Tax Exemptions and Money-Saving Strategies
If someone were to tell you that as a New York co-op or condominium owner you may be throwing away up to $1,000 a year on unnecessary taxes, youd probably be pretty indignant, right? No matter who you are or what you do, a thousand bucks is nothing to sneeze atand you could certainly think of better things to spend it on than taxes.
Thousands of New York shareholders and condo owners are doing just that, howevershelling out unnecessarily for the privilege of parking their cars in garage spaces owned and leased by their own buildings. Manyif not mostowner-occupants are unaware that thanks to a piece of state legislation passed in February 2001, they are exempt from paying parking-related taxes in garages leased by their cooperatives and homeowners associations.
Hey, Mister Taxman
According to Robert Grant, director of management at Manhattans Midboro Management, Inc., if your building leases its parking facility to a commercial operator as a source of revenue and you routinely park your vehicle there, youve been paying a four percent New York State tax, plus all local taxes, plus a one-quarter percent Metropolitan Commuter Transportation District tax, plus a six percent New York City Municipal Assistance Corporation parking tax. If you only occasionally park your car in your buildings garage, youve been paying an additional eight percent in Manhattan parking tax as wellunless youve filed (and re-filed every other year) with the Citys Department of Finance for a Manhattan resident parking tax exemption certificate.
According to Michael Horowitz of Horowitz & Zim Law Group in Manhattan, "This exemption [is] limited to individual residents where parking services are rendered on a monthly basis for a year or more. Individual residents are defined as maintaining their primary residence in the county where the vehicle is garaged and registered at the address of the primary residence."
All told, this nickel-and-diming adds up to a substantial 18.25 percent tacked on to the basic garage feesand up to $1,000 a year, depending on where you live and what your adjacent garage charges to park there. Says Grant, "In one building that Midboro manages, 15 shareholders, plus the resident superintendent were collectively paying approximately $16,000 in taxes each year for parking in their co-ops garage."
Your buildings managing agent can now file documents with the New York State Tax Departments Office of Tax Policy Analysis, Technical Services Division to apply for parking tax exclusion. The process is long on paperwork and short on financial gain for the managing agent, "But," says Grant, "every day, managing agents face new laws and regulations that result in additional paperworkthis is certainly one of those times that the extra hours it takes to complete the work on behalf of our client buildings are well worth the effort."
The extra effort can only be applied if your managing agent knows about the new tax exemption law in the first place. Since the law is still relatively new and the Department of Taxation and Finance does not hold press conferences to announce this sort of tax relief, shareholders and owners must rely on well-informed accountants, attorneys, and (of course) managing agents to keep abreast of new legislation and take the necessary steps to begin saving their clients money.
Procedures and Paperwork
The first step in the parking tax exemption process requires your buildings managing agent to compile a list of the names and apartment numbers of every shareholder or owner parking in your buildings garage, along with their license plate numbers and the make and model of their vehicles. The completed list is then delivered to your garage operator, who is required by law to file it with the state and city where applicable, to update it when necessary, and to immediately cease charging parking taxes on these vehicles. If a resident moves in or out or acquires a new vehicle, your buildings agent is required to alter the exemption list accordingly, making this "an ongoing process," according to Grant.
If you are a garage operatoror if your corporation/association operates its own garage as a commercial parking facilitythe new tax law requires that you adjust your quarterly or annual tax reports to exclude all eligible homeowners within your building. Garage owners must also pro-rate any parking and sales taxes that were charged to residents between February 1 and February 5 of 2001. Says Grant, "In the event that an independent garage operator isnt aware of the new legislation or questions its validity, your managing agent can provide them with a copy of TSB-M-01(3)S," which is a sales tax advisory memorandum issued in January of this year by the Tax Departments Technical Services Division. That should help clear up any doubt or questions your operator may have about the new law.
Horowitz spells out the advisory: "Pursuant to the TSB-M-01(3)S memorandum, if there is an outside operator of the parking facility to whom payments are made directly and who is permitted under the lease to hold out the facility to the general public, the homeowners association must supply the operator with a list of eligible residents names, the make of their vehicles, and corresponding license numbers. The operator must then keep this information regularly updated."
Grant also points out that if your building self-manages an on-site parking facility for residents exclusive use, the various parking taxes affecting similar commercially-used garage spaces were repealed about four years ago. The new law expands this exemption to shareholders and condo owners if your building leases its parking space to an outside operator.
Andgiven the scarcity of parking in most New York City neighborhoodsthat outside revenue can be substantial. Having parking available on your buildings premises is an added amenity from an internal standpoint as well. Guaranteed parking spots for residents, with discounted rates and the added security of being able to park off the street makes your building more attractive to prospective tenants and raises sales prices. Says Grant, "We recommend that these terms [guaranteed spaces and discounted parking fees] be added to all garage leases between the co-op or condo association and the garage operator, upon renewal."
Even with the new tax exemption and the obvious benefits of leasing or self-managing a parking facility inside or adjacent to your building, there are two major contingencies to address: the ever-present "80/20" issue, and the problem of so-called "sweetheart leases" that allow the sponsors of recently-converted buildings to collect revenue from commercial parking spaces.
The 80/20 conundrum may be avoided by issuing shares of stock for the commercial space, which a new shareholder may purchase at fair market value, bringing an enormous infusion of cash into the co-op. The stockholder then pays monthly rent or maintenance fees for the space, much like with an apartment unit. "That way," says Grant, "if the co-op is generating more than 20 percent of its revenue from a commercial space, its being done under the auspices of maintenance paid by shareholders to the co-op, rather than from a separate commercial venture." Thus, the 80/20 law is satisfied, and your buildings other valuable tax benefits and deductions remain intact.
Horowitz points out another benefit of adding garage fees to monthly maintenance: "we suggest that the method of paying garage rents be changed so that shareholders can pay the flat garage rents directly to their corporation. The managing agent can easily add garage rent charges to the monthly maintenance bills, and this would eliminate the responsibility of the cooperative to account to the garage operator with regard to the name, make, model, and license plate number of each shareholder or resident that uses the garage Making payments directly to the corporation would eliminate any possible exposure to a claim for indemnification by the garage operator for providing possibly inaccurate information. Identification would be left to the operator, who has to identify the vehicles in any event."
A different, and perhaps stickier problem arises when the revenue generated by your buildings on-site parking facility isnt available to residents because your building sponsor still holds the facilitys lease. In many early co-op and condo conversions, it was standard practice for sponsors to retain garage leasesusually for very low rent. Though still an issue for many buildings, the problem of "sweetheart leases" has been addressed as early as 1980in the form of the Federal Condominium and Cooperative Conversion Protection and Abuse Relief Act. This bit of legislation is being invoked more and more often as recent court decisions in favor of cooperative associations have renewed interest in pursuing relief from sponsor-held garage leases.
Everyone likes to save moneythe more the betterand few would disagree that the freshly minted parking tax exemptions are a boon to eligible shareholders and condo owners all over New York. Taking advantage of this legislation can be a somewhat involved process; its a matter of taking initiative, informing yourself, working cooperatively with your managing agent and garage operator, and keeping your buildings information accurate and up-to-date to ensure that the state and city get their dueand not a dollar more.
Ms. Fons is Associate Editor of The Cooperator. She acknowledges Grant and Horowitz for their substantial contributions to this article.