Pied-à-Terre Tax Confusion Continues: Staying the Course While Appeal of Recent Order Is Pending

New York Court of Claims Judge Wayne Ozzi on September 29, 2026, ordered that New York City's administration of the Pied-à-Terre (PAT) tax "surcharge" be substantially revised going forward and that previously sent notices regarding non-primary residence property surcharges are to be canceled (the Order). The Order directed that the New York City Department of Finance (DOF) may mail new notices only after an individualized initial determination specifically identifies the non-primary residence claimed to be subject to the surcharge. This ruling does not strike down the PAT law but invalidates the initial notices and removes the previously published Supplemental Roll.

Now, the DOF under the Order must restart its determination and notice process, with the DOF having the burden to assert and substantiate the application of the PAT tax as it applies to any property owners in a new notice. Under the Order, property owners would not need to file for an exemption by October 6, 2026; however, immediately after the issuance of such Order, the City of New York appealed, which resulted in an automatic stay on its holdings. Therefore, until determined otherwise, the exemption process continues to be in effect with the October 6, 2026, deadline unchanged.

Procedural History

Taxpayers owning property in New York's Richmond and New York counties filed an initial complaint on August 7, 2026, which they subsequently amended on August 18, 2026, to add new petitioners in O'Brien v City of New York, Index No. 85217/2026 (Sup. Ct., Richmond County). The complaint challenged the propriety of a published list of more than 900,000 properties and owners (the Supplemental Roll) and the approximately 17,000 notices mailed to property owners (the Mailed Notices). The taxpayer-petitioners also sought a temporary restraining order preventing the DOF from continuing its actions to enforce the PAT tax, which was granted and then appealed by the respondents. The Appellate Division stayed the restraining order on August 13, 2026, with the parties appearing before the court on August 31, 2026. The September 29, 2026, Order was issued following these arguments. The Order summarizes the legislative and procedural history of this PAT law and the DOF's actions since the PAT law became effective May 28, 2026, including codification of the final rules on July 14, 2026. The Order notably asks a question that many clients and their advisors have asked this summer: "How are property owners expected to make an informed challenge to DOF's determinations" without an explanation as to how their properties were chosen for the imposition of the surcharge and any analysis of how the DOF reached its initial determinations?

The Order memorializes much of the confusion, concern and criticism from property owners and their advisors regarding the implementation of the PAT law and its enforcement. For example, the DOF contended that it did not consider 2024 tax returns as dispositive regarding residency and that because 2025 income tax records were not available during its initial review, such tax returns were not considered. Though 24,000 1-3 family homes, residential condominiums and cooperatives units met or exceeded the value threshold under the PAT law, approximately 17,000 property owners received notices regarding surcharge liability, with more than half of the properties allegedly not being owned by an individual but by a trust, partnership, corporation, limited liability company or other entity.

As noted in a previous Holland & Knight alert, property owners who received a notice were directed by the DOF that they could submit documentation showing the property is the primary residence qualifying for an exemption by an extended deadline as late as October 6, 2026. This "exemption" application has already been submitted by many property owners, with the DOF further notifying and amending previously sent notices that the property owner qualifies for an exemption, additional documentation is requested or that the residential property is no longer subject surcharge at all. This entire process resulted in property owners being further confused and concerned with complaints that "the 'exemption' process was difficult and improperly administered," Judge Ozzi agreed in his September 29, 2026, Order.

The Decision

The decision analyzed two main challenges: 1) the scope of the published Supplemental Roll and 2) the DOF's actions for the determination as to whether a residential property was a property owner's primary residence and the burden imposed on the property owner to demonstrate the property was indeed the owner's primary residence.

Supplemental Roll Removed

Though the information related to the published Supplemental Roll has long been public record, the broadly drafted and published list that included more than 900,000 properties, with an initial estimate of only 17,000 properties being subject to the surcharge – which was subsequently modified to likely be below 10,000 properties – "has caused unwarranted publicization of personal information." The Order further explains that it is "nonsensical" to conclude that the imposition of the PAT tax of fewer than 17,000 properties required a republication of the entire residential tax roll of 900,000 properties – the overbreadth of this list in which "98-99% of the data is irrelevant to its stated purpose is capricious and without legal support." For these reasons, the judge ordered that the DOF remove the current Supplemental Roll from its website but allowed the DOF to replace it with a "limited" Supplemental Roll "reflecting those properties actually subject to the surcharge."

Mailed Notices Canceled

A more important issue for property owners is the court's analysis of the Mailed Notices. Again, the court concurred with the property owner-petitioners when they argued that the DOF "abdicated their responsibility to make a well-reasoned determination" regarding whether a residential property was the property owner's primary residence. The court analyzed not only the procedures as codified in the Tax Law, such as the requirement that the DOF shall make an initial determination "based on information available to" DOF, but also that "DOF will use income tax data to make initial determinations of primary residency."

Despite these and other clear procedures under the new law, the DOF affirmatively refused to consider 2024 income tax data by itself, which the court found in direct conflict with the law, its published procedures and the legislative history. DOF's argument that using 2024 tax returns reflects only a residency date as of December 31, 2024, was not only dismissed by the court but ridiculed by the court for the "absurdity" of the DOF's position as it allegedly resulted in property owners who have resided in their homes for many years improperly receiving the Mailed Notices. As discussed further below, the previously Mailed Notices were canceled by this Order.

The Shifted Burden

The court's most impactful decision in this Order was determining that going forward, the DOF shall bear the initial burden of determining how and why the PAT tax applies to a property owner. The "exemption" process is scrapped in its entirety because of this burden shifting, further supported by the "arbitrary approach" by the DOF that disparately categorized two of the subject properties being "not subject to the surcharge" and the other two properties being granted "exemptions." Future mailed notices must now satisfy the following requirements:

• Specifically identify the non-primary residence claimed to be subject to the PAT tax.
• Utilize any and all resources and information available to the DOF to make an "individualized" initial determination with other factors identified under Tax Law Section 1352(a) and state what factors and information were considered, including, but not limited to, whether or not the property was occupied in a majority of days in the calendar year as provided under Tax Law Section 1352(a).
• Disclose the records or documents claimed to support such initial determination of non-primary residence.
• Indicate the threshold amount claimed for the target property ($5 million for 1-, 2- or 3-family homes or $1 million for cooperatives (co-ops) and condos).
• Advise the property owner of the right to challenge the DOF's final determinations and the procedures for such appeal (which shall not include an "exemption" process, which is eliminated as it "improperly shifts the burden").
• Advise regarding the possibility of a 50 percent penalty if the DOF, after a hearing, determines that any documentation provided by the property owner was submitted negligently or in bad faith under Tax Law Section 1354(e)(2).

The court was dismissive of the DOF's arguments that it proceeded as best it could under the time constraints of the implementation of this new PAT law, finding that its shortcuts in implementing the law cannot violate property owner due process rights, especially by requiring these owners to apply for an exemption from this PAT tax. The property owners were substantially harmed and penalized needlessly by the DOF's process and method for implementing the PAT tax. The time and money, without real guidance as to the proof required, were deemed irresponsible and unnecessary. Finally, the court was particularly concerned with the term "exemption" as it construes it as misapplied to property owners who either claim the property as their primary residence or where the value of the property falls below the valuation thresholds.

Potential Next Steps and Other Challenges

In addition, another lawsuit regarding the PAT law, Ross, Jr. v. State of New York, Index No. 628629/2026 (September 28, 2026), was filed challenging the constitutionality of the law itself. The lawsuit alleges that the PAT tax unfairly targets out-of-state owners, violates the Commerce Clause and runs afoul of New York state's constitutional real estate tax limits. As of the publication of this alert, the DOF had not responded to this new lawsuit, with oral arguments to take place on November 30, 2026.

Going forward, property owners who previously received a Mailed Notice may wish to discuss with their advisors about potential next steps, such as continuing to compile their own records and information to substantiate their claim and processes for filing for an exemption and monitoring the future enforcement of the PAT law by the DOF following this Order. While the appeal of the September 29, 2026, Order is pending and the stay is in effect, impacted property owners should likely proceed with filing for an exemption if they qualify by the October 6, 2026, deadline until the DOF or the court directs otherwise.

For more information or questions, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.