June 24, 2009
When an assessor revokes a real property tax exemption, the tax payer must file a petition under Article 7 of the Real Property Tax Law challenging the revocation. While generally termed a tax certiorari proceeding, Article 7 actions are clearly delineated not as traditional certiorari (i.e. quasi-appellate or appellate) proceedings, but trials de novo on the issue of valuation or exemption. (“A proceeding under RPTL Article 7 is in the nature of ‘a trial de novo to decide whether the total assessment of the property is correct and if it is not to correct it'” – – Town of Pleasant Valley v New York State Bd. of Real Property Services, 253 AD2d 8 (2d Dept 1999), citing Matter of Katz Buffalo Realty v Anderson, 25 AD2d 809 (4th Dept 1966). Thus, it is to be expected that the proof at trial might differ from that presented in an admittedly informal administrative proceeding such as one before an assessor or a Board of Assessment Review. A recent decision by the Honorable John R. LaCava in Matter of Southwinds Retirement Home, Inc. v The City of Middleton 1 dated June 9, 2009, _____ NYLJ____ provides an interesting and thorough explanation of the applicable law.
The decision indicates that the petitioner was a not-for-profit corporation founded 125 years ago as a charitable corporation for the operation of a retirement home for the aged. The properties under review consisted of 2 parcels: a warehouse parcel, a former warehouse on an approximately 1.6 acre sized plot, was purchased by petitioner in 1999; and a retirement home parcel, located on a plot approximately 4.6 acres in size directly across from the warehouse parcel on Fulton Street. The latter, acquired in 1990, was a former hotel/motel/catering complex. The warehouse had an improved area of over 20,000 square feet, of which approximately 4,000 square feet was leased to The State University of New York’s Empire State College in the tax year at issue, with the remainder devoted, according to petitioner, to storage in support of the retirement home. The retirement home parcel contained some 84,000 square feet of improved space, of which, in the tax year at issue, 3,738 square feet was leased by an associated not-for-profit corporation, Homemaker Service of Orange County, Inc. (Homemaker), for the operation of an adult day care facility. In addition, 520 square feet was leased to Rhonda Dundish to operate a hairdressing salon, and the 1,827 square foot main dining hall was periodically leased to several not-for-profit institutions for luncheon and dinner meetings.
For many years, and during the period immediately prior to the tax year at issue, the parcels were in possession of tax exemptions from the City, with petitioner operating as a charitable provider to the community of, inter alia, nursing and medical services, rehabilitative care, social services, and congregate dining.
Burden of Proof
At the outset, Justice LaCava held that, while the burden of proof lies with a petitioner who seeks an initial property tax exemption (See People ex rel. Watchtower Bible & Tract Soc v Haring, 8 NY2d 350 (1960), where a petitioner is the subject of a revocation of an existing tax exemption, the burden of proof is on the municipality to justify the revocation. (See New York Botanical Garden v Assessors of Washington, 55 NY2d 328 (1982); Watchtower Bible & Tracts Soc v Lewisohn, 35 NY2d 92 (1974). Thus, here the burden of proof is on the Town to establish that the revocation of the exemption previously granted to petitioner was proper.
Thus, the burden of proof was upon the City to demonstrate, pursuant to RPTL § 420-a(1), that:
1. The real property at issue here is not owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educations, or moral or mental improvement, of men, women, or children purposes, or for two or more such purposes; or
2. The owning corporation did not use the real property exclusively for carrying out thereupon one or more of such purposes.
In the course of its opposition, the City sought to contest certain factual issues by alleging what was observed on two unauthorized visits onto the premises. The court would not consider anything gained by the visits, stating,
This court has ruled in Schlesinger v Town of Ramapo, (Supreme Court, Rockland County, Dickerson, J., January 24, 2006), that an entry upon a premises by an assessor, for the purpose of gaining information to prepare an assessment, without the permission of the owner, or a court order, is an unauthorized search as contemplated under the United States and New York State Constitutions. (See also Camara v Municipal Court, 387 US 523 unauthorized entry is, at the very least, suspect.
The court stated that, there has been no evidence presented by the respondent that the premises is not owned by Southwinds, a not-for-profit corporation organized and conducted exclusively for charitable purposes, including the moral or mental improvement of men, women, or children, and hence the court finds that the City has failed to meet its burden on that issue.
Further, where it is alleged that the property was leased to another charitable institution, the burden of proof is upon the City to demonstrate, pursuant to RPTL § 420-a(2), that:
The real property at issue, while not so used by the corporation, is not leased or otherwise used by another 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; or the property (or a portion of it) is not devoted to such exempt purposes; or the monies paid for the use of the property exceed the amount of the carrying, maintenance and depreciation charges of the property or portion thereof.
The court held that as a matter of law Southwinds could avail itself of the exemption provided for pursuant to RPTL § 420-a(2) for the portion of the warehouse parcel leased to the State University of New York (SUNY), since the City has failed to demonstrate that the use to which the SUNY portion of the premises has been put is not exclusively for educational purposes , and that the corporation or institution leasing that portion of the property (SUNY-Empire State College) is not a New York State Agency operated for educational purposes. Indeed the record established both.
The court further determined that the City failed to demonstrate that the income from the SUNY lease exceeded the carrying, maintenance and depreciation charges of the property as set forth under RPTL § 420-a(2).
Since the remainder of the warehouse parcel was retained by Southwinds for its use in conjunction with the retirement parcel, application of RPTL § 420-a(1) rather than (2) is appropriate here. Consequently, the issue was whether the City has demonstrated that petitioner has not used the remainder of the warehouse parcel exclusively for carrying out one or more of its non-profit purposes.
The court further held that as a matter of law that Southwinds may also avail itself of the exemption provided for pursuant to RPTL § 420-a(2) for the 3,738 square feet of the retirement home premises which was leased by the petitioner to the associated not-for-profit corporation Homemaker for an adult day care facility, since the respondent City has failed to demonstrate that the use to which the Homemaker portions of the premises have been put is not those associated with a retirement home, and that Homemaker is not a not-for-profit corporation operated for charitable (adult non-residential care) purposes.
Court of Appeals Recent Case
The Court of Appeals recently decided a similar tax assessment revocation case, Matter of Lackawanna Community Development Corporation v Krawkowski, ____NY3d____ (June 11, 2009). In Lackawanna, the property was owned by a local development corporation organized under the not-for-profit corporation law. The property had been exempt from taxes but the assessor concluded that the real property was not entitled to an exemption because it was leased by the Development Corporation to a for-profit corporation that carries out for-profit manufacturing activities on the property. The Court of Appeals held,
It is the actual or physical use of the property that the Real Property Tax Law is concerned with when it exempts from taxation property “used exclusively for carrying out thereupon one or more” exempt purposes (RPTL § 420-a(1) [emphasis added]; See Matter of Adult Home at Erie Sta., Inc. v Assessor & Bd. of Assessment Review of City of Middletown, 10 NY3d 205, 216 (2008) (the “issue is…whether the property is ‘used exclusively'” for an exempt purpose, and property used to provide housing for the indigent and property used to provide housing for people “while they participate in social work programs” is “used” within the meaning of the statute).
Chief Judge Lippman stated,
We find no support in the Real Property Tax Law or the Not-for-Profit Corporation Law for LCDC’s argument that the 100 Ridge Road property is “used” by LCDC because LCDC is leasing it in furtherance of LCDC’s purpose of spurring economic development. There is no question that local development corporations formed under the Not-for-Profit Corporation Law for the “charitable or public purposes of relieving and reducing unemployment…bettering and maintaining job opportunities, instructing or training individuals to improve or develop their capabilities for such jobs,” and “encouraging the development of, or retention of, an industry in the community or area,” among other purposes (N-PCL 1411 (a)), are pursuing laudable goals that better the State’s communities, and LCDC is no exception. Not all laudable activities, however, entitle the actor to a property tax exemption, and we decline LCDC’s invitation to read the Real Property Tax Law together with the Not-for-Profit Corporation Law in such a manner as to establish a “tax loophole” where one would not otherwise exist (See Sisters of St. Joseph v City of New York, 49 NY2d 429, 441 (1980).
It is clear that in order for a tax exemption to continue, property must be “used” within the meaning of RPTL § 420-a (1) for an exempt purpose.
1 The decision and others are available on Justice LaCava’s webpage, www.nycourts.gov/courts/9jd/taxcert.shtml.com
Reprinted with permission from the June 24, 2009 edition of the New York Law Journal © 2009 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.