New York Law Review

Tag: Property Use

  • 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.

  • University Auxiliary Services v. Smith, 54 N.Y.2d 986 (1981): Tax Exemption for Educational Purposes and Property Use

    University Auxiliary Services at Albany, Inc. v. Smith, 54 N.Y.2d 986 (1981)

    To qualify for a real property tax exemption under New York law for a corporation organized for educational purposes, the property in question must be used primarily for carrying out the educational purposes of the organization.

    Summary

    University Auxiliary Services (UAS), a not-for-profit corporation providing auxiliary services to SUNY Albany, sought a real property tax exemption for its “Mohawk Campus,” used for recreation, workshops, and seminars. The assessors of the towns of Halfmoon and Clifton Park denied the exemption. The New York Court of Appeals affirmed the Appellate Division’s decision, which granted the exemption, holding that the primary use of the property was reasonably incidental to UAS’s educational purpose and thus tax-exempt. The dissent argued that the recreational use was unstructured and lacked a direct connection to the university’s educational programs, thus not justifying an exemption.

    Facts

    UAS is a not-for-profit corporation organized for educational purposes. It provides services such as dormitory food service, a cafeteria, a bookstore, and laundry facilities for SUNY Albany. UAS sought a tax exemption for the “Mohawk Campus,” located in the Towns of Halfmoon and Clifton Park. The campus was used for recreational activities, workshops, conferences, and seminars. The assessors of the two towns denied the requested tax exemption, arguing that the property was not used exclusively for educational purposes.

    Procedural History

    UAS commenced proceedings under Article 7 of the Real Property Tax Law to challenge the assessments. The Supreme Court dismissed the petitions, finding that UAS failed to prove it was entitled to a tax exemption. The Appellate Division reversed, holding that the primary use of the property was reasonably incidental to UAS’s educational purpose and should be granted tax-exempt status. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the “Mohawk Campus,” owned by a corporation organized for educational purposes but used primarily for recreation, workshops, and seminars, is used exclusively for carrying out the educational purposes of the organization, and thus qualifies for a real property tax exemption under § 421(1)(a) of the Real Property Tax Law.

    Holding

    Yes, because the primary use of the property is reasonably incidental to the petitioner’s main educational purpose.

    Court’s Reasoning

    The Court of Appeals, in affirming the Appellate Division, agreed that the primary use of the property was reasonably incidental to UAS’s educational purpose. The majority relied on precedent such as St. Joseph’s Health Center Props. v. Srogi, 51 N.Y.2d 127 (holding that a not-for-profit corporation operated solely to carry out the purposes of an exempt corporation can qualify for a tax exemption), and Faculty-Student Assn. of the State Univ. Coll. at Oswego v. Sharkey, 29 N.Y.2d 621 (holding that a nonprofit corporation organized to promote and assist a State University College in its educational activities can qualify for a tax exemption).

    The dissent argued that tax exemption statutes are to be construed strictly against the party claiming the exemption. It contended that UAS failed to demonstrate that the primary use of the Mohawk Campus was educational. The dissent emphasized that the recreational activity on the campus was unstructured and lacked a direct connection to the university’s athletic or other programs. “The statute clearly does not contemplate an exemption for all property held by a qualifying organization. Thus, the primary use of the property for an exempt purpose not having been established by petitioner as educational, I would not grant a tax exemption in this case.” The dissent distinguished the cited cases, arguing that the properties in those cases had uses integral to the institutions’ operations, while the Mohawk Campus’s recreational use was independent and unstructured.