary lease is in much the same position as any
other tenant under usual leasing arrangements. By the proprietary

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lease, the shareholder tenant acquires a right to occupy a particular
apartment. He is only a lessee and his property rights are restricted.
The nature of his tenancy is a leasehold coupled with forfeiture
provisions, usualty in the nature of a right of re-entry by the co­
operative corporation. (emphasis added)
In a New Jersey case, Bluvias v. Winfield Mutual Housing Corporation, 224 N.J. Super. 515,
540 A.2d 1324, the court held that a housing corporation that owned all property in township with
exception of streets was a cooperative housing corporation, even though owners received mutual
ownership contract rather than stock certificates since the certificate of incorporation clearly
recognized that owners were members of corporation, members voted to control corporation's
policies and had right to amend agreements restricting their rights.
Accordingly, Petitioner is a cooperative housing corporation for purposes of the Transfer
Tax. Although Petitioner may not grant proprietary leases per se in the building, it does afford
membership in Petitioner which entitles each member to an apartment in the building for which he
must pay monthly maintenance charges. Such right to occupancy is the same right that would be
afforded a lessee under a proprietary lease, conditional on the payment of monthly maintenances
charges. Therefore, the conveyance of shares in Petitioner, as allocated to each apartment, is subject
to the transfer tax.

DATED:

July 11, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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