New York Law Review

Tag: tax exemption

  • Pyramid Co. of Watertown v. Assessor of the Town of Watertown, 73 N.Y.2d 151 (1989): Business Investment Exemption After Prior IDA Ownership

    Pyramid Co. of Watertown v. Assessor of the Town of Watertown, 73 N.Y.2d 151 (1989)

    A property owner can receive a business investment exemption under Real Property Tax Law § 485-b even after the property received a real property tax exemption while owned by an Industrial Development Agency (IDA), provided the prior exemption was not authorized by the Real Property Tax Law and did not cover the same improvements.

    Summary

    Pyramid Company sought a business investment exemption after completing a shopping mall. During construction, Pyramid conveyed the property to the Jefferson County Industrial Development Agency (JCIDA) to obtain favorable financing, leasing it back. While JCIDA owned the property, it was exempt from real property taxes, but Pyramid made payments in lieu of taxes (PILOT). After completion, JCIDA reconveyed the property to Pyramid, who then applied for a business investment exemption, which the assessor denied. The court held that Pyramid was entitled to the exemption because the prior exemption was under the General Municipal Law, not the Real Property Tax Law, and it did not cover the same improvements.

    Facts

    Pyramid acquired property in Watertown in 1985 and began constructing a shopping mall.

    To secure favorable financing, Pyramid conveyed the property to JCIDA and leased it back during construction.

    While JCIDA owned the property, it was exempt from real property taxes, but Pyramid made PILOT payments equivalent to what taxes would have been.

    After completion in 1987, JCIDA reconveyed the property to Pyramid.

    The town reassessed the property at a significantly higher value due to the completed improvements and Pyramid applied for a business investment exemption.

    Procedural History

    The assessor denied Pyramid’s application for the business investment exemption.

    Pyramid commenced an Article 78 proceeding to challenge the denial.

    The Supreme Court granted the petition.

    The Appellate Division affirmed.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Pyramid is entitled to a business investment exemption under Real Property Tax Law § 485-b after the property was previously exempt from real property taxes while owned by the JCIDA.

    Holding

    Yes, because to be foreclosed from receiving a business investment exemption, the prior exemption must have (1) been authorized by the Real Property Tax Law and (2) covered the same improvements which are the subject of the pending exemption.

    Court’s Reasoning

    The court reasoned that while the property was exempt when owned by JCIDA, the exemption was authorized by General Municipal Law § 874, not the Real Property Tax Law. Real Property Tax Law § 412-a merely refers to the General Municipal Law. The court stated, “Nothing in it ‘authorizes’ an exemption. It merely refers to an exemption independently ‘provided’ in General Municipal Law § 874”.

    Furthermore, the prior exemption did not cover the same improvements. The assessment during JCIDA’s ownership reflected the value of the land and partially completed construction. The business investment exemption application concerned the increased valuation due to the completed mall, representing improvements not previously assessed or exempted.

    The court emphasized that the intent of Real Property Tax Law § 485-b (2) (d) was to prevent double exemptions for the same improvements, either through combining or sequentially using exemptions. In this case, Pyramid did not receive more than one exemption for the same improvement.

    The court noted the town had not opted out of the § 485-b exemption, and the development increased the town’s tax base even with the exemption. The court stated that “[f]ar from losing anything, respondents will gain substantial new revenues from the development.”

  • Trump-Equitable Fifth Ave. Co. v. Gliedman, 69 N.Y.2d 350 (1987): Eligibility for Real Property Tax Exemption for Mixed-Use Condominiums

    Trump-Equitable Fifth Ave. Co. v. Gliedman, 69 N.Y.2d 350 (1987)

    When a building qualifies as a “multiple dwelling” under Real Property Tax Law § 421-a, the tax exemption applies to the entire building, including commercial units, up to the statutory limit, and is not to be applied on a unit-by-unit basis.

    Summary

    Trump-Equitable sought a tax exemption under RPTL 421-a for its mixed-use condominium building. The city only granted the exemption to residential units, assessing the commercial units separately. The Court of Appeals held that the exemption should be applied to the entire building, including commercial units, up to the statutory limit (12% of aggregate floor area), because the statute applies to ‘multiple dwellings’ regardless of whether they are rented or owned as condominiums. The Court reasoned that the city’s interpretation would effectively exclude all condominium property from the tax exemption.

    Facts

    Trump-Equitable owned a newly constructed 32-story mixed-use condominium building with 223 residential units and 5 commercial units (parking garage, drug store, fruit/vegetable store, bakery/cafe, children’s clothing store). The commercial space was less than 12% of the building’s total floor area. Trump-Equitable sought a RPTL 421-a tax exemption, claiming the entire building should be assessed at the pre-construction value of $757,000. The City only applied the exemption to the residential units, assessing the building at $1,621,691 by apportioning the pre-construction assessment and adding the value of the commercial units.

    Procedural History

    Trump-Equitable filed an Article 78 proceeding to annul the city’s determination and compel assessment at $757,000. Special Term granted the petition. The Appellate Division affirmed based on the Special Term opinion. The Court of Appeals reviewed the decision.

    Issue(s)

    Whether a tax exemption under RPTL 421-a for a “multiple dwelling” should be applied to the entire building, including commercial units within the statutory limit, or solely to the residential units.

    Holding

    Yes, because RPTL 421-a applies to “multiple dwellings” regardless of the form of ownership (rental, cooperative, or condominium), and the 1975 amendment to the statute expressly recognizes that commercial uses are entitled to a limited exemption based on floor area ratio.

    Court’s Reasoning

    The court reasoned that the statute’s plain language requires that the exemption be applied to the building as a whole, up to the specified commercial use limit. The court stated, “We are obliged to read the words of the statute in their natural and most obvious sense…and when we do so it appears that the Legislature intended all properties, regardless of the type of ownership, to receive the benefit of the exemption.” The Court dismissed the City’s argument that the primary purpose of the statute (encouraging residential building) would not be furthered by applying the exemption to commercial condominiums. The Court emphasized that the statute’s purposes were broader, including construction, employment, and stabilizing the city’s tax base. Granting a limited exemption to commercial space was consistent with the intent to incentivize development by allowing developers to maximize the value of the ground floor. The court found that the 1975 amendment to RPTL 421-a explicitly recognized that commercial uses are entitled to the exemption. The court stated, “…far from disqualifying commercial uses from the benefit of the exemption, the Legislature expressly recognized their limited entitlement to it by the 1975 amendment.” The Court also rejected the argument that this interpretation was inconsistent with Real Property Law § 339-y or RPTL 580 and 581, which deal with taxation of individual condominium units. The purpose of those laws was to ensure fair taxation and separate tax accounts for each unit, not to alter the application of the RPTL 421-a exemption at the building level. The Court noted that if its application offered an unfair tax advantage to commercial condominiums over other business properties, the New York City Council could restrict, limit or condition the eligibility of benefits. The court stated that because the statutory language is clear, the court must implement it as written and may not defer to an interpretation made by the agency charged with enforcement of the statute. The Court concluded that the city’s interpretation would effectively excise buildings held in condominium ownership from the statute and apply the exemption differently depending on the type of ownership, which was not the legislature’s intent.

  • Trump-Equitable Fifth Ave. Co. v. Gliedman, 62 N.Y.2d 535 (1984): Defining ‘Under-Utilized Land’ for Tax Exemption Eligibility

    Trump-Equitable Fifth Ave. Co. v. Gliedman, 62 N.Y.2d 535 (1984)

    A statute granting tax exemptions for construction on “under-utilized land” does not require “substantial” under-utilization; an agency interpretation imposing such a requirement is inconsistent with the statute.

    Summary

    Trump-Equitable sought a tax exemption under Real Property Tax Law § 421-a for Trump Tower, arguing the land was under-utilized prior to construction. The Commissioner of the Department of Housing Preservation and Development (HPD) denied the exemption, asserting the land wasn’t under-utilized. The Court of Appeals held that the HPD improperly imposed a requirement of “substantial” under-utilization, which is not mandated by the statute. The court found that the land was, in fact, under-utilized and that Trump-Equitable was entitled to the tax exemption.

    Facts

    Trump-Equitable constructed Trump Tower, a mixed-use building, on land formerly occupied by Bonwit Teller & Company. Trump-Equitable applied for a partial tax exemption under Real Property Tax Law § 421-a, which incentivizes construction on under-utilized land. The Bonwit Teller building was a 12-story department store that operated until 1978. On the relevant date, October 1, 1971, the building used only 66% of its potential floor area ratio and generated $30 million in revenue. The assessed value of the building was roughly half that of the land.

    Procedural History

    1. HPD initially denied the exemption, claiming the building was not functionally obsolete. This denial was overturned by the Court of Appeals in Matter of Trump-Equitable Fifth Ave. Co. v Gliedman, 57 NY2d 588.
    2. On remittal, HPD again denied the exemption, asserting the land was not under-utilized based on statutory interpretation and new regulations.
    3. Special Term set aside the second determination.
    4. The Appellate Division reversed Special Term and upheld the HPD’s denial.
    5. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the HPD’s interpretation of “under-utilized land” in Real Property Tax Law § 421-a, requiring “substantial” under-utilization, is consistent with the statute’s intent and language.

    Holding

    No, because the statute only requires “under-utilization” and the HPD’s interpretation improperly adds a requirement of “substantial” under-utilization, exceeding the scope of the statute.

    Court’s Reasoning

    The court emphasized that statutory interpretation by an agency is given deference unless it is irrational, unreasonable, or inconsistent with the statute. However, when the statute’s words are clear, the agency’s expertise is less relevant, especially when the interpretation contravenes the statute’s plain language. The court noted that the statute requires only “under-utilization,” not “substantial” under-utilization, citing its prior holding in Matter of Trump-Equitable Fifth Ave. Co. v Gliedman, 57 NY2d 588. The HPD’s regulations, which define under-utilized land as “substantially under-utilized,” are therefore invalid. The court found that the Bonwit Teller site was, in fact, under-utilized, considering factors like the floor area ratio (only 66% utilized) and the assessed value of the building compared to the land. The Court directly quoted Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459, stating: “there is little basis to rely on any special competence or expertise of the administrative agency and its interpretative regulations’, especially when the interpretation, as embodied in a regulation, directly contravenes the plain words of the statute”. The Court stated: “Whatever definition respondent may for the future give “under-utilized land,” short of more detailed definition of the term by the Legislature, on the extensive record accumulated by the parties before us the objective criteria establish that the Bonwit’s site was under-utilized, and that appellant is entitled to the exemption.”

  • 845 UN Ltd. Partnership v. City of New York, 55 N.Y.2d 350 (1982): Interpreting Tax Exemption Statutes for Multiple Dwellings

    845 UN Ltd. Partnership v. City of New York, 55 N.Y.2d 350 (1982)

    When interpreting tax exemption statutes, courts must determine legislative intent, resolving conflicts between provisions to avoid rendering any superfluous, while acknowledging that the 1975 amendment to Section 421-a of the Real Property Tax Law applies to pre-1975 multiple dwellings, limiting previous exemptions for accessory use space.

    Summary

    This case concerns the applicability of a 1975 amendment to Section 421-a of the Real Property Tax Law to multiple dwellings built before the amendment. The Court of Appeals addressed whether the amendment, which provides a 12% tax exemption for commercial, community facility, and accessory use space, applies to pre-1975 buildings. The court held that the amendment does apply, limiting the previously broader exemption for accessory use space. The court overruled its prior holding in Teleon Realty to the extent it conflicted with this determination, emphasizing the importance of correctly interpreting statutes to effectuate legislative intent.

    Facts

    In 1971, New York enacted Section 421-a to encourage construction of multiple dwellings. The original statute offered tax exemptions to new buildings, requiring payment of a “mini-tax” equal to the prior year’s taxes on the land. The city initially refused to exempt “accessory use space.” In 1975, an amendment defined “multiple dwelling” and provided a 12% exemption for commercial, community facility, and accessory use space. The city initially applied this amendment to all qualified buildings, including those built before 1975. However, following a statement in the Teleon Realty case, the city revoked the 12% exemption for pre-1975 buildings.

    Procedural History

    Appellants, owners of pre-1975 multiple dwellings, challenged the city’s determination in an Article 78 proceeding and declaratory judgment action. Special Term upheld the city’s decision, relying on the Teleon Realty case. The Appellate Division agreed with the appellants’ arguments on the merits but felt bound by the Court of Appeals’ affirmance in Teleon Realty. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether an Article 78 proceeding or declaratory judgment action is a proper method to challenge the city’s denial of the tax exemption, or whether the appellants must pursue a tax certiorari proceeding.

    2. Whether the 1975 amendment to Section 421-a applies to multiple dwellings on which construction began before January 1, 1975.

    Holding

    1. Yes, because the appellants seek restoration of an exemption previously granted but later withdrawn by the taxing authority, making an Article 78 proceeding appropriate.

    2. Yes, because the specific language of the 1975 amendment applies to all multiple dwellings granted tax exemption pursuant to Section 421-a on or after July 1, 1971, but it limits the previously broader exemption for accessory use space.

    Court’s Reasoning

    The Court first addressed the procedural issue, finding that an Article 78 proceeding was appropriate because the appellants sought to restore an exemption previously granted. The Court then analyzed the substantive issue, focusing on the interpretation of Section 421-a and its 1975 amendment. It determined that the original statute, read in conjunction with the Multiple Dwelling Law, provided a tax exemption for areas incidental to residential living (accessory use space). The court reasoned that the language of the 1975 amendment, which speaks of a “diminution” of the tax exemption, implies that some exemption was previously afforded. The court addressed the conflict between the general language of the effective date provision and the specific language of the exemption. The court resolved the conflict by holding that the 1975 amendment applies to pre-1975 multiple dwellings but limits the prior exemption for accessory use space. The Court emphasized the importance of statutory interpretation to effectuate legislative intent, and overruled its prior holding in Teleon Realty to the extent it conflicted with this interpretation. The court stated, “Mindful of our obligation to properly interpret the terms of a statute and to effectuate legislative intent, we believe it proper to reevaluate the question passed upon in Teleon Realty in the context of the full adversary presentation now afforded us.”

  • Blue Cross and Blue Shield of Greater New York v. Tax Commission of the City of New York, 44 N.Y.2d 807 (1978): Tax Exemption for Health Service Corporations

    Blue Cross and Blue Shield of Greater New York v. Tax Commission of the City of New York, 44 N.Y.2d 807 (1978)

    A health service corporation, as expressly included in subdivision 3 of section 251 of the Insurance Law, is exempt from state, county, municipal, and school taxes, regardless of whether section 486 of the Real Property Tax Law includes it in its list of exempt corporations.

    Summary

    Blue Cross and Blue Shield of Greater New York sought a tax exemption on real property it owned. The Tax Commission denied the exemption, arguing that Section 486 of the Real Property Tax Law, which lists corporations entitled to insurance law exemptions, did not include health service corporations. The Court of Appeals reversed the Appellate Division’s order, holding that Section 251(3) of the Insurance Law explicitly grants tax exemptions to health service corporations, overriding the omission in the Real Property Tax Law. The Court further noted that the propriety of Blue Cross’s holding the vacant property was a matter for the Superintendent of Insurance, not the taxing authorities.

    Facts

    Blue Cross and Blue Shield of Greater New York (Petitioner) purchased real property. The Petitioner claimed a tax exemption based on its status as a health service corporation. The Tax Commission of the City of New York (Respondents) denied the exemption. The property remained vacant for 12 years.
    Petitioner’s purchase of the property was authorized by the Superintendent of Insurance.

    Procedural History

    The Supreme Court, Suffolk County, ruled in favor of Blue Cross, granting the tax exemption. The Appellate Division reversed the Supreme Court’s decision. The Court of Appeals reversed the Appellate Division’s order and reinstated the Supreme Court’s judgment.

    Issue(s)

    Whether a health service corporation is entitled to a tax exemption under Section 251(3) of the Insurance Law, despite not being explicitly listed in Section 486 of the Real Property Tax Law.
    Whether the taxing authorities can deny a tax exemption based on the corporation holding the property vacant for 12 years, when the property purchase was authorized by the Superintendent of Insurance.

    Holding

    Yes, because Section 251(3) of the Insurance Law expressly grants tax exemptions to health service corporations, and this provision takes precedence. No, because the propriety of the corporation’s holding the property is a matter for the Superintendent of Insurance, not the taxing authorities.

    Court’s Reasoning

    The Court of Appeals reasoned that Section 251(3) of the Insurance Law is explicit in granting tax exemptions to health service corporations. The court stated, “[Subdivision 3 of section 251 of the Insurance Law] expressly includes ‘a health service corporation’ and provides that it ‘shall be exempt from every state, county, municipal and school tax.’” The omission of health service corporations from Section 486 of the Real Property Tax Law does not negate the explicit exemption provided by the Insurance Law.

    The court further addressed the argument regarding the vacant property, stating, “Any question of the propriety of its holding the property in a vacant state for 12 years is for the Superintendent of Insurance, not the taxing authorities, and does not authorize the latter to return the property to the assessment rolls on the theory that because it is not being used it is no longer properly held by petitioner.” This highlights the separation of powers between the Superintendent of Insurance, who oversees the corporation’s activities, and the taxing authorities, who are bound by the explicit tax exemption granted by law. Sections 256 and 260 of the Insurance Law were deemed irrelevant because the Superintendent of Insurance authorized the property purchase. The court implicitly reasoned that because the purchase was authorized, the method of use (or non-use) of the property did not affect the corporation’s entitlement to the tax exemption.

  • New York Botanical Garden v. Assessors of Town of Washington, 55 N.Y.2d 328 (1982): Tax Exemption for Mixed-Use Properties

    New York Botanical Garden v. Assessors of Town of Washington, 55 N.Y.2d 328 (1982)

    When a property serves multiple purposes, some of which qualify for an absolute tax exemption and others a qualified exemption, and the municipality seeks to withdraw a previously granted tax exemption, the municipality bears the burden of proving that the property is primarily used for the qualifiedly exempt purpose.

    Summary

    The New York Botanical Garden sought a real property tax exemption for its Cary Arboretum in the Town of Washington. The town had previously granted the exemption but later revoked it, arguing the arboretum’s primary purpose was scientific research, which was taxable under a local law. The Court of Appeals held that the town failed to prove the arboretum was primarily used for scientific purposes. Because the arboretum served multiple exempt purposes, including education, conservation, and recreation, the town did not meet its burden, and the property remained tax-exempt. The court emphasized that the municipality bears the burden of proof when seeking to withdraw a previously granted tax exemption.

    Facts

    The New York Botanical Garden (NYBG) operates the Bronx Botanical Garden and the Cary Arboretum. The Cary Arboretum, consisting of 1,900 acres, was deeded to NYBG by the Mary Flagler Cary Charitable Trust. The deed mandated the property be used as an arboretum, including growing woody plants, ecological research, and public instruction. Approximately 800-900 acres were used for planting and monitoring trees and shrubs, another 900 acres maintained in a natural state for ecological studies with nature trails, and the remainder used for displaying the arboretum’s collection. The property hosted a library, plant science museum, and educational programs.

    Procedural History

    From 1973 to 1977, the Cary Arboretum was tax-exempt. In 1977, the Town of Washington enacted Local Law No. 3, taxing property used for scientific purposes. The town then restored the arboretum property to the tax roll, determining its primary purpose was scientific. NYBG commenced an Article 78 proceeding to have the property declared tax-exempt. Special Term dismissed the petition, but the Appellate Division reversed, holding the town failed to prove the arboretum was primarily used for scientific purposes. The town appealed to the New York Court of Appeals.

    Issue(s)

    Whether the Town of Washington met its burden of proving that the New York Botanical Garden was organized primarily for scientific purposes and that the Cary Arboretum was primarily used for such purposes, thereby justifying the withdrawal of a previously granted tax exemption.

    Holding

    No, because the Town of Washington failed to prove that the New York Botanical Garden was organized and the Cary Arboretum was used primarily for scientific purposes. Because the property served multiple exempt purposes, the withdrawal of the tax exemption was not justified.

    Court’s Reasoning

    The court emphasized that generally, the burden of proof lies with the taxpayer seeking a tax exemption. However, when a municipality seeks to withdraw a previously granted tax exemption under Real Property Tax Law § 420 (subd 1, par [b]), the municipality bears the burden of proving that the property is subject to taxation. The court noted that the NYBG’s charter described several purposes, including maintaining a botanical garden, advancing botanical science, exhibiting horticulture, and providing public instruction and recreation. The court found the town failed to demonstrate that a scientific purpose predominated, despite NYBG’s own declarations of its scientific activities.

    The court distinguished the case from situations where an organization’s primary purpose could be definitively classified as scientific. Citing Mohonk Trust v. Board of Assessors of Town of Gardiner, the court noted that environmental and conservation purposes are encompassed within broader categories that afford absolute exemption. The court found NYBG’s purposes strikingly similar to those of the Mohonk Trust and the North Manursing Wildlife Sanctuary, both of which had been granted tax exemptions. The court found the arboretum’s emphasis on preservation and environmental concerns provided a sufficient basis for finding its primary purpose to be absolutely exempt.

    The court also addressed the town’s argument regarding restrictions on public access, stating that to qualify for tax exemption, the arboretum must be “necessary to the public good” and “open to and enjoyed by the public” (Mohonk Trust v Board of Assessors of Town of Gardiner, 47 NY2d 476, 484). However, the court found that the restricted access was consistent with the purposes for which the land was being used and did not deprive it of a public purpose. The court held that the Cary Arboretum’s use accomplished several exempt purposes, including educational, charitable, and moral improvement purposes, and should fall within the broader categories of absolutely exempt uses.

  • Newsday, Inc. v. Town of Huntington, 46 N.Y.2d 272 (1978): Interpreting Local Laws Restricting Tax Exemptions

    Newsday, Inc. v. Town of Huntington, 46 N.Y.2d 272 (1978)

    A local law or resolution restricting a tax exemption under Real Property Tax Law § 485-b will be interpreted narrowly, and its applicability is limited to the specific terms outlined in the law or resolution itself.

    Summary

    Newsday sought a partial tax exemption for its new publishing plant under Real Property Tax Law § 485-b. The school district passed a resolution to deny this exemption for properties constructed after the resolution’s date. Newsday argued their plant was built in reliance on the exemption. The court held that because Newsday’s plant was substantially (90%) completed before the resolution’s passage, it did not fall within the resolution’s scope, which applied only to properties “constructed, altered, or improved” after the resolution date. Thus, Newsday was entitled to the partial tax exemption.

    Facts

    Newsday, a Long Island newspaper, obtained a building permit in November 1977 for a $6.5 million publishing plant in Huntington. In September 1978, they inquired about a partial tax exemption. By April 9, 1979, the plant was 90% complete. Newsday filed for a partial exemption under Real Property Tax Law § 485-b on May 10, 1979. The town assessor initially indicated the exemption would apply to town, county, and special district taxes, but not school taxes because the school district adopted a resolution on April 9, 1979, that reduced the exemption to zero.

    Procedural History

    Newsday sued for a declaratory judgment stating its entitlement to a partial school tax exemption under § 485-b. The Supreme Court granted summary judgment to Newsday. The Appellate Division affirmed the Supreme Court’s decision, with one Justice dissenting. The Town of Huntington appealed to the New York Court of Appeals.

    Issue(s)

    Whether Newsday’s publishing plant, substantially completed before the school district’s resolution denying tax exemptions for properties constructed after the resolution date, fell within the scope of the resolution and was therefore ineligible for the partial tax exemption under Real Property Tax Law § 485-b.

    Holding

    No, because the school board’s resolution, by its own terms, applied only to property “constructed, altered, or improved” after the date of the resolution. Given that Newsday’s plant was 90% complete before the resolution, it did not fall within the resolution’s scope.

    Court’s Reasoning

    The Court focused on the specific language of the school board’s resolution, which applied to properties “constructed, altered, or improved after the date of this resolution.” The court reasoned that the phrase “constructed” could not reasonably be interpreted to include Newsday’s plant, which was already 90% complete when the resolution was passed. The court emphasized the finding of fact that the plant was substantially complete and had received a temporary certificate of occupancy shortly after the resolution. Therefore, the assessor erred in denying Newsday the exemption based on the school board’s resolution. The Court avoided the broader question of whether the plant was entitled to an exemption due to reliance, stating there was no need to reach that argument given the resolution’s plain language. The court noted that while local governments can remove themselves from the tax exemption program under § 485-b, this specific resolution did not apply to Newsday’s project. The court stated that “exemptions existing prior in time to passage of any such local law or resolution shall not be subject to any such reduction so effected”.

  • 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.

  • Underhill Construction Corp. v. State Tax Commission, 48 N.Y.2d 843 (1979): Establishing an ‘Irrevocably Entered Into’ Contract for Tax Exemption

    Underhill Construction Corp. v. State Tax Commission, 48 N.Y.2d 843 (1979)

    To qualify for a tax exemption under Tax Law § 1119(a), a taxpayer must provide sufficient evidence to demonstrate that they had “irrevocably entered into” a pre-existing construction contract before the statutory cutoff date.

    Summary

    Underhill Construction Corp. sought revision of a tax commission determination, claiming exemption from sales and use taxes under Tax Law § 1119(a) because they allegedly entered into a construction contract before April 1, 1969. The Court of Appeals affirmed the Appellate Division’s decision, holding that Underhill failed to provide sufficient evidence to prove they had “irrevocably entered into” the contract before the deadline. The court emphasized the lack of comprehensive contractual documentation and corroborating evidence, which undermined Underhill’s claim for tax exemption.

    Facts

    Underhill Construction Corp. claimed to have entered into a lump-sum construction contract before April 1, 1969. To support their claim for a tax exemption, Underhill presented only two pages of the purported contract: the first page, dated June 21, 1968, specifying a payment obligation of $2,451,000, and the last page, signed by both parties and dated August 19, 1969. The intervening pages were not provided. Underhill offered testimony about previous transactions and work done before April 1, 1969, but lacked comprehensive documentation of a binding agreement before the statutory deadline.

    Procedural History

    The State Tax Commission determined that Underhill Construction Corp. was liable for sales and use taxes. Underhill sought a revision of the commissioner’s determination. The Appellate Division affirmed the Tax Commission’s decision. The Court of Appeals affirmed the Appellate Division’s judgment, upholding the tax commission’s determination.

    Issue(s)

    Whether the taxpayer provided sufficient evidence to establish that they had “irrevocably entered into” a pre-existing lump sum or unit price construction contract prior to April 1, 1969, as required by Tax Law § 1119(a) for a tax exemption.

    Holding

    No, because the taxpayer’s proof was insufficient to establish that a construction contract of the substance required by the statute had been “irrevocably entered into” prior to the cutoff date.

    Court’s Reasoning

    The court found substantial evidence supported the Tax Commission’s determination that Underhill had not irrevocably entered into a pre-existing construction contract by April 1, 1969. The court emphasized the insufficiency of Underhill’s evidence, particularly the missing pages of the alleged contract and the lack of corroborating evidence like a performance bond. The court noted, “Taxpayer’s predicament stems from the insufficiency of the proof submitted in support of his application for revision of the commissioner’s determination of his liability for sales and use taxes.” While acknowledging that a written contract before the deadline wasn’t necessarily required, the court found the presented proof inadequate. The court highlighted the unexplained delay between the alleged agreement date (June 28, 1968) and the signing date (August 19, 1969). The court concluded that without more compelling evidence, the Tax Commission reasonably determined that Underhill failed to prove the existence of a binding agreement before the cutoff date.

  • Sisters of St. Joseph v. City of New York, 49 N.Y.2d 429 (1980): Tax Exemption for Religious Property Leased to Another Charitable Organization

    Sisters of St. Joseph v. City of New York, 49 N.Y.2d 429 (1980)

    A religious organization leasing property to another charitable organization is subject to real property tax if the rental income exceeds the carrying, maintenance, and depreciation charges, even if the lessee uses the property for tax-exempt purposes.

    Summary

    The Sisters of St. Joseph, a religious order, leased property to Catholic Charities, which subleased it to Builders for the Family and Youth, both tax-exempt organizations. The City of New York Tax Commission denied the Sisters’ application for a tax exemption because the rental income received by Catholic Charities exceeded the property’s carrying, maintenance, and depreciation charges, as outlined in Real Property Tax Law § 421(2). The Court of Appeals held that the tax exemption was properly denied, emphasizing that the statute’s restriction on rental income exceeding expenses applies even when the lessee is also a tax-exempt entity using the property for exempt purposes. The case was remitted to determine if the rental income indeed exceeded permissible expenses.

    Facts

    The Sisters of St. Joseph owned property in Brooklyn, New York, used as a convent until 1973 and granted tax-exempt status. In August 1973, they leased the property to Catholic Charities for use as a senior citizens’ center, with no rent due to the Sisters. In February 1974, Catholic Charities sublet the property to Builders for the Family and Youth, requiring Builders to convert the building into a senior citizens’ center and pay $24,000 annual rent to Catholic Charities. The Sisters did not benefit from these rental payments. The City restored the property to the tax roll starting in 1975-1976, prompting the Sisters to seek a tax exemption, which was denied.

    Procedural History

    The Sisters of St. Joseph brought a declaratory judgment action challenging the tax assessment. Special Term granted summary judgment to the Sisters, holding that the rental income restriction of Real Property Tax Law § 421(2) did not apply when the property was used by another tax-exempt organization for exempt purposes. The Appellate Division affirmed. The Court of Appeals reversed in part, remitting the case to the Supreme Court to determine whether the property’s carrying, maintenance, and depreciation charges exceeded the rental income.

    Issue(s)

    Whether property owned by a religious organization and leased to another charitable organization is subject to real property taxation if the rental income derived from the property exceeds its carrying, maintenance, and depreciation charges, even if the lessee uses the property exclusively for tax-exempt purposes.

    Holding

    No, because Real Property Tax Law § 421(2) specifically applies to situations where a tax-exempt organization leases property to another tax-exempt organization, requiring that rental income not exceed the property’s carrying, maintenance, and depreciation charges for the property to qualify for a tax exemption.

    Court’s Reasoning

    The Court of Appeals traced the historical evolution of tax exemptions for charitable organizations, noting that while it has long been public policy to grant such exemptions, the legislature has placed limitations on the exemption where the property is leased to another tax-exempt organization. The Court emphasized that the 1948 amendment to the Tax Law, which introduced the rental income limitation, was intended to prevent tax-exempt organizations from profiting from leased property. The court also emphasized the importance of adhering to the literal language of the statute. The court stated that the statute’s phrasing in the disjunctive means two occurrences could potentially serve as grounds for disqualification: “(a) that the property is leased; or (b) that the property is used by the owner-organization for other than tax-exempt purposes.” The Court reasoned that allowing Catholic Charities to profit from subleasing the property would create an unintended tax loophole. The Court also rejected the Sisters’ constitutional arguments, finding that the tax did not infringe upon their religious freedom and that the statute merely restricted an additional benefit, not a constitutionally mandated exemption. As Governor Harriman stated at the time of the recodification, the new code was intended to effectuate “a continuation and restatement, without change in substance or effect, of the provisions of such laws.”