Mayor Zohran Mamdani’s administration was dealt a setback on Monday when a judge paused the rollout of a contentious tax on the second homes of wealthy New Yorkers, forcing city officials to race to file a hasty appeal.
The judge, Wayne M. Ozzi of State Supreme Court on Staten Island, granted a temporary restraining order requested by a group of homeowners who sued the city last week, arguing that the rollout was being mishandled.
The halt did not last long: The city filed court papers on Monday evening saying it was appealing the ruling, a move that essentially blocked Justice Ozzi’s order from taking effect until a higher court weighs in.
Still, the ruling was another twist in the fight over the tax, which has underscored economic divisions in the city.
Proposed by Gov. Kathy Hochul and backed by Mr. Mamdani, the measure was lauded by the mayor’s supporters as a way to deliver on his promise to “tax the rich.” The tax is supposed to generate some $500 million annually for the city, which faces a budget gap.
While the judge on Monday was not asked to rule on the legality of the tax itself, his order threw a wrench into those plans, at least for now.
Randy Mastro, a lawyer representing the plaintiffs and a longtime critic of Mr. Mamdani, said in a statement that Justice Ozzi’s decision “vindicated the rights of hundreds of thousands of New York City homeowners who were subjected to a process they never should have been a part of in the first place.”
But Matthew Rauschenbach, a spokesman for City Hall, said the city was “confident in both the pied-à-terre surcharge and the city’s ability to implement it fairly and effectively.”
Stephen Louis, counsel to the Center for New York City and State Law at New York Law School, said he did not expect the legal setback for the city to last long. Because of the large amount of money involved, and the importance of the issue, it is likely that the appellate court will move relatively swiftly, said Mr. Louis, who once ran the Law Department’s legal counsel division.
“Any tax collection scheme can be pretty complicated,” Mr. Louis said. “To be told ‘Oh no, now you have to stop doing anything’ is a little extreme.”
The tax, levied as a surcharge on an annual property tax bill, applies to condos and co-ops that are used as second homes and have a “market value,” as determined by the Finance Department, of at least $1 million. It also applies to one-, two- and three-family homes with a “market value” of more than $5 million.
Its rollout last month caused confusion among some homeowners after the Department of Finance posted a data set to its website listing homes that “may be subject to the charge.” That data set contained nearly one million properties, including their addresses and owners’ names, prompting outcry that Mr. Mamdani was trying to shame the wealthy. (The city noted that the information is routinely published every year in a slightly different format.)
In the lawsuit, the homeowners argued that officials should have worked harder to determine, using existing records, who might have to pay the tax before publishing that data.
The suit also criticized a decision to send letters to the owners of roughly 17,000 properties informing them that they might be taxed. Some homeowners said they had received letters in error, according to the lawsuit, fueling accusations that the city was mismanaging the rollout.
Homeowners were directed to file applications with the city by mid-September if they believed they were exempt from the tax. The city said in court papers that it had received more than 3,800 applications.
Justice Ozzi’s order would have required the city to remove the data set from the website for now.
In the courtroom on Monday afternoon, the judge, a Democrat, said that the city had created conditions that met the standard of irreparable harm.
“Sending out notices to 17,000 homeowners who might be subject to a surcharge doesn’t satisfy the intent of the legislation,” he said.
“Notices should state what the records show. They are a treasure trove of information,” he added. “I can’t unring the bell, but I can stop any further notices going out.”
The lawsuit will still proceed while the appeal is considered, and both sides are expected back in court on Aug. 31.
The tax has become something of a symbol of Mr. Mamdani’s approach to running the city. It appeals to the voters who put him in office, who supported the idea of using city government to create more economic equity. To celebrate its introduction, Mr. Mamdani posted a video on social media outside a building where Kenneth C. Griffin, a billionaire financier, purchased a penthouse for $238 million in 2019.
But the tax has also provided fuel to his opponents, who argue that it will force well-to-do New Yorkers, who already contribute a high share of taxes, out of the city.
A spokeswoman for Ms. Hochul, Jen Goodman, said the “lawsuit about the administration of the tax is a matter for the city and the courts to work through.”
But she added that Ms. Hochul believed “that people who can afford a multimillion-dollar second home in New York City can afford to pay their fair share.”