THE ROOFTOPS CONFERENCE NEW YORK New York Real Estate Tax Exemption for Not-for-Profit Organizations. Glenn Newman and Ellen E.

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1 THE ROOFTOPS CONFERENCE NEW YORK 2013 New York Real Estate Tax Exemption for Not-for-Profit Organizations Glenn Newman and Ellen E. Hoffman History 1 Real property owned by religious, charitable and educational institutions and used by them for such purposes has been exempted from tax in New York by law as early as Such exemptions are deemed of such importance to the general welfare that they are protected by the New York State Constitution: Exemptions from taxation may be granted only by general laws. Exemptions may be altered or repealed except those exempting real or personal property used exclusively for religious, educational and charitable purposes as defined by law and owned by any corporation or association organized or conducted exclusively for one or more of such purposes and not operating for profit. Constitution, Art. XVI, 1. Over the years the public policy pendulum has swung between broadening and narrowing the class of not-for-profit organizations eligible for exemption. Prior to 1971, New York State law exempted from real property tax not only religious, charitable and educational organizations but also organizations conducted for the following purposes: hospital, moral or mental improvement, bible, tract, benevolent, missionary, infirmary, public playground, scientific, literary, bar association, medical society, library, patriotic, historical, development of good sportsmanship, and enforcement of laws relating to cruelty toward children and animals. Chapter of the Laws of 1971 radically altered the existing exemption structure by dividing the types of eligible not-for-profit organizations into two classes. New York Real Property Tax Law (RPTL) 420-a mandates exemption for real property owned by: a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for... one or more such purposes either by the 1 We thank Judith R. Greenwald, Esq., of the New York City Tax Commission for preparing this section of the outline.

2 owning corporation or association or by another such corporation or association.... However, RPTL 420-b permits local governments to choose whether to exempt property owned and used by: a corporation or association... organized exclusively for bible, tract, benevolent, missionary, infirmary, public playground, scientific, literary, bar association, medical society, library, patriotic or historical purposes, for the development of good sportsmanship for persons under the age of eighteen years through the conduct of supervised athletic games, for the enforcement of laws relating to children and animals, or for two or more such purposes, and used exclusively for... one or more such purposes either by the owning corporation or association, or by another such corporation or association.... Initially, the City of New York along with many other municipalities opted to tax the latter category of not-for-profit organizations described in RPTL 420-b. This prompted litigation by formerly exempt organizations claiming they fell within the mandatory class of entities exempted under RPTL 420-a rather than the newly taxable class under RPTL 420-b. In 1984 the New York City Council enacted Admin. Code , which once again exempted real property owned by most of the entities described in RPTL 420-b except for property owned by bar associations and medical societies. 1. Basics of Qualification for Exemption a. Property Must be Owned by Not-for-Profit Organization. b. Organizational/Operational Test. The organization has to be organized OR conducted for one or more of the purposes prescribed by RPTL 420-a or RPTL 420-b. c. Federal Tax Status. i. IRC 501(c)(3) exemption is no guarantee of New York Real Property Tax exemption. 1. The federal tax exemption does help establish that the organization is not formed or operated for profit. ii. Organizations exempt under other subsections of IRC 501(c) may have difficulty establishing that they fall within the exempt categories of the RPTL.

3 iii. A denial or revocation of a federal tax exemption may present a problem but is not always fatal. iv. IRC 501(c)(2) title holding companies merely holding property used by an eligible organization for an eligible exempt purpose generally will qualify. v. IRC 501(c)(2) title holding companies holding income-producing property and paying the income to an eligible exempt organization may not qualify. See Return Realty Corp. v Ranieri, 78 Misc2d 825 [Sup Ct, NY County 1974]. d. Use of Property. The real property has to be USED EXCLUSIVELY for one or more of the exempt purposes prescribed by RPTL 420-a or RPTL 420-b. i. Exclusively means primarily. Association of Bar of City of N.Y. v Lewisohn, 34 NY2d 143, 153 [1974]. ii. Property Used by Another Not-for-Profit. Property owned by an eligible not-for-profit organization but used by another eligible not-for-profit entity for an exempt purpose can qualify PROVIDED any rent paid must not exceed the amount of the carrying, maintenance and depreciation charges of the property.... RPTL 420-a 2. Sisters of St. Joseph v City of N.Y., 49 NY2d 429 [1980]. iii. Mortgage interest is included in the carrying costs for this purpose. e. Partial Exemption. Property used partly for an exempt purpose and partly for a non-qualifying purpose can qualify for a partial exemption. RPTL 420-a 2. See Trustees of Sailors Snug Harbor in City of N.Y. v Tax Commn. of City of N.Y., 26 NY2d 444 [1970]. i. A partial exemption may be determined based on the square footage of the portions of the property used for the eligible and ineligible purposes or using some other method of apportionment, e.g., capitalization of the income generated by the non-qualifying use. St. Francis Hosp. v Taber, 76 AD3d 635 [2d Dept 2010]; 3 Op Counsel SBEA No. 77 (1973). f. Vacant land or buildings. i. Vacant property can qualify for exemption if... the construction of [appropriate] buildings or improvements is in progress or is in good faith contemplated.... RPTL 420-a 3.

4 1. Regular use of otherwise vacant land for outdoor activities or vacant buildings for storage in anticipation of construction also can enable the property to qualify. See New Creation Fellowship of Buffalo v Board of Assessment Review, 289 AD2d 1067 [4th Dept 2001]. 2. Good faith contemplated use should be documented with directors meeting minutes, architect s plans, building permits or fundraising activities, for example. See Economic Opportunity Commn. of Nassau County v Village of Hempstead, 148 AD2d 570 [2d Dept 1989]. 3. If contemplated use of a vacant building would violate existing zoning laws, an exemption may not be granted. See Oxford Group-Moral Re- Armament, MRA, Inc. v Allen, 309 NY 744 [1955], Congregation Or Yosef v Town of Ramapo, 13 Misc3d 1214A [Sup Ct, Rockland County 2006] affd 48 AD3d 731 [2d Dept 2008]. But see Legion of Christ, Inc. v Town of Mount Pleasant, 1 NY3d 406 [2004]. 2. Specific Exempt Purposes a. Educational i. Early case law narrowly construed educational as requiring the development of faculties and powers and the expansion of knowledge by teaching, instruction or schooling. Swedenborg Found. v Lewisohn, 40 NY2d 87, 94 [1976]; Asia Socy, Inc. v Tax Commn. City of N.Y., 92 AD2d 781 [1st Dept 1983]. ii. Later cases expanded educational to include environmental and conservation purposes (Mohonk Trust v Board of Assessors of Town of Gardiner, 47 NY2d 476 [1979]) and providing free or low-cost performance and rehearsal space for struggling artists, theater and dance companies and schools among other activities. Symphony Space v Tishelman, 60 NY2d 33 [1983]. Later cases view educational activities in the context of the broader description of charitable, educational and the moral and mental improvement purposes. b. Religious i. Exemption of a church from the Real Property Tax is not an unconstitutional establishment of government-sanctioned religion. Walz v Tax Commn. City of N.Y., 397 US 664 (1970). ii. Exemption is not based on an evaluation of the dogma of the religious owner. See Holy Spirit Assn. for Unification of World Christianity v Tax Commn. City of N.Y., 55 NY2d 512 [1982].

5 iii. Activities ancillary to religious purpose, e.g., shops selling related gifts or books, cafes, classes or instruction, parking lots and catering facilities, may jeopardize the exemption in whole or in part. See 2 Op Counsel SBEA No. 35 (1972); 1 Op of Counsel SBEA No. 11 (1970). Occasional use as a venue for social events generally is not an issue. c. Residential 1. Ancillary activity furthering, or necessary or incidental to, the exempt activity may be considered exempt activity. See Shrine of Our Lady of Martyrs of Auriesville v Board of Assessors of Town of Glen, 40 AD2d 75 [3d Dept 1972] affd 33 NY2d 713 [1973]. 2. Courts have been more lenient in finding a related necessary or incidental use than the taxing authorities. 3. A partial exemption may be available for the portion of the property used for an exempt purpose. St. Francis Hosp. v Taber, 76 AD3d 635 [2d Dept 2010]. i. Qualifying Residential Uses. Housing is not expressly included in the exempt purposes under RPTL 420-a. But real property owned by an otherwise eligible not-for-profit entity and used to provide housing can qualify under certain circumstances: 1. Housing for doctors and nurses adjacent to a hospital. St. Luke s Hosp. v Boyland, 12 NY2d 135 [1962]. 2. Housing for students and faculty near a college or university. Application of Thomas G. Clarkson Mem. College of Technology, 300 NY 595 [1949]. 3. Parsonages, convents and rectories owned by religious institutions. 9 Op Counsel SBEA No. 85 (1991, revised 1993). 4. Youth hostel providing clean and decent overnight accommodations at a modest price, without profit... is... benevolent. Syracuse Council of Am. Youth Hostels v Srogi, 116 Misc2d 394 [Sup Ct, Onandaga County 1982] affd 90 AD2d 674 [4th Dept 1982]. 5. [P]roviding unmarried working women with homes and wholesome food at a small cost to them and in deserving cases without cost to them treated as benevolent. Webster Apts. v City of New York, 118 Misc 91, 92 [Sup. Ct. 1922] affd 206 AD 749 [1st Dept 1923]. 6. A hotel providing enlisted men in the Navy and Marines a respectable sleeping place... when they are on liberty, in New York City... at a modest cost was held to be benevolent. National Navy Club of New York v City of N.Y., 122 Misc 89, 92 [Sup Ct, NY County 1923]. 7. Housing provided to actors and staff of not-for-profit theater company where the property generated no income to the entity was recently held to be in furtherance of the exempt purpose of the theater group. Merry-

6 Go-Round Playhouse, Inc. v City of Auburn, 2013 N.Y. Slip Op [U] [4th Dept 2013]. 8. Home for the aged qualified for exemption where most residents had no income other than Social Security although a small number could afford to pay for care. Belle Harbor Home of Sages, Inc. v Tishelman, 100 Misc2d 911 [Sup Ct, Queens County 1979]. ii. Non-qualifying Residential Uses. 1. Senior housing where residents pay substantial fees is not exempt even if operated at no profit. Miriam Osborn Mem. Home Assn. v Assessor of City of Rye, 80 AD3d 118 [2d Dept 2010]; Quail Summit, Inc. v Town of Canadaigua, 55 AD3d 1295 [4th Dept 2008]; Presbyterian Residence Ctr. Corp. v Wagner, 66 AD2d 998 [4th Dept 1978] affd 48 NY2d 885 [1979]. 2. Moderate income housing was found not to qualify for exemption. Greer Woodycrest Children s Servs. v Fountain, 74 NY2d 749 [1989]. 3. A recreational facility provided for retired and active teachers does not qualify. 1 Op Counsel SBEA No. 89 [1972]. See also, Valeria Home v. Cook, 22 NY2d 388 [1968]. 3. Do Not Ignore Assessed Value Where Exemption is Granted a. Even where a full exemption is granted, be mindful of the assessed value of real property. i. If an exemption is lost in whole or in part, the assessed value is the basis for taxation. In New York, applications for review of assessment must be timely filed separate from any request for review of an exemption each year to preserve the right to protest the assessment for that year. b. Valuing specialty property, such as a church, is difficult. Assessors may look at incomparable properties in reaching a value resulting in overvaluation.