Volume 6 - Opinions of Counsel SBEA No. 70
Nonprofit organizations exemption (educational) (fraternity houses) - Real Property Tax Law, § 420:
In general, real property used as a fraternity house does not qualify for an exemption from taxation pursuant to section 420 of the Real Property Tax Law. However, exemption may be granted where the house is owned by, and is under the complete control of, the college or university attended by its residents.
A question has arisen concerning the application of section 420 of the Real Property Tax Law to fraternity houses.
Section 420 authorizes the exemption from real property taxation of real property owned by certain nonprofit organizations and used for certain purposes. The requirements of that section are set forth in 6 Op.Counsel SBEA No.24.
The first requirement for the exemption is that the corporation or association be “organized exclusively” for one or more of the purposes listed in the statute (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 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 v. City of Amsterdam, 31 Misc.2d 1096, 222 N.Y.S.2d 896; American-Russian Aid v. City of Glen Cove, 41 Misc.2d 622, 246 N.Y.S.2d 123, aff’d, 23 App. Div. 966, 260 N.Y.S.2d 589).
Where the property is owned by a college fraternity, it is necessary to examine the requirements for exemption as an educational organization.
The meaning of the word “educational” within section 420, although not categorically defined by the courts, has generally been interpreted in a limited and restricted sense in prior judicial decisions. It has been held that the meaning of the term “educational” relates to formal education and activities incidental thereto (Swedenborg Foundation, Inc. v. Lewisohn, 40 N.Y.2d 87, 351 N.E.2d 697,386 N.Y.S.2d 54; Matter of Syracuse University, 214 App. Div. 375, 212 N.Y.S. 253; People ex rel. Board of Trustees of Mount Pleasant Academy v. Mezger, 98 App. Div. 237, 90 N.Y.S. 488, aff’d, 181 N.Y. 511, 73 N.E. 1130).
It seems clear that in most cases, fraternities are not organized exclusively for “educational” purposes as that term is used in section 420. Moreover, even if the certificate of incorporation states purposes which would entitle the organization to an exemption, the actual use of the fraternity property must satisfy the “exclusive use” requirement of section 420. The decisions have generally held that the fraternities in question failed to sustain their burden of showing that their property was being used exclusively for educational purposes.
In People ex rel. Delta Kappa Epsilon Society of Hamilton College v. Lawler, 74 App. Div. 553,77 N.Y.S. 840, aff’d, 179 N.Y. 535, 71 N.E. 1136, it was held that property owned by Delta Kappa Epsilon, a college fraternity, and used as its chapter house was not entitled to an exemption. The exemption was denied on the ground that, although the fraternity’s charter declared its purposes to be “literary and for the promotion of the fine arts,” the property was, in fact, not used for these purposes, but as a club house to provide a place for residence, relaxation and social activity for its members.
The court said at 74 App. Div. 553, 558:
Its primary purpose is to afford the members of the fraternity owning it with an abiding place while attending college. It is there that they eat and sleep; it is there that they mingle with each other in social intercourse; it is there that they entertain their friends, and to that end indulge in dancing and other similar amusements. In short, it is to all intents and purposes a club house, a place for rest, recreation and fraternal intercourse, rather than for the purposes for which it is claimed to have been organized, which purposes are plainly secondary and incidental; and such being the case, we do not see how, within the well-settled policy of the law to which allusion has just been made, it is entitled to exemption from taxation.
The Appellate Division, in Cornell v. Board of Assessors of Ithaca, 24 App. Div.2d 526, 260 N.Y.S.2d 197, denied exemption to fraternity property, holding that it was not used exclusively for educational purposes. The court stated:
It is true, of course, that the fraternities perform the essential functions of housing and feeding students but it is clear that, in each case, the use of the premises is also devoted, in substantial part, to the social and other personal objectives, of a privately organized, self-perpetuating club, controlled by graduate as well as student members. The burden of demonstrating these objectives to be educational purposes was not sustained and thus Special Term properly found that the premises were not used “exclusively” for educational purposes, within the intendment of the exemption statute (260 N.Y.S.2d at 199).
Therefore, even if the purposes stated in a fraternity’s certificate of incorporation could be construed as showing that it is organized for educational purposes, a court would look beyond the certificate of incorporation and determine what activities actually take place on the subject property. As stated in the cases discussed above, the standard activities conducted by fraternities have been held to be a primarily non-educational use.
Where the university has title to the fraternity property, differing results have been reached. In the case of Cornell University v. Thorne, 184 Misc. 630, 157 N.Y.S.2d 6, certain fraternities paid for the construction of buildings on the University campus, the University having title thereto. It was claimed that the buildings should be exempt as University dormitories. The court refused to grant the exemption, holding that a university dormitory is open to all students, and the admittance of students is made by the University on an educational rather than a social basis. The court pointed out that the only difference between these and other fraternity houses was that the University held title; that it could not deprive the fraternities of exclusive use without paying for the buildings, and, although each student living in the buildings leased his quarters directly from the University, only the fraternities could designate the occupants.
However in the case of University of Rochester v. Wagner, 63 A.D.2d 341, 408 N.Y.S.2d 157, aff’d, 47 N.Y.2d 833, 392 N.E.2d 569, 418 N.Y.S.2d 583, exemption was granted to nine fraternity houses owned by the University. The court distinguished the case before it from that of Cornell University v. Thorne on the ground that the University of Rochester had complete control over the fraternity houses at issue, including the right to assign students of its choice to live in them. The court said at 408 N.Y.S.2d 165 that: “Our case is unique inasmuch as the University has owned the fraternity houses since their construction, all the houses are located on the college campus and the University has always had the right to exercise complete control over the houses and use them for whatever purposes it so desired.” Therefore, for purposes of section 420, the fraternity houses were held to be indistinguishable from tax exempt dormitories.
Thus, it appears that the issue in cases involving university owned fraternity houses is whether the university possesses control over the houses to such an extent that they are a part of the educational process rather than social or recreational facilities.
July 21, 1977
Revised September, 1979