My real estate broker has agreed to pay New York's Real Property Transfer Gains Tax out of its own pocket (not passed on to the buyer) so a contingent multi-parcel closing can go through. Does the broker's payment of my tax count as additional taxable consideration for the sale?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1995 opinion is preserved here for historical and research value, not as current law.

Robert Schwagerl contracted to sell a parcel of vacant land in Suffolk County for $1,250,000, paying his broker (Sagaponack Real Estate) a $50,000 commission. The same purchaser was also buying two adjoining parcels Schwagerl didn't own, and all three sales were contractually contingent on each other going through together. To keep the whole deal from collapsing, the broker agreed to personally pay the roughly $76,000 gains tax due on Schwagerl's parcel -- and confirmed in writing that the purchaser would not reimburse the broker for that payment.

The general gains-tax rule (former § 1440.1(a), applied through former 20 NYCRR § 590.9) treated a transferee's agreement to pay the seller's gains tax as additional taxable consideration to the seller, because the seller is personally liable for the tax, and having someone else pay it off is economically the same as being paid extra and using that money to cover the tax yourself. But that rule specifically addresses the BUYER paying the seller's tax. Here, a third party -- the broker -- was voluntarily covering the tax, not reimbursed by the buyer, and the Department found nothing suggesting the arrangement was actually a disguised way for the buyer to satisfy its own contractual obligation to pay the tax on Schwagerl's behalf. On those facts, the Department concluded the broker's payment did not constitute additional consideration to Schwagerl for the sale.

What this means for you

Sellers relying on a broker or other third party to cover a tax bill to save a deal

Under this now-repealed rule, a genuinely voluntary, unreimbursed third-party payment of your transfer tax -- made for the third party's own business reasons (like saving a commission on a contingent multi-property deal) -- wasn't automatically treated as more money in your pocket for tax purposes. But the analysis turns entirely on the buyer not being on the hook for it; if the buyer was contractually obligated to pay the tax and just routed the payment through the broker, the result would likely flip.

Real estate brokers structuring contingent multi-parcel closings

This opinion shows a broker being willing to absorb a seller's tax liability to keep a bigger, interdependent transaction alive -- and getting a favorable answer because the arrangement was documented as non-reimbursed and not a substitute for the buyer's own obligation. Getting that "will not be reimbursed" commitment in writing, as this broker did, was central to the outcome.

Accountants and attorneys reviewing old gains-tax consideration disputes

If you're reconstructing a pre-1996 transaction's gains-tax consideration calculation, this ruling is a clean example of the line the Department drew between a buyer's payment of a seller's tax (additional consideration) and a truly independent third party's voluntary, unreimbursed payment (not additional consideration).

Common questions

Q: Does this consideration question still matter for closings today?
A: No. The Real Property Transfer Gains Tax was repealed for transfers on or after June 15, 1996. Other NY taxes on the transfer, like the Real Estate Transfer Tax, have their own separate consideration definitions.

Q: Why would a buyer paying the seller's gains tax normally count as additional consideration?
A: Because the seller is personally liable for the tax; if someone else pays it for the seller under an agreement with the seller, that payment functions the same as extra sale proceeds the seller then uses to cover the tax, so it's added to consideration.

Q: What made the broker's payment different from a buyer's payment?
A: The broker wasn't reimbursed by the buyer, was paying for its own independent business reason (protecting its commission on the larger contingent deal), and the arrangement wasn't a disguised way to relieve the buyer of a duty it otherwise owed to pay the tax.

Q: Could a similar arrangement rely on this specific ruling today or in another deal?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts described, and the outcome here depended heavily on the documented, unreimbursed nature of the broker's payment.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 (imposition of the gains tax at 10% of gain, for transfers with consideration of $1 million or more)
• former Tax Law § 1443.1 (the $1 million exemption)
• former Tax Law § 1440.1(a) (definition of "consideration": price paid or required to be paid, including cancellation or discharge of an indebtedness or obligation)
• former 20 NYCRR § 590.9 (a transferee's agreement to pay the seller's gains tax constitutes additional consideration to the seller, since the seller is personally liable for the tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a95_14r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (14) - R
Real Property
Transfer Gains Tax
October 30,1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950601A

On June 1, 1995, a Petition for Advisory Opinion was received from Robert Schwagerl, 152
West 58th Street, New York, New York 10019.
The issue raised by Petitioner, Robert Schwagerl, is whether the payment of the New York
State Real Property Transfer Gains Tax (the "gains tax") by the real estate broker representing the
transferor will be treated as additional consideration for the transfer of real property.
Petitioner is contracting to sell a parcel of vacant land in Suffolk County, New York for
$1,250,000 to Michail Watford, a foreign national. Petitioner will pay a real estate broker's
commission of $50,000 to Sagaponack Real Estate. The purchaser is also buying two parcels
adjoining Petitioner's parcel, of which Petitioner is not the owner. The two adjoining parcels are also
vacant land.
The real estate broker in the transaction is arranging the sale of all three parcels to the
purchaser and has agreed to pay the gains tax due on Petitioner's real property to have the sales of
the three parcels proceed, as all three transfers are contingent upon the other. Petitioners' accountant
has determined the gains tax to be due on Petitioner's real property as approximately $76,000. The
broker has acknowledged to Petitioner that it has not nor will it be reimbursed by the purchaser for
the gains tax paid and has indicated that it will affirm the same in writing as a condition of the
contract.
Pursuant to Sections 1441 and 1443.1 of the Tax Law and Section 590.1 of the Gains Tax
Regulations the gains tax is a ten percent tax on the gain derived from the transfer of real property,
which includes the acquisition or transfer of a controlling interest in any entity with an interest in real
property, where the property is located in New York State and where the consideration for the
transfer is one million dollars or more.
Section 1440 of the Tax Law provides, in pertinent part, as follows:
1.(a) "Consideration" means the price paid or required to be paid for real property
or any interest therein, less any customary brokerage fees related to the transfer if
paid by the transferor, including payment for an option or contract to purchase or use
real property. Consideration includes any price paid or required to be paid, whether
expressed in a deed and whether paid or required to be paid by money, property, or
any other thing of value and including the amount of any mortgage, purchase money

-2­
TSB-A-95 (14) - R
Real Property
Transfer Gains Tax
October 30,1995
mortgage, lien or other encumbrance, whether the underlying indebtedness is
assumed or taken subject to. Consideration includes the cancellation or discharge of
an indebtedness or obligation.
Section 590.9 of the Gains Tax Regulations provides, in part, as follows:
590.9 Transferee agrees to pay gains tax. [Tax Law, §1440(1)]
Question: If an agreement is negotiated between a transferor and transferee
whereby the transferee agrees to pay the gains tax for the transferor, does such
payment constitute additional consideration to the transferor?
Answer: Yes. The consideration for the transfer is the price paid or required
to be paid for the real property or any interest therein, and includes the cancellation
or discharge of an indebtedness or obligation. Since the transferor is personally liable
for payment of the gains tax, payment of the tax by the transferee constitutes
additional consideration to the transferor . . . . (emphasis added)
In the instant case, the real estate broker has agreed to pay the gains tax on behalf of the
transferor to facilitate the transfer of the real property. The purchaser (transferee) will not reimburse
the broker for the gains tax paid. Accordingly, provided the arrangement by the broker to pay the
gains tax is not formulated to relieve the transferee from a contractual obligation to pay the gains tax
on behalf of the transferor, such payment of the gains tax by the broker will not constitute additional
consideration for the sale in accordance with Section 1440 of the Tax Law and Section 590.9 of the
gains tax regulations.

DATED: October 30, 1995

/s/
PAUL B. C0BURN
Deputy Director
Taxpayer Services Division

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