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Volume 12 - Opinions of Counsel SBRPS No. 32

Opinions of Counsel index

Exemption - Nonprofit Organizations - Miscellaneous (local development corporation) (liability for tax) - Not-for-Profit Corporation Law, § 1411, and Real Property Tax Law, § 420-a:

A fiber optic cable network owned by a local development corporation that is principally intended to facilitate economic development is not entitled to receive the nonprofit organizations exemption.

A county has authorized the creation of a local development corporation for the apparent primary purpose of facilitating economic development within the county. {1}  The local development corporation will install a fiber optic cable network that will be located primarily within public rights-of-way {2} as “a municipal-based open-access fiber backbone which will create telecommunications equality and technology-led economic development throughout the [county] without bias to geographical or demographical profile” (tax exemption application). We have been asked whether the fiber optic cable network will be eligible to receive the nonprofit organizations exemption. {3}

RPTL, § 420-a(1)(a), provides that:

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 of such purposes, and used exclusively {4} for carrying out thereupon one or more of such purposes, either by the owning corporation or association or by another such corporation or association as hereinafter provided shall be exempt from taxation as provided in . . . section [420-a] (emphasis added).

Not-for-Profit Corporation Law (N-PCL), § 1411(a), in relevant part provides that:

Corporations may be incorporated or reincorporated under . . . section [1411] as not-for-profit local development corporations operated for the exclusively charitable or public purposes of relieving and reducing unemployment, promoting and providing for additional and maximum employment, bettering and maintaining job opportunities, instructing or training individuals to improve or develop their capabilities for such jobs, carrying on scientific research for the purpose of aiding a community or geographic area by encouraging the development of, or retention of, an industry in the community or area, and lessening the burdens of government and acting in the public interest,. . .

The Court of Appeals has interpreted RPTL, § 420-a, and N-PCL, § 1411, to mean that real property owned by a local development corporation is not eligible to receive the nonprofit organizations real property tax exemption when used “for manufacturing activities” and not “for an exempt purpose” (Lackawanna Community Development Corporation v. Krakowski, 12 N.Y.3d 578, 580, 910 N.E.2d 997, 998, 883 N.Y.S.2d 168, 169 (2009)). In so concluding, the Court stated that “if the Legislature had intended to provide a blanket real property tax exemption for local development corporations, it would have done so expressly, as it had in other contexts . . .” (Ibid., 12 N.Y.3d at 582, 910 N.E.2d at 1000, 883 N.Y.S.2d at 171). {5}  Accordingly, if the assessors in the assessing units where the fiber optic cable network is to be constructed determine that the primary purpose of the cable network is to facilitate economic development, it is our opinion that such facilities would not qualify for the nonprofit organizations exemption, regardless of whether the fiber optic cable network constitutes the tangible property of a special franchise.

January 27, 2010


{1}  The county local law provides that “[t]he Board of Supervisors hereby finds that expansion of the County’s capacity in telecommunications services is critical to the continued economic vitality and growth of the County.” The local development corporation’s certificate of incorporation similarly states that “[t]he purposes for which the corporation is formed are:  To provide telecommunications infrastructure for the purpose of aiding a community or geographical area by attracting industry to the community or area or by encouraging the development of, or retention of an industry in the community or area; to relieve and reduce unemployment, to promote and to provide additional and maximum employment, to better and to maintain job opportunities.”

{2}  To the extent that the fiber optic cable network is located in the public way, it constitutes special franchise property (RPTL, § 102(17)). Since a local development corporation is not a public benefit corporation, the cable network does not fall in that exclusion from the definition of special franchise property (Ibid.).

{3}  The tax exemption application states that the fiber optic cable network would afford “[a]ccess to dark fiber backbone for first responders, fire districts, education . . ., hospital and economic needs for” the county.

{4The phrase “used exclusively” has been construed by the judiciary in the context of the nonprofit organizations exemption to mean “principal” or “primary” (Association of the Bar of the City of New York v. Lewisohn, 34 N.Y.2d 143, 153, 313 N.E.2d 30, 35, 356 N.Y.S.2d 555, 561 (1974)).

{5}  The Court compared “Not-for-Profit Corporation Law § 1411(f) [providing that the ‘income and operations’ of local development corporations formed under the statute are exempt from [income] taxation], with General Municipal Law § 874(1) [providing that an industrial development agency ‘shall be required to pay no taxes or assessments upon and of the [real] property acquired by it or under its jurisdiction or control or supervision or upon its activities’]” (Ibid.).

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