The New Plymouth District Council wants leasehold land exempted from the government's new capital gains tax.
Legislation introducing the tax, which applies to houses sold within two years of being bought, has passed its first reading in Parliament and is being considered by the Finance and Expenditure Committee.
New Plymouth is in the process of allowing leaseholders in Waitara to freehold land originally confiscated in the 1860s.
It believes the tax will unintentionally penalise about 40 percent of the 770 leaseholders who rent out their properties.
The council wants leaseholders who have held a title with a perpetual right of renewal for more than two years to be added to the list of exemptions to the tax, which already includes the family home.