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Volume 11 - Opinions of Counsel SBRPS No. 37

Opinions of Counsel index

Charter schools exemption (scope) (leased property); Nonprofit organizations exemption (generally) (property leased to charter school) - Education Law, § 2853; Real Property Tax Law, §§ 408, 420-a, 420-b:

Charter schools are entitled to an exemption equivalent to that of public schools. With the exception of certain leased portable classroom structures located on school district owned land, public schools are not entitled to exempt status on taxable property they lease, so a portion of a taxable building leased by a charter school is not entitled to exemption solely on the basis of its status. An exempt nonprofit organization may lease its property to a charter school without losing its exempt status (assuming limited rental charges).

Our opinion has been requested regarding the taxable status of a privately owned building, a portion of which has been leased to a charter school (Education Law, § 2850 et seq.). The charter school uses the leased portion of the building as its school location. It appears that the owner of the building is not entitled to a tax exemption in his or her own right, but, given the lease to the charter school, the question is whether all or part of the building is entitled to exemption.

A charter school “may be located in part of an existing public school building, in space provided on a private work site, in a public building or in any other suitable location” (Education Law, § 2853(3)(a)). Such a school “may own, lease or rent its space” (ibid.).

Education Law, section 2853(1)(d), provides that “[a] charter school shall be exempt to the same extent as other public schools from all taxation, fees, assessments or special ad valorem levies on its earnings and its property, including property leased by the charter school” (emphasis added). In order to understand the intended scope of the exemption, we believe it is necessary to review the language and legislative history of section 2853(1)(d) of the Education Law and section 408 of the Real Property Tax Law, the latter being the exemption for public schools.

RPTL, section 408, affords exemption for “all real property owned by a school district” and, in certain circumstances, for “all improvements thereon leased by such a district” (emphasis added). The latter provision was added by chapter 684 of the Laws of 1985 for situations where “the school district owns the land under the leased premises and . . . the premises are used for an educational purpose” (9 Op.Counsel SBEA No. 46). It seems clear that this provision was enacted to address the taxable status of so-called portable classrooms being placed on land owned by a school district. {1}  It should not be read to exempt other, privately owned, real property that might be leased by a school district.

As noted above, section 2853(1)(d) of the Education Law specifically equates a charter school’s real property tax exempt status with that of a public school. There is certainly no indication in the language of the New York Charter Schools Act of 1998 (Education Law, § 2850 et seq.) or in the Governor’s Bill Jacket for that legislation (L.1998, c.4), that charter schools should enjoy a greater scope of exemption than public schools. But for the limited portable classroom provision, public schools may not receive an exemption on property they may lease and use for educational purposes. {2}  Accordingly, it is our opinion that a portion of a taxable building leased by a charter school is not entitled to exemption solely on the basis of the lessee’s status. {3}

On the other hand, we note that a nonprofit organization, otherwise entitled to exemption pursuant to section 420-a or 420-b of the RPTL, may lease its property to a school district entitled to exemption under section 408 and not lose its tax exempt status, provided the rental charged does not exceed the carrying, maintenance, and depreciation charges of the rental property (RPTL, §§ 420-a(2), 420-b(2); see, 10 Op.Counsel SBRPS No. 88). Given the exemption equivalency of Education Law, section 2853(1)(d), and RPTL, section 408, it would seem that an exempt nonprofit organization may lease its property to a charter school without losing its exempt status (assuming limited rental charges).

December 4, 2002

{1}  The sponsor’s memorandum for chapter 684 states that “[e]ducational institutions which do not have the authority to raise tax monies enter into lease arrangements under the terms of which a builder will construct a classroom facility on property owned by the educational institution” (1985 New York State Legislative Annual, p.248).

{2}  In contrast, we note that, in other situations, the Legislature has explicitly granted exemption to property owned by a nonexempt party based on the property’s use (e.g., RPTL, § 412-a, grants exemption to “[r]eal property owned by or under the jurisdiction, supervision or control of industrial development agencies enumerated in the general municipal law”).

{3}  We note, in passing, that Education Law, section 2853(1), requires a charter school to incorporate as an educational organization and to obtain federal tax exempt status (presumably a reference to § 501(c)(3) of the Internal Revenue Code) within one year of receipt of its charter. Such private educational organizations are normally entitled to a property tax exemption pursuant to section 420-a of the RPTL (see, 10 Op.Counsel SBRPS No. 43), but that section also requires ownership by the entity seeking exemption (see, 6 Op.Counsel SBEA No. 24).