NYC judge orders second-home tax rollout restarted, city appeals to keep it alive

A Staten Island judge has ordered New York City to scrap its initial rollout of Mayor Zohran Mamdani's pied-à-terre surcharge on luxury second homes, ruling that the city's Department of Finance violated property owners' due process rights by mailing tax notices before verifying whether recipients actually owed the charge. Within hours, Mamdani's office filed an appeal and invoked an automatic stay that, under New York law, allows the city to continue implementing the tax while the legal fight plays out.

State Supreme Court Justice Wayne Ozzi, a Democrat, issued the 22-page ruling on Tuesday, finding the city's process 'arbitrary and capricious, affected by errors of law, and in violation of the recipients' due process rights,' according to the decision. He ordered the city to cancel the existing notices, take down an online database of nearly one million properties the Department of Finance had published, and reissue notices only after making individualized determinations about who truly owes the surcharge. Ozzi did not strike down the tax itself, and noted the city can still apply it once it follows proper procedures.

No crime is involved here, but homeowners are being substantially harmed and penalized needlessly.— Justice Wayne Ozzi, Staten Island Supreme Court

The surcharge, signed into law by Gov. Kathy Hochul as part of the state budget in May, targets one-to-three family homes and condos or co-ops valued above $5 million, as well as condos and co-ops with a market value over $1 million — but only for owners whose primary residence is outside New York City. Homeowners who live in the city full-time, or have an immediate family member doing so, qualify for exemptions. The first taxes are not due for collection until January 1, 2027, and the city projects the surcharge will raise $500 million a year to help close a significant budget gap.

The trouble began in July, when the Department of Finance mailed notices to roughly 17,000 luxury property owners informing them they might be subject to the surcharge and could file for an exemption if they believed they were city residents. The notices were based in part on 2024 personal tax returns. After they went out, the city obtained more recent tax forms from the state six months ahead of schedule and contacted hundreds of people to tell them they were not, after all, subject to the tax. A Department of Finance attorney said in a court filing last month that the agency had already exempted 4,000 of the 17,000 who received notices, according to Gothamist.

Homeowners who sued — including the wife and father of Republican Staten Island Councilmember Frank Morano — argued the city sowed 'mass confusion' by publishing the broad online list and sending notices without doing the verification work first. Their attorney Randy Mastro, who served in top roles under mayors Rudy Giuliani and Eric Adams, framed the ruling as a straightforward failure to follow state law.

The fact is that this administration failed to follow state law when it burdened New York City homeowners with proving they live in their own homes or be on the hook for paying a new surcharge.— Randy Mastro, attorney for plaintiff homeowners

The administration must go back and do what it should have done from the start: use all the information at its disposal to make an individualized 'initial determination' about who truly owes this surcharge before demanding that they pay it.— Randy Mastro, attorney for plaintiff homeowners

The city's Law Department had argued the suit should be dismissed because the homeowners who brought it had ultimately not been harmed — they were among those later told they did not owe the tax. Law Department chief Steve Banks called the case 'a policy dispute dressed up as a case in controversy.' Ozzi disagreed.

Mamdani's office moved immediately to blunt the ruling's effect. A city official told The Hill that the appeal invoked the 'auto stay,' which under New York law pauses a lower court's order while an appeal is pending, allowing the city to continue its implementation. Spokesman Matt Rauschenbach called the ruling 'wrong' and cast the broader legal fight in political terms.

The pied-à-terre surcharge is about a basic principle of fairness: if you can afford a luxury second home in New York City, you can afford to pay your fair share for the schools, streets and parks that make this city work. Our Administration is fighting every day to deliver for working New Yorkers. The ultra-wealthy are fighting in court to avoid paying their fair share. They have filed lawsuit after lawsuit to protect their privilege, and we will not back down.— Matt Rauschenbach, spokesperson for Mayor Mamdani

Tuesday also brought two new lawsuits filed in Suffolk County challenging not the rollout but the tax itself on constitutional grounds. One was brought by Mastro; the other by casino mogul Steve Wynn and Wilbur Ross, Trump's former commerce secretary, along with Ross's wife Hilary Geary Ross. All three are full-time Florida residents who own New York City real estate. Their complaint argues the tax discriminates against out-of-state residents who already pay property taxes and use fewer city services. According to the complaint cited by Gothamist, the Rosses received a notice stating they owe an additional $83,531.52 on their New York City co-op, while Wynn owes an extra $183,094.69 for a Manhattan property.

When Steve Wynn and Wilbur Ross try to cast themselves as sympathetic figures in a fight over paying their fair share on multimillion-dollar second homes, they're making the case for the pied-à-terre tax as well as anyone could.— Jen Goodman, spokesperson for Gov. Kathy Hochul

The city has said it will also intervene in the lawsuit against the state to defend the tax. More than 2,000 property owners have challenged their status, and the city recently extended the deadline to submit proof of residency to October 6. With the auto stay in place, the administration's position is that implementation continues — but the procedural fight over how notices must be issued, and the constitutional challenge to the tax itself, are now running on parallel legal tracks.

Tuesday's ruling is one of several legal setbacks Mamdani has encountered since taking office. According to Fox News, he has also faced court challenges to his rent freeze plan, a state-sponsored grocery store initiative, and changes to specialized high school admissions.

Why it matters — The ruling forces a procedural restart of a tax the city is counting on for $500 million a year, while the automatic stay means the legal and financial uncertainty for roughly 13,000 property owners who have not been exempted continues — and two new constitutional challenges could threaten the tax's existence entirely.

Reported by thehill.com, foxnews.com, nytimes.com, nydailynews.com, gothamist.com