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Volume 9 - Opinions of Counsel SBEA No. 21

Opinions of Counsel index

Business investment exemption (local option) (reduction of percentage) (effect of L.1985, c.512) - Real Property Tax Law, § 485-b:

Pursuant to subdivision 7 of section 485-b of the Real Property Tax Law, a project in the course of construction is not subject to a municipal reduction in the percentage of exemption. Construction has commenced once foreign matters, such as concrete or steel superstructures, have been introduced into the soil.

Subdivision seven of section 485-b of the Real Property Tax Law, provides:

A county, city, town or village may, by local law, and a school district, except a city school district to which article fifty-two of the education law applies, may, by resolution, reduce the per centum of exemption otherwise allowed pursuant to this section; provided, however, that a project in course of construction and exemptions existing prior in time to passage of any such local law or resolution shall not be subject to any such reduction so effected. (emphasis added)

The emphasized language was added by chapter 512 of the Laws of 1985.

An analysis of several judicial decisions will help to explain why subdivision seven was amended to read as it now provides. In Newsday, Inc. v. Town of Huntington, 55 N.Y.2d 272, 434 N.E.2d 226, 449 N.Y.S.2d 157 (1982), the Court of Appeals held that a school district’s resolution opting out of the exemption did not apply to Newsday’s plant. While not deeming it necessary to address, the Court nevertheless noted Newsday’s argument that its “plant was entitled to an exemption because it had been built, at a cost of millions of dollars, in reliance upon the availability of the partial exemptions” (55 N.Y.2d at 276, 449 N.Y.S.2d at 158).

In Fiato v. Town of Guilderland, 91 A.D.2d 799, 458 N.Y.S.2d 61 (3d Dept., 1982), aff’d, 59 N.Y.2d 902, 453 N.E.2d 547, 466 N.Y.S.2d 318 (1983), the Appellate Division held that a restaurant did not qualify for town and school district exemptions because those municipalities had both opted out prior to the date the property owner filed an application for the exemption. The court concluded that the property owner’s argument “that the availability of the subject exemption was an inducement and that they constructed the restaurant in reliance upon that availability” was unsubstantiated (458 N.Y.S.2d at 63).

The sponsor’s memorandum in support of the bill, a State Board proposal, later enacted as chapter 512 of the Laws of 1985, states, in part:

It is also proposed that...eligibility be established for property in the course of construction where a local law or resolution is adopted eliminating the exemption. Under present law,...should a municipality elect to eliminate the exemption, the eligibility of projects in the course of construction becomes unclear. *** [A]llowing eligibility to a project in the course of construction notwithstanding the adoption of a local law or resolution eliminating the exemption would codify the holding in Newsday... [citation omitted] (1985 New York State Legislative Annual 204).

In our opinion, the protection against nullification of exemption for property in the course of construction was to benefit the property owner who was induced to build or improve his or her property based on the exemption’s availability. While the phrase “in course of construction” is not defined in the law, we believe that an assessor should review the extent of the property owner’s commitment as of the date the exemption is reduced or eliminated. For example, mere discussions of a planned improvement would probably not qualify as course of construction, while the erection of a skeletal frame probably would. The determination of status somewhere between these two extremes may be a difficult decision.

While the courts have not yet interpreted the phrase for purposes of section 485-b, the Court of Appeals did interpret the same phrase for purposes of former section 157-1.0 of the New York City Administrative Code [now , §11-209] which determined the taxable status of partially completed buildings. {*}  The Court of Appeals determined that a parcel was “under construction” when concrete was poured (Sutton-53rd Corp. v. Tax Commission of the City of New York, 7 N.Y.2d 416, 165 N.E.2d 866, 198 N.Y.S.2d 298 (1960)). The Court referred to an earlier decision in which it adopted the view that:

[E]xcavation of a site, without more, did not constitute the commencement of construction within the meaning of the statute. A line of division, for purposes of tax exemption, was drawn between the mere digging or excavation of the soil or rock and the introduction and use for construction purposes of materials foreign to the soil which eventually become a part of the completed improvement (7 N.Y.2d at 420,198 N.Y.S.2d at 301 [citing People ex rel. New York Cent. &. H.R.R. Co. v. Purdy, 167 App. Div. 637,153 N.Y.S. 300 (1st Dept., 1915), reversed, 216 N.Y. 704, 111 N.E. 1097 (1915) per opinion of Scott, J]).

While these decisions do not construe section 485-b and, indeed, were decided long before that statute was enacted, the interpretation of the same phrase by the State’s highest Court, albeit in construing another statute, would likely be considered by any court faced with interpreting section 485-b(7). Accordingly, we believe that an assessor may conclude that construction has commenced upon the introduction into the soil of foreign matters such as concrete or steel superstructure.

November 19,1987

NOTE: In Black River Limited Partnership v. Astafan, 185 A.D.2d 687,586 N.Y.S.2d 63 (4th Dept., 1992), the Appellate Division, Fourth Department, held that a property qualified for the exemption, where, prior to the town opting out of the exemption, the owner “performed substantial site preparation work, including soil testing, the marking of site boundaries and grades, the removal of numerous tree stumps, the stockpiling of fill material, the use of fill to repair and level various natural sinkholes, and the construction of a dirt roadway onto the site” (586 N.Y.S.2d at 64).


{*}  Former section 157-1.0, provided in relevant part, “A building in course of construction, commenced since the preceding January [25] and not ready for occupancy on...January [25] following, shall not be assessed unless it...shall be occupied prior to [the following April 15].” The January 25 date of former section 157-1.0 has been changed to January 5 (section 11-209 of the New York City Administrative Code).

Updated: