Volume 2 - Opinions of Counsel SBEA No. 69

Opinions of Counsel index

Urban renewal property (taxable status) - General Municipal Law, §§ 72(j), 506(1):

Property acquired by a municipality for urban renewal is exempt from taxation until, it is sold or leased for a term not exceeding ninety-nine years. If the municipality sells any such property, or so leases it to a person or corporation not entitled to an exemption, such property immediately becomes subject to taxation.

For example, where a city owns land and builds an underground public parking facility, such facility is exempt from taxation. The leasing of surface air rights over part of the site, does not dilute the exempt status of such portion where the city retains ownership and possessory rights for use of the land itself, although such use is subject to a right of support on the part of the lessee.

Our opinion has been requested concerning the taxable status of a parcel of property and the improvements thereon in a city.

The factual situation presented is as follows. Under the authority of a local law passed by the Common Council of the city, authorizing a redevelopment corporation agreement, the city purchased a 90,000 square foot site which it will use to construct an underground public parking garage beneath the entire site.

On the westerly half of this site, the city will construct a building of at least four levels for an above-surface public parking garage. S corporation is authorized to lease for commercial purposes the ground level of the above-surface garage for a term of 40 years, and the city will operate the remaining levels as a public garage.

Under the provisions of the local law, S corporation will lease from the city the above-surface rights on the easterly half of the site for a term of 40 years, and construct a department store thereon. Pursuant to the applicable terms and conditions, S corporation is obligated to pay the property tax on the improvements and remove such improvements at the end of the term if the city so requests.

There is apparently no question that the city has the authority to acquire land for the above stated purposes and lease portions of such property pursuant to the provisions of sections 72 (j) and 506 of the General Municipal Law.

Section 72 (j) (2) of the General Municipal Law provides, in part, as follows:

“§ 72-j Parking garages and parking spaces; public off-street loading facilities.

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“2. A  municipal corporation * * * may construct and operate such garages or spaces or public off-street loading facilities including the use of such portion of the property for other commercial uses as may be necessary to provide revenue adequate to permit the operation of the principal portion of the property for such garages or spaces or public off-street loading facilities* * *.”

The language of the above provision clearly indicates that at least part of a municipal garage can be used for private commercial purposes (18 Op.State Compt. 452).

The Legislature, recognizing that there exists in many municipalities the need to correct, eliminate or prevent areas which are substandard, unsanitary, blighted, deteriorated or deteriorating, has authorized municipalities to undertake urban renewal projects. With respect to the acquisition of property, subdivision 1 of section 506 of the General Municipal Law provides than a municipality, acting through its governing body, may acquire real property or any interest therein necessary for or incidental to a program of urban renewal.

The questions raised are concerned with whether the land and the improvements owned by the City will be entitled to an exemption from taxation.

With respect to the taxation of real property acquired by the municipality in furtherance of an urban renewal program, paragraph (b) of subdivision 1 of section 506 provides in part as follows:

“§ 506. Acquisition of property

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“(b) Property so acquired by a municipality shall be exempt from taxation until sold, leased for a term not exceeding ninety-nine years * * *. Upon the sale, lease or disposition of such property to any person, firm or corporation not entitled to an exemption from taxation or entitled to only a partial tax exemption such property shall immediately become subject to taxation in whole or in part, as the case may be, and shall be taxed pro rata for the unexpired portion of the taxable year.”

Pursuant to the provisions of the above statute, property acquired by a municipality for urban renewal is exempt from taxation until it is sold or leased for a term not exceeding ninety-nine years. If the municipality sells any such property or so leases it to a person or corporation not entitled to an exemption, such property immediately becomes subject to taxation.

Accordingly, the land in the above described development, which is owned by the city and is being used for the development of an underground public parking facility is exempt from taxation. The leasing of surface air rights over the easterly half of the site does not, in our opinion, dilute the exempt status of such portion since, under the arrangement, the city retains ownership and possessory rights for use of the land itself, although such use is subject to a right of support on the part of S corporation.

With respect to the building to be erected on the westerly portion of the land, it seems clear that the portion of the building which is leased to S corporation for commercial use will be subject to taxation, while the remainder which will be occupied and operated as a public garage by the city will be exempt.

August 15, 1966