Jeffrey M. Jensen, PC

Published August 26, 2026

In May 2026, the State of New York enacted a property tax on New York City residential properties that meet certain value thresholds and are not the primary residence of the owner, an immediate family member, or a tenant under a lease for at least a year.[1] In New York, such a property is commonly called a pied-à-terre.

By New York Governor Kathy Hochul’s own admission, the pied-à-terre tax targets non-residents of New York City. The Governor’s website states: “The tax would ensure that those that own luxury homes, but do not live in the City or pay City income tax are still fairly contributing towards the funding of the essential services like policing and parks that make New York City a global destination.”[2] 

The pied-à-terre tax may violate the U.S. Constitution’s dormant Commerce Clause. That Clause prevents state and municipal governments from discriminating against residents of other states.[3] In this context, discrimination “simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.”[4]

The dormant Commerce Clause is a central feature of the Constitution, and it was the principal reason the country’s founders called the Constitutional Convention of 1787.[5] Under the country’s first constitution, the Articles of Confederation, States routinely excluded nonresidents from their local economies.^[6] The dormant Commerce Clause’s objective is to quell that problem.[7]

Laws that discriminate against out-of-state business interests on their face, by their purpose, or in their practical effect “are subject to a virtually per se rule of invalidity.”[8] With few exceptions, a law that assigns benefits or burdens on the basis of one’s state of residence violates the dormant Commerce Clause.[9]

The pied-à-terre tax applies to property owners that reside outside of New York City, even if those property owners live in other parts of the State of New York. But this does not rescue the tax from dormant Commerce Clause scrutiny. By discriminating against property owners who live outside New York City, the tax necessarily discriminates against property owners who live outside the State of New York. The Supreme Court held that “a State (or one of its political subdivisions) may not avoid the strictures of the [dormant] Commerce Clause” by discriminating against nonresidents of “subdivisions of the State, rather than … the State itself.”[10]

Whether the pied-à-terre tax violates the dormant Commerce Clause rests on two questions: (1) Does the tax constitute regulation of commerce and (2) does it discriminate against nonresidents?

1. Is the Pied-à-Terre Tax Significantly Tethered to an Economic Transaction that Triggers Dormant Commerce Clause Scrutiny?

The dormant Commerce Clause applies by “its own force” to any “state regulation of commerce.” Dennis v. Higgins, 498 U.S. 439, 450 (1991). But New York will likely argue that the pied-à-terre tax is not sufficiently connected to an economic transaction to trigger the dormant Commerce Clause. Real estate taxes can be subject to the dormant Commerce Clause: “A tax on real estate, like any other tax, may impermissibly burden interstate commerce” if it discriminates against nonresidents.[11] “To allow a State to avoid the strictures of the dormant Commerce Clause by the simple device of labeling its discriminatory tax a levy on real estate would destroy the barrier against protectionism that the Constitution provides.[12]

New York might try to distinguish the pied-à-terre tax because it is not triggered by a contemporaneous economic transaction. The tax, however, results in a discriminatory effect on the economy. It discourages persons from purchasing a pied-à-terre, which will affect the real estate market and real estate businesses.

2. Does the Pied-à-Terre Tax Discriminate on the Basis of Residency?

A state law can violate the dormant Commerce Clause in two principal ways—“on its face or in its practical effect.”[13]

A. Does the Pied-à-Terre Tax Facially Discriminate Against Non-New Yorkers?

The pied-à-terre tax does not apply only to non-residents of the State of New York. A resident of other parts of the state who keeps a pied-à-terre is subject to the tax the same as an out-of-stater. Even a resident of New York City who keeps a pied-à-terre would be subject to the tax, though it is unclear how many such people exist.

A law that utilizes a residency requirement to impose benefits or burdens “discriminates on its face against nonresidents.”[14] As noted above, established precedent holds that a law that discriminates against people who live outside a city discriminates against out-of-state residents under the dormant Commerce Clause even though the law discriminates against state residents who reside in other parts of the state.[15]

Several courts around the country have addressed analogous questions in cases involving ordinances licensing short term rentals for Airbnb and Vrbo. Courts have invalidated laws restricting short-term rental licenses to owners who reside in the rented homes—applying the rule addressed above that a State or municipality cannot avoid the dormant Commerce Clause by enacting a rule that discriminates against nonresidents of the municipality, rather than the State itself: “As the Supreme Court has repeatedly held, local ordinances that discriminate against interstate commerce are not valid simply because they also discriminate against intrastate commerce.”[16]

Other courts, however, have upheld ordinances limiting short-term rental licenses to homes where an individual lives full time, but do “not require the primary resident in the dwelling to be the owner of the dwelling.”[17] These courts reason that such ordinances do not impose a residency requirement because an “out-of-state owner could rent out the property on a long-term basis with a condition that one of the rooms be used for the owner’s short-term rentals.”[18]

New York would likely invoke these latter decisions in defense of the pied-à-terre tax. The pied-à-terre tax likewise does not require the owner of the property to reside in it to avoid the tax. The pied-à-terre tax does not apply if an immediate family member or qualifying tenant resides in the property.[19]

The viability of those decisions in the Second Circuit and the Supreme Court is questionable. A law “discriminates on its face” if it utilizes a “residency requirement” to impose benefits or burdens.[20] No matter how you slice it, New York’s pied-à-terre tax imposes a residency requirement—it merely posits that this requirement can be satisfied if someone besides the owner resides in a particular location. The Supreme Court has never suggested that a state or municipality can evade the prohibition against residency requirements by stating that the requirement can be satisfied by a designee of the owner. Either way the tax is triggered by a person’s non-residency in the regulating State—either the owner or a designee of the owner.

B. Does the Pied-à-Terre Tax Discriminate Against Non-New Yorkers in Practical Effect?

The dormant Commerce Clause bars state laws that prescribe “differential treatment of in-state and out-of-state economic interests” and “benefit the former and burden the latter.”[21] States cannot evade this proscription by creating classifications that discriminate in practical effect by allocating benefits based on predictable proxies for residency. The dormant Commerce Clause “forbids discrimination whether forthright or ingenious.”[22]

New York will likely argue that its pied-à-terre tax does not offend this maxim because it is triggered by conduct—owning a home that lacks a qualifying permanent occupant—not residency. But both Supreme Court and Second Circuit precedents cast doubt on this argument.  

The Supreme Court’s unanimous decision in Best & Co. v. Maxwell is instructive. There, a New York merchant challenged a North Carolina law.[23] North Carolina taxed “regular retail merchants” who operated a permanent brick-and-mortar store in the State $1 per year for the privilege of doing business there.[24] In contrast, North Carolina imposed a tax of $250 per year on merchants who “rented a display room” to present their goods to customers and take orders.[25]

North Carolina argued its law did not discriminate against out-of-state businesses because the $250 tax applied to any display room “whether ‘rented or occupied’ by a resident of North Carolina or a non-resident.”[26] The Supreme Court disagreed. Common sense revealed that North Carolina residents “will normally be regular retail merchants.”[27] Thus, the statute discriminated in practical effect. Requiring “[a] $250 investment in advance” from nonresidents, while enabling “local competitors” to obtain the same privilege for $1 “operate[s] only to discourage and hinder” nonresidents from participating in the state’s market.[28] As applied to the pied-à-terre tax, individuals who reside in their New York City residences will normally be New York residents.

The Second Circuit’s decision in a case I brought, Variscite NY Four, LLC v. New York State Cannabis Control Bd, also casts doubt on the validity of New York’s pied-à-terre tax. The plaintiff challenged law that prioritized cannabis licenses applications from applicants who were convicted of cannabis crimes “under New York law,” or who had “a close relative who was so convicted.”[29] The plaintiffs had cannabis convictions under California law, and New York denied them priority in the license application program.[30]

New York argued its classification did not discriminate against nonresidents because it did not require New York residency—“only that an owner or their relative have a marihuana conviction under New York law.”[31] New York further argued that many nonresidents have been convicted of cannabis crimes in New York “while previously living in the State, attending college there, commuting,” vacationing, or “passing through one of New York’s international airports or other transit facilities where people and bags are subjected to drug searches.”[32]

The Second Circuit rejected this argument, holding the law discriminates in practical effect because New York residents are more likely to have New York convictions because they “will reliably have been present in New York.”[33] Common sense showed that this classification was “a proxy and correlative for applicants who were New York residents in March 2021.”[34] Thus, “[t]he criteria themselves demonstrate that the law’s discriminatory impact on interstate commerce….”[35] Likewise, New York’s pied-à-terre tax law rewards a New York City homeowner for residing in his or her New York City home. Such persons too “will reliably have been present in New York.”

3. Closing thoughts  

A challenge to the pied-à-terre tax would likely involve significant discovery.  In another part of the Variscite Four case I litigated, the Second Circuit concluded the plaintiffs stated a claim that New York divided its license application program into two pools of applicants to favor New York residents.  Discovery was needed to determine if creating the pools favored New York residents in practical effect.  Discovery on that issue is ongoing as of the writing of this article. 

If you are affected by the pied-à-terre tax, whether as an owner or as a real estate business, and are considering challenging the law, I am available to discuss a potential challenge.

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[1] See N.Y. Tax Law § 1350, et seq. You can read the law here: https://www.nysenate.gov/legislation/laws/TAX/A30-C. 

[2] https://www.governor.ny.gov/news/governor-hochul-announces-pied-terre-tax-proposal-luxury-second-homes-valued-5-million-or-more?utm_source=chatgpt.com

[3] Oregon Waste Sys., Inc. v. Dep’t of Env’t Quality of State of Or., 511 U.S. 93, 99 (1994).

[4] Id.

[5] Camps Newfound/Owatonna, Inc. v. Town of Harrison, Me., 520 U.S. 564 (1997).

[6] James Madison, Vices of the Political System of the United States in James Madison: Writings 69, 70 (Jack N. Rakove ed., 1999). 

[7] Equal Emp’t Opportunity Comm’n v. Wyoming, 460 U.S. 226, 244, (1983) (Stevens, J., concurring).

[8] United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007) (citation omitted).

[9] Tennessee Wine & Spirits Retailers Ass’n v. Thomas, 588 U.S. 504, 539 (2019).

[10] Fort Gratiot Sanitary Landfill, Inc. v. Mich. Dept. of Natural Res., 504 U.S. 353, 361 (1992); accord Dean Milk Co. v. City of Madison, Wis., 340 U.S. 349, 354 & n.4 (1951).

[11] Camps Newfound/Owatonna, Inc. v. Towne of Harrison, Me., 520 U.S. 564, 574 (1997).

[12] Id. at 575.

[13] Comptroller of Treasury of Maryland v. Wynne, 575 U.S. 542, 567 (2015) (citation omitted). A state tax may also violate the dormant Commerce Clause if “habor[s] a discriminatory purpose.” New York Pet Welfare Ass’n, Inc. v. City of New York, 850 F.3d 79, 89 (2d Cir. 2017); see also Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 270 (1984) (Hawaii tax law violated the dormant Commerce Clause because it was “undisputed that [its] purpose … was to aid Hawaii industry” by treating “locally produce beverages” more favorably than ones produced by nonresidents. Governor Hochul stated that the tax’s purpose is to “generate much needed revenue for the city without impacting every day New Yorkers” and that it “Ensures Non-Residents With Luxury Second Homes in New York City Contribute Their Fair Share.” https://www.governor.ny.gov/news/governor-hochul-announces-pied-terre-tax-proposal-luxury-second-homes-valued-5-million-or-more?utm_source=chatgpt.com. This suggests discriminatory purpose. Nonetheless, it is difficult to prove the purpose of legislation based on a politician’s statements. Slattery v. Hochul, 2023 WL 2229676, at *9 (2d Cir. Feb. 27, 2023); Blanchette v. Conn. Gen. Ins. Corps., 419 U.S. 102, 132 (1974); cf. Garcia v. United States, 469 U.S. 70, 76-77 (1984).

[14] Tennessee Wine, 588 U.S. at 539. But discovery may uncover additional evidence that New York harbored a discriminatory purpose in enacting the pied-à-terre tax.

[15] Fort Gratiot Sanitary Landfill, 504 U.S. at 361; Dean Milk Co., 340 U.S. at 354 & n.4.  

[16] Hignell-Stark v. City of New Orleans, 46 F.4th 317 (5th Cir. 2022) (Hignell-Stark I) (striking down New Orleans’ 2017 short-term rental licensing ordinance); accord South Lake Tahoe Prop. Owners Group v. City of South Lake Tahoe, 92 Cal. App. 5th 735 (2023) (striking down South Lake Tahoe, California’s short-term rental licensing ordinance).

[17] Rosenblatt v. City of Santa Monica, 940 F.3d 439, 450 (9th Cir. 2019) (upholding Santa Monica, California’s short-term rental licensing ordinance).

[18] Id. at 450-51; accord Hignell-Stark v. City of New Orleans, 154 F.4th 345 (5th Cir. 2025) (Hignell-Stark II) (upholding amended New Orleans short-term rental licensing ordinance requiring individual who is not necessarily owner reside in dwelling).

[19] N.Y. Tax Law § 1350, et seq.

[20] Tennessee Wine, 588 U.S. at 539.

[21] Oregon Waste Sys., 511 U.S. at 99.

[22] Best & Co. v. Maxwell, 311 U.S. 455, 456 (1940).

[23] Id. at 454–55.

[24] Id. at 456.

[25] Id. at 455.

[26] Brief of N.C. Rev. Comm’r, Best & Co. Inc. v. Maxwell (Nov. 4, 1940) (No. 61), 1940 WL 46952, at *20.

[27] Best, 311 U.S. at 456.

[28] Id. at 456–57.

[29] Variscite, 152 F.4th at 53–54 (emphasis in original).

[30] Id. at 55. 

[31] Memorandum of Law in Opposition to Motion for Preliminary Injunction, Variscite NY Four, LLC v. New York State Cannabis Control Bd. (Jan. 16, 2024) (No. 1:23–CV–01599), 2024 WL 863284.

[32] Id.

[33] Variscite, 152 F.4th at 63.

[34] Id.

[35] Id. at 64.