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Volume 3 - Opinions of Counsel SBEA No. 77

Opinions of Counsel index

Nonprofit organizations exemption (generally) (property leased to private individuals); Assessment roll (description of partially exempt property) - Real Property Tax Law, §§ 421, 502:

Property owned by a tax exempt organization will lose its exempt status when leased to private individuals who are unaffiliated with the exempt organization and are not entitled to exempt status under other exemption statutes. Such property may be described as one parcel with the assessed value apportioned between the taxable and exempt portions.

Our opinion has been requested as to the taxable status of certain dwellings which are owned by a tax exempt organization and leased to persons not associated with the organization. From the information presented, it appears that the tax exempt organization owns a large tract of land which is divided into many lots. Several of these lots are improved, and in at least five cases the dwellings are rented to private individuals.

A request for an exemption from real property taxation for such property has been made pursuant to section 421 of the Real Property Tax Law. The requirements of such section can be summarized as follows:

1. The real property must be owned by an organization which is organized exclusively for one or more of the purposes listed in section 421(1).

2. The real property must be used exclusively for carrying out one or more of the purposes listed in section 421(1). Any portion of the property which is not used is subject to taxation.

3. No officer, member or employee of the organization may be entitled to receive any pecuniary profit from its operations, except reasonable compensation for services performed in furtherance of the corporate purposes.

4. No exemption shall be granted if the organization is a guise or pretense for directly or indirectly making any other pecuniary profit for such organization or for any of its members or employees.

In determining whether real property satisfies the requirements of section 421 it must be borne in mind that statutes exempting real property from taxation must be strictly construed, and that no exemption will be granted by any doubtful implication. In other words, the right to the exemption must be clearly established according to the statutory provision, and if a doubt exists, then that doubt should be resolved in favor of taxation (Lawrence-Smith School, Inc. v. City of New York, 280 N.Y. 805, 21 N.E.2d 693).

In addition, subdivision 2 of section 421 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 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...

This subdivision, however, also contains an exception which authorizes the continuation of the full exemption if the lessee is exempt from taxation pursuant to certain other enumerated sections of the Real Property Tax Law.

Accordingly, if the dwellings are to remain exempt despite the leasing then it must be shown that one of two situations exists. First, the exemptions should continue if the leasing is for a purpose consistent with and necessary for the exempt purposes of the owning organization. However, because it has been stated that the lessees have no association with the exempt organization, we assume that the property is not being leased for exempt purposes. The leasing of property for the purpose of producing income for the exempt owner-organization is not a use which is consistent with the requirements of the statute (see, 1 Op.Counsel SBEA Nos. 11, 12).

Second, the exemption should continue if the lessee is entitled to exemption pursuant to one or more of the sections enumerated in subdivision 2 of section 421 (e.g., §§ 421, 422, 424, etc.). However, in view of the fact that each lessee is apparently a private individual, we are of the opinion that the provisions of the exception to subdivision 2 are not satisfied and that the property is taxable.

The remainder of the inquiry concerns the amount of land which should be assessed as taxable with each dwelling. This may be determinable by an examination of the lease; if the lease gives the tenant the right to use a specified area of land, then that specified area is subject to taxation. However, if the lease is limited to the building and does not specify the lessee’s right to use the land, then the assessor must determine the amount of land which should reasonably be used for residential purposes. The fact that a four acre residential zoning ordinance is in effect is not really significant. The improvements exist, and if they were owned by private individuals and located on less than four acres, they would constitute a pre-existing nonconforming use which would certainly be assessable, despite the zoning ordinance. The assessor must assess the real property as it exists, and should not be bound by zoning ordinances which, of course, can be changed or modified.

In the case in which different portions of a parcel owned by a nonprofit organization are used for different purposes (i.e., one portion used for exempt purposes and one portion used for nonexempt purposes), we have advised assessors to apportion the assessed value according to the percentage of the property used for each purpose. This opinion has been affirmed by a recent Court of Appeals decision (Sailors’ Snug Harbor in New York v. Tax Commission of New York, 26 N.Y.2d 444, 259 N.E.2d 910, 311 N.Y.S.2d 486) in which the court directs that in the case of a partial exemption authorized by section 421, the assessor must fix what he considers to be the amount of the exemption. The court holds that the law does not require the assessor to separately describe the portions of the property, but that if he cannot separately describe and assess the different portions, then he must apportion the assessed value of the property between the taxable and exempt portions.

In analyzing the provisions of section 502 of the Real Property Tax Law, the court states:

A partial exemption of a “parcel” of real property under subdivision 5 is not a “separately assessed parcel” under subdivision 2. The whole parcel is the unit separately assessed. The exemption apportions a tax responsibility within the whole parcel which has been separately assessed. There is no need, then, on a fair reading of the statute, to require the assessors to describe by metes and bounds or other physical factors the portion which is exempt and the portion which is taxable. The statute requires that “the amount of the exemption” be stated. This means a sum in money and not a physical description.

Therefore, if upon investigation it is determined that the leasehold interest is limited to the house, then the assessor should assess as taxable the value of the house and the portion of the land used by the lessees, with the remaining value of the entire parcel (as described on the roll) as exempt assessed value.

The assessed value of any vacant land which is not being used for any purpose should be entered on the taxable portion of the assessment roll. If the large lots described are vacant and are not being used for exempt purposes, then the assessed value of these lots should also be entered on the taxable portion of the assessment roll.

It is our opinion that section 550 of the Real Property Tax Law (omitted real property) is not applicable to partially exempt property. However, if an assessor can separately describe and assess an entire parcel as taxable, then he may invoke section 550 because he will be assessing a totally exempt parcel.

In addition, section 494 of such law, which is applicable to Westchester County, authorizes a pro rata tax to be levied on property in any case in which a “person, association or corporation not entitled to an exemption from taxation acquires title to or possession of property which is exempt from taxation.” Pursuant to this section, we believe that the assessor can pick up the property for whatever portion of this fiscal year it has been leased to the private individuals.

Apri1 18, 1973

NOTE: Section 550 has been repealed (L.1974, c.177). See new Section 551 enacted by the same chapter.

Updated: