Taxes on luxury secondary residences have become very popular in recent years. It’s easy to understand why: not only do they target the rich and seem to promise large amounts of revenue, they are also directed at people who can’t vote. “Consequence-free revenue” is always a phrase that sounds enticing to politicians.
But are they constitutional?
A case filed in Rhode Island’s Newport County Superior Court last week asks that very question. While Zohran Mamdani’s version of the pied-à-terre tax has received the bulk of the national attention on this issue, Rhode Island passed its own version, dubbed the “Taylor Swift tax,” in the summer of last year.
And while both taxes went into effect on July 1 of this year, New York City’s remains mired in legal challenges to the disastrous rollout of its version. Not only has the city gotten things backwards by placing the burden of proof on homeowners to show that they are exempt from the tax, it also bizarrely released a list of 900,000 properties that are “related to” the tax. For context, the NYC Comptroller estimates that the tax will ultimately apply to 11,200 properties.
But it’s Rhode Island’s tax that is facing a challenge to the constitutionality of taxing second homes. The plaintiffs argue that the tax, which applies exclusively to the assessed value over $1 million of secondary residences in Rhode Island, is a clear effort to target nonresidents for special tax burdens.
Rhode Island will respond by saying that it is not a tax on nonresidents, but secondary residences, regardless of whether the individual’s primary residence is in-state or out-of-state.
But as the lawsuit notes, the Rhode Island tax’s primary sponsor undermines that argument with his words, stating in a hearing that “the beauty of this . . . [is that] none of these people, being nonresidents of the State of Rhode Island, none of these people can vote against me or any of you because they’re nonresidents.”
Whoops! That’s called “saying the quiet part out loud.”
Similar vulnerabilities bedevil the NYC pied-à-terre tax. Unable to pass up an opportunity for some demagoguery, the city’s press release announcing the tax explicitly states that it “targets ultrawealthy out-of-city residents and global elites.” That sure doesn’t sound very neutral about whether the taxpayers are residents or not.
The broader justification for these taxes, that they require nonresidents to contribute to the services they benefit from, makes equally little sense. Properties subject to secondary-residence taxes are also subject to the normal property tax. If anything, they require fewer services than primary residences, not more.
Politically, there are next to no safeguards against subjecting nonresidents to special taxes. The only thing preventing it is the Constitution. Courts need to be willing to look past flimsy justifications contradicted by their advocates’ own words and enforce robust prohibitions against this kind of cross-border overreach.
See You at SPN?
If you’re at SPN this week, drop by our hospitality suite at Amarante 1 today or tomorrow. We have a whole crew of our expert staff here (and also me). Grab some coffee, a donut, some swag, and some reading materials. And if your hands aren’t too full, play some putt-putt golf and chat with us.