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Volume 11 - Opinions of Counsel SBRPS No. 41

Opinions of Counsel index

United States government property exemption (military housing complex) - Real Property Tax Law, § 400; State Law, § 50; 10 U.S.C. § 2871 et seq.:

Military housing rehabilitated and owned by a “public-private partnership” under the so-called Military Housing Privatization Initiative and located near a Navy base is exempt from taxation where the Navy owns the underlying land and the improvements will revert to the Navy after a specified term of years. The exemption does not apply to housing owned by such a partnership when the Navy has not retained title to the land.

Our opinion has been requested as to the taxable status of a military housing complex (Real Property Tax Law, § 400; State Law, § 50). The housing complex is owned by the United States Department of the Navy, but is not located on a Navy base.

The complex currently consists of 299 family units built in 1960 that are occupied by military personnel and their families. The Navy has agreed to a “public-private partnership” to rehabilitate the housing that would involve the formation of limited liability companies (LLC) by the Navy and the developer (see, 10 U.S.C. § 2871 et seq.).

One subsidiary LLC would own, operate, manage and maintain 171 units (hereafter the “privatized units”) of the existing inventory of Navy-owned and used family housing and any replacement units constructed, including site infrastructure, for a term of 50 years, while title to the land would remain in the Navy. Upon the termination of the lease, title to the improvements built by the lessee will “revert” to the Navy. The Navy would convey the other existing units (hereafter “market rate units”), which are no longer needed for military family housing, to the developer for market rate rental to the general public. Title to those units and the land on which they would be located would be vested in a second subsidiary LLC.

The privatized units

RPTL, section 400(1), provides that “[r]eal property owned by the United States shall be exempt from taxation, except as otherwise provided by the laws of the United States”. {1}  Accordingly, it is necessary to determine whether the legislation authorizing what is sometimes referred to as the “Military Housing Privatization Initiative” (10 U.S.C. § 2871 et seq.) waives the sovereign immunity of such property from real property taxation (see, Black River Ltd. Partnership v. Astafan, 166 A.D.2d 914, 561 N.Y.S.2d 669 (4th Dept., 1990), app. dsmd., 77 N.Y.2d 834, 567 N.E.2d 981, 566 N.Y.S.2d 587 (1991)).

The statute that authorizes the proposed lease in this matter (i.e., 10 U.S.C. § 2878) does not explicitly waive immunity from State and local real property taxation for the interests of lessees of military property. {2}  Even if it is assumed arguendo that Congress has waived such immunity, it is also necessary to determine whether the lessee’s interest constitutes “real property” as defined by the RPTL.

“Buildings and other articles and structures . . . erected upon, under or above the land, or affixed thereto” are included in the definition of “real property” (RPTL, § 102(12)(b)). Since the privatized military family units would not be removable by the developer under the terms of the ground lease, however, it is our opinion that the LLC’s interest in those units would be “personal property” not subject to real property taxation (see, 4 N.Y.2d 192, 198, 149 N.E.2d 856, 858, 173 N.Y.S.2d 560, 564 (1958); accord: D.P.C. Reconstruction Finance Corporation v. Assessor of Town of Johnsburg, 135 A.D.2d 224, 525 N.Y.S.2d 404 (3d Dept., 1988)). Accordingly, it is our opinion that both the land (title to which would be retained by the Navy) and the improvements thereon would be exempt from real property taxation pursuant to RPTL, section 400.

The market rate units

As noted above, title to these units (the land and the improvements thereon) would be conveyed to an LLC. While it appears that the Navy or the Federal government might be a “member” of that company, section 601 of the Limited Liability Company Law, provides that “[a] member has no interest in specific property of the limited liability company.” Since it is our opinion that the market rate units would not be “real property owned by the United States,” they are not entitled to exemption pursuant to section 400 of the RPTL, and are therefore taxable.

February 25, 2003

{1}  Certain property in New York State owned by the United States for public defense is under exclusive federal jurisdiction after having been so ceded by the State Legislature (see, State Law, § 50; Fort Hamilton Manor v. Boyland, 4 N.Y.2d 192, 149 N.E.2d 856, 173 N.Y.S.2d 560 (1958)). In that situation, “a special act of the legislature shall be required” (State Law, § 50(1)) and a deed is to be filed with the New York State Secretary of State (State Law, § 52). In this circumstance, to the contrary, the Navy notes that the housing complex is not located on a Navy base. We note, however, that the privatization program applies to “[f]amily housing units on or near military installations within the United States” (10 U.S.C. § 2872, emphasis added). It therefore appears that the housing complex is under the concurrent jurisdiction of the United States and New York State.

{2}  Significantly, Congress in other circumstances has explicitly provided that the interest of a lessee of Federally owned military land is subject to State and local real property taxation (e.g., 10 U.S.C. § 2667(d)). Section 2878 of Title 10, moreover, states that “[t]he conveyance or lease of property or facilities under this section shall not be subject to the . . . provisions of . . . (1) Section 2667 of this title.” The inapplicability of section 2667 to the Military Housing Privatization Initiative Program’s leases, however, may only have been intended to remove the program from the more restrictive provisions for approving a lease that are set forth in section 2667 (see, 10 U.S.C. § 2872 which states that the Privatization Program is an “addition to any other authority provided under this chapter [10 U.S.C. § 2801 et seq.] for the acquisition or construction of military family housing”).