Volume 10 - Opinions of Counsel SBRPS No. 43
Nonprofit organizations exemptions (fraternal) (subordinate lodge); Fraternal organizations exemption (generally) (subordinate lodge) - Real Property Tax Law, §§ 420-b, 428; 26 U.S.C., §501:
When a subordinate lodge of a fraternal organization receives its federal income tax exemption pursuant to section 501(c)(8) of the Internal Revenue Code, rather than section 501(c)(3), this is an indication that the organization is not organized and conducted exclusively for one or more of the exempt purposes qualifying for exemption pursuant to section 420-b [or 420-a] of the Real Property Tax Law. Only the grand lodge of a fraternal organization qualifies for exemption pursuant to section 428 of the RPTL.
This is a request for our opinion as to the taxable status of property owned by a subordinate lodge affiliated with the Serb National Foundation. The lodge has filed an application pursuant to section 420-b of the Real Property Tax Law (nonprofit organizations; permissive class).
Section 420-a of the Real Property Tax Law provides a mandatory exemption to real property owned by a nonprofit organization organized or conducted for one or more of the exempt purposes listed in that section (e.g., moral or mental improvement), provided its property is used exclusively for exempt purposes. Section 420-b provides a similar exemption to property of organizations organized and conducted exclusively for other listed purposes (e.g., benevolent). Municipalities have the authority, however, to rescind the exemption for any or all of the purposes listed in section 420-b. In this case, the town in question has not opted to tax benevolent or historical organizations (i.e., the two categories under which the lodge claims an exemption).
The State Board prescribed application forms may be used by an applicant seeking the mandatory exemption (§ 420-a(11)); applicants seeking the permissive exemption must use the State Board forms (§ 420-b(7)). The forms are designed to provide the assessor with the information necessary to make an informed decision as to whether the applicant satisfies the statutory requirements for exemption.
There are essentially three tests for the nonprofit exemption: nonprofit status, organization for exempt purpose, and use of property for exempt purposes. In discussing our prescribed forms and these tests, we have stated:
One of the main purposes of Forms RP-420-a-Org and RP-420-b-Org is to ascertain whether an organization is, in fact, a “not for profit” organization. This can be a very complex determination. Since nearly all of the types of organizations listed as exempt under section 420-a and section 420-b are included in the group of organizations listed as exempt under section 501 of the Internal Revenue Code [26 U.S.C. § 501], it is helpful to ascertain whether the organization has received an income tax exemption from the Internal Revenue Service (IRS). The assessor may assume that an organization listed in section 420-a or section 420-b which is also exempt from federal income taxes has satisfied the nonprofit test for exemption from real property taxes
In response to Question 3b [on the RP-420-b-Org], the applicant should supply the section of law under which it is receiving its exemption from federal income taxes. The anticipated answer to this question is either section 501(c)(3) (for organizations other than bar associations and medical societies) or section 501(c)(6) (for bar associations and medical societies) of the Internal Revenue Code. Since all the exempt purposes listed in section 420-a and 420-b for a real property tax exemption are included in either section 501(c)(3) or 501(c)(6), any other subdivision or paragraph of section 501 of the Internal Revenue Code indicates that the applicant may not have as its main purpose any of the exempt purposes included in section 420-a or section 420-b. This should be considered by the assessor in determining the organization’s purposes . . . (NYS Assessor’s Manual, Vol. 4, § 4.05, pp.241.53 - 241.54 (1/1/95)).
In this case, we note that the Internal Revenue Service has granted the lodge an income tax exemption pursuant to section 501(c)(8) of the Internal Revenue Code. That provision applies to “fraternal beneficiary societies” operating under a “lodge system” which provides “life, sick, accident, or other benefits” to its members or their dependents. A review of the other information submitted also indicates that the lodge is this type of organization.
From the material provided, then, it appears that the lodge is similar to organizations such as the Masons, Knights of Columbus, or other fraternal organizations operating on a lodge system. Indeed, while such organizations may include among their purposes some of the exempt purposes listed in sections 420-a and 420-b, they are also devoted to other purposes, especially fraternalism. Where fraternalism is more than just an incidental purpose or use, an exemption is not possible under section 420-a or 420-b. Rather, if such an organization is to receive an exemption, it would be pursuant to section 428 of the RPTL.
Generally, section 428 of the RPTL provides for the exemption of property owned by certain fraternal organizations. In 2 Op.Counsel SBEA No. 38, we advised that the language of section 428 indicates that the type of fraternal corporation which is entitled to an exemption thereunder is one which has a general assembly of its members or subordinate bodies thereof and which provides that the entire income derived from the use of their real property shall be exclusively for charitable purposes (see also, 4 Op.Counsel SBEA No. 42; 1 id. No. 18). Further, we stated that this exemption applies solely to the grand lodge of a fraternal organization; thus local chapters are not entitled to this tax exemption (see, 2 Op.Counsel SBEA No. 38, supra). Thus, even if the lodge were to satisfy the charity criterion, no exemption is warranted under section 428 unless the lodge, in this case, is the grand lodge of the Serb National Foundation (Ithaca Masonic Temple Corporation v. Calistri, 57 Misc.2d 72, 291 N.Y.S.2d 721 (Sup. Ct., Tompkins Co., 1968), aff’d, 33 A.D.2d 857, 305 N.Y.S.2d 811 (3d Dept., 1969)).
June 13, 1997