One month after getting a ruling on our IDA condo conveyance-leaseback structure for our tenant's financing benefits, we realized the initial condominium units will actually be conveyed to the IDA in phases over time as construction is completed, and we want the ruling to also cover our affiliates, nominees, successors, and assigns. Does this refined, phased structure change the tax-exempt conclusions?

Plain-English summary

This opinion is a refinement of TSB-A-93(1)R, issued to The Chase Manhattan Bank, N.A. exactly one month earlier (January 7, 1993) on the same petition about the same building, One New York Plaza, and the same underlying deal: converting the building into condominium units and conveying the units occupied by tenant Prudential Securities Incorporated (PSI) to the New York City Industrial Development Agency (IDA) so PSI could capture IDA financing and tax benefits, with the IDA leasing the units back to Chase and Chase subleasing to PSI.

Two things changed between the two opinions. First, the facts were refined to reflect phasing: rather than a single upfront conveyance, the initial condominium units would actually be conveyed to the IDA over a period of time as construction obligations are completed, with each such conveyance separately called an "Original Conveyance." For units not yet conveyed to the IDA, Chase would first lease them directly to PSI under the Chase-Prudential Lease, and only convey them to the IDA (and lease them back) once construction was finished. Second, the petition's scope was broadened to cover Chase acting "on behalf of itself, its affiliates, nominees, successors or assigns," and similarly broadened references to PSI's affiliates, nominees, successors, and assigns.

Despite these refinements, the Department reached the same exempt conclusions as the original opinion on all five issues: the phased conveyances (each treated the same as the "Original Conveyance" in the first ruling), any reconveyance after a Pre-Date Termination, the IDA-Chase lease in all its forms, the Chase-Prudential lease (under 49 years, no purchase option), and the absence of any Mortgage Recording Tax on these title-only transfers. The phasing didn't change the beneficial-ownership analysis -- Chase retained all the benefits and burdens of ownership of each unit whether it was conveyed immediately or after a construction delay.

What this means for you

Landlords whose IDA conveyance-leaseback deal involves conveying units in phases over time (e.g., tied to construction completion)

Splitting a single planned IDA conveyance into multiple phased conveyances -- each occurring as construction milestones are met -- doesn't change the tax analysis. Each phased conveyance is analyzed the same way as a single upfront conveyance would be, as long as the landlord retains beneficial ownership throughout each phase (including any interim period where the landlord leases not-yet-converted space directly to the tenant before conveying it to the IDA).

Parties revising an advisory opinion request after facts change

This is a useful example of how the Department handles a follow-up petition on the same underlying transaction: rather than treating the refined facts as a wholly new inquiry, the Department reissued essentially the same analysis and conclusions, adapted to the corrected facts -- see the companion TSB-A-93(1)R for the full regulatory analysis (lease/sublease rules, IDA exemption regulations, and the Mortgage Recording Tax "deed is not a mortgage" analysis under Macy & Co. v. Bates), which this opinion does not repeat in different substance.

Accountants and tax professionals

Always check whether a same-petitioner, same-transaction follow-up opinion exists before relying on an older one as final -- here, both opinions reach the same result, but that isn't guaranteed in every case where facts are refined between filings.

Common questions

Q: Does conveying condo units to an IDA in phases (as construction finishes) instead of all at once change the tax analysis?
A: No. Each phased conveyance is analyzed the same way as a single conveyance would be, as long as the landlord retains all benefits and burdens of ownership throughout.

Q: How does this opinion relate to TSB-A-93(1)R?
A: It's a refinement of the same petition, issued a month later, correcting the facts to reflect phased conveyances and broadening the scope to the petitioner's affiliates, nominees, successors, and assigns -- reaching the identical exempt conclusions.

Q: Is the Real Property Transfer Gains Tax analysis in this ruling still relevant?
A: No, it was repealed for transfers on or after June 15, 1996. The RETT and mortgage tax analyses remain current.

Q: Can I rely on this ruling for my own IDA financing transaction?
A: No. This advisory opinion binds the Department only as to the petitioner (and its named affiliates, nominees, successors, and assigns) and the specific facts described.

Citations and references

Regulations and prior opinions: see the companion opinion TSB-A-93(1)R (issued one month earlier on the same petition) for the full regulatory analysis, including:

• Section 590.5 of the Gains Tax Regulations (lease/sublease as a transfer; 49-year and 90%-of-premises tests)
• Section 590.67 of the Gains Tax Regulations (IDA project transfers)
• Section 575.7 of the Transfer Tax Regulations (taxable lease/sublease creation)
• Section 575.11 of the Transfer Tax Regulations (examples of taxable/exempt IDA conveyances)
• Section 250 of the Tax Law (definition of "mortgage")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a93_1_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (1.1)R
Real Estate Transfer Tax
Real Property Transfer
Gains Tax
February 8, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M921207B

On December 7, 1992, a Petition for Advisory Opinion was received from The Chase
Manhattan Bank, N.A., Real Estate Resources, 4 Chase MetroTech Center, Brooklyn, New York
11245.
The issues raised by Petitioner, The Chase Manhattan Bank, N.A. on behalf of itself, its
affiliates, nominees, successors or assigns, are:

1. Whether the conveyance of title to a condominium unit or units by Petitioner to the New
   York City Industrial Development Agency its successors or assigns (hereinafter "IDA") in
   connection with an Original Conveyance, in connection with a new conveyance following a Pre-Date
   Termination, in connection with Prudential Securities Incorporated its affiliates, nominees,
   successors or assigns (hereinafter "Prudential") lease of additional space or any similar conveyance,
   will be subject to New York State Real Property Transfer Gains Tax (hereinafter the "gains tax") or
   New York State Real Estate Transfer Tax (hereinafter the "transfer tax").
2. Whether an IDA Title Termination (including reversion of fee title to the IDA units to
   Petitioner) with respect to any or all of the IDA condominium units, will be subject to gains tax or
   transfer tax.
3. Whether the creation of the IDA-Petitioner lease or portion thereof whether in connection
   with an Original Conveyance, in connection with a new conveyance following a Pre-Date
   Termination, in connection with Prudential's lease of additional space or the termination of the IDAPetitioner lease or portion thereof upon the expiration of its term or upon an IDA Title Termination
   with respect to any or all of the IDA Units, or any similar creation or termination, will be subject to
   gains tax or transfer tax.
4. Whether the creation of the Petitioner-Prudential Lease or portion thereof in connection
   with its original creation, in connection with a new conveyance following a Pre-Date Termination
   or in connection with Prudential's lease of additional space will be subject to gains tax or transfer
   tax.
5. Whether any of the transactions described herein between Petitioner and the IDA will
   result in the imposition of any New York State or New York City mortgage recording tax.
   Petitioner currently owns the fee interest in the parcel located in the Borough of Manhattan,
   City, County and State of New York, identified on the tax maps as Block 4, Lot 1 (the "Land") upon
   which is located the building having the street address One New York Plaza, New York, New York
   (the "Building"). (The Land and the Building together are hereafter referred to as the "Property").

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The Building, which is owned by Petitioner, was completed in approximately 1970 and is comprised
of approximately 2,400,000 feet of commercial space located on approximately 50 floors.
The basic economic transaction is a lease by Petitioner to Prudential for the use of
approximately 1,000,000 square feet in the Building. This space will generally consist of the rentable
areas on the second through sixteenth floors of the Building plus miscellaneous areas located
elsewhere in the Building, including without limitation areas on the ground floor and on the first
Concourse level.
In connection with this lease, Petitioner has been informed that it will be necessary for
Petitioner to transfer to the IDA title to the portion of the property occupied by Prudential. As part
of the arrangement to induce Prudential to retain its offices in New York City, it is anticipated the
New York City (the "City") will extend substantial tax and other benefits (the "Benefits") to reduce
Prudential's costs of operating and maintaining its offices in the City. In this connection, it is
expected that Prudential will obtain IDA financing from the IDA and other Benefits by entering into
a sub-sublease with the IDA, which will sub-sub-sublease the space back to Prudential. It is
anticipated that an additional Benefit, however, will be the arrangement for a real estate tax
abatement on the space to be occupied by Prudential, with the agreement that certain payments in
lieu of real estate taxes ("PILOT Payments") will be made. Petitioner has been informed that as a
technical matter, the only way for such real estate tax Benefits (and perhaps some of the other
Benefits) to be extended is for the IDA to take title to the real property to be occupied by Prudential.
This will necessitate that Petitioner transfer to the IDA title to the portion of the Property to be
occupied by Prudential, which portion the IDA will lease back to Petitioner.
The IDA will not take title to the entire Property. Instead, a condominium will be created at
the Property pursuant to which, in general, each floor will become a separate condominium unit. The
units to be occupied by Prudential will be conveyed by Petitioner to the IDA. The Units which are
from time to time owned by the IDA are herein referred to as the "IDA Units" The remaining Units
in the Building which from time to time are not IDA Units are herein referred to as the "Petitioner's
Units"
The proposed structure will be implemented as follows:
1.

Separate condominium units will be created pursuant to a Declaration of
Condominium.

2.

Petitioner will convey title to the IDA of the initial units comprising the IDA Units
for no consideration (the "Original Conveyance"). The initial units are expected to
be conveyed over a period of time as certain construction obligations are completed.
Each such conveyance is referred to herein as an Original Conveyance.

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3.

Concurrently, with each aforesaid conveyance, IDA will net lease the respective IDA
Units to Petitioner for a nominal (or no) net rent (the "IDA-Petitioner Lease"), with
the exception of certain specific obligations with respect to PILOT Payments.

4.

Petitioner will, in turn, sublet all of the aforesaid IDA Units to Prudential (the
"Petitioner-Prudential Lease") for a rent negotiated between Petitioner and
Prudential. With respect to initial units that are not immediately conveyed by
Petitioner to the IDA, Petitioner will first lease such units to Prudential and then, as
the construction obligations are complete, will convey such units to the IDA and
lease them back from the IDA, subject to Petitioner-Prudential Lease.

5.

Prudential and the IDA will enter into certain transactions as to which Petitioner is
not a party and has no first hand knowledge as to their nature. Petitioner has been told
that pursuant to those transactions, Prudential will receive Benefits.

It is currently contemplated that Petitioner will convey to the IDA title to the IDA Units. The
IDA's title will end automatically and without further act on a certain date (the "Date"), or earlier
upon the occurrence of certain events. (Such ending of the IDA's title with respect to any or all units
or the ending of the IDA's title with respect to any or all units, through the delivery of a deed are
referred to herein as an "IDA Title Termination" with respect to such unit or units. An IDA Title
Termination that occurs on the Date is referred to herein as an "On-Date Termination." An IDA Title
Termination that occurs prior to the Date is referred to herein as a "Pre-Date Termination.")
The precise list of events that would cause Pre-Date Termination is still being negotiated
among the parties. Among the events being considered by the parties are (i) the termination of the
Petitioner-Prudential Lease, (ii) the election by the IDA to end the IDA title, (iii) the IDA Units
becoming subject to real estate taxes, and (iv) the election by Petitioner to end the IDA title, which
election may only be made under certain circumstances, such as upon Petitioner making PILOT
Payments due to Prudential's failure to do so. In addition, it is possible that in the case of some or
all of these events the ending of the IDA's title will be accomplished by the IDA executing and
delivering to Petitioner a deed. A Pre-Date Termination may occur with respect to some or all of the
IDA Units.
Upon an IDA Title Termination with respect to any unit, whether an On-Date Termination
or a Pre-Date Termination, Petitioner will have full fee simple title to such unit. In addition, the IDAPetitioner Lease will no longer apply to such unit or, upon an IDA Title Termination with respect
to all the units, the IDA-Petitioner Lease will terminate.
Upon or after a Pre-Date Termination with respect to less than all of the units, Petitioner may
once again convey to the IDA title to some or all of such units. In addition, such units would again
become subject to the IDA-Petitioner Lease (and the Petitioner-Prudential Lease to the extent such

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units were not otherwise subject to such lease) or a new such lease or leases would be entered into
with respect to such units.
The IDA Units, when reconveyed to Petitioner following an IDA Title Termination, Pre-Date
Termination or any other similar termination, will not be reconveyed subject to nor will Petitioner
assume any mortgages placed on such units by the IDA for the benefit of Prudential.
If Prudential exercises certain options to lease additional space or otherwise leases additional
space, then the condominium units representing such additional space may, to the extent that they
are eligible for some or all of the Benefits, become IDA Units. In such case, such IDA Units will be
conveyed by Petitioner to the IDA and the above leases will be expanded to include such additional
IDA Units or new leases with terms similar to those described above will be executed for such
additional IDA Units, for the remainder of the term of the above leases.
At the time of any conveyance by Petitioner to the IDA or at the time of any IDA Title
Termination, it is possible that some or all of the IDA Units (or Petitioner's interest in such units)
will be subject to a mortgage placed on such units (or Petitioner's interest) by Petitioner. Similarly,
Petitioner may obtain financing secured by a mortgage (or may otherwise permit the placing of a
mortgage) which will be a lien on any or all of the following: (i) all or a portion of Petitioner's
leasehold position under the IDA-Petitioner Lease, (ii) all or a portion of Petitioner's interest in the
IDA Units and (iii) all or a portion of the IDA's title in the IDA Units (The IDA has agreed to subject
its title to any mortgage at Petitioner's request, subject to certain restrictions, such as limitations on
the mortgagee's ability to foreclose against the IDA's title.) Under all circumstances, as against the
IDA, Petitioner will be the beneficiary of any proceeds received under any debt secured by the lien
of such mortgage and as against the IDA will be the party with ultimate economic liability to repay
any such debt.
The term of the Petitioner-Prudential Lease, including any renewal periods, will be less than
49 years. In addition, Petitioner is not expected to grant Prudential any option to purchase the
Property or any portion thereof.
The gains tax is a ten percent tax on the gain derived from the transfer of real property, which
includes the transfer or acquisition of a controlling interest in an entity with an interest in real
property, where the real property is located in New York State and where the consideration for the
transfer is $1 million or more.
Section 590.5 of the Gains Tax Regulations provides as follows:
590.5 Lease/sublease as a transfer of real property. [Tax Law, §1440(7)]

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(a) Question: Is the creation of a leasehold or sublease a
transfer of real property?
Answer: Yes. The creation of a leasehold or sublease is a transfer of an
interest in real property, but only where:
(1) the sum of the term of the lease or sublease and any
options for renewal exceeds 49 years;
(2) substantial capital improvements are or may be made by
or for the benefit of the lessee or sublessee; and
(3) the lease or sublease is for substantially all of the premises
constituting the real property. Substantially all is defined to mean 90
percent of the total rentable space, of the premises exclusive of
common areas. (See section 590.56 of this Part, relating to an
assignment of a lease.)
For the purpose of determining whether a lease or sublease is for
substantially all of the premises constituting the real property,
premises shall include, but not be limited to the following:
(1) an individual building, except for space which constitutes
an individual condominium or cooperative unit;
(2) an individual condominium or cooperative unit; or
(3) where a lease or sublease is of vacant land only, any
portion of such vacant land.
(b) Question: Is the creation of a leasehold for a term of less
than 49 years ever taxable?
Answer: Yes. If a leasehold is coupled with the granting of an option to
purchase the property, the transfer is taxable regardless of the term of the lease.
Section 590.67(a) of the Gains Tax Regulations provides, in part, as follows:
590.67 Transfers pursuant to industrial development agency projects.
[Tax Law, §1440]
(a) Question: How are transfers of interests in real property
to and from an industrial development agency (IDA) treated for
purposes of the gains tax?

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Answer: When the company (the beneficiary of an industrial revenue bond
financing) transfers fee title to the real property to the IDA solely for the purpose of
receiving tax-exempt financing, and simultaneously leases such property back, upon
which the company will construct an improvement, the company will be considered
the owner of the project and there will not be a taxable event for gains tax purposes
until the company transfers an interest in the land or building to a party other than the
IDA. This is also true for ground leases/subleases or other similar transactions which
are designed to facilitate industrial revenue bond financings.
Section 575.7 of the Transfer Tax Regulations states as follows:
575.7 Leases and subleases (Tax Law, §l401(d)(e), (f)) (a) Creation of a
taxable lease or sublease not coupled with an option to purchase. The creation of a
lease or sublease is a conveyance subject to tax only where:
(1) the sum of the term of the lease or sublease and any options for renewal
exceeds 49 years, and
(2) substantial capital improvements are or may be made by or for the benefit
of the lessee or sublessee, and
(3) the lease or sublease is for substantially all of the premises constituting
the real property. "Substantially all" means ninety percent or more of the total
rentable space of the premises, exclusive of common areas. "Premises" means each
unit of real property which, at the time that the lease or sublease is created, is capable
of being sold separately.
For the purpose of determining whether a lease or sublease is for
substantially all of the premises constituting the real property,
premises shall include, but not be limited to the following:
(1) an individual building, except for space which constitutes
an individual condominium or cooperative unit;
(2) an individual condominium or cooperative unit; or
(3) where a lease or sublease is of vacant land only, any
portion of such vacant land.
Moreover, Section 575.11(a) of the Transfer Tax Regulations provides, in part, as follows:
(a) The following are examples of conveyances which are subject to the real estate
transfer tax.

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*

*

*

(13)

A conveyance of real property to an industrial development agency
(IDA) by a person who is not the beneficiary of the IDA financing, at
the direction of such beneficiary, with such beneficiary subsequently
leasing the property from the IDA, is subject to tax. In such a
conveyance, the beneficiary of the IDA financing and not the IDA is
deemed to be the grantee, and therefore the exemption described at
paragraph (1) of subdivision (c) of section 575.9 of this Part does not
apply.

(14)

A conveyance of real property by an IDA to a person who is not the
beneficiary of the IDA financing where such conveyance is made at
the direction of such beneficiary is subject to tax. In such a
conveyance, the beneficiary of the IDA financing is deemed to be the
grantor or the conveyance.

Section 575.11(b) of the Transfer Tax Regulations provides as follows:
"(b) The following are examples of conveyances which are not subject to the real
estate transfer tax.
(1) A conveyance of real property by the beneficiary of the industrial development
agency (IDA) financing to the IDA, in connection with the receipt of such financing
is not subject to tax.
(2) A conveyance of real property by the IDA, as grantor, to the beneficiary of the
IDA financing, as grantee is not subject to tax."
Section 250 of the Tax Law defines the term "mortgage" to include "every mortgage or deed
of trust which imposes a lien on or affects the title to real property, notwithstanding that such
property may form a part of the security for the debt or debts secured thereby."
In the matter of Macy & Co. v. Bates, 280 App. Div. 292 the Court held, in part, as follows:
A mortgage, whether in form or equitable, imports a debt or
obligation to be secured, due from the mortgagor to the mortgagee, a
right to foreclose, and the reciprocal right to redeem. Without those
elements there can be no mortgage, and they are absent here.
With respect to issue "1", the focus of Section 590.67 of the Gains Tax Regulations and
Section 575.11 of the Transfer Tax Regulations is to exclude from gains tax and transfer tax
respectively the transfer of title to real property to an IDA for the purpose of obtaining IDA
financing, where the grantor remains the beneficial owner of the property. In the instant case, while

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Petitioner is not the beneficiary of the IDA financing, the transfer of the condominium units will not
result in a change in beneficial ownership since Petitioner retains all the benefits and burdens of
ownership of the IDA Units. Accordingly, in keeping with the intent of Section 590.67 of the Gains
Tax Regulations and Section 575.11 of the Transfer Tax Regulations, the conveyance of title to the
condominium units in connection with an Original Conveyance, in connection with a new
conveyance following a Pre-Date Termination and in connection with Prudential's lease of additional
space or any similar conveyance will not be subject to gains tax or transfer tax.
Concerning issue "2", pursuant to Section 590.67 of the Gains Tax Regulations and Section
575.11 of the Transfer Tax Regulations since Petitioner remains the beneficial owner of the
condominium units, an IDA Title Termination with respect to any of the units will not result in a
change in beneficial interest. Therefore, an IDA Title Termination with respect to any of the units
will not be subject to gains tax or transfer tax.
As for issue "3", pursuant to Section 590.67 of the Gains Tax Regulations and Section 575.11
of the Transfer Tax Regulations the lease back of property by an IDA to the beneficiary of the IDA
financing, is not subject to gains tax and transfer tax, respectively, since the beneficiary of the IDA
financing remains the beneficial owner of the property. In the instant case, while Petitioner is not the
beneficiary of the IDA financing, Petitioner is the beneficial owner of the property. Therefore, in
keeping with the intent of Section 590.67 of the Gains Tax Regulations and Section 575.11 of the
Transfer Tax Regulations, the creation of the IDA-Petitioner lease or portion thereof whether in
connection with an Original Conveyance, in connection with a new conveyance following a PreDate
Termination, in connection with Prudential's lease of additional space or the termination of the IDAPetitioner lease or portion thereof upon the expiration of its term or upon an IDA Title Termination
with respect to any or all of the IDA Units or any similar creation or termination will not be subject
to gains tax or transfer tax.
With respect to issue "4", pursuant to Section 590.5 of the Gains Tax Regulations and
Section 575.7 of the Transfer Tax Regulations the creation of a lease for a term of less than 49 years,
including renewal periods and not coupled with an option to purchase is not subject to gains tax and
transfer tax respectively. Accordingly, since the creation of the Petitioner-Prudential Lease or portion
thereof in connection with its original creation, in connection with a new conveyance following a
Pre-Date Termination or in connection with Prudential's lease of additional space will be for a term
of less than 49 years, including renewal periods and contains no options to purchase such leases will
not be subject to gains tax or transfer tax.
Concerning issue "5", pursuant to Section 250 of the Tax Law and Macy & Co. v. Bates,
supra, while the transactions described in issues "1", "2", "3" and "4" affect title to the real property
such conveyances are not given as security for the payment of a debt or for the performance of an
obligation. Accordingly, for purposes of Article 11 of the Tax Law no mortgage exists and such

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transactions will not be subject to New York State and New York City mortgage recording tax.
It is noted that this opinion does not address the application of Article 11 of the Tax Law, the
Tax on Mortgages, to Petitioner's mortgaging of its interest in the IDA-Petitioner lease or all or a
portion of Petitioner's reversionary interest in the fee interest in the IDA Units.

DATED: February 8, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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