Objective

To determine the extent of implementation of the two recommendations included in our initial audit report, Administration and Collection of Real Estate Transfer Taxes (Report 2017-S-88).

About the Program

The Real Estate Transfer Tax (RETT), enacted in 1968 under Tax Law Article 31 as a tax on the transfer of real property, applies to sales or conveyances of New York real property or interests in real property when the consideration exceeds $500, at a rate of $2 for every $500 of consideration exchanged. The base tax is generally paid by the seller (grantor), unless the seller is exempt from the tax or does not pay, in which case the buyer (grantee) must pay the tax. An additional RETT of 1% applies to conveyances of residential real property when the consideration is $1 million or more and is often referred to as the “mansion tax,” which is required to be paid by the buyer. A 2019 amendment to the tax law provides that when the buyer fails to pay the mansion tax, the seller is required to pay, and the tax then becomes the joint and several liability of the seller and the buyer. Beginning July 1, 2019, additional taxes apply to some conveyances of real property, or interests in real property, in New York City. RETT is generally paid during deed recording at county clerk offices, which then remit the tax to the Department. State RETT collections for each of the 2 State fiscal years ended March 31, 2021 and March 31, 2020 totaled about $1.1 billion and $949 million, respectively.

The objective of our initial audit, issued January 8, 2019, was to determine whether the Department had adequate systems and practices in place to allow it to effectively collect RETT, as required by relevant law and regulation. We found that the Department had – with certain exceptions – adequate systems and practices in place that allowed it to effectively administer and collect RETT, as required by relevant law and regulation. However, nearly all State counties submitted RETT information in hard copy form (vs. electronic submission) at the time of our audit, of which only a small portion was entered into an electronic system and capable of being analyzed. As a result, the Department’s ability to efficiently and effectively analyze information to identify higher-risk transactions was limited. We also identified certain RETT errors in one of the Department’s internal systems. We issued two recommendations to address these areas.

Key Finding

The Department has made significant progress in addressing the issues identified, having implemented both of the recommendations from the initial audit report.