In New York City, many co-ops and condos use a practice called a "flip tax" in order to boost building revenue. A flip tax is a fee paid either by the purchaser or seller that goes back to the co-op or condo each time an apartment is sold, or "flipped." In New Jersey, the concept of the flip tax exists in several forms, but the term "flip tax" is almost never used.
According to Edward S. Frank, a property manager with Arthur Edwards Inc. in River Vale, "A New Jersey co-op shareholder filed a lawsuit about 15 years ago on behalf of all the co-op owners in New Jersey, challenging the issue mostly because of the word 'tax.' People seem to shy away from a term that has 'tax' in it. That is why you don't hear the term 'flip tax' in New Jersey," he says. "On the co-op side they call it a 'realty transfer fee' and on the condo side they call them 'resale contributions.'"
Only in New York
In New York City, more than 60 percent of co-ops have a flip tax in place. A recent study by the law firm of Stroock Stroock & Lavan found that a majority of condominiums in the state are now considering instituting flip taxes also. And why not? They can bring in money—and they might help a condo board to reduce common charges like maintenance fees.
"Essentially what's happening is associations are looking for ways to raise revenues when one unit owner sells to a new unit owner," says Jules Frankel of Wilkin & Guttenplan, a CPA firm in New Brunswick. "This is how associations raise money when a unit is transferred."
In New Jersey, unlike New York, co-ops are not the dominant animal—and this has probably played a part in flip taxes not being much heard of around the boards and associations of the state. There is also case law that prohibits flip taxes in some instances. A board can not just decide to institute a flip tax—there are procedures that must be followed.