Ross v. State of New York: New Constitutional Challenge Filed Against New York’s Pied-à-Terre Surcharge

A group of high-profile nonresident property owners has filed a constitutional challenge to New York’s recently enacted pied-à-terre surcharge (PAT Tax), creating the first major litigation test of the state’s new surcharge on certain high-value New York City residences that are not used as a primary residence. The lawsuit seeks to invalidate the tax on multiple federal and state constitutional grounds and, notably, argues that the PAT Tax is not merely a “surcharge” but rather an ad valorem property tax subject to New York’s constitutional real-property-tax limitations.

The case, Ross v. State of New York, raises significant questions concerning the state’s ability to impose residency-based tax burdens on nonresidents, the constitutional characterization of the tax and the extent to which New York may impose the surcharge on second-home owners to address municipal budget and housing concerns.

While the complaint raises several federal constitutional claims, the property-tax characterization claim presents a distinct state constitutional issue. Its resolution could affect the constitutional treatment of surcharge revenue even if the underlying levy survives.

Background on the Pied-à-Terre Surcharge and Litigation

The PAT Tax was enacted as part of New York’s Fiscal Year 2027 budget legislation. The tax applies to certain high-value New York City residential properties that do not serve as the owner’s primary residence and is administered by the New York City Department of Finance (DOF). The legislation directs the DOF to administer and enforce the surcharge “to the greatest extent practicable” in the same manner as real property taxes. Unpaid amounts become liens against the property and are collected through existing property tax mechanisms.

The plaintiffs, including former U.S. Commerce Secretary Wilbur Louis Ross Jr. and casino developer Stephen Alan Wynn, allege that they received notices assessing substantial PAT Tax liabilities on their Manhattan residences, subject to exemption eligibility.

The complaint further relies on public statements by state and city officials characterizing the tax as a mechanism to require wealthy nonresidents and second-home owners to contribute additional revenue toward New York City’s budgetary needs and municipal services.

The Taxpayers’ Core Arguments

The lawsuit advances six causes of action, but they can largely be grouped into two overarching themes.

The Plaintiffs’ Ad Valorem Property Tax Argument

The plaintiffs’ lead argument is that the PAT Tax functions as an ad valorem real property tax regardless of the Legislature’s decision to label it a “surcharge.” According to the complaint:

Under New York Constitution Article VIII, § 10(e), New York City and its five counties are subject to a limit on the amount of real estate taxes that they can raise each year. Specifically, subject to constitutional exclusions and adjustments, the provision limits the amount raised through real-estate taxation for New York City and county operating purposes to 2.5% of the five-year average full valuation of taxable real estate.

This means that reclassification as a real property tax would create a noteworthy fiscal constraint and a potential pathway to invalidation, but not necessarily immediate invalidation by itself. The immediate dollar consequence would be to reduce the City’s remaining capacity to raise other real-estate taxes by the amount of PAT Tax revenue counted against the limit.

The plaintiffs argue that courts traditionally examine the substance and operation of a tax rather than the label attached to it. On that basis, they contend that if the tax is functionally a property tax, it should be treated as one for constitutional purposes.

The Plaintiffs’ Nonresident-Discrimination Claims

The complaint also argues that the PAT Tax discriminates against nonresidents and burdens constitutionally protected rights. Specifically, the plaintiffs assert violations of:

A central theme of the complaint is that lawmakers repeatedly described the tax as targeting nonresidents, second-home owners and individuals who do not pay New York City income tax. The plaintiffs argue that such statements demonstrate discriminatory legislative intent and reveal an effort to raise revenue from individuals who lack political representation in New York City elections.

Practical Impact on Taxpayers

On September 29, 2026, the Supreme Court, Richmond County, in O’Brien v. City of New York, invalidated significant aspects of DOF’s surcharge rollout, but did not invalidate the underlying statute. The City appealed that same day and asserted an automatic stay of the ruling. The published exemption-application deadline for tax year 2026–27 was October 13, 2026, and has passed. Affected owners should review their filing status and any available review remedies rather than assume the litigation suspends their obligations or preserves their rights.

Taxpayers potentially subject to the PAT Tax should continue evaluating:

The litigation may ultimately have implications beyond ultra-high-net-worth taxpayers. Depending on how broadly the court addresses the constitutional issues, the decision could affect future state and local efforts to impose targeted taxes based upon residency status.

What to Watch as the Case Proceeds

Because the case was filed as a declaratory judgment action challenging the constitutionality of a statute, threshold procedural motions are likely before any merits determination occurs. The state may move to dismiss some or all claims before answering, challenge standing, ripeness or jurisdictional allegations, or defend the PAT Tax on the merits. The plaintiffs may oppose those motions, seek preliminary or injunctive relief if appropriate and continue pursuing their constitutional and statutory arguments simultaneously

Regardless of which side prevails initially, the losing party is likely to appeal. The case could ultimately reach the Appellate Division and potentially the New York Court of Appeals. Federal constitutional issues may also create a potential pathway for review by the U.S. Supreme Court if those issues become outcome-determinative.

Considerations for Affected Property Owners

The outcome of Ross v. State of New York could become one of the most closely watched New York state and local tax controversies of 2026 and could shape the future of residency-based real estate taxation well beyond New York City.

Property owners potentially affected by the surcharge should continue monitoring developments in the litigation while evaluating any applicable filing, exemption, appeal and refund considerations. As the case proceeds, court rulings and procedural developments may influence both the administration of the surcharge and the broader constitutional questions raised in the complaint.

Withum’s SALT Team will continue to monitor developments with this case. For questions regarding the litigation, the New York City pied-à-terre surcharge or the potential impact on a particular property, contact a member of Withum’s State and Local Tax Services Team.