An appeals court on Wednesday ruled that the administration of Mayor Zohran Mamdani can proceed with its efforts to collect a new tax on high-end second homes in New York City, handing the mayor his first major legal victory over a core piece of his progressive agenda.
Uncertainty had clouded the tax for weeks, after a Staten Island judge ruled in September that the city had mishandled the rollout and ordered it to start over. The city immediately appealed, and continued rolling out the tax as the lawsuit proceeded. The decision on Wednesday, from a panel of appellate judges in Brooklyn, reversed the lower court judge’s ruling.
The tax still faces other legal challenges. But the ruling is considered a win for the mayor, whose lawyers are also defending other policies he campaigned on, including a rent freeze, that have been opposed by his critics.
Mr. Mamdani had embraced the tax as a way to make good on his campaign promise to “tax the rich,” as well as a way to help close the city’s budget gap.
The mayor said in a statement on Wednesday that he was “heartened” by the ruling.
“From Day 1, those with the most have attempted to use every legal avenue available to shield their wealth and avoid contributing more to our city,” he said.
Randy Mastro, a lawyer who represented the group of homeowners who brought the lawsuit, did not immediately respond to a request for comment.
The process of introducing the tax on second homes, also known as pieds-à-terre, has been turbulent.
The tax was unveiled by Gov. Kathy Hochul in the spring with Mr. Mamdani’s support, and passed in the state budget. It must be paid by people who live outside New York City most of the time while also owning a high-value home in the city.
Levied as a surcharge on property tax bills, the tax applies to condos and co-ops that are used as second homes and have a “market value” — a complicated metric determined by the city’s Finance Department — of at least $1 million. It also applies to one-, two- and three-family second homes with a “market value” of more than $5 million. (The tax does not apply if the home is being rented to someone, or if a relative of the owner lives there most of the time.)
It is expected to raise some $500 million annually for the city.
The lawsuit that led to the ruling did not challenge the legality of the tax. Instead, it argued that the city had sowed confusion by sending out notices to about 17,000 New Yorkers informing them that their properties might be subject to the tax, without first making sure that the property owners were not full-time residents.
The suit also took issue with the city’s publishing an online list of nearly one million “properties that may be subject to the charge” that included the owners’ names.
But the city has maintained that it acted in accordance with the law that established the tax.
The city’s notices asked property owners to provide proof of residency, such as a driver’s license, or a copy of a lease to show that the home was being rented out. As of Oct. 28, the city had approved around 8,800 applications from homeowners who said they were primary residents and should not be taxed.
The city has said in recent days that even as that figure has grown, it remains confident that the tax will yield the anticipated $500 million in annual revenue.
Despite the appellate court’s ruling, two separate pending lawsuits are seeking to overturn the tax itself. Both of those suits argue that the law establishing the tax violates provisions of the state constitution that limit how much the city can collect in real estate taxes every year. Among other claims, they also argue that the tax is discriminatory under the U.S. Constitution because it applies only to residents of states other than New York.
One of the lawsuits was brought in September by former Commerce Secretary Wilbur Ross, his wife, Hilary Geary Ross, and the casino mogul Steve Wynn, all of whom live in Florida but own second homes in New York City. Notices from the city indicate that the Rosses would owe roughly $83,000 a year and Mr. Wynn about $183,000 a year under the tax, according to the lawsuit.
The other was brought by the corporation that owns an Upper East Side co-op building known as the Montclair, as well as a handful of homeowners, including some who live in Florida and in Suffolk County on Long Island. That lawsuit is backed by the Real Estate Board of New York, an influential lobbying group.
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