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Volume 11 - Opinions of Counsel SBRPS No. 35

Opinions of Counsel index

Industrial development agencies exemption (in lieu of tax payments)(enforcement) - General Municipal Law, § 874; Real Property Tax Law, § 412-a:

Interpretation of payment in lieu of tax agreements that may be entered into in conjunction with the real property tax exemption of industrial development agencies (Real Property Tax Law, § 412-a; General Municipal Law, § 874) is not primarily an issue of assessment administration, although the assessor may provide assistance to other municipal officials (e.g., town attorney) in this regard. The enforcement of such payments is subject to statute and, if applicable, the agreements themselves.

Our opinion has been requested concerning an exemption application filed by a county industrial development agency (General Municipal Law, § 874; Real Property Tax Law, § 412-a). The town has a March 1 taxable status date and a Payment in Lieu of Taxes [PILOT] agreement was filed with the assessor before the 2001 taxable status date. Since that date, however, the town has not received a PILOT payment from the IDA or from its lessee.

The assessor questions her responsibilities in regard to the application. She also requests our interpretation of the PILOT agreement and the procedure for collecting delinquent payments.

Responsibilities as assessor

RPTL, section 412-a(1), provides that “[r]eal property owned by or under the jurisdiction, supervision or control of industrial development agencies enumerated in the general municipal law shall be entitled to such exemption as may be provided therein” (see, 9 Op.Counsel SBEA No. 17, in which we discuss tax exemption for land leased by an IDA, and L.1988, c.228, § 1, which amended RPTL, § 412-a). The relevant section of the General Municipal Law concerning entitlement to exemption is section 874.

An assessor must determine the taxable status of all property within the town (see, RPTL, § 102(2)). If the assessor determines that property qualifies for exemption because its ownership or use satisfies section 412-a(1), the property will be exempt from taxation, but will be liable for special ad valorem levies and special assessments (Cerro v. Washington County Board of Supervisors, 247 A.D.2d 726, 669 N.Y.S.2d 385 (3d Dept., 1998), mot. for lv. to app. den., 92 N.Y.2d 811, 703 N.E.2d 269, 680 N.Y.S.2d 457 (1998); 1 Op.Counsel SBEA No. 23; 3 id. No. 76).

A detailed procedure for the filing of an application is set forth in RPTL, § 412-a(2):

Application for such exemption must be made by the agency on a form prescribed by the state board and shall be filed in the office of the assessor on or before the appropriate taxable status date for the year in which the exemption is first claimed. At such time, copies of such application shall be mailed or delivered to the chief elected official of each school district, city, county, town and village within which the project is located. Such application shall include an extract of the terms of any agreement relating to the project. No application shall be required in subsequent years unless the terms of the agreement are modified or changed.

The original provisions of subdivision two of section 412-a(2), were enacted as chapter 372 of the Laws of 1991. {1}  This agency’s memorandum to the Governor’s Counsel regarding chapter 372 states in relevant part that “requiring an exemption application setting forth the terms of the agreement upon which the preferential financing is based and salient PILOT agreement criteria would provide a needed informational base for assessors in determining taxable status and for those public officials whose responsibilities include the monitoring of [the] PILOT agreement” (1991 McKinney’s Session Laws of New York at 2034; emphasis added). {2}  Here, we think it appropriate that the assessor sought assistance from the town attorney when the assessor was unable to ascertain the terms of the PILOT agreement, because she needed that information in order to make mathematical calculations for the officials responsible for monitoring and collecting the PILOT payments. {3}

Interpreting the PILOT agreement

A PILOT agreement is a contract that is to be construed in its entirety in order to ascertain the intent of the parties (see, Troy Towers Redevelopment Company, Inc. v. City of Troy, 51 A.D.2d 173, 380 N.Y.S.2d 89 (3d Dept., 1976), aff’d, 41 N.Y.2d 816, 361 N.E.2d 1045, 393 N.Y.S.2d 397 (1977)). Accordingly, since interpreting a PILOT agreement does not involve real property tax administration, we defer to the town attorney who may wish to consider the County Industrial Agency’s “uniform tax exemption policy” (see, General Municipal Law, § 874(4)) and the procedure for authorizing a “deviation” from that policy (see, General Municipal Law, § 874(4)(b), (c)).

Collection of delinquent payments

As a municipal industrial development agency governed by the General Municipal Law, the IDA may execute PILOT agreements. {4}  “Payments in lieu of taxes received by the agency shall be remitted to each affected tax jurisdiction within thirty days of receipt” (General Municipal Law, § 874(3)). Delinquent PILOT payments are subject to late payment penalties (General Municipal Law, § 874(5)). {5}  In certain situations, an “affected tax jurisdiction” may commence legal action to collect delinquent payments (General Municipal Law, § 874(6)). {6}

October 25, 2002

{1}  The sentence beginning “At such time” was added by chapter 356 of the Laws of 1993.

{2}  This agency’s memorandum concerning chapter 372 of the Laws of 1991 also states that “[s]uch payments should be collected in the same manner as are other payments due the municipality under contract (3 Op.Counsel SBEA No. 86)” (1991 McKinney’s Session Laws of New York at 2034).

{3}  Since there is an apparent dispute in this matter concerning the obligation to make PILOT payments, judicial intervention may be necessary. A declaratory judgment proceeding might be appropriate (see, Town of Minerva v. Essex County Industrial Development Agency, 173 A.D.2d 1054, 570 N.Y.S.2d 391 (3d Dept., 1991), in which the Town unsuccessfully applied for a declaration that an IDA lease and PILOT agreement were null and void). Such a proceeding also might be warranted because the failure to file a subsequent application, after the PILOT agreement was amended, possibly interfered with the ability of local officials to monitor the agreement in order to protect the financial interests of the taxing jurisdictions. Section 3001 of the Civil Practice Law and Rules provides that “[t]he supreme court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed.”

{4}  The phrase, “payments in lieu of taxes,” is defined in section 854(17) of the General Municipal Law as “any payment made to an agency, or affected tax jurisdiction equal to the amount, or a portion of, real property taxes, . . . which would have been levied by or on behalf of an affected tax jurisdiction if the project was not tax exempt by reason of agency involvement” (emphasis added). It appears to be pertinent that the definition neither requires nor suggests one or more methods to be used in an agreement for calculating the PILOT payments. Section 858(15) of such law, however, does include provisions relating to the allocation of the PILOT payments among the affected tax jurisdictions.

{5}  Section 874(5) of the General Municipal Law states that “[p]ayments in lieu of taxes which are delinquent under the agreement or which an agency fails to remit pursuant to [§ 874(3)], shall be subject to a late payment penalty of five percent of the amount due which shall be paid by the project occupant (where the taxes are delinquent because of the occupant’s failure to make the required payment) or the agency (because of the agency’s failure to remit pursuant to [§ 874(3)]) to the affected tax jurisdiction at the time the payment in lieu of taxes may be paid”. Section 874(5) further provides that “[f]or each month, or part thereof, that the payment in lieu of taxes is delinquent beyond the first month, interest shall accrue to and be paid to the affected tax jurisdiction on the total amount due plus a late payment penalty in the amount of one percent per month until the payment is made.” The PILOT agreement in question also has penalty provisions.

{6}  General Municipal Law, section 874(6), states that “[a]n affected tax jurisdiction which has not received a payment in lieu of taxes due to it under an agreement may commence legal action in any court of competent jurisdiction directly against any person, firm, corporation, organization or agency which is obligated to make payments in lieu of taxes under an agreement and has failed to do so. In such an action, the affected tax jurisdiction shall be entitled to recover the amount due, the late payment penalty, interest, expenses, costs and disbursements together with the reasonable attorneys’ fees necessary to prosecute such action.” It is significant, however, that the statute continues: “Nothing herein shall be construed as providing an affected tax jurisdiction with the right to sue and recover from an agency which has not received payments in lieu of taxes from a project occupant.” The PILOT agreement in issue also has provisions concerning judicial proceedings in the event of a default.