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Volume 9 - Opinions of Counsel SBEA No. 8

Opinions of Counsel index

Special assessing units (classification of real property) (utility property) – Real Property Tax Law, §§ 1801, 1802:

As of January 1, 1990, land and buildings owned by a utility are no longer classified as class three (i.e., utility real property, but rather as class four (i.e., regular commercial property).

We have been asked to clarify the property classification of real property in special assessing units (i.e., New York City and Nassau County) pursuant to section 1802(1) of the Real Property Tax Law (RPTL). Specifically, we are asked whether an office building owned by a utility company and leased to a private, non-utility business, should be classified as class three (i.e., utility real property – RPTL, §§1802(1) and 1801(c), 9 NYCRR 190-3.1(e)(3), (j)) or as class four (i.e., regular commercial property – RPTL, §1802(1), 9 NYCRR 190-3.1(e)(4)).

The office building in question was at one time the executive offices of a utility company. However, the utility moved from the premises on March 16, 1985, and the building remained vacant until August 1, 1987, when it was leased to a private, non-utility business for office space.

Prior to January 1,1990, utility real property is defined in RPTL, §1801(c) as “real property, including special franchises...used in the generation, storage, transmission, distribution or sale of gas, electricity, steam, water...delivered through mains, pipes, cables, lines or wires” (emphasis added). This definition requires a specified use of property, not mere ownership.

Given the utility’s use of the property as an office building prior to March 16,1985, it was properly classified as utility real property, i.e., real property used in the distribution or sale of gas, electricity.... However, once the utility vacated the office building on March 16,1985 and was no longer using it for any business purpose, it should no longer have been classified as utility real property. The office building was then class four, regular commercial property (RPTL, §1802(1)). The utility’s subsequent lease of the property to a private, non-utility business would not result in a need for further reclassification because the property failed to satisfy the statutory “use” requirement for class three property once the utility vacated.

Pursuant to section 2 of chapter 143 of the Laws of 1989, effective January 1,1990, and applicable to assessment rolls prepared pursuant to a taxable status date occurring on or after such date, utility real property is defined in RPTL, §1801(c) as “real property, including special franchises...used in the generation, storage, transmission, distribution or sale of gas, electricity, steam, water...delivered through mains, pipes, cables, lines or wires, provided, however, that utility real property shall not include the types of real property, property or land described in [RPTL, §102(12) (a) or (b)] owned by such persons or corporations” (new language underlined).

RPTL, §102(12)(a) and (b) define “real property”, “property” or “land” to include the “land itself, above and under water, including trees and undergrowth thereon...” and “buildings and other articles and structures, substructures and superstructures erected thereon, under or above the land, or affixed thereto....” Therefore, as of January 1,1990, land and buildings owned by a utility, such as office buildings, are no longer classified as “utility real property” pursuant to RPTL, §1801(c) (as amended by L.1989, c.143), whether or not they are used in the generation, storage, transmission, distribution or sale of gas, electricity, steam, or water.

Lastly, we note that chapter 544 of the Laws of 1989 made certain technical corrections to chapter 143 of the Laws of 1989, including a direction to the Public Service Commission to provide that any net decrease in a utility corporation’s real property tax expense resulting from the provisions of chapter 143, which classifies its property the same as other nonresidential property in a special assessing unit (i.e., class 4), must inure to the benefit of the ratepayers of such utility.

September 13, 1989

Updated: