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Volume 9 - Opinions of Counsel SBEA No. 42

Opinions of Counsel index

Real property, definition of (cogeneration unit) - Real Property Tax Law, § 102(12)(f):

A cogeneration unit, which is power generating apparatus, is taxable real property, even if it is movable.

At issue is the taxable status of a “cogeneration unit”, which consists of a gas fired turbine engine and a generator. The apparatus uses natural gas to produce electricity.

All real property in New York State is subject to taxation unless specifically exempted by law (Real Property Tax Law [RPTL], §300). “Real property” is defined for this purpose in subdivision 12 of section 102 of the RPTL Paragraph (f) of that subdivision provides that “real property” includes:

(f) Boilers, ventilating apparatus, elevators, plumbing, heating, lighting and power generating apparatus, shafting other than counter-shafting and equipment for the distribution of heat, light, power, gases and liquids, but shall not include movable machinery or equipment consisting of structures or erections to the operation of which machinery is essential, owned by a corporation taxable under article nine-a of the tax law, used for trade or manufacture and not essential for the support of the building, structure or super-structure, and removable without material injury thereto....

Accordingly, the paragraph provides both a definition of “real property” and also an exemption from real property taxation.

The exemption part of section 102(12)(f) applies to certain “movable machinery or equipment” of corporations liable for a franchise tax pursuant to Article 9-A of the Tax Law (a “9-A corporation”). It is relevant here because, in order to be exempt, the cogeneration unit must satisfy the standards for exemption set forth in the latter half of section 102(12)(f).

Note, however, that if the cogeneration unit falls within the definition half of section 102(12)(f), it is not exempt. This is the rule of law set down in a decision of the Court of Appeals in 1965 (City of Lackawanna v. SBEA, 16 N.Y.2d 222, 212 N.E.2d 42, 264 N.Y.S.2d 528; see also, 6 Op.Counsel SBEA No. 121). Nevertheless, it has been suggested that the decision in Honeoye Storage Corp. v. Board of Assessors, 77 A.D.2d 468, 433 N.Y.S.2d 943 (4th Dept. 1980), mot. lv. app. den., 53 N.Y.2d 601, 438 N.Y.S. 2d 1026 (1981), {1} supports the proposition that, if equipment is used solely for use in a corporation’s business and not for general energy consumption to make the plant facility functional, it is not encompassed by the definition of real property in section 102(12)(f). Although we agree that the Honeoye case might be so construed, we disagree that it has such broad implications, and we respectfully suggest that the Appellate Division in that case clearly misinterpreted the decision of the Court of Appeals in the City of Lackawanna case.

In Lackawanna, one of the many issues before the Court was whether movable pipes, pumps and electrical and steam properties used in the processing business should be exempt as 9-A movable equipment. The argument advanced by the petitioners was that only power generating equipment common to all manufacturing facilities (i.e., necessary “to make the plant facility functional” in the words of the property owner) was taxable real property under section 102(12)(f). The Court of Appeals summarily rejected this argument: “[o]n the record before us, the items *** appear to fall within the taxable category of ‘equipment for the distribution of heat, light, power, gases and liquids’” (16 N.Y.2d at 231, 264 N.Y.S.2d at 533). In short, the Court did not read the section 102(12)(f) definition as distinguishing between power generating apparatus, unique to a particular manufacturing process, and such facilities common to all manufacturing operations.

Since neither the Legislature nor the Court of Appeals {2} has acted to contradict the opinion in the City of Lackawanna case, that opinion remains binding precedent. The Appellate Division, in affirming the trial court decision in Honeoye Storage, seems to agree with this assertion since it favorably cites the Lackawanna case for all of its holdings. However, we must respectfully disagree with one of these citations.

In interpreting paragraph (f), the Appellate Division in Honeoye Storage appears to have once again drawn a distinction between building-related items and process-related items:

This portion of the statute included within the definition of real property “equipment for the distribution of heat, light, power, gases and liquids” encompasses only such facilities as would be common to all manufacturing structures, such as the usual plumbing, sewage and heating facilities, and not those present due to the particular manufacturing process involved [citing] (Matter of City of Lackawanna v. State Board of Equalization and Assessment of State of N.Y., 21 A.D.2d 318, 250 N.Y.S.2d 369, mod. on other grounds, 16 N.Y.2d 222, 264 N.Y.S.2d 528, 221 N.E.2d 42). Inclusion in the definition of real property should depend on whether the equipment is so inextricably attached to real property as to become a part thereof, not on the title of the business it is used in (Honeoye Storage Corp. v. Board of Assessors, 433 N.Y.S.2d at 945-46 [emphasis added]).

The explanatory phrase, “mod[ified] on other grounds”, following the citation, “250 N.Y.S.2d 369”, in the quoted portion of this Appellate Division opinion was a key element in the Court’s decision. However, the Appellate Division decision in the City of Lackawanna case was not modified “on other grounds” as suggested above. Rather, it was on this very point - i.e., the purported distinction between “distribution equipment” common to all manufacturing structures and that unique to the particular manufacturing process-that the Court of Appeals modified the Third Department’s opinion (see, 16 N.Y.2d at 231, 264 N.Y.S.2d at 535).

Therefore, it is our conclusion that the Honeoye Storage case is limited to its particular set of facts and offers little precedential value given the Court of Appeals’ statements in City of Lackawanna.

Accordingly, in our opinion, if the cogeneration unit is “power generating apparatus”, it is taxable real property, even if movable.

December 4, 1990


{1}  Note that denial of leave to appeal is not equivalent to an affirmance and has no precedential value (Matter of Marchant v. Mead-Morrison Manufacturing Co., 252 N.Y. 284, 169 N.E. 386 (1929); Dobbs Ferry Union Free School District v. Dobbs Ferry United Teachers, 51 N.Y.2d 861, 414 N.E.2d 398, 433 N.Y.S.2d 1018 (1980); Brownstone Publishers, Inc. v. N.Y.C. Department of Finance, 75 N.Y.2d 791, 551 N.E.2d 585, 552 N.Y.S.2d 92 (1990)).

{2}  We do not interpret the Court of Appeals’ denial of the motion for leave to appeal in Honeoye as reversal of its earlier opinion in City of Lackawanna. Indeed, in our opinion, Honeoye Storage may be distinguishable from City of Lackawanna. In the papers which accompanied the motion for leave to appeal in Honeoye Storage, the brief for the company made the following point (p.3):

Appellant cites two cases to show the conflict it alleges ***. There is no conflict.

In Matter of City of Lackawanna vs. Board of Equalization and Assessment, 16 N.Y.2d 222, the pumps and piping were for gas consumed at the Bethlehem Steel plant for heating purposes, operation of blast furnaces and generation of electric power. The gas for which respondent’s machines and equipment are used is not consumed at respondent’s plant (emphasis added).

It may be that the Court’s denial of the motion for leave to appeal in Honeoye Storage was premised upon the distinction between gas consumed by the 9-A corporation and gas stored for eventual distribution by other corporations. However, this is speculation and we are obligated to advise that assessors are bound by the pronouncements of the Court of Appeals until that Court reverses itself, or the State Legislature, subject to Constitutional limitations, enacts a statutory amendment to overrule the Court’s opinion.

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