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Volume 4 - Opinions of Counsel SBEA No. 44

Opinions of Counsel index

Nonprofit organizations exemption (scientific) (leased property) - Real Property Tax Law, § 421:

Property owned by a corporation which is exempt pursuant to this section may continue to be exempt from real property taxation even if rented to others by such corporation provided that the lessee is organized exclusively for one or more of the purposes enumerated in this section and the property is used exclusively for such purposes.

We have received an inquiry concerning the taxable status of property owned by the Hudson Valley Research Laboratory, Inc. This corporation is composed of several area farmers who purchased property and erected thereon a building which they lease to the Cornell Institute of Agriculture. The question is whether this parcel of property is subject to real property taxation.

Section 421 (i.e., § 420) of the Real Property Tax Law authorizes an exemption from real property taxation on real property owned by certain nonprofit organizations. The requirements of that section can be summarized as follows:

1. The real property must be owned by a corporation or association organized exclusively for one or more of the purposes listed in section 421.

2. The real property must be used exclusively for carrying out one or more of the purposes listed in section 421. Any portion of the property which is not so 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.

As a general rule of construction, statutes exempting real property from taxation must be strictly construed against the property owner seeking such exemption (Herkimer County v. Village of Herkimer, 251 App. Div. 126, 295 N.Y.S. 629, aff’d, 279 N.Y. 560, 18 N.E.2d 854).

Whether a particular corporation is organized exclusively for exempt purposes within the meaning of the aforementioned statute, must be determined from the purposes recited in its certificate of incorporation or charter, if any (Goodwill Club of Amsterdam, New York v. City of Amsterdam, 31 Misc.2d 1096, 222 N.Y.S.2d 896; American-Russian Aid Association v. City of Glen Cove, 41 Misc.2d 622, 246 N.Y.S.2d 123).

The certificate of incorporation of Hudson Valley Research Laboratory, Inc. recites its objects and purposes to be as follows:

2. . . .
(b) It operates for the specific purpose of supporting the scientific research programs of the New York State Agricultural Experiment Station.

(c) It requires real estate and constructed buildings thereon to be used solely for the above purpose, with the right to rent said real estate, at no profit to the Corporation, to the New York State Agricultural Experiment Station and/or Cornell University, for a term to be agreed upon in excess of five (5) years.

Real property owned by a nonprofit corporation organized exclusively for “scientific” purposes (such as Hudson Valley Research Laboratory, Inc. apparently is) and used exclusively for such purposes is exempt from real property taxation unless the municipal corporation within which the property is located, after a public hearing, adopts a local law, ordinance or resolution making such property subject to taxation pursuant to paragraph (b) of subdivision 1 of section 421.

The fact that the corporation may acquire real estate and erect buildings thereon to be rented to other organizations in furtherance of its stated scientific purpose would not alter the foregoing analysis. That is, the corporation apparently was not organized for the purpose of buying and renting real property as an end in itself, but it was organized for a “scientific” purpose, and to carry out such purpose, it was given the express powers set forth in paragraph (c) of its certificate of incorporation. (Of course, property owned by the Corporation and used for revenue purposes would not be entitled to exemption.)

However, there is an added factor in this case since Hudson Valley Research Laboratory, Inc. is leasing the property to the Cornell Institute rather than using it itself for the purpose enumerated in its certificate of incorporation. Subdivision 2 of section 421 provides for an exemption for such leased property where the lessee (Cornell Institute in this case) is a corporation organized for certain purposes which, if it owned the property, would make the property exempt from real property taxation. If the Cornell Institute is organized exclusively for one or more of the purposes enumerated in section 421, e.g., scientific and educational (this we cannot determine from the information which has been given us), and if the property is used exclusively for such purposes, then the property would be exempt from real property taxation.

An opinion as to the second requirement - that the property be used exclusively for carrying out thereupon one or more of the enumerated purposes - is rendered difficult because each case must necessarily be decided on its own merits. The local assessor must investigate the actual use of the property and must be satisfied that the property is being used exclusively for the chartered purposes. It must appear that the use and need of the property by the corporation or association “is necessary or fairly incidental to the maintenance of the institution for the carrying out of purposes for which it was organized” (People ex rel. Blackburn v. Batron, 63 App. Div. 581, 583, 71 N.Y.S. 933, 935).

May 31, 1974

Updated: