A real estate holding company has lost its bid to challenge the imposition of New York City’s real property transfer tax on an ownership stake in the iconic building at 1328 Broadway in Manhattan, known as 2 Herald Square.

A panel of the Appellate Division, First Department, ruled on Tuesday that the New York Tax Appeals Tribunal properly rejected an argument by a holding company that the sale of a $25 million membership stake in the property and releasing an $86 million mortgage obligation amounted to a “mere change of form of ownership” and thus should be exempt from the tax.

In 2007, an entity controlled by Gramercy Property Trust called GKK2 Herald, acquired a 45 percent stake in the property and SL Green Realty Co. picked up the remaining 55 percent.

GKK2 and SL Green pooled their ownership stakes in a newly formed company, 2 Herald Owner, and in 2010 SL Green bought up Gramercy’s stake.

Gramercy filed a transfer tax return to report the sale, but claimed it didn’t owe the tax. The city’s finance commissioner disagreed, however, and said the company should pay taxes on the combined $111.3 million transaction.

An administrative law judge from the city’s Tax Appeals Tribunal upheld the commissioner’s ruling in 2015. The company appealed to the full tribunal, which found that under the “step transaction” doctrine, the series of separate but related events taken by petitioner to transfer the ownership stake is treated as a single taxable transaction.

GKK2 is seeking a refund of $3 million, according to media reports.  

In its appeal to the First Department, GKK2 argued that the tribunal exceeded its authority by applying the step transaction doctrine because it’s not a court of law.  

But writing for the court, Justice Marcy Kahn said the tribunal has the power to apply the doctrine and applied it correctly.

Kahn also addressed the fact that a New York state administrative judge came to a different conclusion and found that the transfer was exempt from the state’s transfer tax, writing that the state administrative judge’s holding is not binding on the appellate court and there were different issues raised in the state case.    

Justices David Friedman, Karla Moskowitz and Judith Gische joined on the decision.

Assistant Corporation Counsel Amy Bassett appeared for the city’s Law Department. Richard Claman of Stempel Bennett Claman & Hochberg appeared for GKK2.