Volume 9 - Opinions of Counsel SBEA No. 51 (rev.)
Business investment exemption (scope) (eligibility for concurrent exemption); Industrial development agencies exemption (scope of exemption) (effect of business investment exemption) - General Municipal Law, § 874; Real Property Tax Law, §§ 412-a, 485-b:
Effective November 1, 1992, property which is receiving or has received an industrial development agency exemption from taxation may not receive a business investment exemption unless certain payments in lieu of taxes are or were paid during the period of the industrial development authority exemption.
An industrial development agency (IDA) owns an industrial plant and the land on which the plant is located. By virtue of its IDA ownership, the property is wholly exempt from taxation pursuant to section 412-a of the Real Property Tax Law and section 874 of the General Municipal Law (GML). A private entity leases and operates the plant and intends to build an adjoining expansion. Although the expansion will be located on IDA owned land, the private entity will itself own the new improvements.
We have been asked whether the expansion would be eligible for the IDA exemption (GML, § 874; RPTL, § 412-a), the business investment exemption (RPTL, § 485-b), or both. It appears that the property would be eligible for the IDA exemption; it may also be eligible for the business investment exemption, provided several criteria are satisfied.
Although the new improvements will be privately-owned, they will nevertheless be entitled to the IDA exemption so long as the land on which they are situated is leased from the IDA. This is because the exemption for IDA property applies not only to property owned by an IDA but also to property under the “jurisdiction or control or supervision” of an IDA (RPTL, § 412-a; GML, § 874(1)). For example, it has been held that where property is subject to an equitable mortgage held by an IDA, the property is eligible for the exemption (Al-Star Realty Corp. v. Griffith, 139 Misc.2d 104, 526 N.Y.S.2d 313 (Sup. Ct., Oneida Co., 1987)).
More generally, we believe the phrase “jurisdiction or supervision or control” is intended to apply to those situations where an IDA has the ultimate authority to direct the manner in which the property is used, as would be the case where the IDA leases the property, or the land on which it is located, to the operator (see, 9 Op.Counsel SBEA No. 17). Thus, privately-owned property which is located upon land leased from an IDA is eligible for the IDA exemption so long as the land is IDA-owned.
Since the property would be eligible for the IDA exemption, the question becomes whether the property may simultaneously receive the business investment exemption. The owner may well be interested in receiving both exemptions, if eligible, because, while the IDA exemption provides a total exemption from taxation, it does not apply to special ad valorem levies or special assessments (1 Op.Counsel SBEA No. 23). The business investment exemption, though a partial exemption, applies not only to taxes but also to special ad valorem levies. Thus, receiving the two exemptions concurrently would give the owner both a total exemption from taxation and a partial exemption from certain special district charges.
As to whether property may be eligible for both exemptions, when section 485-b was first enacted (L.1976, c.278), there was nothing to preclude property from receiving both exemptions if it qualified for both. This issue did not arise when property was IDA owned, for property must be privately owned in order to be eligible for the business investment exemption (5 Op.Counsel SBEA No. 112; see also, Honeoye Central School District v. Berle, 51 N.Y.2d 970, 416 N.E.2d 1056, 435 N.Y.S.2d 721 (1980)). However, at that time, if IDA property were to be conveyed to a private owner, it could become eligible for the business investment exemption. Also, property which was under the “jurisdiction, supervision, and control” of an IDA, but not owned by the IDA, could receive a business investment exemption concurrently with the IDA exemption.
To close what was perceived as a loophole, the statute was amended (L.1985, c.512) to add a subdivision (2) (d) (the “dual exemption clause”), expressly precluding the granting of the business investment exemption “concurrent with or subsequent to any other exemption which may be authorized by this chapter with respect to the same improvements to real property.” On the basis of this amendment, we advised assessors that property which was receiving or had received an IDA exemption could not also receive a business investment exemption.
However, in Pyramid Company of Watertown v. Tibbits, 76 N.Y.2d 148, 556 N.E.2d 419, 556 N.YS.2d 980 (1990), the Court of Appeals held, in pertinent part, that the dual exemption clause did not apply to the IDA exemption. In the Court’s view, the IDA exemption is not one “authorized by this chapter” i.e., the RPTL, but is instead authorized by the General Municipal Law. Section 412-a of the RPTL merely provides a cross-reference. Thus, under Pyramid, property could receive both the business investment exemption and the IDA exemption if the eligibility requirements of both statutes are satisfied.
In response to Pyramid, the Legislature amended (L.1992, c.316, § 6) the dual exemption clause of section 485-b to prohibit the granting of a business exemption “concurrent with or subsequent to any other real property tax exemption granted to the same improvements to real property,” except in certain cases where payments in lieu of taxes (PILOTs) are made while the IDA exemption is in effect. This amendment is specifically intended to generally preclude former IDA property from later (or concurrently) receiving the business investment exemption, thereby limiting the Court’s holding in Pyramid.
The new amendment, which is effective November 1, 1992, does allow the business investment exemption to be granted if, and only if, during the period of another (e.g., the IDA) exemption, the operator made PILOTs, and the PILOTs were at least equal to the taxes that would have been paid had the property been taxable but receiving the partial business investment exemption. In such a circumstance, the business investment exemption may be granted for the balance of the ten-year period that would otherwise have been allowed under section 485-b. Note, however, that all other criteria of section 485-b must also be satisfied if that exemption is to be allowed (e.g., application for exemption within one year of completion of improvement (§ 485-b(3))).
August 21, 1991
Revised August 1992