Tax Provisions of Interest in the Enacted 2026-27 New York Budget Bill
New York's 2026-27 Budget Bill (the “Budget Bill”) amends the Tax Law and various other statutes through a series of Parts (here, A through JJ). The Budget Bill touches a range of personal and business tax provisions, extends several expiring credits and temporary rate increases, introduces new compliance and enforcement mechanisms, and adds a significant new levy on certain New York City real property – the “Pied-à-terre Tax.”
Below is a summary of most of the key tax provisions in the Budget Bill, which was signed into law by Governor Hochul on May 28, 2026 (2026 Laws of New York Ch. 59).
Child and Dependent Care Credit Restructured and Enhanced: Part A amends Tax Law §606 to add a new section (c-2), creating a new refundable “New York State child and dependent care credit” for taxable years beginning on or after January 1, 2026. Since it is a refundable credit any excess over the tax otherwise owed will be treated as an overpayment to be refunded or credited, but without interest. Eligibility generally requires that the taxpayer be a New York State resident individual who is not claimed as a dependent on another taxpayer’s return and is not married filing separately (with a limited exception for certain taxpayers meeting federal IRC § 21(e)(4) conditions). The definition of a “qualifying individual” dependent is tied to age, disability, residency, and dependency status (including certain noncustodial-parent and incapacitated-spouse situations). Qualifying expenses include amounts paid by an eligible taxpayer for services provided in the taxpayer’s residence to provide care for the qualifying individual, subject to exceptions. Qualifying expenses are capped by the number of qualifying individuals: $3,000 for one, $6,000 for two, $7,500 for three, $8,500 for four, and $9,000 for five or more – and are further limited to the taxpayer’s (or, for joint filers, the lesser-earning spouse’s) earned income. The applicable credit percentage begins at 55% for NY AGI at or below $15,000 and phases down by 0.0025 percentage points per dollar above $15,000 to a floor of 4%, with an additional reduction of $20 per $1,000 of NY AGI above $750,000. To be eligible for credit, the taxpayer must provide the amount of qualifying expenses, identifying information related to care providers, identifying information about the qualifying individual, and any other information deemed required by the Commissioner. New York City’s related credit provisions were also updated to reference the new tax credit allowed under § 606(c-2), applying to qualifying individuals with dependents under age four. This represents a meaningful expansion of child and dependent care tax relief, and practitioners should be attentive to the interaction with the existing federal CDCC structure.
New NYAGI Subtraction for Qualifying Tips: Part B amended Tax Law § 612 to add a New York adjusted gross income subtraction modification for up to $25,000 of tips, to the extent such amount is allowed as a federal deduction under IRC § 224, for taxable years beginning on or after January 1, 2026. This is a notable new provision tied directly to recent federal tax legislation providing a deduction for certain tip income and represents New York’s conforming response for state income tax purposes. Clients in service industries – including hospitality, food service, and similar sectors – should be aware of this new benefit.
Charitable Contribution Deductions: Protections for High-Income Taxpayers and Certain Organizations: Part C amends Tax Law § 615(g) to continue reduced New York itemized deductions for charitable contributions for higher-income taxpayers – generally 50% for NY AGI over $1 million, and 25% for NY AGI over $10 million – for taxable years ending before 2030. Part C also provides that contributions to organizations that received federal tax-exempt status approval before January 1, 2025, may continue to qualify as New York charitable itemized deductions even if the IRS subsequently revokes that status, provided the revocation was unrelated to the organization’s charitable mission and the organization continues to meet applicable federal requirements. These changes apply to taxable years beginning on or after January 1, 2026.
Farming Definitions and Clarifications: Part D amended various sections of the Tax Law, to standardize and adjust the definitions of “eligible farmer” and “New York gross income from farming” across multiple credits and provisions. The amendments apply to taxable years beginning on/after Jan. 1, 2026.
Corporate Franchise Tax Rate Extension for Large Taxpayers (through 2030): Part E amends Tax Law §210 to extend the 7.25% corporate franchise tax rate – currently applicable to taxpayers with a business income base over $5 million – from taxable years beginning before January 1, 2027, to taxable years beginning before January 1, 2030. Part E similarly extends the current business capital tax rate schedule (including the 0.1875% rate) through taxable years beginning before January 1, 2030, with a zero percent rate thereafter. This is a meaningful rate extension that will directly affect large corporate taxpayers doing business in New York.
Decoupling from OBBBA Federal Depreciation and Research and Experimental (R&E) Deductions (Applies Retroactively to 2025): Part F amends Tax Law §208(9), effective immediately and applicable to taxable years beginning on or after January 1, 2025. For New York State (NYS) corporate tax purposes, the entire net income must exclude any accelerated federal deduction for “qualified production property” under IRC §167. Part F also decouples from both IRC §174 (foreign R&E) and IRC §174A (domestic R&E), so for New York income tax purposes taxpayers must add back any deduction claimed under those provisions and instead amortize (i) post-2024 R&E expenditures over 60 months under a §174A(c)-style methodology, and (ii) pre-2025 R&E expenditures using the §174 deduction rules in effect as of 2022.
Parallel modifications are added to the personal income tax (Tax Law §612) and franchise tax on insurance corporations (Tax Law §1503). No interest or penalty will accrue for certain timely filed 2025 returns on extension or amended 2025 returns to the extent that the reported underpayments relate solely to these required modifications. This is one of the most significant provisions in the Bill for business taxpayers and their advisors. The retroactive decoupling from the federal deduction for both foreign and domestic R&E expenditures to 2025 – combined with modifications to both corporate and personal income tax – means that affected taxpayers (including pass-through entity owners) may need to file amended returns or take these adjustments into account on 2025 returns currently in progress. Practitioners should be alert to the interaction of these New York-specific modifications with federal depreciation and R&E elections already made.
NYC Corporate Tax Federal Decoupling Changes for Depreciation, R&E, §179, and GILTI Receipts Factor Change: Part G, effective immediately and deemed in force on and after December 31, 2024, adds new addbacks for New York City (NYC) GCT, UBT, and financial corporation tax purposes for depreciation of qualified production property, IRC §179 deductions, and a defined increase in the federal interest deduction attributable to depreciation, amortization, or depletion. Unlike Part F, which decouples from both §174 (foreign R&E) and §174A (domestic R&E), Part G's R&E addback applies only to domestic R&E expenditures under IRC §174A – foreign R&E under §174 is not subject to the NYC addback. For the corresponding NYC subtraction, domestic §174A expenditures are amortized over a 5-year period (computed from the midpoint of the taxable year), mirroring the treatment of foreign R&E under §174 – a different methodology than the 60-month amortization used under Part F for NYS purposes.
Part G also revises the NYC corporate income tax receipts-factor treatment of GILTI (global intangible low-taxed income). The Bill excludes amounts required to be included in federal gross income under IRC §250(a)(1)(B) from the numerator of the factor, while including such amounts in the denominator. NYC-based businesses and their advisors should carefully evaluate the combined state and city impact of these changes. Part G provides City taxpayers with interest and penalty protections for underpayments related to decoupling changes, similar to those provided to State taxpayers under Part F.
Commercial Security Tax Credit Extended through 2029: Part I extends the Commercial Security Tax Credit program – which provides eligible businesses with a $3,000 credit per New York State retail location – from expiring before January 1, 2026, to expiring before January 1, 2029.
NYC Musical and Theatrical Production Credit: Part J amended Tax Law § 24-c (and related provisions) to increase the aggregate cap for credits from $400 million to $550 million, applying to NYC musical and theatrical productions with a first performance on or after December 1, 2025.
Alternative Nicotine Products Added to Tobacco Products Excise Tax Regime: Part K expands key definitions to include “alternative nicotine products” within the “tobacco products” regime.
It defines “alternative nicotine product” as “any noncombustible product, other than vapor products, which contains nicotine but not tobacco and is intended for human consumption, whether chewed, absorbed, dissolved, or ingested by other means.” Conforming changes apply across use-tax exemptions and thresholds, invoice requirements during transport, penalties, presumptions, seizure and forfeiture authorities, and criminal provisions – all incorporating alternative nicotine products and unit-based thresholds.
The tax under § 471-b applies to units of alternative nicotine products possessed for sale in New York State as of 11:59 p.m. on August 31, 2026, with remittance due by September 21, 2026; the substantive provisions apply to sales on or after September 1, 2026.
REIT Real Estate Transfer Tax Rate Reduction Extended through 2029: Part M extends the New York State and City “real estate investment trust transfer” rate reduction so that covered transfers occurring before September 1, 2029 (rather than the prior expiration of September 1, 2026), remain eligible for the reduced rate.
Sales Tax Reregistration Program and Penalty/Interest Discount Program: Part N directs the Commissioner of Taxation and Finance to implement a sales tax vendor reregistration program to be completed by December 31, 2030, requiring certified-mail expiration notices at least 180 days before expiration and a new registration application at least 90 days before expiration. Vendors that receive a notice of proposed refusal to issue a certificate of authority may appeal, and the Division of Tax Appeals must schedule an expedited hearing within 30 days of receipt of the petition.
Part N also creates a “sales and use tax penalty and interest discount program” for eligible taxpayers with eligible sales tax liabilities. An “eligible taxpayer” is any person who is a holder of a current certificate of authority subject to the reregistration program who has an eligible liability. A person convicted of a crime under the tax law (or under the penal law who is subject to a court order to pay a tax liability) is not eligible to participate in the program. An “eligible liability” is a liability for sales and use taxes imposed by Article 28 of 29, including interest and penalty (but not including penalty imposed under Tax Law §§ 1145(a)(2) or (5) or §§ 1145(i) or (j)), that is fixed and final on or before September 1, 2026, such that the taxpayer no longer has any right to an administrative or judicial review. Additionally, an “eligible liability” does not include any assessment that was reduced by a written agreement with the Commissioner, a liability that was compromised under Tax Law § 171(Eighteenth)(a), or a liability reduced under Tax Law § 1700(3).
The discounted amount due under the program is the full tax due plus 50% of the accrued interest through December 31, 2026. Amounts paid under the program are not eligible for refund or credit.
Vending Machine Sales Tax Exemption Extended through May 2029: Part P extends the sales and use tax vending machine exemption for three years, through May 31, 2029 (from May 31, 2026), effective immediately.
Residential Energy Storage Sales Tax Exemption Extended through 2028: Part Q extends the sales and use tax residential energy storage exemption for two years, through June 1, 2028 (from June 1, 2026), effective immediately.
Petroleum Business Tax: Annual Filing for Commercial Vessel Operators: Part R requires petroleum businesses operating a “commercial vessel” to file required petroleum business tax returns on an annual basis (due March 20), covering the four immediately preceding sales tax quarters, with transition rules requiring monthly returns through the effective date and an annual return for the remainder of March 1, 2026, through February 28, 2027, due March 20, 2027.
Alternative Fuels Tax Exemptions Extended through September 2031: Part S extends the sunset date for alternative fuels tax exemptions from September 1, 2026, to September 1, 2031 – a five-year extension.
STAR Program: Late Enhanced Relief, Notice Procedures, Credit Mechanics, and Date Adjustments: Part T revises the enhanced STAR relief mechanism so that an owner with a basic STAR exemption who believes they have become eligible for enhanced STAR exemption may submit a request – in prescribed form – requesting the grant of the enhanced STAR exemption no later than the last day to pay school taxes without interest or penalty. The commissioner may grant the exemption if the applicant is entitled, with roll correction or direct remission of tax savings if timing prevents roll correction.
Part T repeals and replaces certain STAR notice and review provisions, stating that when the Commissioner determines a property is ineligible for a STAR exemption, notice of such determination and an opportunity for review therefore shall be provided in a manner set forth under RPTL § 425(4-b). The STAR-related “qualified taxpayer” definition for the applicable credit is updated by moving the residency qualification date from December 31 to July 1 of the taxable year. Part T also adds an explicit “Allowance of credit” provision confirming refundability and overpayment treatment even where a taxpayer is not otherwise required to file a return.
Telecom Assessment Ceiling Program Extended through January 2031: Part U extends the real property tax law relating to assessment ceilings for local public utility mass real property by four years – through January 1, 2031.
New Personal Income Tax Subtraction for Certain Federal CFC Election Distributions: Part AA amends Tax Law § 612(c) by adding a new paragraph (48), which provides a subtraction modification from New York adjusted gross income for “the amount of any distribution included in federal adjusted gross income pursuant to IRC § 962(d).” The subtraction takes effect immediately and applies to taxable years beginning on or after January 1, 2026.
This is one of the more technically significant provisions in this tranche of the Budget, and it warrants careful attention from clients owning international businesses. A brief explanation of the federal backdrop is useful here.
Under IRC § 962, an individual U.S. shareholder of a controlled foreign corporation (CFC) may elect to be taxed at corporate rates, instead of individual rates, on amounts includible in income as Subpart F income or global intangible low-taxed income (GILTI). The benefit of the election is that the individual may claim a deemed-paid foreign tax credit otherwise available only to corporations. The tradeoff is addressed by IRC § 962(d): when the CFC later makes an actual cash distribution out of earnings that were previously subject to the § 962 election, that distribution is included in the individual shareholder’s federal adjusted gross income; essentially preserving the two levels of tax that would result from ownership of the foreign business by a US corporation.
Prior to Part AA, New York provided no specific subtraction for these § 962(d) distributions. Because New York conforms to federal adjusted gross income as its starting point for personal income tax purposes, § 962(d) inclusions were arguably taxed in New York twice: once when recognized for federal tax purposes and subject to lower federal – but not New York – rates and then again at the state level when the foreign business distributed the income as a dividend. Part AA corrects this by allowing individual taxpayers to subtract § 962(d) distribution amounts from their New York adjusted gross income.
For high-net-worth individuals and business owners who have made or are considering § 962 elections with respect to offshore CFC holdings, this subtraction could represent a meaningful reduction in New York personal income tax liability. It also removes a significant disincentive to making the § 962 election in the first place; a disincentive that, until now, made the election less attractive for New York residents compared to shareholders in states that conform to the federal treatment more broadly. Clients with CFCs or significant international operations should discuss the implications of this new subtraction with their advisors before filing 2026 returns.
Enhanced Farmer Food Pantry Donation Credit: Part BB amends Tax Law § 210-B(52)(a) – governing the corporate franchise tax credit for eligible farmers who make qualified donations to eligible food pantries – to increase the credit from 25% of the fair market value of the donated food to 50%, and to raise the maximum credit cap from $5,000 (for taxable years ending before January 1, 2026) to $20,000 (for taxable years beginning on or after January 1, 2026). The partnership cap is applied at the entity level.
Part BB makes the same changes for personal income taxpayers by amending Tax Law § 606(n-2)(1), increasing the credit rate to 50% of fair market value and the cap to $20,000 for taxable years beginning on or after January 1, 2026, and applying the cap at the entity level for partnerships and New York S corporations.
Part BB takes effect immediately. This is a straightforward but significant enhancement of an existing credit. By doubling the credit rate from 25% to 50% and quadrupling the annual cap from $5,000 to $20,000, the Budget makes the farmer food pantry donation credit considerably more valuable for agricultural businesses that engage in charitable food contributions. The simultaneous expansion of the credit under both Article 9-A (corporate franchise tax) and Article 22 (personal income tax) ensures that farming operations organized as either corporations or pass-through entities can take full advantage of the enhanced credit beginning with the 2026 tax year. Farm operators who have historically made food donations but have been constrained by the prior credit limits should revisit their contribution planning in light of these changes.
Sales Tax Treatment of Student Meal Plan Donation Programs: Part CC amends Tax Law § 1105(d)(ii)(B), which governs the sales tax treatment of food and drink sold to students under a contractual arrangement, i.e., where the student does not pay cash when served on the premises of certain schools, colleges, and universities. The amendment expressly allows such contractual arrangements to include a provision permitting enrolled students to donate unused meal funds, meals, or meal points to other enrolled students facing food insecurity, provided the program is operated by the school (directly or via contract with a federally tax-exempt nonprofit) and no part of the donated funds, meals, or points applies to the school, college, university, or nonprofit.
Prior bracketed statutory language that referenced purchases “using an approved donation program of funds or food points” was removed and replaced with a more detailed authorization of such donation programs within the existing “contractual arrangement” provision. Part CC also advances the effective date of chapter 678 of the laws of 2025 from July 1, 2026, to June 1, 2026. Part CC takes effect immediately, although the amendment to § 1105(d)(ii)(B) takes effect on the same date and in the same manner as section 1 of chapter 678 of the laws of 2025.
This provision is most directly relevant to colleges, universities, campus dining vendors, and nonprofits involved in food insecurity programs. While it does not alter the fundamental sales tax exemption for qualifying meal plan transactions, the amendment provides important statutory clarity that donation program features will not jeopardize exempt treatment – a question that has created uncertainty for some institutions.
Optional Full Property Tax Exemption for Seriously Disabled Veterans: Part EE amends Real Property Tax Law § 458-a(11) to authorize counties, cities, towns, villages, and school districts to adopt a local law or resolution providing that the primary residence of a “seriously disabled veteran” shall be fully exempt from real property taxation and certain special charges, assessments, and levies, provided the veteran meets specified service, discharge, and disability criteria.
To qualify, the veteran must have been discharged or released from active service under honorable conditions (including certain National Guard service performed under federal Title 10 orders) or must have a “qualifying condition” or be a “discharged LGBT veteran” as defined under the Veterans’ Services Law, with a discharge other than bad conduct or dishonorable. The disability criterion requires that the veteran be considered permanently and totally disabled by the U.S. Department of Veterans Affairs as a result of military service, as evidenced by a letter, official form, or other document specifically stating that status.
If a locality opts into the exemption by adopting the requisite local law or resolution, it must notify the Department of Veterans’ Services within 30 days, although failure to provide that notification does not invalidate the local action. The Department of Veterans’ Services is required to compile and maintain a publicly available record of jurisdictions that have adopted the exemption. Part EE takes effect immediately and applies to assessment rolls based on taxable status dates on and after October 1, 2026.
A New One-Time Energy Rebate Credit – The POWER Credit: Part FF adds a new refundable personal income tax credit – the “Protecting Our Wallets Energy Rebate (POWER) credit” – as new Tax Law § 606(uuu), applicable for the 2026 tax year. This has a structural similarity to last year’s one-time inflation refund credit, which was also a refundable credit potentially treated as an overpayment of tax, keyed to prior-year residency and adjusted gross income thresholds. The POWER credit carries that same basic architecture, but with updated eligibility benchmarks and a different policy justification – energy costs rather than general inflation.
Eligibility for the POWER credit generally requires that the taxpayer: (1) was a full-year New York resident for tax year 2024; (2) timely filed a 2024 New York resident income tax return (including extensions); (3) had New York adjusted gross income (NYAGI) in 2024 of $300,000 or less for married filing jointly or qualifying surviving spouse filers, or $150,000 or less for single, married filing separately, or head-of-household filers; and (4) was not claimed as a dependent on another taxpayer’s 2024 return.
The credit amounts are: $200 for married filing jointly or qualifying surviving spouse filers with 2024 NYAGI of $150,000 or less; $150 for married filing jointly or qualifying surviving spouse filers with 2024 NYAGI above $150,000 and up to $300,000; and $100 for single, married filing separately, or head-of-household filers with 2024 NYAGI of $150,000 or less.
The credit is treated as an overpayment to be credited or refunded. Notably, the Commissioner is directed to determine eligibility from 2024 return information and to advance a payment directly to eligible taxpayers, meaning taxpayers may receive the credit without having to specifically claim it on a 2026 return. A mechanism exists for taxpayers to request a correction if they did not receive a payment (or received less than the full amount) to which they believe they are entitled. To the extent the POWER credit payment is includible in federal gross income, it is not subject to New York State or local income tax. Part FF takes effect immediately.
This is a provision every individual client will want to know about. Those with 2024 NYAGI at or below the applicable thresholds who filed timely 2024 New York returns should expect to receive an automatic advance payment – no additional filing action should be required. Employers communicating with their workforce about the provision should be prepared to explain both the eligibility criteria and the advance payment mechanism.
A New NYC Surcharge on High-Value Second Homes; the Pied-a-Terre Tax: Part HH is the most significant new tax provision in this portion of the Budget from the perspective of high-net-worth clients with New York City residential real estate holdings. It creates an entirely new surcharge – with no direct predecessor in recent budget cycles – on covered NYC residential properties that are not used as the owner’s, one of their family member’s, or a tenant’s primary residence.
The Legislature’s stated findings are that many of New York City’s most valuable homes are held as second homes, and the Legislature’s stated intent is to impose a surcharge on owners of such properties to help maintain important city services, initially using current valuation methods during a transitional period. Part HH adds Sections 1350 through 1356 to Tax Law Article 30-C, imposing – beginning July 1, 2026 – a surcharge on a “covered property” (including certain Class 1 properties and certain Class 2 condominium and cooperative units) that is not a “primary residence.” Class 1 and Class 2 properties are those dedicated to residential use. The surcharge operates in two phases: a phase-one period running the two years from July 1, 2026, through June 30, 2028, and a phase-two period beginning on or after July 1, 2028. The law sunsets on June 30, 2031.
Covered Properties and Value Thresholds
During phase one, the surcharge applies to: (1) Class 1 covered properties with a “phase one market value” of $5 million or more; (2) condominium units with a phase one market value of $1 million or more; and (3) cooperative units with an imputed phase one market value of $1 million or more. The phase one market value for a condominium unit is the New York City Department of Finance (DOF) current assessed market value. For a co-op, there is an imputed value calculated by multiplying the building’s DOF market value and the unit’s proportionate share allocation (which can be calculated by dividing the shares representing the specific dwelling unit by the total shares of stock in the cooperative corporation).
During phase two (fiscal years beginning on or after July 1, 2028), the surcharge applies where the “phase two market value” is $5 million or more, regardless of property class. Phase two market values should be updated to reflect true comparable sales-based market values. This means that the phase two value base for most Manhattan condos and co-ops will be higher than the phase one base, but the applicable rates of the surcharge will be lower.
Covered Owners
The definition of “covered owner” is broad and includes direct owners, co-op tenant-stockholders, condominium unit owners, certain sole beneficial owners of trusts holding covered property, and certain majority owners of entities that hold the covered property, unit, or shares. However, the DOF’s proposed rule amendment of Title 19, Chapter 62 of the Rules of the City of New York would create limitations: a partnership, corporation, or LLC would only be treated as "holding" covered property (or cooperative shares) where it holds an undivided fee interest in the property or all the applicable shares of stock. As a result, the majority owner of an entity that holds only a fractional share of a property is not a "covered owner" for purposes of the primary residence exemption. Clients holding NYC residential real estate through multi-member or multi-party entity structures should analyze this carefully before assuming they qualify as covered owners eligible to claim a primary residence exemption.
Primary Residence
“Primary residence” can be established by use of the covered property during the calendar year as the primary residence of the covered owner or owners (or their immediate family, if natural persons), or by qualifying lessees or sublessees occupying the property pursuant to a bona fide, arms-length lease of at least one year. The rules under Chapter 62 of the Rules of the City of New York define an "arm's length transaction" to exclude arrangements where circumstances indicate a reasonable possibility that the lease was entered into for the purpose of avoiding the surcharge. Clients relying on the tenant-based exemption should therefore ensure that their leasing arrangements are well-documented as genuine, market-rate transactions.
Notably, the primary residence determination is not self-executing.
Administration and Process
DOF must make an initial annual determination that a covered property at or above the applicable value threshold is not a primary residence, provide notice to the owner (no later than January 30 of each year, except that for fiscal year beginning on July 1, 2026, notice must be transmitted no later than August 30, 2026), and provide an opportunity for the owner to submit proof of primary residence status. An owner wishing to contest an initial determination must file an appeal within 30 days of the date notice is transmitted, through an electronic portal designated by DOF, and must include both a certification that the property is used as a primary residence and supporting proof. DOF then issues a final determination after considering all submissions and other available information.
Surcharge Rates
The surcharge rates are as follows:
Phase One:
- Class 1 properties (≥ $5M): 0.8% on phase one market value from $5M–$15M; 1.05% on value above $15M–$25M; 1.3% on value above $25M
- Condominiums and cooperatives (≥ $1M): 4.0% on phase one market value from $1M–$3M; 5.25% on value above $3M–$5M; 6.5% on value above $5M
Phase Two:
- All covered property (≥ $5M): 0.8% on phase two market value from $5M–$15M; 1.05% on value above $15M–$25M; 1.3% on value above $25M
Collection and Enforcement
The surcharge is administered and enforced by NYC DOF generally in the manner of real property taxes, but standard property tax abatements, credits, and exemptions do not apply to it. The surcharge is separate and distinct from other real property taxes for several purposes, including class-share calculations and tax rate-setting. For the fiscal year commencing July 1, 2026, the surcharge is due on the same date as the second semi-annual installment of New York City real property taxes.
Note that the standard market value correction procedures are available only beginning with the fiscal year commencing July 1, 2027; owners may not use those procedures to challenge their surcharge valuation for the initial 2026 fiscal year. Owners may, however, petition for correction of clerical errors or errors of description, and DOF may issue refunds of overpayments or double payments, using existing DOF procedures.
Administrative and judicial reviews are available, but the remedies specified in the NYC Administrative Code implementing the surcharge are stated to be the exclusive remedies for challenging surcharge liability. Additionally, the proposed amendment to Chapter 62 of the Rules of the City of New York provides for a significant penalty regime. DOF has authority to audit any certification or documentation of primary residency submitted to the department, provided that such an audit must be initiated within six years of the submission.
Where DOF determines that inaccurate or misleading documentation was submitted negligently or in bad faith and, if accepted, would have resulted in the surcharge not being imposed, a penalty equal to 50% of the applicable surcharge is imposed and the surcharge itself is reinstated.
Part HH authorizes information sharing between New York City and the New York State Department of Taxation and Finance for purposes of implementing the surcharge, and information shared pursuant to this authorization is exempt from disclosure under FOIL. Part HH also adds a new chapter (Title 11, Chapter 32) to the NYC Administrative Code to implement the surcharge locally.
Several points warrant immediate client attention. First, the surcharge takes effect on July 1, 2026. Second, phase-one rates on condominiums and cooperative units are striking: at 6.5% on phase-one market value above $5 million, the annual surcharge on a high-value NYC condo not used as a primary residence could be substantial. Third, the broad “covered owner” definition means that clients holding NYC residential properties through entities or trusts must carefully analyze their exposure. Fourth, the definition of “primary residence” and the DOF determination process will generate disputes, and clients should be prepared to document primary residence status before the August 30, 2026, deadline for the DOF to issue its notice.
Site-Specific Extensions of Brownfield Redevelopment and Remediation Tax Credits: Part JJ extends the duration and availability of certain brownfield redevelopment and remediation tax credits with respect to specified sites by deeming such sites “qualified” and/or extending the benefit and eligibility periods for credits under Tax Law §§ 21 and 22, as in effect for such sites as of Part JJ’s effective date. The sites addressed are:
- A downtown Albany site at Broadway and Spencer Street (brownfield cleanup agreement entered into before December 20, 2013; certificate of completion on or before December 31, 2017).
- A Manhattan site at 555 West 34th Street/400 Eleventh Avenue (agreement before December 22, 2007; certificate of completion on or before December 19, 2012).
- A Saratoga County site at 125 Bath Street (agreement before February 1, 2013; certificate of completion on or before December 31, 2019).
- An Erie County site at 4630 River Road in the Town of Tonawanda (agreement before July 31, 2014; certificate of completion on or before December 16, 2016).
- A Monroe County site in Rochester at 18 Ambrose Street and the rear parcel of 214 Lake Avenue (including Haidt Place) (agreement before June 16, 2005; certificate of completion on or before December 31, 2017).
Part JJ takes effect immediately.
This is not the first time the legislature has singled out certain sites for preferential treatment under the Brownfield program. In 2023, very specific language was added that appeared targeted to one specific project (i.e., on a qualified site in cities with a population greater than 205,000 and less than 215,000 in counties with a population greater than 1,000,000 but less than 1,010,000 as of a certain census date). This time around, the legislature dispatched with the thinly veiled attempt at obscuring the specific site and simply named it. Although these credit extensions are highly site-specific, they are significant for any client connected to one of the listed properties. Particularly noteworthy is the purchase/conveyance timing condition: the extended credit periods are available not only to current owners but also to purchasers or transferees who acquire an interest by no later than the applicable deadline. This creates a planning opportunity for potential investors or buyers of these sites.
Closing Observations
Of all the provisions covered here, Part HH’s new NYC second-home surcharge is the one that demands the most immediate attention. Clients holding high-value New York City residential property that is not their primary residence, whether directly, through entities, or through trusts, should consult with counsel now to understand their exposure and documentation needs before the first notices go out later this summer. Landlords leasing residential properties likewise need to understand the ramifications of these rules. The rates, particularly for condominiums and cooperative units in phase one, are high, and the surcharge takes effect for the fiscal year beginning July 1, 2026.
For more information, please contact Hodgson Russ Partners Ariele Doolittle, Joseph Endres, Debra Silverman Herman, Daniel Kelly, Craig Reilly, Timothy Noonan, Elizabeth Pascal, or Andrew Wright.
Disclaimer:
This client alert is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this client alert should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.