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Volume 1 - Opinions of Counsel SBEA No. 101

Opinions of Counsel index

Municipal corporation, exemption (building leased in part for private purposes) - Real Property Tax Law, § 406:

Where part of a municipally-owned building is leased to private enterprises for nonpublic functions, the portion so leased is taxable and should be assessed on the assessment roll in the name of the municipality.

Our opinion has been requested as to the taxable status of certain municipally-owned property which is leased, in part for private purposes.

In the situation presented, a village acquired a bank building and apparently is converting it into offices for village functions. The village also decided to recoup some of its expenses by leasing the top two floors of the building to private enterprises, engaged in nonpublic functions, in return for rental fees.

The issue involved is whether or not the two privately used floors of the municipally-owned building are taxable for real property tax purposes.

Under New York law, all real property is subject to taxation, unless specifically exempted therefrom by an express statutory provision (section 300, Real Property Tax Law). A tax exemption for property owned by a municipal corporation is provided for in section 406 of the Real Property Tax Law.

Subdivision 1 of such section provides:

“1. Real property owned by a municipal corporation within its corporate limits held for a public use, including real property held or used for cemetery purposes and all lots and plats therein conveyed by such municipal corporation as places for the burial of the dead, shall be exempt from taxation and exempt from special ad valorem levies and special assessments to the extent provided in section four hundred ninety of this chapter.” (emphasis supplied)

In deciding whether a section 406 exemption applies, the determining factor is the use of the property. The polestars on either end of the spectrum are clearly defined. Pursuant to the above section, real property owned by a municipal corporation within its corporate limits, which is being used for a public purpose, is exempt from taxation. It has been held that real property is being “held for a public use” when it is “. . . occupied, employed, or availed of, by and for the benefit of the community at large, and implies a possession, occupation and enjoyment by the public, or by public agencies.” (Herkimer County v. Village of Herkimer, 251 App. Div. 126, 129; 295 N.Y.S. 629, 634).

It has also been held that the mere rental of municipally-owned property is not a ground for a denial of a tax exemption so long as such property is employed for a public use. (People ex rel. Mayor v. Assessors, 111 N.Y. 505).

On the other end of the spectrum, it is well-settled that where a municipality leases property to private individuals for a private use, such property is not exempt from taxation, (Herkimer County v. Village of Herkimer, supra) even though such revenue is paid into the treasury and is used for municipal purposes (Matter of Town of Huntington v. Bradford, 273 N.Y. 603, 7 N.E.2d 715).

The present issue falls into that penumbral area between heretofore defined law and requires sketching in by analogy and policy considerations.

No mention is made in section 406 about the prorating of real property taxes. Certain maxims of statutory construction should be employed as interpretive aids. Such an omission, by necessary implication (McKinney Statutes, section 74) demonstrates that where there is no public use, there is no exemption. The Legislature is never credited with intending an unjust or unreasonable consequence in its legislation (McKinney Statutes, section 143). That the municipality should operate in competition with private industry in the rental business, while enjoying a tax exempt status, is inherently and patently unfair. In construing statutory ambiguities, resort should be had to the general public policy of New York, so that the statute may be harmonized with that policy (McKinney Statutes, section 126). As previously mentioned, under the laws of New York, all real property is taxable unless specifically exempted. It need only be added that exemptions are frowned upon and that all are strictly construed.

There has been a distinction promulgated to avoid the loss of the section 406 exemption by use of the rationale in Bush Terminal Co. v. City of New York, (282 N.Y. 306, 26 N.E.2d 269). The test being that if the property is primarily for municipal purposes, the fact that it is leased in part for private use will not cause it to lose its exemption, if such leasing is incidental to the public use or in furtherance thereof. To avoid struggling through this morass of primary versus incidental, when municipal property is not wholly being held for public use and to avoid a case by case analysis by which uniformity in results is often sacrificed, the Bush case must be held to its singular facts. The Port Authority was not under municipal control but was rather a unique State agency in an interstate compact, created to regulate and develop the New York City Port area. Also, the Legislature’s attention had been specifically directed to the tax exemption matter. Bush Terminal must be delimited to section 404 of the Real Property Tax Law, dealing with state-owned property and denied any applicability to section 406 of the Real Property Tax Law.

Present law would seem to indicate that property previously enjoying an exemption from real property taxation under section 406 of the Real Property Tax Law but now partially held for private use must be taxed proportionately (Town of Harrison v. Westchester County, 13 N.Y.2d 258; 246 N.Y.S.2d 593). In the cited case, the court held that those portions of an airport owned by the county and employed in the actual operation of the airport for the general use of the public, were exempt from taxation. This included land used for runways, ticket offices, waiting rooms and the like and the hangars and land upon which such hangars were erected and which were used to house and maintain the aircraft serving the public. However, the court also held that when hangars were leased by the county, under long-term leases, to private corporations and such hangars were used exclusively for the storage and maintenance of the aircraft of these corporations, such hangars and land upon which they were located were not “held for a public use” within the meaning of section 406 of the Real Property Tax Law and thus were not exempt from taxation.

The term “real property” is defined to include “. . . buildings and other articles and structures . . .” erected upon land (section 102 (12) (b), Real Property Tax Law). Also defined in the Real Property Tax Law is the word “parcel”, which means a “. . . separately assessed lot, parcel, piece or portion of real property.” (Section 102 (11), Real Property Tax Law).

There is no logical reason why the rationale applied by the court in the Harrison case is not applicable, for assessment purposes, in the present situation. In that case, those portions of the airport held nonexempt from taxation were separate, individual structures on lots wholly used for nonpublic purposes. By prior definition, the bank building should be divided up into distinct “parcels” for assessment purposes, in this case, on a floor by floor basis. This type of solution has been adopted by the Legislature in the Condominium Act (section 339-y, Real Property Law), where each individual unit of a condominium is treated, for tax purposes, as a separate parcel.

This resolution of the issue would provide a tax exemption under section 406 of the Real Property Tax Law for those floors used for public municipal purposes while justly not exempting from real property taxation those floors of the building used by private corporations for nonpublic use. That portion of the building which is found to be so taxable should be assessed on the assessment roll in the name of the village.

September 12, 1968