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Department of Taxation and Finance

Volume 2 - Opinions of Counsel SBEA No. 49

Opinions of Counsel index

Nonprofit organizations exemption (religious) (rental of church property) - Real Property Tax Law, § 421:

A church may maintain its exemption on property which is being rented if lessee is necessary for the functioning and maintenance of the institution.

We have received an inquiry requesting our opinion as to the taxable status of a parcel of church-owned land. The upper half of a house on the property is being used for Sunday school, and the lower half is being rented. The question is whether the receipt of rental income will affect the exempt status of this property.

All real property in New York State is subject to taxation unless specifically exempted therefrom by statute (Real Property Tax Law, § 300). Section 421 of the Real Property Tax Law directs that “[r]eal property owned by a corporation . . . organized exclusively for. . . religious . . . purposes . . . and used exclusively for carrying out thereupon one or more of such purposes . . . shall be exempt from taxation.”

Assuming that the church is organized exclusively for religious purposes, one of the conditions for exemption under section 421 is that the property be used exclusively to carry out these religious purposes. The courts have consistently upheld the principle that in order to entitle a qualified corporation to exemption of its property, it is necessary that the property be used “exclusively for carrying out thereupon one or more of the purposes of its incorporation.” (People ex rel. Mizpah Lodge v. Burke, 228 N.Y. 245, 126 N.E. 703).

In determining whether property is “used exclusively”, as the statute directs, the courts have held that when the property is used in the furtherance of the exempt purposes so as to constitute an integral or coordinate part in carrying out the overall corporate purposes, it is exempt. It must be made to appear that the use and need of the property by the corporation or institution “is necessary or fairly incidental to the maintenance of the institution for the carrying out of the purposes for which it was organized” (People ex rel. Blackburn v. Barton, 63 App. Div. 581, 583, 71 N.Y.S. 933, 935). Where the property of an exempt corporation is used for nonexempt purposes, that property is not entitled to exemption as it violates the exclusive use provisions of the statute.

As to the rented portion of the property, the exemption is not lost merely because that portion is being rented. It is possible for a church to maintain its exemption on property which is being rented if it is determined that the lessee is a person who is necessary for the functioning and maintenance of the institution. For example, the courts have held that apartment buildings owned by a hospital and used by hospital personnel and their immediate families for residential purposes were entitled to exemption when such use was incidental and necessary to the functioning of the hospital. (St. Luke’s Hospital v. Boyland, 12 N.Y.2d 135, 187 N.E.2d 769, 237 N.Y.S.2d 308). It has also been held that the use of a portion of an otherwise exempt building as a residence for an engineer, janitor or custodian who is employed by the institution does not violate the statutory “exclusive use” provision when the services of such personnel are necessary for the maintenance of the institution (People ex rel. Society of Free Church of St. Mary the Virgin v. Feitner, 168 N.Y. 494, 61 N.E. 762). It should be noted that in cases such as these it must be clearly demonstrated that it is necessary for the employee to reside on the premises and that such residence is not merely provided for the convenience of either the employee or the employer. It should also be noted that the fact that rent may be charged for occupying the property will not necessarily violate the “exclusive use” provision if it can be shown that the amount of rent collected does not constitute revenue.

Therefore, the circumstances of the renting of the lower half of the house in question must be determined. While such rental income is likely to take that portion of the property out of the exemption statute, it is possible that the circumstances are such that the total exemption will not be affected.

In any case, the half of the house in question which is being used for Sunday school by a qualified church would satisfy the exclusive use requirement and would thereby qualify for the exemption. Whether or not the entire property qualifies, that portion used for Sunday school purposes should be exempted pursuant to subdivision 2 of section 421 of the Real Property Tax Law.

January 8, 1970