We're the fee owner of an office building. To help a prospective tenant (Newsweek) get NYC Industrial Development Agency economic-development benefits and a real estate tax abatement, we're converting our building to a condominium and conveying title to the tenant's units to the IDA for nominal consideration, then leasing those units back from the IDA at nominal net rent under an 'Overlease' lasting about 15 years and 8 months. We'll keep all the economic benefits and burdens (condemnation/insurance proceeds, income-tax ownership treatment, the right to sell/mortgage/transfer), and the IDA's title will end automatically on a set date or earlier if certain events happen (like the Prime Lease terminating), with title reverting to us. Are the conveyance to the IDA, the eventual title reversion, the Overlease, the Prime Lease with our tenant, and the related financing all exempt from New York's Real Estate Transfer Tax, Real Property Transfer Gains Tax, and Mortgage Recording Tax?

Plain-English summary

Midtown Realty Company owned in fee the 25-story, roughly 580,000-square-foot office building at 1775 Broadway in Manhattan, partially occupied by commercial tenants and partially vacant. Midtown Realty was negotiating a lease with Newsweek, Inc. ("Tenant") for about 203,000 square feet. To make relocating to the building financially attractive for Tenant (who was considering relocating outside New York City), the City offered Tenant IDA-issued bonds to finance leasehold improvements plus a real estate tax abatement with PILOT (payment-in-lieu-of-tax) payments -- but the IDA needed to hold a proprietary interest in the benefited space to convey those benefits.

The structure. Midtown Realty proposed converting the building into a condominium (likely two units, possibly more if Tenant's occupancy phased in over time) and conveying title to the unit(s) Tenant would occupy (the "IDA Unit(s)") to the IDA for zero or nominal consideration (the "Original Conveyance"), subject to Midtown Realty's existing building mortgage (which the IDA would have no obligation to pay). Midtown Realty would keep title to the remaining condo units. The IDA's title would automatically end on a fixed date roughly 15 years and 8 months out, or earlier upon specified events still being negotiated (Prime Lease termination, an IDA election, the units becoming taxable, or a limited Midtown Realty election tied to Tenant's PILOT default) -- each such ending called an "IDA Title Termination," with title reverting fully (and mortgage-free of any IDA-placed liens) to Midtown Realty.

The leaseback and sublease chain. Immediately after any conveyance to the IDA, the IDA would net-lease the unit(s) back to Midtown Realty at nominal rent under an "Overlease" running the same term as the IDA's title -- with the IDA affirmatively disclaiming any beneficial interest, bearing no maintenance obligations, and barred from disposing of its title without Midtown Realty's consent (any such attempt being void). Midtown Realty would then sublease the space to Tenant under a "Prime Lease" (same roughly 15-year-8-month term, with a 15-year renewal option, no purchase option), with Tenant paying ordinary real estate taxes until the units became IDA-exempt, then making PILOT payments instead. Midtown Realty agreed to backstop any PILOT shortfalls, securing that obligation with a mortgage on its own leasehold interest (the "PILOT Mortgage") -- while retaining reimbursement rights from Tenant. A further layer -- Tenant sub-subleasing to the IDA and the IDA sub-sub-subleasing back to Tenant -- facilitated the IDA's bond financing of Tenant's leasehold improvements without disturbing this analysis. Throughout, Midtown Realty treated itself as the owner for federal, state, and local tax and financial reporting purposes, retained all condemnation/insurance proceeds, and bore all economic risk and potential profit.

Why everything was exempt. Transfer tax and gains tax regulations specifically address IDA transactions: a conveyance to an IDA by the actual beneficiary of the financing, in connection with receiving that financing, is exempt, and so is the IDA's later conveyance back to that beneficiary. The Department found that although Midtown Realty was not itself the "beneficiary" of the IDA financing (Tenant was), Midtown Realty retained all the benefits and burdens of ownership of the IDA Unit(s) throughout -- so the conveyance, any IDA Title Termination (reversion), and the creation/termination of the Overlease (in any of its variants -- original conveyance, post-termination re-conveyance, or covering Additional Units Tenant might later occupy) were all exempt from both taxes. The Prime Lease was independently exempt as a sub-49-year lease with no purchase option. On the Mortgage Recording Tax, the Department found none of the conveyances described were given as security for a debt or obligation (so they weren't "mortgages" at all under the statutory definition, citing Macy & Co. v. Bates), and the PILOT Mortgage was independently exempt because the IDA's mortgage-granting power is expressly authorized under the General Municipal Law, which also exempts the IDA's activities from taxation as a governmental function.

What this means for you

Property owners facilitating a prospective tenant's IDA economic-development benefits

Conveying title to an IDA to help a tenant secure IDA tax benefits doesn't trigger transfer tax on the conveyance, the leaseback, or the eventual reversion -- as long as the property owner retains every real economic incident of ownership: condemnation/insurance proceeds, income-tax ownership treatment, the right to sell or mortgage, and an automatic reverter when the arrangement ends. This is true even for a still-being-negotiated tenant relationship (as here, where the Newsweek lease terms weren't fully finalized at the time of the ruling).

Property owners backstopping a tenant's PILOT (payment-in-lieu-of-tax) obligations with a mortgage

Structuring a PILOT-shortfall guarantee, secured by a mortgage granted under the IDA's own General Municipal Law authority, can independently qualify for a Mortgage Recording Tax exemption as a governmental-function-related instrument -- a separate basis from the "not a security instrument" analysis applied to the other conveyances in the deal.

IDA transaction structuring (developers, bond counsel, economic development corporations)

This is one of the Department's earlier applications (cited repeatedly in later rulings, including Metropolitan Life Insurance Company, TSB-A-96(12)R) of the "retains all benefits and burdens" doctrine to a fee owner who is not itself the beneficiary of the IDA financing -- worth using as a template when structuring similar multi-party IDA financing chains involving sub-subleases back to the tenant-beneficiary.

Common questions

Q: If I convey my building's title to an IDA to help my tenant get tax benefits, do I owe Real Estate Transfer Tax on that conveyance?
A: Not if you retain all the real benefits and burdens of ownership -- condemnation and insurance proceeds, income-tax ownership treatment, and the right to sell or mortgage the property -- even though the IDA holds legal title. The Department treats that as no change in beneficial ownership.

Q: I'm not the actual beneficiary of the IDA's tax benefits -- my tenant is. Does that change the analysis?
A: Not on facts like these. Even though the regulations' cleanest exemption technically covers conveyances by the financing beneficiary itself, the Department applied the same beneficial-ownership-retention analysis to this owner/non-beneficiary situation, because the owner (not the IDA) kept all the economics.

Q: What happens when the IDA later reconveys title back to me, or the arrangement terminates early under one of several possible triggers?
A: If you remained the beneficial owner the whole time, any such reversion or reconveyance likewise isn't a taxable conveyance, regardless of which specific triggering event caused it -- because there's still no change in beneficial ownership.

Q: Do I owe Mortgage Recording Tax on a mortgage I grant to the IDA to secure my PILOT-shortfall backstop obligation?
A: Not necessarily -- if the mortgage is authorized under the IDA's own General Municipal Law powers in connection with its governmental function, it can independently qualify for exemption from mortgage recording tax.

Q: Is the Real Property Transfer Gains Tax discussed in this ruling still a live concern today?
A: No -- it was repealed for transfers occurring on or after June 15, 1996 and no longer applies to new transactions.

Citations and references

Statutes, regulations, and case law:

• Section 250 of the Tax Law (definition of "mortgage" -- imposes a lien to secure a debt or obligation)
• Macy & Co. v. Bates, 280 App. Div. 292 (a mortgage requires a debt/obligation, a right to foreclose, and a reciprocal right to redeem)
• Section 575.7 of the Transfer Tax Regulations (long-term lease/substantial improvement/90%-of-premises test for a taxable conveyance)
• Section 575.11(a)-(b) of the Transfer Tax Regulations (IDA conveyance examples -- taxable vs. exempt)
• 20 NYCRR 590.5(a)-(b) (long-term lease/purchase-option as a taxable gains-tax transfer)
• 20 NYCRR 590.67(a) (IDA financing conveyance/leaseback not a taxable gains-tax event until transfer to a non-IDA party)
• General Municipal Law Article 18-A, § 858 (IDA power to acquire, mortgage, and dispose of real property)
• General Municipal Law § 874 (IDA activities are a "governmental function" exempt from taxation)

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_18r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (18)R
Real Estate Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Tax
October 28, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M930910A

On September 10, 1993, a Petition for Advisory Opinion was received from Midtown Realty
Company, 1775 Broadway, New York, New York 10019.
The issues raised by Petitioner, Midtown Realty Company, are:

1. Whether the conveyance of title to a condominium unit or units (the "IDA Unit(s)") by
   Petitioner to the New York City Industrial Development Agency (hereinafter "IDA") in connection
   with the transactions described herein 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 Unit(s)
   to Petitioner) with respect to any or all of the IDA Unit(s), will be subject to gains tax or transfer tax.
3. Whether the creation or termination of the IDA-Petitioner Overlease (the "Overlease")
   whether the creation is in connection with an Original Conveyance, in connection with a new
   conveyance of the IDA Unit(s) following a Pre-Date Termination, in connection with Newsweek,
   Inc.'s (hereinafter the "Tenant") lease of Additional Unit(s), or any similar creation and whether the
   termination is in connection with the termination of the Overlease upon the expiration of its term or
   upon an IDA Title Termination with respect to any or all of the IDA Unit(s), or any similar
   termination will be subject to gains tax or transfer tax.
4. Whether the creation of the Prime Lease or portion thereof in connection with the Original
   Conveyance, in connection with a new conveyance following a Pre-Date Termination or in
   connection with Tenant's lease of Additional Unit(s) 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 is the owner in fee simple of the land and building known as 1775 Broadway, New
   York, New York (collectively, the "Building"). The Building is an existing 25-story commercial
   office building containing approximately 580,000 rentable square feet. The Building is partially
   occupied by commercial tenants and partially vacant. Petitioner is currently negotiating a lease with
   the Tenant in respect of approximately 203,000 square feet of space in the Building.
   Petitioner has been informed that certain economic development benefits will be offered by
   the City of New York (the "City") to Tenant in connection with Tenant's relocation to, and
   occupancy of, space in the Building. In particular, it is contemplated that the IDA will issue bonds

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on behalf of Tenant to finance leasehold improvements to be made to the space leased by Tenant,
and Tenant will benefit from a real estate tax abatement on the space to be occupied by Tenant, with
the agreement that certain payments in lieu of real estate taxes ("PILOT Payments") will be made.
Thus Tenant, which had been considering relocation outside of the City, will be given a financially
attractive location within the City. Petitioner has been informed that, in order to obtain IDA
financing and tax benefits for the portions of the Building to be occupied by Tenant, the IDA must
take title to such space, which will then be leased back to Petitioner.
The IDA will not take title to the entire Building. Instead the Building will be converted to
condominium ownership. It is presently contemplated that the Building will be divided into two
condominium units unless more condominium units are necessary to comply with IDA requirements
resulting from the delivery of space to Tenant in more than one stage. Petitioner will convey to the
IDA title to the IDA Unit(s) to be occupied by Tenant for zero or nominal consideration (the
"Original Conveyance"). Petitioner will retain title to the condominium unit(s) other than the IDA
Unit(s). Concurrently with the Original Conveyance, the IDA will net lease the IDA Unit(s) to
Petitioner for zero or nominal net rent, with the exception of certain specific obligations with respect
to PILOT Payments which are discussed herein. Petitioner will, in turn, sublease the IDA Unit(s) to
Tenant (the "Prime Lease") for a rent negotiated between Petitioner and Tenant. Petitioner has been
informed that Tenant will, in turn, sub-sublease the IDA Unit(s) to the IDA for zero or nominal
consideration, and the IDA will, in turn, sub-sub-sublease the IDA Unit(s) back to Tenant.
It is presently contemplated that Petitioner will convey to the IDA title to the IDA Unit(s)
subject to an existing mortgage (the "Mortgage") on the Building held by Principal Mutual Life
Insurance Company (the "Mortgagee"). The IDA will have no obligation to make payments on the
Mortgage.
The IDA's title to the IDA Unit(s) will end automatically without further action on a date
certain (the "Date") in approximately 15 years and 8 months, or earlier upon the occurrence of certain
events. (Such ending of the IDA's title with respect to any or all of the IDA Unit(s), through the
delivery of a deed, are referred to as an "IDA Title Termination". 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 IDA Unit(s) 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 mortgage(s)
placed on such Unit(s) by the IDA for the benefit of Tenant.
The precise list of events that would cause a Pre-Date Termination is still being negotiated
among the parties. Among the events being considered are: (a) the termination of the Prime Lease;
(b) the election by the IDA to end the IDA title; (c) the IDA Unit(s) becoming subject to real estate
taxes; and (d) 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 Tenant'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

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title will be accomplished by the IDA executing and delivering to Petitioner a deed to any or all of
the IDA Unit(s).
Immediately after obtaining title to the IDA Unit(s), the IDA will lease the IDA Unit(s) back
to Petitioner for zero or a nominal rent pursuant to the Overlease. The terms of the Overlease are still
being negotiated, but it is contemplated that the provisions of that lease will not differ materially
from those described herein. The term of the Overlease will be co-extensive with the term of the
IDA's title to the IDA Unit(s), approximately 15 years and 8 months. The IDA agrees in the
Overlease that it will not have a beneficial interest in the IDA Unit(s). The Overlease will be a fully
net lease, obligating Petitioner to pay all costs and expenses of maintaining and operating the IDA
Unit(s) and to indemnify the IDA, its officers, directors, and employees for any liabilities arising
from the operation of the IDA Unit(s). The IDA will have no obligation to improve, replace, service,
adjust, repair or maintain any portion of the IDA Unit(s).
If Petitioner defaults under the Overlease, the IDA may take any action at law or equity to
enforce the terms of the Overlease. However, the IDA will not have the right to terminate the
Overlease or otherwise impair Petitioner's estate, except as otherwise provided in the PILOT
Mortgage as discussed herein. Petitioner may voluntarily assign or transfer its interest in the
Overlease, subject to the then-existing tenancies and subtenancies, provided that: (a) Petitioner
transfers all of its interests in the IDA Unit(s), including its reversionary interests; (b) the assignee
or transferee agrees to assume all of Petitioner's obligations under the 0verlease; and (c) the assignee
or transferee is not prohibited by law from entering into a transaction with the IDA. Petitioner may
also mortgage its interest in the Overlease and its reversionary interest without the IDA's consent.
The IDA will not have the right to sell, assign, convey, lease, or otherwise encumber its title to the
IDA Unit(s) without Petitioner's consent. Any attempt by the IDA to dispose of the IDA Unit(s)
without Petitioner's consent will be void.
The terms of the Prime Lease are still being negotiated, but it is contemplated that the
provisions of that lease will not differ materially from those described herein. Petitioner will sublease
the IDA Unit(s) to Tenant. The terms of the Prime Lease is 15 years and 8 months, and Tenant will
have an option to extend the term for an additional 15 years. Tenant will not have an option to
purchase the IDA Unit(s). Under the Prime Lease, Tenant's rent payments will include a portion of
the Building's operating expenses and charges, but not real estate taxes. Tenant will pay all real estate
taxes imposed on the IDA Unit(s) until the Unit(s) become exempt from real estate taxes. Once the
IDA Unit(s) become tax exempt, Tenant will make PILOT Payments under a separate agreement
with the IDA. Petitioner will not receive consideration from Tenant, directly or indirectly, in
connection with the Prime Lease, other than payments under the Lease. A separate agreement will
provide that Petitioner will make certain payments in the event that Tenant fails to make PILOT
Payments. As security for this obligation, Petitioner will grant a mortgage on Petitioner's leasehold
estate in the IDA Unit(s) to the IDA (the "PILOT Mortgage"). Petitioner will be entitled to
reimbursement from Tenant for any payments made by Petitioner with respect to the IDA Unit(s).

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The Prime Lease gives Tenant the option to occupy additional space in the Building
("Additional Unit(s)"). To the extent that Tenant exercises an option to occupy an Additional Unit,
Petitioner may, at Tenant's option and provided certain conditions are met, convey to the IDA title
to the Additional Unit, subject to any existing mortgage. The Additional Unit will be leased back to
Petitioner and will automatically become part of the IDA Unit(s) for purposes of the Overlease. The
IDA or Petitioner, upon the request of the other, will execute an amendment to the Overlease
confirming the inclusion of an Additional Unit in the Overlease, providing that the terms of the
amendment do not vary from the Overlease.
Upon an IDA Title Termination with respect to any IDA Unit(s), whether an On-Date
Termination or a Pre-Date Termination, Petitioner will have a full fee simple title to such Unit(s).
In addition, the Overlease will no longer apply to such Unit(s) or, upon an IDA Title Termination
with respect to all the Unit(s), the Overlease will terminate. Upon or after a Pre-Date Termination,
Petitioner may once again convey to the IDA title to any or all of such Unit(s), and such Unit(s)
would again be subject to the Overlease (and the Prime Lease to the extent such Unit(s) were not
otherwise subject to such lease) or a new such lease would be entered into with respect to such
Unit(s).
At the time of any conveyance by Petitioner to the IDA or at the time of any IDA Title
Termination, it is possible that any or all of the IDA Unit(s) (or Petitioner's interest in such Unit(s))
will be subject to a mortgage placed on such Unit(s) (or Petitioner's interest in such Unit(s)) 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: (a) all or a
portion of Petitioner's leasehold position under the Overlease; (b) all or a portion of Petitioner's
interest in the IDA Unit(s); and (c) all or a portion of the IDA's title in the IDA Unit(s). (The IDA
has agreed to subject its title to any mortgage at Petitioner's request.) 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.
For federal, state and local tax and financial reporting purposes, Petitioner will treat itself as
the owner of the IDA Unit(s). Petitioner will have the right in its own name to apply to governmental
agencies in matters covering the IDA Unit(s) and to initiate contests regarding legal requirements
of the IDA Unit(s). As between the IDA and Petitioner, all condemnation awards or insurance
proceeds will be the sole property of Petitioner. Petitioner, without prior consent from the IDA, may
assign or transfer its interest in the IDA Unit(s) with notice to the IDA and the assignee or
transferee's certification that it is not proscribed from accepting the assignment or transfer. As
between the IDA and Petitioner, Petitioner assumes all risk of loss and retains the potential for any
profit through the Prime Lease and its ability to transfer its interest in the IDA Unit(s).

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Mortgage Recording Tax
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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)]
(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:

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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?
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, §l40l(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.

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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.
*

*

*

(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.

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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
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 the transactions described herein 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 or termination of the IDA-Petitioner 0verlease whether in
connection with an Original Conveyance, in connection with a new conveyance following a PreDate
Termination, in connection with Tenant's lease of Additional Unit(s) or any similar creation, and
whether the termination of the Overlease upon the expiration of its term or upon an IDA Title
Termination with respect to any or all of the IDA Unit(s) 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-Tenant Prime 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 Tenant's Prime Lease of Additional Unit(s)
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 & Go. 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

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TSB-A-93 (18)R
Real Estate Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Tax
October 28, 1993
obligation. Accordingly, for purposes of Article 11 of the Tax Law no mortgage exists and such
transactions will not be subject to New York State and New York City mortgage recording taxes.
With respect to the taxability of the PILOT Mortgage, the powers of an IDA, as set forth in
Article 18-A of the General Municipal Law, include the power to acquire and use real property and
the power to mortgage or otherwise dispose of such property (General Municipal Law § 858).
Section 874 of the General Municipal Law provides that in the exercise of its powers, the IDA is
"performing a governmental function" and shall be required to pay no taxes upon its activities. To
the extent that the creation of the PILOT Mortgage is authorized by Section 858 of the General
Municipal Law, the recording of such PILOT Mortgage, as heretofore described, is exempt from the
imposition of New York State and New York City mortgage recording taxes.
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 Prime Lease or all
or a portion of Petitioner's reversionary interest in the fee interest in the IDA Unit(s).

DATED: October 28, 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.