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Volume 10 - Opinions of Counsel SBRPS No. 101

Opinions of Counsel index

Nonprofit organizations exemption (generally) (estoppel of assessor to discontinue exemption) - Real Property Tax Law, § 420-a:

An assessor is not bound by a judicial finding made in a previous year to grant a nonprofit organizations exemption, but a change in facts (e.g., degree of property use) may help the assessor to successfully defend against a claim of arbitrary and capricious action in discontinuing such exemption in a subsequent year.

Our opinion has been sought concerning the nonprofit organizations exemption (Real Property Tax Law, § 420-a). A nonprofit organization owns and operates a hospital in New York City; it also owns property in Rockland County which it claims to use as a rest and recreation facility for the families of the hospital’s medical, research and other staff. The town assessor in Rockland County notes that, over the years, there has been diminishing use of what the assessor refers to as the “vacation” property.

There are essentially three tests which must be satisfied if property is to receive exemption pursuant to section 420-a: nonprofit status, organizational purpose and property use. We assume that there is no question as to the hospital’s satisfaction of the first two criteria and that the sole question is as to its use of the Rockland parcel.

Although the statute requires that property must be “used exclusively” for exempt property if it is to receive exemption (RPTL, § 420-a(1)(a)), the courts have routinely held that this means that the property must be used “principally” or “primarily” for such purpose, or, put another way, that an incidental use for non-exempt purposes will not defeat the exemption (e.g., Association of the Bar of City of New York, 34 N.Y.2d 143, 313 N.E.2d 30, 356 N.Y.S.2d 555 (1974)). As the initial trier of fact, the assessor must determine if a particular use satisfies this standard. This particular situation is more complicated in that litigation concerning the hospital’s Rockland County exemption eligibility has been commenced twice before.

First, a 1963 State Supreme Court order implemented a stipulation of settlement that 55 percent of the hospital’s property is used exclusively for exempt purposes and therefore exempt from taxation to such extent. The court order includes language to the effect that the property will remain partially exempt so long as the property is so “used as a non-profit center for vacation, rest and recreation for its attending and resident staff physicians and other members of its staff and their families and guests. . . .” The respondent board of assessors “and their successors in office . . . are directed to reflect such determination upon all future assessment rolls. . . .”

In 1979, the then board of assessors apparently withdrew the exemption and the hospital again sued. The Supreme Court justice quoted the 1963 order and ordered reinstatement of the exemption, concluding that the assessors were “directed to comply fully in the future with the Order of this Court dated July 11, 1963.” While not so saying, the court appeared to find the preceding court order to be controlling.

Each year, however, the assessor must make a determination of taxable status (Hilton v. Fahrenkopf, 279 N.Y. 49, 17 N.E.2d 765 (1938); Matter of F. O. R. Holding Co., Inc. v. Board of Assessors of the Town of Clarkstown, 45 A.D.2d 875, 357 N.Y.S.2d 875 (2d Dept. 1974)). Historically, the rule has been that even a judgment establishing the assessment of a parcel for one year does not have a binding effect (i.e., it is not res judicata) in a succeeding year, although it may be of some relevance (Vantage Petroleum v. Board of Assessment Review, Town of Babylon, 61 N.Y.2d 695, 460 N.E.2d 1088, 472 N.Y.S.2d 603 (1984); Liberty Healthcare Management v. Fahey, 257 A.D.2d 964, 684 N.Y.S.2d 638 (3d Dept. 1998); but cf., RPTL, § 727, as added by L.1995, c.693 and since amended).

As to the nonprofit organizations exemption, the court in People ex rel. Watchtower Bible and Tract Society, Inc. v. Haring, 286 App.Div. 676, 146 N.Y.S.2d 151 (3d Dept. 1955), explained at length:

It is elementary that the doctrine of collateral estoppel is not applicable unless the issue in the second proceeding is identical with that in the first. It necessarily follows from this principle that the doctrine of collateral estoppel cannot apply to a claim of charitable or religious exemption where the granting or denying of the exemption depends upon the actual use of the property at the time of the proposed assessment. An adjudication that the property was or was not used for a charitable or religious purpose during one year cannot constitute an adjudication as to whether it was used for such a purpose during another year. The issues are not the same. The issue as to each year depends upon what took place that year. It is therefore unnecessary to allege or prove a change of the facts in order to render the doctrine of collateral estoppel inapplicable to an issue of charitable or religious exemption, insofar as the exemption is dependent upon the nature of the use of the property. The parties in the new proceeding do not have to start with the former adjudication and then show a change of facts since that time; they may relitigate the entire issue de novo. The doctrine of collateral estoppel does not apply to issues of the type here involved at all [citations omitted](286 App.Div. at 680, 146 N.Y.S.2d at 156).

The court later continued:

Important considerations of public policy support the conclusion here reached. If the denial of an exemption on account of an alleged charitable or religious use is held to be res judicata in subsequent tax years, then the granting of an exemption must similarly be held to be a binding adjudication against the taxing authorities in subsequent years. It would clearly be against the public interest to foreclose the relitigation of an issue of that character by the public authorities in subsequent years merely because it had once been adversely decided with respect to a particular year (286 App.Div. at 682, 146 N.Y.S.2d at 158).

This decision has been cited with approval on several occasions (e.g., Matter of F. O. R. Holding Co., Inc. v. Board of Assessors of the Town of Clarkstown, supra; St. Agnes Church v. Daby, 148 A.D.2d 31, 543 N.Y.S.2d 208 (3d Dept. 1989)).

Despite the aforecited decisions, an attempt by the assessor to withdraw the exemption may be met by an argument that the settlement is res judicata or that the withdrawal is barred by collateral estoppel. For example, in Italiano v. Srogi, 89 A.D.2d 1054, 454 N.Y.S.2d 766 (4th Dept. 1982), a case concerning a court order limiting the right of the assessing unit to increase an assessment for three years following a court ordered assessed value, the court said, “We find no authority, absent stipulation of the parties, for the imposition of such restraint upon either the taxpayer or the taxing authority” (454 N.Y.S.2d at 767; emphasis added). {1}  In Group Health Inc. v. Tax Commission of the City of New York, 93 A.D.2d 730, 461 N.Y.S.2d 28 (1st Dept. 1983), the court noted that, “[t]he prior litigation and settlement between the parties does not preclude the petitioner from challenging the tax determination of respondents for 1980/81” (461 N.Y.S.2d at 30; emphasis added).

While we consider the doctrine expressed in Watchtower (supra) to be correct, quite clearly, an assessor’s chances of success in defending his or her decision to treat the property as taxable may well be contingent upon the assessor’s ability to show a significant change in the use of the property, including the level of such use (Sullivan County Harness Racing Association, Inc. v. Glasser, 30 N.Y.2d 269, 283 N.E.2d 603, 332 N.Y.S.2d 622 (1972); Antal v. City of New York, 109 A.D.2d 723, 486 N.Y.S.2d 41 (2d Dept. 1985)). In Antal, the court, while acknowledging that the assessor is free to review a previous grant of an exemption when presented with new facts and circumstances, specifically held that absent a change in facts or circumstances, denial of a previously granted exemption was capricious and would not be sustained. {2}

March 22, 2000

{1}  Note that this decision also predates the enactment of the aforementioned section 727 of the RPTL.

{2}  Moreover, given that this particular issue has been twice unsuccessfully litigated by the town, we suggest that the assessor discuss this matter with the town attorney before proceeding to reduce or eliminate the hospital’s exemption.