Volume 6 - Opinions of Counsel SBEA No. 106
Railroad property exemption (nonrailroad company owner) (subsidized lines) (separate assessment) - Real Property Tax Law, §§ 489-bb, 489-cc, 489-dd:
A right of way or portion thereof not owned by a “railroad company” as defined in section 489-bb(2) of the Real Property Tax Law, but used for transportation purposes by a railroad company under an operating agreement, is wholly exempt from taxation as “subsidized railroad real property” pursuant to section 489-bb of the Real Property Tax Law.
Where the subsidized railroad real property is only a portion of the parcel, it must be separately assessed.
Our opinion has been requested as to the taxable status of a railroad right of way or portions thereof which a utility corporation purchased from the Penn Central Transportation Company (hereinafter “Penn Central”). A further inquiry concerns the proper assessment procedure if a portion of the property acquired is exempt.
According to the deed, all of Penn Central’s right, title and interest in the right of way is conveyed to the utility excepting and reserving to Penn Central
(a) an “easement for railroad operation” consisting “generally of the width of the tracks and adequate clearance laterally and vertically for railroad operations as well as railroad appurtenances,” said easement to be extinguished upon abandonment of railroad operations; and
(b) all improvements located on the right of way, including railroad trackage, bridges, buildings and culverts, but excluding improvements of the utility.
Penn Central is made liable for all real property taxes attributable to the reserved easement and improvements while the utility “shall not be obligated to pay real property taxes or costs of any kind in parcels of land ... excepted and reserved” to Penn Central. Conrail will provide railroad service over the right of way under a rail service continuation subsidy. The easement is ten feet on either side of the center of the tracks.
The taxable status question will be considered first. Section 489-dd(l) of the Real Property Tax Law provides that “[s]ubsidized railroad real property shall be exempt from taxation.” “Subsidized railroad real property” is defined in section 489-bb(4) as “any railroad real property for which a rail service continuation subsidy is paid or payable pursuant to titles III and IV of the regional rail reorganization act of nineteen hundred seventy-three as amended April first, nineteen hundred seventy-six.” On the assumption that a rail service continuation subsidy will be paid or payable pursuant to the aforesaid act, all of that property which is “railroad real property” as defined in subdivision 3 of section 489-bb is exempt from taxation.
Subdivision 3 defines “railroad real property:”
[T]he land, real estate and real property...of a railroad company, which is used by such railroad company for transportation purposes and which is subject to real property taxation except as provided in this title, and includes...such property used for transportation purposes by such railroad company under a trackage right or other operating agreement, title to which is in other than a railroad company as defined in subdivision two of this section and subdivision two of section four hundred eighty-nine-b of this chapter.... (emphasis supplied)
The foregoing language indicates that real property which is used for importation purposes by a railroad company under an operating agreement railroad real property even though title is in a nonrailroad company.
According to section 489-bb(2) a “railroad company” is a corporation “operating a railroad system both within and without the State of New York as a common carrier by rail, including...any corporation created under or in compliance with...the regional rail reorganization act of nineteen hundred twenty-three ” (emphasis supplied). Conrail is a corporation created by the Regional Rail Reorganization Act of 1973 (45 U.S.C. §701 et seq.) operating an interstate railroad system as a common carrier by rail. Thus the right of way or any portion thereof which is “used for transportation purposes... under a trackage right or other operating agreement” is wholly exempt from taxation as “subsidized railroad real property” even though title to the property is not held by a railroad company.
The second question relates to the assessment procedure if only a portion of a right of way is “used for transportation purposes...under a trackage right or other operating agreement,” and therefore entitled to exempt status.
Conrail’s operating agreement with Penn Central is subject to Penn Central’s rights and property interests. Under the deed, the Penn Central easement extends only to the width of the railroad tracks and lateral clearance adequate for railroad operation, which the parties have agreed is twenty feet. In addition, title to all improvements is in Penn Central. Any improvements installed and owned by the utility, e.g., power transmission lines, are excluded.
Where a portion of a parcel is exempt, the Court of Appeals has held that the law does not “require the assessors to describe by metes and bounds or other physical factors the portion which is exempt and the portion which is taxable” (Sailors’ Sung Harbor in New York v. Tax Commission, 26 N.Y.2d 444, 448, 295 N.E.2d 910, 311 N.Y.S.2d 486, 489). However, prior case law of the Court of Appeals suggests that land and improvements may be separately assessed (Fort Hamilton Manor Inc. v. Boyland, 4 N.Y.2d 192, 149 N.E.2d 856, 173 N.Y.S 2d 560; Hudson River Day Line v. Franck, 257 N.Y. 69, 177 N.E. 312), and by a statute can be required to be separately assessed (see, e.g., Real Property Tax Law, §102(12)(g), noted in New York Mobile Homes Association v. Steckel, 9 N.Y.2d 533, 540, 175 N.E.2d 151, 215 N.Y.S.2d 487, 492). In these cases the separate assessments were made where the land was exempt and improvements taxable or vice versa.
Although, on the authority of the above cited cases, it is our opinion that an assessor in his discretion may separately assess the exempt portion of the right of way, we believe applicable statutory law requires its separate assessment.
The Real Property Tax Law, section 489-cc, subdivision (2) directs the following:
Railroad real property shall be separately assessed from real property of railroad companies not used for transportation purposes, and subsidized railroad real property shall be separately assessed from all other railroad real property. The state board and railroad companies upon request shall furnish the assessor information and data relating to the classification of the real property of railroads as transportation and nontransportation property and to the identification of subsidized railroad real property, (emphasis added)
This language requires the separate assessment of railroad real property from the utility’s real property. To interpret the provisions as permitting an assessor to assess the property of both parties as a single parcel, with the assessed value of the subsidized railroad real property indicated on the exempt portion of the roll would have undesirable and illogical results. Not only would the enforcement of delinquent taxes be complicated by the bankruptcy of the Penn Central, but should the Penn Central property ever be partially exempt and subject to a railroad ceiling, a portion of a parcel would have to be assessed by the local assessor and a portion by the State Board.
It should not be administratively difficult to assess separately the subsidized railroad real property from the remainder of the parcel. This type of separate assessment is not unknown, as where a stratum of minerals in place is separately assessed from the remainder of the property or where a building is separately assessed from the land.
January 24, 1978