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Volume 5 - Opinions of Counsel SBEA No. 114

Opinions of Counsel index

Municipal corporations exemption (property acquired by tax deed) (scope) (effect of public purpose use) - Real Property Tax Law, § 406:

Real property owned by a municipal corporation and actually used for a public purpose is exempt from all taxation, including taxes levied for school purposes, as long as the property is so used. Real property purchased by a municipal corporation at a tax sale and not actually used for a public purpose is exempt from taxation, other than for school purposes and special assessments, for a three-year period during which the property is deemed to be held for a public use regardless of its actual use. The exemption will expire at the end of the three-year grace period unless the property is actually being held for public use at that time.

Our opinion has been requested with respect to the application of a school tax to property acquired by a city pursuant to a tax sale. Consideration of this question requires an interpretation of Real Property Tax Law, section 406, subdivisions (1) and (5), and 3 Op.Counsel SBEA No. 29.

In general, Real Property Tax Law, section 406, subdivision 1, provides that real property owned by a municipal corporation and actually used for a public purpose is exempt from all taxation, including taxes levied for school purposes, as long as the property is used for a public purpose. Subdivision 5 of section 406, on the other hand, provides that real property purchased by a municipal corporation at a tax sale is deemed to be held for a public use and that such property is liable for school taxes and special assessments, although it is exempt from other taxation and special ad valorem levies. This question concerns the relationship between these subdivisions and our interpretation of the same in 3 Op.Counsel SBEA No. 29.

In the final paragraph of that opinion, we sought to distinguish between properties which were in fact held for public use, and those which were merely deemed held for public use. That is, under section 406(1) the former are exempt from taxation including school taxes, while under section 406(5) the latter are also exempt except for school taxes and special assessments. It is our opinion that the three-year limitation mentioned in section 406(5) refers not to an end to liability for school taxes, but rather to an end to the exemption from all other tax levies.

Under subdivision 5 of section 406 then, real property purchased by a municipal corporation at a tax sale and not actually used for a public purpose, is entitled to an exemption from taxation other than for school purposes and special assessments, for a three-year period during which the property is deemed to be held for a public use regardless of its actual use. However, such exemption will expire, and the property will become fully subject to taxation at the end of the three-year grace period unless the property is actually being held for public use at that time.

Thus, the final paragraph of 3 Op.Counsel SBEA No. 29 simply means that subdivision 1 of section 406 is the controlling provision for the exemption of municipally owned property provided that the property is actually held for a public use. If the property is not so held, but has been acquired by tax deed by a municipal corporation, subdivision 5 of section 406 grants the municipality a three year “grace period” of exemption from taxation (other than school levies and special assessments) during which time the property is “deemed” to be held for a public use. The rationale behind subdivision 5 is apparently that the municipality acquiring properties by tax deed (many of which properties may be in a state of disrepair) should be given such a “grace period” during which it may actually put the property to a public purpose or sell it in order to place it back on the tax rolls.

Based upon the above, it seems clear that the county treasurer’s practice of paying school taxes on all county-held property purchased at tax sales for so long as it was owned was correct (again, assuming the property is not actually held for public use). The liability for school taxes on such property does not cease at the expiration of the three-year period from the date of the issuance of the tax deed; rather, in fact, after said three year period, such property is no longer deemed held for a public use and is therefore fully subject to taxation.

January 20, 1977

Updated: