Volume 10 - Opinions of Counsel SBRPS No. 70
United States or New York State government property held under contract of sale exemption (scope) - Real Property Tax Law, § 402:
Real property that is owned by the United States or New York State government but is occupied or otherwise used by another person or organization under a contract of sale or other agreement granting the right to acquire the property is subject to taxation to the extent of the user’s interest in the property.
We have been asked to explain the provisions of section 402 of the Real Property Tax Law. An individual who is purchasing property under an executory contract of sale (or land contract) from the United States government claims he is entitled to a tax exemption pursuant to that section, and cites the decision in People ex rel. Donner-Union Coke Corp. v. Burke, 204 App.Div. 557, 198 N.Y.S. 601 (4th Dept., 1923), aff’d, 236 N.Y. 650, 142 N.E. 320 (1923) in support of his claim. We disagree.
Section 402 of the RPTL, which is derived from former section 4(17) of the Tax Law, provides (in subd. 1), in relevant part, as follows:
Whenever the legal title of real property is in the United States, or in the state of New York, but the use, occupation or possession thereof is in a person, ... whereby upon one of more payments the legal title thereto is to be or may be acquired by such person, ... his ... interest in such real property shall be assessed and taxed as real property and shall be entered in the assessment roll in the same manner as if such person ... held the legal title to such property, except for the addition to the description of the words “interest under contract” ....
The Donner-Union (supra) court did in fact hold that property, being sold by the United States government to a private owner under an executory contract of sale, was not taxable. The court took specific note that, at that time, New York State law included no “provision for taxing equitable interests,” stating that the answer could be found in legislation (198 N.Y.S. at 604).
Such a provision was indeed enacted in 1925 (c.99). New section 4(24) of the Tax Law added language similar to that now found in section 402(1) of the RPTL quoted above.
This enactment did not, however, finally resolve the issue. In People ex rel. Donner-Hanna Coke Corp. v. Burke, 128 Misc. 195, 217 N.Y.S. 803 (Sup. Ct., Erie Co., 1926), aff’d, 222 App.Div. 790, 226 N.Y.S. 882 (4th Dept., 1927), aff’d, 248 N.Y. 507, 162 N.E. 503 (1928), the court held that an assessment pursuant to section 4(24) of the Tax Law “retard[ed], impede[d], or burden[ed] ... the disposition of the plant agreed to be sold by the [United States] government...” (217 N.Y.S. at 808), and was therefore invalid. The statute was not repealed. (It was, however, thereafter renumbered to be subdivision 17 of section 4 of the Tax Law (L.1933, c.470).)
Subsequently, the United States Supreme Court had occasion to review a similar provision of Minnesota law. The court concluded that the purchaser’s interest was not immune from taxation. “Ownership of the beneficial interest has passed to the petitioner with legal title retained by the United States for security purposes. This should not put this private property in an exempt class” (S.R.A., Inc. v. State of Minnesota, 327 U.S. 558, 570, 66 S.Ct. 749, 90 L.Ed. 851 (1946)).
The following year, the Deputy Commissioner and Counsel to the New York State Department of Taxation and Finance expressed the opinion: “In view of the decision of the Supreme Court of the United States in the S.R.A. case, the conclusion appears inescapable that real property owned by the United States and held under an executory contract of sale may now be taxed under the terms and provisions of paragraph 17 of section 4 of the Tax Law” (68 St.Dept. 425, 429).
Thereafter, a closely-divided New York State Court of Appeals held that section 4(17) did not permit taxation of property leased from the United States by an aircraft company (Grumman Aircraft Engineering Corp. v. Board of Assessors, Town of Riverhead, 2 N.Y.2d 500, 141 N.E.2d 794, 161 N.Y.S.2d 393 (1957), cert. den., 355 U.S. 814, 78 S.Ct. 14, 2 L.Ed.2d 31 (1957)). Significant to the issue herein, however, both the majority and the dissent seemed to recognize that the statute did permit taxation of property held under executory contracts of sale.
The Legislature then addressed portions of the Grumman decision by amending section 4(17) of the Tax Law (L.1957, c.933; see also, Governor’s Approval Message reprinted at McKinney’s 1957 Session Laws of New York, pp. 1888-89). As so amended, that subdivision became section 402 of the Real Property Tax Law when that law was recodified in 1958 (c.959). Although deciding that a leasehold was not a sufficient interest to authorize taxation pursuant to section 402, the court in D.P.C. Reconstruction Finance v. Assessor, Town of Johnsburg, 135 A.D.2d 224, 525 N.Y.S.2d 404 (3d Dept., 1988), again recognized the taxability of property held under executory contract of sale.
Based on the foregoing, our interpretation of section 402 is as set forth in the New York State Assessor’s Manual, Vol. 4, Sec. 4.02, p.41.01 (1/1/95): “Real property that is owned by the U.S. Government or the State of New York but is occupied or otherwise used by another person or organization under a contract of sale or other agreement granting the right to acquire the property is subject to taxation to the extent of the user’s interest in the property.” Accordingly, we conclude that the property in question is not entitled to an exemption pursuant to section 402 of the RPTL.
We do note, however, that a purchaser in possession under an executory contract of sale is deemed to be the owner for purposes of taxation and, therefore, exemption (1 Op.Counsel SBEA No. 34; 3 id. No. 52). Consequently, if such “owner” otherwise satisfies the requirements of a particular partial exemption (e.g., the school tax relief [STAR] exemption’s primary residence requirement (RPTL, §425(3)(b)), that “owner” could qualify for that exemption on the basis of his “ownership” of the parcel in question.
November 9, 1998