Volume 7 - Opinions of Counsel SBEA No. 32
Job incentive exemption (scope) (nature of charge) - Real Property Tax Law, § 485:
There are several methods by which charges may be imposed on behalf of a sewer district; by taxation, by a special ad valorem levy, by a special assessment, or by sewer rents which are also known as user charges. The nature of the charge determines whether the subject property is exempt therefrom pursuant to section 485 of the Real Property Tax Law.
Section 485 of the Real Property Tax Law authorizes a county or city to adopt local laws, and school districts to adopt resolutions, providing an exemption from taxation and special ad valorem levies for eligible business facilities as defined in section 115 of the Commerce Law and certified by the New York State Job Incentive Board. The City of Auburn has enacted such a local law (Local Law No. 1, 1976). We have been asked if this tax exemption applies to charges imposed against real property for the purpose of financing sewers within the City of Auburn.
There are several methods by which charges may be imposed on behalf of a sewer district: by taxation, by a special ad valorem levy, by a special assessment, or by sewer rents (also known as user charges) (Young Men’s Christian Association v. Rochester Pure Waters District, 44 A.D.2d 218, 354 N.Y.S.2d 201 (4th Dept., 1974), aff’d, 36 N.Y.2d 371, 334 N.E.2d 586, 372 N.Y.S.2d 633 (1975)). Since there are no special ad valorem levies in cities (Real Property Tax Law, § 102(14)), the sewer charge of the City of Auburn must be either a tax, a special assessment or a user charge (sewer rent).
Tax
A sewer tax is a charge imposed by a city for sewer services and is levied on all real property in the city regardless of any resultant benefit (or lack thereof) to the land by the existence of the system. That is, if the charge in question is based solely upon assessed valuation and is levied at the same time and in the same manner as other general city charges and upon all real property in the city (whether or not benefited), it is a tax and the section 485 exemption applies to those charges.
If, however, the charge is a user charge or a special assessment, section 485 will have no effect on the property owner’s liability to pay the tax. Property ordinarily exempt from taxation or from the imposition of special ad valorem levies or special assessments “are not exempt from user charges” (YMCA v. Rochester Pure Waters District, 354 N.Y.S.2d at 205).
Special assessment
A “special assessment” is defined in section 102(15) of the Real Property Tax Law as a “charge imposed upon benefited real property in proportion to the benefit received by such property to defray the cost, including operation and maintenance, of a special district improvement or service or of a special improvement or service, but does not include a special ad valorem levy.” The State Comptroller has concluded that a special assessment should be imposed on all the parcels located within a district and therefore deemed benefited by the improvement, whether the parcel is using the service (29 Op.State Compt. 139 (1973)), and whether the parcel is vacant or improved (30 Op.State Compt. 147 (1974); 31 Op.State Compt. 852 (1975)). We concur in these opinions.
Sewer rents/user charges
“Sewer rents” may be imposed pursuant to Article 14-F of the General Municipal Law, known as the “Sewer Rent Law”, and are defined in section 451(1) as “a scale of annual charges established and imposed in a city or village or in a sewer district in a county or town pursuant to this article for the use of a sewer system or any part or parts thereof.” These charges may be calculated on any of the following bases:
(a) the consumption of water on the premises connected with and served by the sewer system or such part or parts thereof;
(b) the number and kind of plumbing fixtures on the premises connected with and served by the sewer system or such part or parts thereof;
(c) the number of persons served on the premises connected with and served by the sewer system or such part or parts thereof;
(d) the volume and character of sewage, industrial waste and other wastes discharged into the sewer system or such part or parts thereof; or
(e) upon any other equitable basis determined by the local legislative body, including but not limited to any combination of the foregoing.
User charges have been characterized as charges for use rather than as taxes (Silkman v. Board of Water Commissioners of the City of Yonkers, 71 Hun 37, 24 N.Y.S. 806 (S.Ct., Westchester Co., 1893), aff’d, 152 N.Y. 327, 46 N.E. 612 (1897)). In Silkman, the court stated that “the water rates are not taxes” (24 N.Y.S. at 807) and that “there is no basis for terming these rents a ‘tax’” (id.). The right to impose water charges is premised on the use of the service. Although a case might involve “water rents, sewer rents are charged on the same basis, i.e., formulas are designed to measure the amount of use of the service” (2 Op.Counsel SBEA No. 32 at 46).
“Ordinarily, when water rents are incurred by a consumer, such rents are not classified as taxes or assessments” (Rupersam Realty Corporation v. Larpeg Realty Corporation, 253 App.Div. 695, 3 N.Y.S.2d 840 at 841 (2d Dept., 1938)). The Comptroller has said that, “[t]ax-exempt properties are not exempt from the payment of water rents, since the relationship between the village and the consumer is one in contract [citations omitted]” (13 Op.State Compt. 222 at 223 (1957)). The exemption mentioned applies to taxation and special ad valorem levies (Real Property Tax Law, § 485(2)).
The character of the charge determines whether or not the subject property is exempt under section 485.
July 31, 1980