Volume 6 - Opinions of Counsel SBEA No. 33
Nonprofit organizations exemption (charitable) (religious) (apartment complex for aged) - Real Property Tax Law, § 420:
A corporation affiliated with a recognized religion and organized to provide housing for aged persons is not a religious endeavor qualifying for exemption pursuant to section 420 of the Real Property Tax Law. Similarly unless the organization can be shown to be benefiting people in need, it does not qualify as a charitable organization. This is true even though the housing project it owns may be organized on a nonprofit basis and, in fact, operates at a loss.
Our opinion has been requested concerning the taxable status of a proposed geriatric campus to be built by an organization incorporated under section 803 of the Not-For-Profit Corporation Law.
As stated in its certificate of incorporation, the purposes and objects of this corporation are, in pertinent part, as follows:
A. To solicit, collect, raise and receive money, funds and real and personal property for charitable, philanthropic and benevolent purposes, more particularly for the aged; to hold, invest, use, convert, expand, contribute, disburse and otherwise handle and dispose of same, and the income therefrom, for such purposes.
C. To establish and maintain a Home for Aged and Retired persons and to provide for their social, religious, educational and physical welfare and for such purposes to acquire, hold and maintain real and personal property.
The proposed facility will consist of 126 independent living apartments for the aged. The various living accommodations to be available range from a small efficiency apartment to a two bedroom - two bath apartment with den. Each apartment is to have a fully equipped kitchen. There are also common areas with fully equipped craft and woodworking facilities.
The monthly charge for this independent living program has two components, (1) the unendowed costs of the special services provided for the resident and (2) the amortization of the $4,000,000 mortgage (the unendowed portion of the construction costs). With the exception of a small variation attributed to the cost of utilities, which would vary according to size of apartment selected, the service portion of the monthly charge would be the same for each apartment. These services include all utilities; maintenance and repair of the buildings; grounds and appliances; group and individual transportation; participation in a program of planned social activities; free laundry facilities; and 24 hour security via a call button in each room connected to a central security station staffed 24 hours per day. The service portion of the monthly charge ranges from $180 for the smallest apartment to $200 for the largest. In addition to the services automatically provided, residents of this independent living program, will be able to purchase one or more meals on a per meal or monthly arrangement and may also purchase housekeeping and laundry services on a cost related basis.
The resident may choose to pay the amortization portion of the charge either in advance or as part of the monthly payment. The portion of the monthly charge for mortgage amortization represents the costs of that portion of the 9% mortgage relative to the independent living buildings. The mortgage amortization portion of the monthly charge ranges from $95 for the smallest apartment to $380 for the largest. If the resident chooses to pay the mortgage amortization portion of the charge on a monthly basis, he may do so over a 15-year period. After this 15-year period, he will only pay the service part of the monthly charge. It should be noted that this part of the charge is attributable to far more than the unendowed portion of the apartment itself, and includes the 30,000 sq. ft. of the common areas throughout the buildings.
Although a resident of an independent living apartment will be required to the unendowed portion of the service part of the monthly charge on a monthly basis, he will be able to choose between two payment plans in paying the mortgage amortization portion of the monthly charge. He may pay it on a straight monthly basis, or he may pay it in advance, which would enable him to have to pay only the service costs each month. The advanced payment plan would involve a resident paying an amount ranging from $10,000 for the smallest apartment to $37,500 for the largest. Residents who choose to pay the amortization part of their monthly charge in advance will receive a refund amortized over a 10-year period if they should desire to relocate, or if they should become ill and require nursing care. If the resident should die, a refund is to be paid to his estate.
The organization seeking exemption has stated that residents who can afford to pay the unendowed monthly charge are expected to do so. The religious organization with which it is affiliated will finance approximately 10 older people (that is, 10 out of a total of 126 apartments).
A five year financial summary of operation of the organization, which operates several existing facilities, was also submitted. It shows that prior to the inclusion of depreciation, there was a net gain in the operation of the organization during the previous five year period. Only when depreciation is included as an operating expense does a deficit arise. While taking depreciation is an accepted accounting procedure, it is not reflective of an actual cash loss incurred by the organization.
The applicant organization is seeking exemption pursuant to Real Property Tax Law, section 420, which exempts from taxation real property owned by nonprofit organizations organized exclusively for religious, charitable, and educational purposes (among others) when the property is used exclusively for exempt purposes (see, 6 Op.Counsel SBEA No. 24 for a discussion of the requirements of §420). The only two purposes under which the applicant seemingly could seek exemption are religious or charitable.
Under very limited circumstances, the exemption granted religious institutions has been extended beyond the actual house of worship. For example, it is well established that the use of a portion of an otherwise exempt building as a residence for an engineer, janitor or servant, who is employed on the premises, and whose services are essential to the maintenance of the institution, does not violate the statutory “exclusive use” requirement (see, 2 Op.Counsel SBEA No. 19).
However, other than for this necessary use of part of the premises by a servant or other church personnel, prevailing case law holds that any portion of property which is used for residential purposes is not being used for religious purposes (People ex rel. Hutchinson v. O’Brien, 53 Hun 580, 6 N.Y.S. 682; People ex rel. St. Mary v. Feitner, 168 N.Y. 494, 61 N.E.762; Congregation Gedulath Mordecai v. City of New York, 135 Misc. 823, 238 N.Y.S. 525; cf., Matter of Mandelcorn v. Bruckman, 266 App. Div. 908, 42 N.Y.S.2d 716, aff’d, 292 N.Y. 543, 54 N.E.2d 385; and Interstate Lien Corp. v. St. Paul’s African Methodist Episcopal Zion Church, 275 App. Div. 993, 91 N.Y.S.2d 228). Given these cases, it does not appear that the organization in question is organized exclusively for religious purposes.
The second possibility is that the organization is organized and conducted exclusively for charitable purposes. The threshold inquiry in this regard is the definition of charitable as this term is used in section 420 of the Real Property Tax Law.
The operation of a housing project for the aged is not per se a charitable purpose. If this were so, the provision of Real Property Tax Law, section 422, which grants a tax exemption to the property of certain nonprofit regulated companies (limited-profit housing companies and housing development fund companies) used to provide housing for the aged of low income would have been unnecessary (see, Educational Alliance and Alliance Holdings v. Wagner, 28 App. Div.2d 832, 282 N.Y.S.2d 923; 1 Op.Counsel SBEA No. 55).
In Educational Alliance, the plaintiff was financed by a loan from the Federal Housing and Home Finance Agency and had organized a corporation to provide housing for aged persons. The real estate involved consisted of a residential apartment building for aged persons, but was not limited to aged persons who were in need (see, Appellant’s Brief in that case, p.4). It was claimed that this qualified plaintiff for an exemption pursuant to Real Property Tax Law, section 420. The City of New York pleaded affirmatively that the property did not so-qualify and that Real Property Tax Law, section 422, which specifically related to housing, provided the sole basis for exemption. The City’s position was sustained by denial of the motion to strike the defense.
Moreover, in two later cases, New York courts have further reviewed this issue and have come to the same conclusion. First, Matter of 141 Parkhill Corp., 173 N.Y.L.J. (No. 48), p. 16 (3/12/75), was an Article 78 proceeding to review and annul respondent’s determination denying petitioner exempt status and for a judgment declaring that petitioner was an exempt organization pursuant to Real Property Tax Law, section 420. The court found that while many of the tenants of Parkhill were low income, and in effect, many of the low income families received public assistance, the uppermost income breakdown was as follows: 102 families (29.65%) with incomes ranging from $8,001 to $10,000, 15 families (4.35%) with incomes $10,001 to $12,000, and five families (1.45%) with incomes $12,001 to $16,000. Moreover, there was a vacancy factor of 10% and security deposits were required of some families.
Parkhill Corp. provided many social and charitable programs to its residents and the community, including youth oriented programs to combat juvenile delinquency, adult educational programs, adult counseling, provision of space (or a psychiatric center, a free recreational program sponsored in conjunction with the Youth Services Agency of New York City, and a free day care center funded by the New York City Agency of Child Development.
Petitioner claimed that the project was closely affiliated with the American Baptist Mission Society and the American Baptist Management Corporation, both of which are affiliated with the American Baptist Church, a major Protestant denomination in the United States. In rejecting the contention that Parkhill Corp. was entitled to an exemption pursuant to Real Property Tax Law, section 420, the court stated:
While many of the petitioners’ social oriented and charitable activities are commendable and may be considered to be of an educational or charitable nature, it cannot be said that it was organized and is being operated solely and exclusively for purposes which under the statute would entitle it to exemption...These activities are peripheral only to the petitioner’s primary and exclusive purpose for which it was organized, that is, providing housing for low and moderate income families. While petitioner does rent a large number of rental units to families of low income, a number of which require public assistance, it also provides housing to a substantial number of families with moderate income who are not objects of charity.
The court finds that the inclusion among petitioner’s tenants of a substantial number of families not in need disqualifies petitioner’s property from tax exemption under the statute (RPTL, section 421).
It should be noted that the Legislature has enacted specific statutes to provide for housing and for organization, control and regulation of housing corporations (see RPTL, section 414: Private Housing Finance Law, article II).
The Private Housing Finance Law covers every phase of privately owned housing. It was created by the Legislature and intended to pre-empt all situations involving such housing, including the grant of exemptions (see PHFL, section 33, as to exemption of real property from local and municipal taxes). (emphasis supplied)
In the second case, Matter of Bedford-Stuyvesant Restoration Corp., 1721 N.Y.L.J. (No. 23), p. 11, 8/1/74, aff’d, 50 App. Div.2d 815,376 N.Y.S.2d 912), a redevelopment corporation sought exemption under section 420. In holding that the Restoration Corp. was not organized exclusively for exempt purposes per section 420 the court stated:
Moreover, petitioners are unable to counter respondents’ contention that the Legislature never intended that housing per se be included under RPTL 421 because of the many instances of specific legislation for redevelopment rehabilitation. In these special statutes providing for certain tax exemptions and other tax benefits there is provision for control over rents, control of locations, kinds of construction, financing, etc. Is it not logical that a municipality, prior to granting partial or total tax exemption for housing purposes require a certain amount of control to determine where such redevelopment and rehabilitation is required and where new housing projects are to be located?
It seems fundamental to this court that if an exemption is going to be granted on the grounds that there is a public benefit to this kind of redevelopment activity, then the local government would want to set forth certain statutory requirements which would be in the public interest. There are many examples of such statutes: In the RPTL there exists section 422, which sets forth the requirements for “Not-For-Profit housing companies.” Section 489 of the RPTL provides for certain exemptions where alterations and improvements to multiple [sic] dwellings to eliminate fire and health hazards are made. In addition to the RPTL there are several articles in the Private Housing Finance Law (PHFL), namely, article 5, dealing with Redevelopment Companies; article 6, dealing with Urban Redevelopment Corporations; article 6-A, known as the Community Development Corporations Act. These articles in the PHFL contain very detailed conditions under which companies that redevelop, rehabilitate or reconstruct housing in the City of New York are amply rewarded taxwise by the city. Further provisions exist in articles 15 and 15-A of the General Municipal Law known as the Urban Renewal Law.
Under each of these articles there is specific reference to a particular statute under which real property, which meets the conditions, is either partially or totally tax exempt. It would almost appear to frustrate the intent of the legislature if the kind of housing rehabilitation engaged in by petitioners at bar, which apparently could be brought under one or more of the existing statutes under which such activities would be regulated and controlled by the City of New York, be permitted to have tax exempt status, even though there is no regulation whatever by the city. (emphasis supplied)
Finally, a decision of the Court of Appeals clearly indicates that the provisions of housing is no exception to the requirement that an activity benefit persons in need in order to qualify as a charitable endeavor for the purposes of section 420. In Matter of Valeria Home v. Cook, 22 N.Y.2d 388, 239 N.E.2d 631, 292 N.Y.S.2d 882, the petitioner operated a home on a nonprofit basis. The Court noted that the home was operated “principally and primarily as a recreation establishment and the convalescent aspect of it has been quite incidental. The home provides recreation for some 6,000 educated and refined middle class persons a year.” In view of the nature of the establishment, the Court held that the manner in which the home was run did not bring it within the generally understood definition of a charitable and benevolent institution.
We are aware and take note of several older cases which held in favor of requests for exemption pursuant to section 420 for housing facilities. However, in each case a charitable purpose was found where housing was operated at a loss to provide shelter for indigent persons. (Fred L. Lavenberg Foundation v. City of New York, 87 N.Y.L.J. (No. 47), p. 1080 (2/27/32); American-Russian Aid v. City of Glen Cove, 4l Misc.2d 622,246 N.Y.S.2d 123, aff’d, 23 App. Div. 966, 260 N.Y.S.2d 589). We believe that these cases are clearly distinguishable in accordance with the court’s comment in the American-Russian Aid Association case:
The purposes of the association were to help people of Russian descent who were in distress, to establish and maintain a home for worthy and indigent aged men and women and to operate same, together with general religious objectives (246 N.Y.S.2d 123, 125).
We also note an older case, Webster Apartments v. City of New York, 118 Misc. 91, 193 N.Y.S. 650, aff’d w/o, 206 App. Div. 749, 200 N.Y.S. 956, which involved a corporation which was formed to carry out a testamentary provision creating a trust fund for the erection of an apartment house to provide unmarried women with “homes and wholesome food at a small cost to them and in deserving cases without cost to them” (118 Misc. 91, 92). The operation of Webster Apartments was as a home, analogous to the residences owned and operated by the Y.M.C.A. and Y.W.C.A., as compared to, and contrasted with, ordinary housing. The apartments were held to qualify as charitable in light of its provision for operation below cost. We believe the holding in this case should be limited to its facts in light of the nature of the apartments and, more significantly, subsequent legislative activity in the area of exempt housing projects, discussed in the 141 Parkhill Corp. and Bedford-Stuyvesant cases, supra.
A fundamental precept of law is that when special statutes are enacted they are intended to pre-empt the special situations to which they apply. When a special statute is enacted later than a general one, even if the general one might have been construed as applicable, the intent that the special statute alone governs is even clearer. As the Court of Appeals stated in Matter of Murray Hill Bank, 153 N.Y. 199, 47 N.E. 298:
Thus, a learned author says, that the later statute “is regarded as modifying the earlier in some particular respect, or taking certain things out of its operation.” (Endlich’s Interpretation of Statutes, §125.) “If there are two act,” he continues, “or two provisions in the same act, of which one is special and particular and clearly includes the matter in controversy, whilst the other is general and would, if standing alone, include it also, and if, reading the general provision side by side with the particular one, the inclusion of that matter in the former would produce a conflict between it and the special provision - it must be taken the latter was designed as an exception to the general provision, as where an incorporation law contains provisions regulating the bringing of actions against corporations created under it, at variance with earlier provisions upon the subject of suits against corporations generally” (153 N.Y. 199, 216). The courts in the 141 Parkhill Corp. and Bedford-Stuyvesant cases, supra, concluded that the Legislature had pre-empted all situations involving housing, including the granting of exemptions. The same result was also reached in Educational Alliance and Alliance Holding, Inc., supra. It should also be emphasized that all of the articles in the Private Housing Finance Law, which provide tax exemptions for housing, also provide income limitations for tenants.
The question of the taxable status of real property in this case involves housing for aged persons. The Legislature has provided specifically for such housing projects in the sections of the Real Property Tax Law, Private Housing Finance Law, General Municipal Law and the Not-For-Profit Corporation Law referred to in the cases above. These statutes make clear the rationale for the special treatment these projects receive. They provide for local control over the location, rents and construction financing, without which the local government would be powerless to determine when and where such projects should be located, and when and to what extent exemption from real property taxes can be justified.
In view of the foregoing, we conclude that a corporation organized to provide housing for aged persons, without a showing of benefit to people in need,, is not a charitable endeavor pursuant to Real Property Tax Law, section 420. This remains true even though the project may be organized on a nonprofit basis and, in fact, operates at a loss.
March 9, 1978