Regal Hotels chain appealed a determination that it owed transfer taxes in connection with its UN Plaza Hotel deal. In 1997 the City, the United Nations Development Corporation, and the New York City Economic Development Corporation put out a bid for proposals to purchase and operate the United Nations Plaza Hotel, currently the Millennium UN Plaza Hotel, situated within two adjacent buildings. The 39-story first tower, known as One UN Plaza and located at 787 First Avenue, has office space on the first 26 floors and hotel space on the remaining floors. The second tower, known as Two UN Plaza, is located at 322 East 45th Street. The two towers are the same height, have the same exterior appearance and lobby, and are connected by two pedestrian bridges.
The deal included the sale of the City’s property interest in the first tower and the transfer of then City’s lease interest in the second tower. The City selected the Regal Hotels chain, which paid $59.1 million to acquire the first tower, $36.5 million for the second tower lease, and $1.55 million in transfer taxes.
Regal filed a real property transfer tax return to report the purchase of the first tower. Regal also filed a return to report the lease, but reported that no transfer tax was due because the $36.5 million was all prepaid rent and not taxable. In late 1998, the Department of Finance notified Regal that it was auditing the transaction and assigned an audit number.
In 2000, Regal filed commercial rent tax returns covering the second tower lease, but referenced only the first tower and the ongoing audit. As the statute of limitations neared, Regal and Finance agreed to extend the transfer tax assessment period for one year. The extensions continued to make reference to the first tower and the ongoing audit. In July 2001, right before the extension was set to expire, Finance assessed $1.37 million in transfer taxes on the second tower lease. Regal appealed, claiming, among other things, that the assessment was untimely because three years had passed since the transfer.
A Tax Appeals Tribunal ALJ sustained the assessment. The ALJ found that no part of the $36.5 million was rent, but rather consideration subject to the transfer tax. The ALJ further found that the City, the EDC, and Regal intended the $36.5 million to affect a transfer of a real property interest as part of a single transaction, consisting of the first tower’s sale and the second tower’s lease. As for the timeliness issue, the ALJ found that the time extensions applied to both the first and second tower, that it was a mutual mistake on the part of both Regal and Finance’s auditor to reference only the first tower, and that the extensions should be reformed to prevent an unintended windfall for Regal.
On appeal, the Tax Appeals Tribunal reversed, ruling that the extensions could not be reformed and the $1.37 million assessment was untimely because it was issued after three years. The Tribunal found that only the auditor mistakenly believed there was a single block and lot. In order to reform the extensions, both parties had to be working under the same mistaken belief. The Tribunal found that even though Regal referenced only the first tower, it knew that there were two separate addresses. The Tribunal did not consider whether the $36.5 million paid in connection with the lease was subject to the transfer tax.
In the matter of RHM-88, LLC, TAT(E) 01-23(RP) (Jan. 4, 2007). CITYADMIN