USA Law and Practice Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison Marzocco, Rosen Karol Salis PLLC
The issuance of a COO is subject to various requirements such as an inspection or review of final plans prepared by a licensed architect or engineer. For example, in New York City, building permits must first be obtained prior to commencing any work. Then, at various stages of the construction work, components of the project – such as the structural build, plumbing installation, electrical systems and elevator (if applicable) – must be inspected and “signed-off” prior to the issuance of a final COO. Frequently, the project’s “expediter” will seek to help shorten the timeframe when the issuance of the COO has been delayed. The United States does not impose VAT on the purchase and sale of real estate. Certain jurisdic - tions impose a sales and use tax on commercial leases, as more fully discussed in 8.3 Municipal Taxes . 8.2 Mitigation of Tax Liability There are two commonly used methods to miti - gate transfer taxes in connection with the acqui - sition of large real estate portfolios. One tech - nique is to sell equity interests in the entity that owns the real estate as opposed to transferring the real estate outright. However, this option is not available in states that impose transfer taxes on such indirect transfers of a controlling interest in an entity owning real estate. Where states and local governments impose a mortgage recording tax, the use of a Consolidation, Extension and Modification Agreement (sometimes in connec - tion with “spreader” agreement in order to have 8. Tax 8.1 VAT and Sales Tax
the mortgage cover multiple parcels) may be used to reduce mortgage recording taxes. This occurs by giving the borrower a credit for previ - ously paid mortgage recording taxes and includ - ing the existing mortgage with the new financing (consolidation), rather than paying off the exist - ing mortgage and including the amount of the prior mortgage in the new mortgage (presumably for a larger amount), on which a recording tax must be paid. 8.3 Municipal Taxes Some jurisdictions impose taxes on commercial leases. For commercial rental periods occurring after 1 June 2025, Florida imposes a state- wide sales and use tax on tenants of 2% (down from 4.5%) on the total rent charged under a lease or licence to use commercial real prop - erty. Florida provides tax exemptions for certain types of real property (such as agricultural land) and tax exemptions for use by certain entities (such as non-profit organisations and qualifying governmental entities). New York City imposes “commercial rent tax” with an effective tax rate of 3.9% on the annual or annualised gross rent of USD250,000 or more paid by certain com - mercial tenants located south of 96th Street in Manhattan. 8.4 Income Tax Withholding for Foreign Investors Three main types of withholding taxes apply to foreign investors. The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), which imposes a tax on gains from the sale of real property by foreign sellers, requires that the buyer serve as “withholding agent” to retain and remit to the Internal Rev - enue Service (IRS) 15% of the purchase price paid to the seller, unless the seller provides proof of its non-foreign status, typically by providing
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