New York Law Review

Tag: Not-for-Profit Corporation

  • Lackawanna Community Development Corp. v. Krakowski, 16 N.Y.3d 578 (2011): Tax Exemption Based on Actual Property Use

    Lackawanna Community Development Corp. v. Krakowski, 16 N.Y.3d 578 (2011)

    A property tax exemption for a not-for-profit corporation is determined by the actual physical use of the property, not the not-for-profit’s broader goals or purposes.

    Summary

    The City of Lackawanna sought to tax real property owned by the Lackawanna Community Development Corporation (LCDC), a local development corporation, because LCDC leased the property to a for-profit manufacturing company. The New York Court of Appeals held that the property was taxable because it was “used” by the for-profit lessee for manufacturing, not by LCDC for an exempt purpose. The Court emphasized that tax exemptions are determined by the actual physical use of the property, not merely the owner’s not-for-profit status or goals. The Court rejected the argument that leasing the property furthered LCDC’s purpose of spurring economic development, holding that the Legislature would have expressly provided a blanket exemption for local development corporations if that was the intent.

    Facts

    The Lackawanna Community Development Corporation (LCDC), a not-for-profit, acquired properties between 1981 and 1985. In 1993, LCDC leased the property to Now-Tech Industries, Inc., a for-profit corporation, which later assigned the lease to PCB Now-Tech, Inc., also a for-profit corporation. Prior to 2006, the property was not assessed real property taxes. In 2006, the tax assessor concluded that the property was not entitled to an exemption under RPTL 420-a (1) (a) because of its use by the for-profit lessee.

    Procedural History

    LCDC commenced an action challenging the tax assessment. The Appellate Division found the property taxable. The Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether real property owned by a local development corporation, but leased to a for-profit entity engaged in manufacturing activities, is exempt from real property tax under RPTL 420-a (1) (a) because the lease purportedly furthers the not-for-profit’s goal of economic development.

    Holding

    No, because the relevant inquiry under RPTL 420-a (1) (a) is the actual physical use of the property. Since the property is used by a for-profit entity for manufacturing activities, it is not used exclusively for an exempt purpose and therefore is not tax-exempt.

    Court’s Reasoning

    The Court of Appeals emphasized that the Real Property Tax Law is concerned with the actual or physical use of the property when determining tax exemptions. The statute exempts property “used exclusively for carrying out thereupon one or more” exempt purposes (RPTL 420-a [1] [a]). The Court rejected LCDC’s argument that the property was “used” by LCDC because leasing it furthered its purpose of spurring economic development. The Court stated, “It is the actual or physical use of the property that the Real Property Tax Law is concerned with.”

    The Court found no support in the Real Property Tax Law or the Not-For-Profit Corporation Law for LCDC’s argument. While recognizing the laudable goals of local development corporations, the Court declined to create a “tax loophole” by broadly interpreting the statute. The Court noted that the Legislature could have expressly provided a blanket real property tax exemption for local development corporations, as it has done in other contexts. The Court distinguished between the tax exemption for the income and operations of local development corporations (N-PCL 1411 [f]) and the lack of such an exemption for real property owned by them, especially when leased to for-profit entities.

  • S & H Foundation, Inc. v. Baldwin United Corp., 71 N.Y.2d 426 (1988): Authority of Company to Control Foundation

    S & H Foundation, Inc. v. Baldwin United Corp., 71 N.Y.2d 426 (1988)

    A company’s historical practice of financially supporting a foundation and having its officers serve as foundation members does not automatically grant the company the right to control the foundation’s membership or operations, absent explicit provisions in the foundation’s governing documents or the sale documents.

    Summary

    Baldwin-United Corporation, after acquiring Sperry & Hutchinson Company (S&H), sought to control the S & H Foundation by replacing its existing board members (former S&H officers) with Baldwin-United representatives. The S & H Foundation was a not-for-profit corporation funded solely by S&H. The New York Court of Appeals held that despite the historical connection between the company and the foundation, and the foundation exhibiting characteristics of a “company” foundation, Baldwin-United could not force the existing members to resign and install its own representatives because there were no explicit provisions in the foundation’s documents or the sale agreement guaranteeing such control. The court emphasized that absent misuse of assets or actions detrimental to the foundation’s interests, it would not interfere with the parties’ established legal relationships.

    Facts

    The S & H Foundation was created in 1962 as a not-for-profit corporation, receiving all its funding from Sperry & Hutchinson Company. The foundation’s grants often benefited company employees, and its programs mirrored those previously run by the company. Historically, only S&H officers, directors, or agents served as members and directors of the foundation. In 1981, Baldwin-United Corporation purchased all outstanding stock of S&H. Following the acquisition, the former S&H officers (the Beineckes) refused to resign from the foundation or approve the membership nominations of Baldwin-United representatives.

    Procedural History

    Baldwin-United initiated an action for declaratory judgment and injunctive relief, seeking to remove the Beineckes and install its own representatives on the foundation’s board. The lower courts ruled against Baldwin-United, and the Court of Appeals affirmed that decision.

    Issue(s)

    Whether Baldwin-United, as the successor to Sperry & Hutchinson Company, has a right to control the membership and operation of the S & H Foundation, given the historical relationship between the company and the foundation, despite the absence of explicit control provisions in the foundation’s governing documents or the stock sale agreement.

    Holding

    No, because the foundation’s certificate of incorporation and bylaws, the gift instruments from the company, and the sale documents lacked specific limitations requiring the foundation to expend its resources as the company directed or limiting membership to company affiliates. Absent evidence of misuse or detrimental actions by the existing board, the court would not interfere with the established legal relationships.

    Court’s Reasoning

    The court recognized that company foundations are a common business practice that allows companies to integrate charitable giving with corporate goals. However, the court emphasized that, except for special tax treatment, the law does not grant special status to company foundations. While the S & H Foundation exhibited common traits of a company foundation (name, programs benefiting employees, close administrative ties, and sole funding source), its governing documents and the sale agreement did not mandate company control. The court acknowledged the seller’s duty not to impair the goodwill of the business sold (Mohawk Maintenance Co. v. Kessler, 52 NY2d 276, 286) and the defendants’ obligation not to act against the charitable purposes of the foundation (Not-For-Profit Corporation Law § 513 [b]). However, past practices alone were insufficient to impose a fiduciary duty to resign or install the plaintiff’s representatives. The court stated that absent evidence of misuse of assets or actions “‘unfair, oppressive or manifestly detrimental to the [foundation’s] interests’ ” (Matter of Sousa v. New York State Council Knights of Columbus Found., 10 NY2d 68, 75), equitable intervention was unwarranted. The court refused to rewrite the parties’ agreements or imply terms that were not explicitly included in the relevant documents, reinforcing the importance of clear contractual language when establishing control over a related entity.