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Judge orders New York City to redo pied-a-terre tax notices; separately, Ross and Wynn sue over the tax
New York City has to pull back its pied-a-terre tax notices, a judge ruled Tuesday, one day after Wilbur Ross and Steve Wynn sued over $266,626 in bills. Nonresident owners now wait on reissued bills while courts test whether the surcharge is a property tax that the state constitution caps.
The Investor · Invest desk
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What happened
- Ross, his wife Hilary Geary Ross and Wynn are Florida residents who own Manhattan apartments, and they filed against the state in Suffolk County Supreme Court.
- Their complaint argues the surcharge is really a property tax, set by property value, billed through the city's property tax system and a lien on the home if unpaid.
- The state constitution caps what the city can raise through real-estate taxes, and the new law says surcharge revenue does not count toward that cap.
- The suit also says taxing owners by residence breaches the U.S. Constitution's Privileges and Immunities and Commerce clauses and equal protection guarantees.
- Ross's case joins a growing list of lawsuits against the city or the state over the tax.
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Why it matters
- cost Redoing the notices pushes the surcharge's first collections back before any court reaches the constitutional claims, so the city's budget absorbs the delay first.
- constraint A win on the residence claims would bar the premise Hochul gave for the tax, charging more to owners who do not live in the city or pay city income tax.
- decision Owners billed sums like the Rosses' and Wynn's now have to plan around a surcharge whose due date depends on the city's reissue and on the courts.
Of the complaint's arguments, the property-tax one reaches furthest into the city's revenue. It turns on how the charge is assessed and collected, and not on where the owner lives [5]. If a court accepts that description, the fight moves to the clause in the new law that keeps surcharge revenue outside the constitutional cap on city real-estate taxes [6]. "The state, by fiat, cannot change the constitutional reality of what it is," Ross said. "Surcharge on what?" [7]
The other claims turn on residence, and so does the state's case for the tax. Hochul has said it was meant to close the gap on owners who "do not live in the City or pay City income tax" [9]. "There is no gap. This is an imaginary gap," Ross said [10]. He argued that nonresidents already pay more, because their homes are worth more and because nonresident co-op and condo owners do not get the abatement given to primary residents [11]. On the politics he was blunter. "They don't want voter retribution for taxes at the ballot box, so they impose these taxes on people who have no way to defend themselves," he said [12].
The bills are small next to the people contesting them. The complaint puts the Rosses' bill on their co-op at $83,531.52 and Wynn's at $183,094.69 [4]. Forbes puts Wynn's net worth at $4.3 billion [13], so his bill comes to about 0.004% of it [2]. In my view a suit led by a Pillsbury Winthrop Shaw Pittman partner, James Catterson [17], is about the ceiling on future rates, and Ross said as much. "By their theory, there's no limit to what they could do to non-residents," he said. "We'll put 100% tax every year on the property. 200%." [14] Hochul's office uses the same wealth as its own argument. Jen Goodman, Hochul's director of rapid response, told Fortune that by casting themselves "as sympathetic figures in a fight over paying their fair share on multimillion-dollar second homes," Ross and Wynn are "making the case" for the tax "as well as anyone could" [15].
Between Tuesday's order and the stack of suits, I'd expect owners to wait some time before they face a bill they have to pay. The case against that view is plain. If the city reissues clean notices quickly and no court halts collection, owners pay on the city's new schedule. The constitutional claims would then run on a slower clock. Fortune's account does not give the grounds for Tuesday's ruling or say whether the Ross and Wynn bills were among the notices rolled back [2].
So far the owners have answered in court [1]. Warnings that the tax would lead to "the ouster of high-price items from the city" never formed, Fortune reported [16].
What to watch
- How quickly the city reissues its pied-a-terre notices, and whether any court halts collection while the suits proceed.
- How the Suffolk County court treats the claim that the surcharge is a property tax subject to the constitutional cap on city real-estate taxes.
- Whether more nonresident owners join the suits against the city or state before reissued bills go out.