Volume 3 - Opinions of Counsel SBEA No. 21
Veterans’ exemption (eligible funds) (loan on National Service Life Insurance) - Real Property Tax Law, § 458:
Ordinarily, a loan on National Service Life Insurance policies does not constitute eligible funds within the meaning of section 458. However, the fact that there was but one loan involved in this purchase, that the loan was repaid within a relatively short time following the date of purchase, and that the policy was surrendered thereby preventing the possibility of multiple loans being claimed as a basis for this exemption, is ample justification for granting this exemption under the factual situation presented.
Our opinion has been requested as to whether a loan on a National Service Life Insurance policy constitutes eligible funds within the meaning of section 458.
The applicant was the holder of a twenty-year endowment National Service Life Insurance policy which would have matured some sixteen months following the date scheduled for the closing of the estate transaction. He borrowed $4,000 on said policy rather than surrender it at its then cash surrender because the loss he would have sustained would have exceeded the interest which would payable upon maturity of the policy. The moneys obtained from said loan were used toward the purchase of the property in question, and upon maturity of the endowment policy, the loan was cancelled and the applicant received the balance of the face value of the policy less the interest upon the above mentioned loan.
Section 458 of the Real Property Tax Law provides an exemption on real property which is “purchased” with eligible funds. Ordinarily, a loan on National Service Life Insurance policies does not constitute eligible funds within the meaning of the statute. Money loaned on such a policy would be similar to money borrowed in any other manner. Such a loan might be repaid and a new loan taken on the policy. This procedure could be used an infinite number of times to expand the exemption from taxation granted by this section. For the above reasons, it has consistently been held by this office, the State Comptroller’s office and the Attorney General’s office that the proceeds of a loan on a National Service Life Insurance policy do not constitute eligible funds for purposes of this exemption.
In determining whether real property satisfies the requirements of section 458 of the Real Property Tax Law, it must be borne in mind that statutes exempting real property from taxation must be strictly construed, and that no exemption will be granted by any doubtful implication. In other words, the right to the exemption must be clearly established according to the statutory provision, and if a doubt exists, then that doubt should be resolved in favor of taxation (Lawrence-Smith School, Inc. v. City of New York, 280 N.Y. 805, 21 N.E.2d 693).
However, an exemption statute should not receive an interpretation so narrow and literal as to defeat the intention of the legislature (See, Plattsburgh College Benev. and Ed. Ass’n. v. Board of Assessors of Town of Peru, 43 Misc. 2d 741, 252 N.Y.S.2d 229).
In a series of explanatory questions and answers set forth in 55 State Department Reports 1 (1936), the State Department of Taxation and Finance stated:
Q. Where a loan has been procured on the security of an adjusted service certificate and the proceeds of such loan were used to purchase real property, may an exemption claim be allowed on the theory that such property was purchased with bonus money?
A. No. The proceeds of the loan are not pension, bonus or insurance money within the meaning of paragraph number 5 of section 4 of the Tax Law so that the real property purchased with such proceeds would not be exempt. The Attorney-General is of accord with the Tax Commission in this view.
Q. If, in a case such as is outlined in the preceding question, the proceeds of the certificate (bonus money) is used to satisfy the loan, may exemption be allowed?
A. This appears to be a moot question. The Attorney-General is of the opinion that the proceeds of the loan would give rise to an exemption upon the theory that they would become the proceeds of a bonus instead of, as formerly, merely the proceeds of a loan. The tax Commission inclines to the view that the exemption should not be allowed. In its opinion, real property purchased with such borrowed money would not be purchased with bonus money even though bonus money be used to satisfy the loan. The Commission does not see any distinction between money borrowed on the security of an adjusted service certificate and money borrowed in any other manner. Doubtless, a decision on the question will ultimately be rendered by the courts. Until then, the assessing officers may adopt the view of the Attorney General or the State Tax Commission, whichever appears to them to be the sounder.
It will be noted that both the State Tax Commission and the chase of the home did not constitute the proceeds of insurance t rather the proceeds of a loan so that the property was not titled to any exemption at that time. The State Board of Equalization d Assessment has followed that ruling.
As to whether or not the property would become entitled to used to satisfy the loan thereon and the proceeds of which loan used to purchase the home, note that there was a difference between the opinions of the Attorney General and the State Tax Commission. Unfortunately, this issue was never ruled upon by the courts and, as stated above, the view of either the Attorney General or the State Tax Commission, may be adopted, whichever appears to be the sounder.
While the State Board of Equalization and Assessment has consistently adopted the opinion of the State Tax Commission, it is our opinion that the factual situation presented indicates an obvious intent to use the proceeds of the endowment policy toward the purchase price of the real property in question. The fact that there was but one loan involved in the purchase; that the loan was repaid within a relatively short time following the date of purchase; and that the policy was surrendered thereby preventing the possibility of multiple loans being claimed as a basis for this exemption, is ample justification for granting this exemption under the factual situation as presented. It would appear that to do otherwise would be interpreting the statute in such a manner as to defeat the intention of the Legislature.
June 18, 1973