Volume 4 - Opinions of Counsel SBEA No. 45
Nonprofit organizations exemption (miscellaneous) (management training associations) - Real Property Tax Law, § 421:
A professional interest group conducting management training programs is not an educational organization qualifying for exempt status pursuant to section 421 of the Real Property Tax Law.
Our opinion has been requested concerning the taxable status of property owned by a nationwide management association (hereinafter NMA). NMA filed a complaint with the board of assessment review on grievance day, claiming that it was an educational corporation chartered by the University of the State of New York and that therefore its property should be fully exempt from real property taxation as provided for in section 421 of the Real Property Tax Law. The board of assessment review subsequently denied relief.
It appears that NMA filed one complaint noting thereon that it was the owner of several properties, and a question was raised as to whether separate complaints should have been filed. It is our opinion that, with the filing of the complaint specifying illegality, the board had jurisdiction to reach a determination on the merits. Further, the board also had authority to request additional information deemed necessary for reaching a determination.
As a general rule of construction, statutes exempting real property from taxation must be strictly construed against the real property owner seeking such exemption (Lawrence-Smith School, Inc. v. City of New York, 166 Misc. 856, 2 N.Y.S.2d 752, aff’d, 255 App. Div. 762, 7 N.Y.S.2d 486, aff’d, 280 N.Y. 805, 21 N.E.2d 693). Section 421 of the Real Property Tax Law authorizes an exemption from real property taxation on real property owned by certain nonprofit organizations. The requirements of that section can be summarized as follows:
1. The real property must be owned by a corporation or association organized exclusively for one or more of the purposes listed in section 421 (one of which is educational).
2. The real property must be used exclusively for carrying out one or more of the purposes listed in section 421. Any portion of the property which is not so used is subject to taxation.
3. No officer, member or employee of the organization may be entitled to receive any pecuniary profit from its operations, except reasonable compensation for services performed in furtherance of corporate purposes.
4. No exemptions shall be granted if the organization is a guise or pretense for directly or indirectly making any other pecuniary profit for such organization or for any of its members or employees.
The first requirement for the exemption is that the association be “organized exclusively” for one or more of the enumerated purposes (viz., “. . . for religious, charitable, hospital, educational, . . . or cemetery purposes, or for two or more such purposes . . .”). This is determined by examining the purposes and objects in the organization’s certificate of incorporation or charter if any (Great Neck Section, etc. v. Board of Assessors, 21 Misc.2d 142, 189 N.Y.S.2d 623; Goodwill Club of Amsterdam, New York v. City of Amsterdam, 31 Misc.2d 1096, 222 N.Y.S.2d 896; American-Russian Aid Association v. City of Glen Cove, 41 Misc.2d 622, 246 N.Y.S.2d 123). In examining the charter purposes (as in judging the availability of an exemption) the provisions must be construed strictly against the applicant. The result of this principle is that the charter must be a precise and definite instrument; it cannot provide for purposes so vague or so broad that the exempt activities are not necessarily exclusive. If any of the purposes recited in the certificate of incorporation are not specified in the statute, then the corporation fails to meet the “organized exclusively” requirement, and real property owned by such a corporation is not entitled to this exemption (e.g., Great Neck Section, etc., supra).
The meaning of the word “educational” within the above statute, although not categorically defined by the courts, has generally been interpreted in a limited and restricted sense in prior decisions. It has been held that the meaning of the term “educational” relates to formal education, basically instructional in nature (People ex rel. Board of Trustees of Mount Pleasant Academy v. Metzger, 98 App. Div. 237, 90 N.Y.S. 488, aff’d, 181 N.Y. 511, 73 N.E. 1130; Matter of Mary Immaculate School, 188 App. Div. 5, 175 N.Y.S. 701; Matter of Syracuse University, 214 App. Div. 375, 212 N.Y.S. 253; Goldstein v. Mills, 185 Misc. 851, 57 N.Y.S.2d 810, aff’d, 270 App. Div. 930, 62 N.Y.S.2d 619; Cornell University v. Thorne, 184 Misc. 630, 57 N.Y.S.2d 6). Thus, it has been held that educational organizations, to be exempt as such, must maintain a curriculum, schedule of classes, and a roster of qualified instructors, and an otherwise somewhat formalized system of instruction. Without such restrictions the exemption might become available to an infinite number of organizations and organized pressure groups which the legislature never intended to exempt.
A recent case, Crusade for Christ, Inc. v. Town of New Lebanon, 36 App. Div.2d 247, 320 N.Y.S.2d 164, aff’d, 31 N.Y.2d 765, 290 N.E.2d 440, 338 N.Y.S.2d 440, indicates that an organization which claims an exemption as an educational corporation, must be properly registered with the Commissioner of Education, or chartered by the Board of Regents. As evidenced by its certificate of incorporation, NMA has been chartered by the University of the State of New York as an educational corporation pursuant to section 216 of the Education Law. However, this fact standing alone (i.e., the charter from the University of the State of New York) would not necessarily entitle a corporation to an exemption as one “organized exclusively” for educational purposes under section 421. In the case of In re Religious Society of Families, 73 Misc.2d 923, 343 N.Y.S.2d 159, the petitioner was seeking an exemption under section 421 as a corporation organized exclusively for religious purposes. There the court stated (at p. 161) “. . . [t]he mere fact that it [the religious society] incorporated itself under the religious corporations law is not determinative [of its status as an organization organized exclusively for one or more purposes enumerated in section 421].” The actual purposes enumerated in the corporate charter must be carefully examined to see if each meets the requirements of section 421.
This fact is further evidenced by an examination of the language of section 216 of the Education Law. Such language is obviously broad in scope and lacks the exclusivity requirement of section 421. Thus, pursuant to section 216, the regents may incorporate, among others, “. . . any university . . . or other institution or association for the promotion of science, literature, art, history, or other department of knowledge, or of education in any way, . . . and other associations whose approved purposes are, in whole or in part, of educational or cultural value deemed worthy of recognition and encouragement . . .”. Thus, under this section, a corporation organized in part for educational purposes, and in part for social and cultural purposes, could be incorporated as an educational institution while corporations whose purposes include social and cultural aims, as well as educational aims, have uniformly been held to be outside the scope of section 421 (see, e.g., Great Neck Section, etc., supra; and Goodwill of Amsterdam, New York, supra).
Although the certificate of incorporation of NMA states that it is organized “exclusively for educational and scientific purposes,” it is our opinion that the specific purposes and goals of the organization as set forth therein do not qualify this Association as one entitled to an exemption from real property taxation under section 421. Furthermore, the characterization of professional interest groups, such as those which carry on management training programs, as being organized exclusively for educational purposes appears invalid particularly in light of the recent Court of Appeals decision in Association of the Bar of City of New York v. Lewisohn, 34 N.Y.2d 143, 313 N.E.2d 30, 356 N.Y.S.2d 555. In that case the New York City Bar Association was held not to be organized and conducted primarily for charitable or educational purposes, and therefore its property was not entitled to an exemption under section 421. Of special note to the given case is the following language from that decision (356 N.Y.S.2d at 562):
It [the Bar Association] is an association of professionals organized for traditional Bar Association purposes and primarily concerned with the professional interests of its members. While it has functions and attributes properly characterizable as educational and, to a somewhat lesser extent, as charitable, these are incidental and peripheral only. By way of example, its educational activities, while not reserved to professionals, are predominately professional in nature and orientation and designed to advance the interests and standing of its members. Nor does the Association’s extensive library, important and valuable as it is, alter its essential character. (emphasis supplied)
It is our opinion that this case is directly in point on the issue before us and that the emphasized language of the foregoing citation applies as well to a group such as NMA as it does to a city bar association. Thus, it is our conclusion that the NMA is not “organized exclusively” for one or more of the purposes enumerated in section 421, and therefore is not entitled to the exemption from real property taxation authorized by that section.
However, even assuming for argument’s sake that NMA is “organized exclusively” for one or more of the purposes enumerated in this statute, section 421 also requires that the property be “used exclusively” for carrying out such purposes. An opinion as to whether the property meets this requirement is rendered difficult because each case must necessarily be decided on its own merits.
The courts have generally held that in order to be exempt from real property taxation, the use and need of the property by the corporation or association must be “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). Thus, it has been held that where 92 to 96 percent of crops raised on farmland owned by a religious society were used for the feeding of students, teachers, workers and members of the society, the fact that the remainder of the crop was disposed of in the market was held to be insubstantial and therefore such property was entitled to an exemption pursuant to section 421 (People ex rel. Watchtower Bible and Tract Society v. Haring, 8 N.Y.2d 350, 170 N.E.2d 677, 207 N.Y.S.2d 673). The setting aside of certain cemetery lands for structures to be used for the housing of equipment and supplies made for the maintenance of the cemetery was found to be necessary and incidental to the proper maintenance of the cemetery, and therefore used for purposes within section 421 (People ex rel. Woodlawn Cemetery v. Chambers, 91 N.Y.S.2d 774). However, where the only use of a certain tract of land belonging to a religious corporation was to take lumber therefrom, as occasion required for improving other portions of the corporation grounds, such tract was not solely used for charitable and religious purposes, and therefore not exempt under section 421 (People ex rel. Missionary Sisters of the Third Order of Saint Francis v. Reilly, 35 App. Div. 71, 83 N.Y.S. 39). In other words, the term “used exclusively” means that the property is being used in furtherance of corporate purposes or that it is being used as an integral part of the corporation’s activities. If a portion of the property owned by an exempt corporation is being used for other than exempt purposes, then such portion would be taxable, and only that portion of the property, which meets the test of “exclusive use” would be exempt (see, § 421(2)).
An affidavit from an officer of NMA describes the organization’s property. It consists primarily of an airport with supportive buildings partly in the Town of E and partly in the Town of M; 260 acres of farmland in the Town of M; and the NMA “Grove” and the NMA “Learning Center” also in the Town of M.
At the outset it should be readily apparent that the airport and its supportive buildings are clearly not entitled to this exemption from real property taxation. It would appear to us that by no reasonable stretch of the imagination could an airport be construed to be necessary and fairly incidental to the carrying out of educational purposes. In addition, the fact that the airport is available for use by individuals not members of NMA violates the exclusive use requirement (see, People ex rel. Ade1phi College v. Wells, 97 App. Div. 312, 89 N.Y.S. 957, aff’d w/o, 180 N.Y. 534, 72 N.E. 1147).
With respect to the possible exemption of 260 acres of farmland in the Town of M, the resolution of this question depends on whether the property meets the requirements of subdivision 3 of section 421. Said subdivision provides as follows:
3. Such real property from which no revenue is derived shall be exempt though not in actual use therefor by reason of the absence of suitable buildings or improvements thereon if (a) the construction of such buildings or improvements is in progress or is in good faith contemplated by such corporation or association or (b) such real property is held by such corporation or association upon condition that the title thereto shall revert in case any building not intended and suitable for one or more such purposes shall be erected upon such premises or some part thereof.
Thus, in order for vacant or unused NMA land to be entitled to an exemption pursuant to this subdivision, construction of buildings or improvements must be in progress or in good faith contemplated. Contemplation in good faith means concrete and definite plans for utilizing and adapting the property for exempt purposes within the reasonably foreseeable future. In other words, there must be definite and certain plans for the manner in which the property will be utilized in the foreseeable future. Some evidence of such plans may be the start of or preparation of a fund raising campaign (see, e.g., In re Miriam Osborne Memorial Home Ass’n., 140 N.Y.S 786), or the retention of an architect or other consultants relating to the development and use of the property for exempt purposes. The burden of proving that the property is being used for exempt purposes and is not lying idle is upon the person or organization claiming the exemption. In his affidavit, NMA’s officer merely states that the plans for the development of the 260 acres in question “. . . are in the process of being formulated.” Without further explanation it is impossible for us to determine whether the plans for the use of this property have reached the point where they would satisfy the requirements of subdivision 3 of section 421. The mere holding of vacant property with “the end in view of ultimately erecting thereupon” suitable buildings and improvements is not sufficient (see, In re Syracuse University, 214 App. Div. 375, 212 N.Y.S. 253).
With regard to the NMA “Grove” and “Learning Center”, it appears that a final determination would have to be made by the local assessor based on his application of the laws to the facts at hand as to how the property is actually being used.
Again, this discussion of the “exclusive use” requirement is based on a finding that NMA is “organized exclusively” for educational purposes, which we believe is an invalid assumption. The local tax base has been steadily shrinking due to the increasing number of exemptions from real property tax available in this century. As noted by the Court of Appeals in Association of the Bar of the City of New York v. Lewisohn, supra, at page 365, “[w]ere the growth of exempt properties to continue at the rate established during the first half of this century it [has been] estimated that by 1985 one-half of all real property on the tax rolls of local governments would be exempt from taxation . . .”. The courts have uniformly not favored exemptions since exemptions from taxation are in the nature of renunciations of sovereignty, and they tend to relieve one class of persons or property from its obligation to pay its share of the expenses of government, while throwing a correspondingly heavier burden upon all other classes, thus creating an inequality of taxation.
August 30, 1974