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Volume 11 - Opinions of Counsel SBRPS No. 55

Opinions of Counsel index

Nonprofit organizations exemption (religious) (vacant residential property - contemplated use); Religious corporations exemption (use requirement) (contemplated use) - Real Property Tax Law, §§ 420-a, 462:

Where a religious corporation can demonstrate good faith contemplated use of currently vacant property as the residence of its officiating clergyman, the property may receive exemption pursuant to section 420-a(3) of the Real Property Tax Law.

We have received an inquiry concerning the taxable status of a parcel owned by a religious organization. The facts are that a church owns a residence that was formerly used by its minister as his residence during which time the property was exempt from taxation pursuant to section 462 of the Real Property Tax Law. The minister has left the church and the building is now vacant. The church plans a two-year renovation of the property in anticipation of its use as a residence by a new full-time minister.

The currently vacant property does not satisfy the requirement of section 462 that it be “actually used” by the officiating clergyman as his or her residence. Likewise, it cannot be said to satisfy the requirement of section 420-a(1)(a) of the RPTL that it be “used exclusively” for the church’s exempt purposes. To determine taxable status, however, yet another provision of section 420-a must also be considered.

Subdivision three of section 420-a provides in part that property owned by a qualifying nonprofit organization (e.g., church) from which no revenue is derived may still receive exemption if it is not in actual use by reason of the absence of suitable buildings if the construction of such buildings is underway “or is in good faith contemplated” by the organization. Recently, the Court of Appeals discussed this provision, noting that: “To demonstrate that the improvements are ‘in good faith contemplated’ within the meaning of section 420-a, the applicant seeking an exemption must have ‘concrete and definite plans for utilizing and adopting the property for exempt purposes within the reasonably foreseeable future [citations omitted]’”  (Matter of Legion of Christ v. Town of Mount Pleasant, 1 N.Y.3d 406, 411, 806 N.E.2d 973, 976, 774 N.Y.S.2d 860, 863 (2004)). Later in that opinion, the Court said:

[E]ach taxable year is distinct and separate for purposes of RPTL 420-a(3)(a) exemption eligibility. With each application for renewal, the boundaries of good faith take on new dimensions. As years pass, the taxpayer may reasonably be required to show some concrete act toward developing or otherwise improving the property to carry out the tax exempt purpose. Property must not be allowed to lie idle indefinitely at the expense of the localities and its citizens. This “landbanking” has the effect of diminishing the tax base of a locality and increasing the tax burden for schools and other municipal operations (1 N.Y.3d at 412-13, 806 N.E.2d at 977, 774 N.Y.S.2d at 864).

While it is true that sections 420-a and 462 are separate statutes (see, 10 Op.Counsel SBRPS No. 38) and section 462 does not itself include a good faith contemplated use provision, the question is whether the courts would apply section 420-a’s “good faith” test to a church-owned parcel, like the one in issue, which, once rehabilitated, is intended to be used for purposes that would qualify it for exemption under section 462 (as opposed to § 420-a). The Court of Appeals has noted that section 462 begins with the phrase “In addition to the exemption provided in section [420-a of the RPTL],” but said the “phrase appears to have been included for no other purpose than to call attention to the parallel provisions in the two statutes; nothing in the wording, read with the meaning ordinarily assigned such terms, suggests any dependence of one statute on the other” (Congregation Kollel Horabonim, Inc. Williams, 48 N.Y.2d 301, 307, 398 N.E.2d 515, 517, 422 N.Y.S.2d 909, 911 (1979)). The question is whether this “parallelism” would prompt a court to apply the section 420-a(3) test to property that, once used, would qualify for exemption under section 462.

Given the tenor of the appellate decisions regarding the nonprofit organizations exemptions over the past 25 years, we believe that the courts would likely read the “good faith contemplated use” provision of section 420-a as being applicable as well to property to be used for section 462 purposes. The property would therefore qualify for exemption (per § 420-a(3)), while it is being rehabilitated, and (per § 462), once the new clergyman enters into residency. {1}  With any parcel granted exemption based on its good faith contemplated use, as the Court of Appeals noted in Legion of Christ, (supra), the assessor should closely monitor the progress of this improvement toward its eventual use as the residence of the church’s officiating clergyman.

March 15, 2004

{1}  We recognize that this presents a seeming anomaly. In addition to providing an exemption from “taxation,” section 420-a also provides an exemption from most special district charges; section 462’s scope does not extend to special district charges (5 Op.Counsel SBEA No. 122). Therefore, property being rehabilitated for eventual use as the officiating clergyman’s residence will receive a greater exemption benefit while it is under construction than it will once it is completed.