A New York state judge has dealt a setback for New York City following a rulling against the way it began rolling out its new pied-à-terre tax over the summer.
The ruling handed down on Tuesday orders the Mamdani administration to cancel roughly 17,000 warning notices it sent out over the summer and rebuild its list of affected properties before it bills anyone for the surcharge on luxury second homes.
The decision by Justice Wayne M. Ozzi of the state Supreme Court in Richmond County, on Staten Island, reported by CNN and other major news outlets, leaves the tax itself standing while targeting the process the city's Department of Finance used to decide who owes it.
The ruling also landed one week before an Oct. 6 deadline for owners to file for an exemption, and City Hall said it would seek a stay and keep fighting on appeal, adding another layer of uncertainty for financial advisors whose clients hold high-value condos, co-ops or townhouses in the five boroughs.
Homeowners Simon Hedley, Rachel O'Brien and Carmine Morano, who led the case, said the city wrongly flagged their primary residences as possible second homes. While they did not argue that the tax was unconstitutional, they said the city had pushed the burden of proving residency onto owners instead of doing that work itself.
Ozzi agreed, finding that the Department of Finance cannot put owners on a list and then require them to show they are exempt. Before it sends a notice, the agency must make an individualized initial determination using all the resources and information available to it. It must then produce the records behind its conclusion that a property is a second home and give the owner a chance to contest it.
The judge also ordered the city to take down a supplemental tax roll it posted online in July. That roll listed the names and addresses of more than 900,000 homeowners, whether or not they were subject to the surcharge. The city may replace it with a roll limited to properties that actually owe the tax.
Randy Mastro, a former deputy mayor who represents the homeowners, claimed the ruling as a victory for his clients.
"We're gratified that the court has recognized we were right all along. The fact is that this administration failed to follow state law when it burdened New York City homeowners with proving they live in their own homes or be on the hook for paying a new surcharge," Mastro said in a statement.
New York lawmakers passed the tax as part of the state's fiscal 2027 budget at Mayor Zohran Mamdani's request, after Gov. Kathy Hochul first proposed an annual surcharge on luxury second homes in the spring. The surcharge, which applies to properties that are not the owner's primary residence, covers one-, two- and three-family homes valued above $5 million and condos and co-ops valued at $1 million or more within the city.
The city is counting on at least $500 million a year from the levy, a centerpiece of Mamdani's plan to raise taxes on the wealthy. It drew high-profile resistance early, when hedge fund giant Citadel pushed back after CEO Ken Griffin's penthouse was profiled in a video promoting the measure.
The individual tax bills can be large. As reported by NBC News, a separate lawsuit filed Monday by casino developer Steve Wynn and former Commerce Secretary Wilbur Ross, both Florida residents, says Ross could owe more than $83,000 for his Manhattan co-op and Wynn more than $183,000 for his city residence.
City Hall is standing pat on the measure. "The ultra-wealthy are fighting in court to avoid paying their fair share. They have filed lawsuit after lawsuit to protect their privilege, and we will not back down," Matt Rauschenbach, a spokesperson for the mayor, said in a statement to the media.
"Today's decision is wrong, and we will invoke a stay of the injunction," Rauschenbach continued. "With a stay, we will continue implementing the surcharge fairly, efficiently and in full compliance with the law, as we have since day one."
If a court grants the stay, the city could keep administering the surcharge while its appeal moves forward. Otherwise, the Department of Finance would have to redo its determinations and send new notices under the rules Ozzi set out.
The broader constitutional fight is only beginning. Wynn and Ross sued the state in a Long Island court, arguing the tax unlawfully discriminates against people who do not primarily live in New York. On Tuesday, a group of Suffolk County homeowners and a co-op filed their own suit against the state. That action, reported by CNN, argues the law discriminates against nonresidents, applies retroactively and puts unconstitutional burdens on homeowners and co-op buildings.
Hochul's office dismissed the Wynn and Ross challenge. "When Steve Wynn and Wilbur Ross try to cast themselves as sympathetic figures in a fight over paying their fair share on multimillion-dollar second homes, they're making the case for the pied-à-terre tax as well as anyone could," a spokesperson for the governor said.
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