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NYS Comptroller

THOMAS P. DiNAPOLI

Taxpayers' Guide to State and Local Audits

Department of Taxation and Finance
Administration and Collection of Real Estate Transfer Taxes


Issued: January 8, 2019
Link to full audit report 2017-S-88
Link to 90-day response

Purpose
To determine if the Department of Taxation and Finance (Department) has adequate systems and practices in place to allow it to effectively collect Real Estate Transfer Taxes (RETT), as required by relevant law and regulation. The audit covers RETT collections received during the period January 16, 2016 through December 31, 2017.

Background
The RETT was enacted in 1968 under Tax Law Article 31 as a tax on the transfer of real property, and applies to sales or conveyances of real property or interests in real property when the consideration exceeds $500, at a rate of $2 for every $500 of consideration exchanged. The tax is paid by the grantor (seller), unless the grantor is exempt from the tax or does not pay, in which case the grantee (buyer) must pay the tax. An additional RETT of 1 percent applies to conveyances of residential real property when the consideration is $1 million or more, and is often referred to as the “mansion tax.” Unlike the basic RETT, the additional RETT is paid by the grantee, unless the grantee is exempt, in which case the grantor must pay it. State RETT collections total about $1.1 billion annually.

Transfers of interests in real property, including those of real estate investment trusts, easements, and leases, are subject to RETT, although transactions involving properties given as bona fide gifts or sold at tax sale, for example, are exempt. RETT is generally paid during deed recording at county clerk offices, which then remit the tax to the Department. During the period January 16, 2016 through December 31, 2017, the Department collected more than $2.2 billion from 848,608 RETT tax returns. As of June 2018, 57 New York counties remit RETT information to the Department in hard copy form. The remaining five counties remit this information electronically, including four that use the same electronic system.

Key Findings

  • The Department has – with certain exceptions – adequate systems and practices in place that allow it to effectively collect RETT. However, its reliance on hard copy RETT returns and relatedinformation from most State counties limits its ability to efficiently and effectively analyze information to identify higher-risk transactions.
  • We identified certain RETT errors in the Department’s internal transaction-level system.

Key Recommendations

  • Pursue options for collaborating with county recording officers to develop solutions for collecting RETT electronically.
  • Ensure that planned improvements to existing systems address the issues identified in this report.

Other Related Audits/Reports of Interest

Department of Taxation and Finance: Controls Over the Collection of the Public Safety Communications Surcharge (2016-S-84)
Department of Taxation and Finance: Controls Over Unclaimed Bottle Deposits (2016-S-96)


State Government Accountability Contact Information:
Audit Director: Stephen Goss
Phone: (518) 474-3271; Email: StateGovernmentAccountability@osc.state.ny.us
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236