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Volume 1 - Opinions of Counsel SBEA No. 86

Opinions of Counsel index

Metropolitan Transportation Authority (taxes on leased property) - Public Authorities Law, § 1275:

Since real property owned by the Metropolitan Transportation Authority or its wholly owned subsidiaries is exempt from taxation and ad valorem levies, taxes levied on improvements made by a lessee under an agreement with the Long Island Railroad are illegal and should be cancelled. Tax payments previously made by the lessee may not be recovered or refunded since such payments were made voluntarily under a mistake of law.

Ours opinion has been requested concerning the taxable status of improvements upon real property owned by the Long Island Railroad.

The Long Island Railroad leased space located in the front of the railroad station to a corporation, and the lease required the lessee to pay any and all taxes levied upon any improvements made by the lessee. The lease provided that title to any such improvements would vest in the Long Island Railroad at the expiration of the lease. Improvements made by the lessees were separately assessed in the name of the lessee and taxes which were levied on the basis of such assessments were paid by the lessee up to and including the first half of the real property taxes covering the period from December 1, 1970 through May 31, 1971. It appears that the lease expired in July, 1971, and the Long Island Railroad and the lessee have refused to pay the second half of the tax bill in question.

          Section 102 of the Real Property Tax Law defines real property as meaning and including, among other things, the land itself and buildings and structures erected thereon. Section 304 provides that all assessments shall be against the land itself and section 500 requires the assessors to ascertain by diligent inquiry all the real property located in their assessing units and the names of the owners thereof. It is well settled that nothing contained in section 102 or section 500 prohibits the separate assessment of land and separately owned improvements erected on the land (People ex. rel. International Navigation Company v. Barker, 15 App.Div. 628, 44 N.Y.S. 1126, aff’d 153 N.Y. 98, 47 N.E. 46; National Cold Storage Company v. Boyland, 16 App.Div.2d 267, 227 N.Y.S.2d 147, aff’d 12 N.Y.2d 808, 187 N.E.2d 129, 236 N.Y.S.2d 62). However, this practice is limited to the situation in which there is an actual separate ownership of the land and of the improvements thereon (People ex. rel. Hudson River Day Line v. Franck, 257 N.Y. 69, 177 N.E. 312).

Therefore, a landlord and tenant may separate ownership of land and improvements by agreement, and although the tenant need not be granted the absolute right of removal of the improvement, in order to establish such separate ownership, the agreement, considered as a whole, must grant to the tenant such incidence of ownership as to establish clearly that the parties intended such separate ownership.

Since the lease in question specifically provides that title to the improvements shall vest in the lessor upon termination of the lease, it is clear that the parties did not intend that the improvements be separately owned by the tenant.

Section 1275 of the Public Authorities Law provides, in substance, that real property owned by the Metropolitan Transportation Authority or a wholly owned subsidiary thereof shall be exempt from taxation and special ad valorem levies and that the authority shall be required to pay no fees, taxes or assessments whether State or local, including taxes or assessments on real estate. Said section is specifically declared to constitute a covenant and agreement with the holders of all bonds issued by the authority. It would appear, therefore, that the taxes in question were not lawfully levied against the property in the first instance, since the property in question is not only exempt from taxation but is immune from taxation and may be subject to taxation only if such immunity is expressly waived. The agreement by the tenant to pay any and all taxes levied upon improvements by it does not and could not (by reasons of provisions of said section 1275) constitute a waiver of immunity. Although the improvements in question were not taxable for the reasons set forth above, the payments previously made by the lessee may not be recovered or refunded since such payments were made voluntarily under a mistake of law (see In re Village of Delhi, 201 N.Y. 408, 94 N.E. 874; McCue v. Board of Supervisors of Monroe County, 45 App.Div. 406, 61 N.Y.S. 315, aff’d 162 N.Y. 235, 56 N.E. 627; Op.State Compt. 320).

Therefore, the second half of the tax bill in question should be cancelled and vacated in the manner in which other illegal assessments are cancelled and vacated in the city in which the property is located.

February 24, 1972

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