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Volume 11 - Opinions of Counsel SBRPS No. 70

Opinions of Counsel index

Nonprofit organizations exemption (generally) (local option to tax - permissive class use by mandatory class organization) - Real Property Tax Law, §§ 420-a, 420-b:

Where a municipality has opted to tax a purpose otherwise exempt pursuant to section 420-b of the Real Property Tax Law, property used for such purpose is taxable even if owned by an organization otherwise exempt pursuant to section 420-a of such law. An assessing unit that withdraws an exemption granted to a parcel owned by an organization otherwise exempt pursuant to section 420-a, because its parcel is used for a purpose no longer exempt pursuant to section 420 b, may bear the burden of proof.

We have received an inquiry concerning the nonprofit organizations exemption (Real Property Tax Law, §§ 420-a, 420-b). A religious organization owns several residences which are used to house its missionaries. The missionaries reside in the residences while they serve for a period of time, relocate elsewhere, and are then replaced by other missionaries. The question is whether these residences are exempt. In our opinion, the answer depends on whether the town or any of the municipalities that use the town’s assessment roll for its tax purposes has opted to tax any of the exempt purposes listed in section 420-b (e.g., bible, tract, or missionary).

Section 420-a provides a mandatory exemption to nonprofit organizations organized or conducted “exclusively” (interpreted to mean “principally” or “primarily” (Association of the Bar of the City of New York v. Lewisohn, 34 N.Y.2d 143, 313 N.E.2d 30, 356 N.Y.S.2d 555 (1974))) for certain purposes, including religious purposes. Section 420-b provides a similar exemption to nonprofit organizations organized for certain other purposes, including (as noted above) missionary purposes. Municipalities have the authority, however, to opt to tax any or all of the categories listed in section 420-b.

The local option to tax certain categories of nonprofit organizations was first enacted in 1971 (c.414), but, even when all listed nonprofit purposes were mandatorily exempt, religious and missionary purposes were distinguished from one another (Estate of Watson, 171 N.Y. 256, 63 N.E. 1109 (1902); Estate of White, 118 A.D. 869, 103 N.Y.S.2d 688 (1st Dept., 1907)). Missionary houses were held to be tax exempt (Society of Free Church v. Feitner, 168 N.Y.494, 61 N.E. 762 (1901); Board of Foreign Missions v. Board of Assessors, 244 N.Y. 42, 154 N.E. 816 (1926)). Now, if a municipality opts to tax property owned by organizations organized for missionary purposes and used for such purposes, that property may be taxed (Swedenborg Foundation, Inc. v. Lewisohn, 40 N.Y.2d 87, 351 N.E.2d 702, 386 N.Y.S.2d 54 (1976); Highland Lake Bible Conference v. Board of Assessors, 92 A.D.2d 655, 460 N.Y.S.2d 170 (3d Dept., 1983)).

Apparently not yet addressed by the courts is what happens when an organization organized or conducted for a purpose exempt under section 420-a uses its property for purposes which are exempt only under section 420-b and the municipality has opted to tax such purpose. Section 420-a(2) provides, in part, that:

If any portion of such real property is not so used exclusively to carry out thereupon one or more of such [section 420-a] purposes but is leased or otherwise used for other purposes, such portion shall be subject to taxation and the remaining portion only shall be exempt; provided, however, that such real property shall be fully exempt from taxation although it or a portion thereof is used . . . for purposes which are exempt pursuant to section . . . four hundred twenty-b . . . of this chapter . . . so long as any moneys paid for such use do not exceed the amount of the carrying, maintenance and depreciation charges of the property. . . . {1}

In our opinion, when a municipality has opted to tax the particular section 420-b purpose for which the property is being used, property used for that purpose is no longer exempt even if the owning organization would qualify for exemption under section 420-a were it using its property for a purpose exempt under that section. We reach this conclusion, in part, based on case law which has elevated the importance of the statutory use requirement. The State’s highest court held:

[A]n organization may be entitled to an exemption if it is either “organized or conducted” primarily for an exempt purpose or purposes. Hence, the determination of an organization’s primary purpose may turn upon the extent to which it pursues the various purposes for which it was created, and is not necessarily dependent solely upon the language of the document pursuant to which the organization operates (Mohonk Trust v. Board of Assessors, 47 N.Y.2d 476, 484, 392 N.E.2d 876, 880, 418 N.Y.S.2d 763, 767 (1979); emphasis in original).

Thereafter, the Court said: “the addition to the subdivision in question by chapter 414 of the Laws of 1971 of the words ‘or conducted’ after the word ‘organized’ . . . makes clear the legislative purpose to grant tax exemption to a corporate property owner conducted for a hospital purpose, even though the owner corporation is not itself authorized to operate a hospital” (St Joseph’s Health Center Properties v. Srogi, 51 N.Y.2d 127, 130, 412 N.E.2d 921, 922, 432 N.Y.S.2d 865, 866 (1980)). The dissenters in that case said, “The majority today overlooks the requirement that the corporation be organized or conducted for an exempt purpose and instead focuses solely on the requirement that the corporation’s property be used for an exempt purpose. It applies only half of the statute’s test for exempt status” (51 N.Y.2d at 136, 412 N.E.2d at 926, 432 N.Y.S.2d at 870).

It would seem to necessarily follow that, if an exempt use supersedes a nonexempt purpose, then an exempt purpose cannot supersede a use which is no longer exempt. Consequently, if a religious organization uses a property principally or primarily for missionary purposes, and the municipality has opted to disallow exemptions for missionary organizations, no exemption should be granted to that parcel. The religious organization’s other parcels, which are used for religious purposes, of course, would continue to receive exemption (per § 420-a).

Despite our foregoing analysis, however, we caution that municipalities may find it difficult to successfully tax such properties. Many of the purposes listed in section 420-b are closely related to purposes in section 420-a (e.g., bible, tract, and missionary to religious; historic and scientific to educational; benevolent to charitable). It is well-established that where a municipality opts to tax one or more of the organizational purposes listed in section 420-b and the assessor withdraws a previously granted exemption on that basis, the assessing unit bears the burden of proving that the applicant organization is organized for a purpose now taxable under section 420-b and not organized or conducted for a purpose still exempt under section 420-a (Watchtower Bible and Tract Soc. of New York, Inc. v. Lewisohn, 35 N.Y.2d 92, 315 N.E.2d 801, 358 N.Y.S.2d 757 (1974); New York Botanical Garden v. Assessors of Town of Washington, 55 N.Y.2d 328, 434 N.E.2d 703, 449 N.Y.S.2d 467 (1982)). Presumably, the burden of proving that an otherwise exempt organization no longer qualifies for exemption for its parcel used for what is now a nonexempt purpose will also be placed on the assessing unit.

February 1, 2005
April 15, 2005

{1}  For a discussion of carrying, maintenance, and depreciation charges, see 10 Op.Counsel SBRPS No. 88.