Flip Taxes are a tool in Cooperative buildings all throughout New York City. Essentially, they’re a tax (or a fee) that the Cooperative collects at the closing of an apartment that is transferring hands between outgoing and incoming Shareholders.
The benefits of a Flip Tax are that it will boost the reserve fund with soft income and will benefit those Shareholders who reside in the apartment for the long-term. It will penalize those Shareholders who go in and out of the building quickly and as such, will be less than likely to be formally approved in a building that lends itself to being more transient in nature.
If not provided for in the Offering Plan, the Shareholders could approve the institution of a Flip Tax by placing it on the agenda of a Special Meeting that is called for that purpose or by placing it on the agenda of the Annual Meeting. Most Bylaws call for a Supermajority of Shareholder approval (either 66.66% or 75% for a major change to the Offering Plan), so obtaining that magic number may take a lot of work by the Board.
Flip Taxes come in many shapes and sizes. They can be a percentage of the gross sale price, a percentage of the net profit since the last time the apartment changed hands, a flat fee per share or a flat fee, in general. Each building has its own preferences and guidelines.
Because Flip Taxes are not predictable and are based on the market conditions that are present at any given time, they are not a reliable source of income. It is considered to be “soft income” but in the case of a market downturn, there will not be an abundance of sales happening in the building, and therefore, the Flip Tax income received could dwindle as a result.