Judge Throws Out NYC Pied-à-Terre Tax Rollout, Forces Restart

A Staten Island judge on Tuesday ordered Mayor Zohran Mamdani's administration to cancel the roughly 17,000 pied-à-terre tax notices it sent to New York City property owners in July and restart the process of deciding who owes the surcharge.

State Supreme Court Justice Wayne Ozzi ruled that before designating a property as a second home subject to the tax, the city must review all the information available to it and produce the records backing its claim. He did not rule on whether the tax itself is legal.

The decision strikes at a revenue pillar of the mayor's fiscal agenda. The city had been counting on at least $500 million a year from the surcharge, one of Mamdani's signature tax-the-rich promises. The city can appeal, and it is expected to invoke an automatic stay of the ruling by filing an appeal Tuesday evening, according to a source with knowledge of the city's plans.

"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," Matt Rauschenbach, a spokesperson for the mayor, told Fortune in a statement. "Today's decision is wrong, and we will invoke a stay of the injunction. With a stay, we will continue implementing the surcharge fairly, efficiently and in full compliance with the law, as we have since day one."

"New York is a city for the many—not a tax haven for the wealthy few," Rauschenbach continued. "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."

Gov. Kathy Hochul's office also defended the policy. "While this lawsuit about the administration of the tax is a matter for the city and the courts to work through, the Governor continues to believe that people who can afford a multimillion-dollar second home in New York City can afford to pay their fair share," Jen Goodman, Hochul's Director of Rapid Response, told Fortune in a statement.

The tax took effect July 1. It applies to one-, two- and three-family homes worth more than $5 million, and to condos or co-ops worth more than $1 million, when they are not the owner's primary residence.

The rollout stumbled almost immediately. The city admitted it did not check owners' income tax filings before mailing the July notices. Once it did, thousands of the flagged properties turned out to be primary residences.

Randy Mastro, who served as first deputy mayor under Eric Adams, brought the winning lawsuit on behalf of three homeowners. The suit does not challenge the tax itself—only how the city's Department of Finance carried it out.

Mastro's case rested on three claims. First, state law required the department to make an individual determination for each property before mailing a notice, and it skipped that step. Second, the city made homeowners prove they did not owe the tax instead of doing that work itself. Third, nothing in the law allowed the city to publish an online database of more than 900,000 properties with owners' names and addresses.

Mastro said in August that he received one of the notices himself, despite living in Manhattan for decades. "I got one, and everyone knows I'm a New Yorker," he said.

He has sued the Mamdani administration repeatedly since leaving City Hall. "There are few things more certain in New York City than death, taxes and Randy Mastro filing a lawsuit against this administration," Mamdani said in August.

On Tuesday, Mastro said in a statement that the court "recognized we were right all along." He said the city must now decide owner by owner who owes the surcharge before demanding payment.

A separate and potentially more consequential legal threat is building. On Monday, former Commerce Secretary Wilbur Ross, his wife Hilary Geary Ross and casino developer Steve Wynn sued the state over the tax. While Mastro's case targeted the rollout, their suit targets the tax itself, arguing it is unconstitutional because it falls only on people who do not live in New York City.

Ross, reached by Fortune minutes after Tuesday's ruling, said the decision did not surprise him. "I had told you I was very confident that we were on the right side of the law," he said. "I'm grateful that he did it so quickly, because a lot of people have been on pins and needles about this whole thing."

"Now undoubtedly there will be an appeal filed, so it's not necessarily 100% over," Ross said, "but we're certainly off to a good start."

With the city preparing its appeal and a constitutional challenge now pending, the $500 million-a-year surcharge faces legal tests on two fronts—raising fresh uncertainty over a centerpiece of Mamdani's budget math.