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Volume 10 - Opinions of Counsel SBRPS No. 117

Opinions of Counsel index

Nonprofit organizations exemption (benevolent) (social club) - Real Property Tax Law, § 420-b:

A nonprofit organization, which is primarily a social organization, is not entitled to a nonprofit organizations exemption.

We have been asked if property owned by a local Irish-American society [hereafter Society] may receive an exemption from taxation pursuant to section 420-b of the Real Property Tax Law. The Society is exempt from Federal income taxes pursuant to section 501(c)(7) of the Internal Revenue Code. None of the municipalities in which the Society’s property is located has opted to tax any of the otherwise exempt purposes listed in section 420-b (e.g., benevolent).

The Society has applied as a “benevolent” organization as distinguished from a “charitable” organization (which may seek exemption per RPTL, § 420-a: the nonprofit organizations (mandatory class) exemption). Since none of the municipalities in issue has opted to tax benevolent organizations, this is not a critical factor in this context. {1}

In order to be eligible for a section 420-b exemption, it must be shown that the owner is organized “exclusively” for exempt purposes. In this context, the term “exclusive” has been held to mean “principal” or “primary” (Mohonk Trust v. Board of Assessors, 47 N.Y.2d 476, 392 N.E.2d 876, 418 N.Y.S.2d 763 (1979)). An assessor should therefore examine the purposes stated in the applicant’s enabling documents as well as its actual practices. Here, we note that Society’s constitution states that one of its purpose is to “promote the social and general welfare of its members.”

As noted, the Society seeks exemption as a benevolent organization. Before the nonprofit organization exemption was separated into the current two sections (L.1981, c.919), one court attempted to explain the difference between charity and benevolence:

Section 420 contemplates that a distinction be made between a “charitable” and a “benevolent” purpose. Although not sharp and well defined, such a distinction does, nevertheless, exist. The furnishing of clean and decent overnight accommodations at a modest price, without profit, although not charitable, is certainly a “benevolent” undertaking. It is a kind act, one of good will, unrelated to economic status (Syracuse Council of American Youth Hostels, Inc. v. Srogi, 116 Misc.2d 394, 397, 455 N.Y.S.2d 691, 693 (Sup.Ct., Onondaga Co., 1982), aff’d, 90 A.D.2d 674, 455 N.Y.S.2d 1018 (4th Dept., 1982, app.den., 58 N.Y.2d 606, 447 N.E.2d 85, 460 N.Y.S.2d 1025 (1983)).

In determining whether a nonprofit organizations exemption should be granted, assessors must determine if the applicant fits within one or more of the exempt purposes listed in section 420-a or 420-b. The Federal income tax laws assist assessors in this task. In 10 Op.Counsel SBRPS No. 43, we discussed the relationship between RPTL, sections 420-b and 428 [the fraternal organizations exemption], and quoted at length from Volume 4 of the New York State Assessor’s Manual:

Since all the exempt purposes listed in section 420-a and 420-b for a real property tax exemption are included in either section 501(c)(3) or 501(c)(6), any other subdivision or paragraph of section 501 of the Internal Revenue Code indicates that the applicant may not have as its main purpose any of the exempt purposes included in section 420-a or section 420-b. This should be considered by the assessor in determining the organization’s purposes . . . (NYS Assessor’s Manual, Vol. 4, § 4.05, pp.241.53 - 241.54 (1/1/95)).

Here, as noted above, the Internal Revenue Service has granted income tax exempt status to the Society under section 501(c)(7) of the Internal Revenue Code: “Clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes . . .” (26 USCS § 501(c)(7)).

Accordingly, if the assessor determines that the Society is primarily a social organization, its property will not qualify for exemption. For example, in Adirondack Mountain Club, Inc. v. Assessor of the City of Glens Falls, 86 A.D.2d 934, 448 N.Y.S.2d 565 (3d Dept., 1982), the court held that the petitioner, which fostered walking, mountain climbing and camping in the Adirondack wilderness, was primarily a non-exempt recreational organization.

From a perusal of the Society’s enabling documents, it appears that the organization is devoted, at least in part, toward the preservation of a common cultural heritage. Of possible relevance, therefore, is the case of Asia Society, Inc. v. Tax Commission of the City of New York, 92 A.D.2d 781, 459 N.Y.S.2d 620 (1st Dept., 1983), where the court denied tax exempt status to a purported educational organization which existed “for the purpose of helping to bring the peoples of the United States and Asia closer together in their knowledge and understanding of each other” (459 N.Y.S.2d at 621). The court concluded that the Asia Society “is not itself directly affiliated with any recognized educational institution nor does any significant portion of its activities form part of an organized instructional program” (459 N.Y.S.2d at 622). Similarly, in Matter of Federation of Chians Cultural Educational Fund, Inc., 185 NYLJ 12 (3/25/81), Sup.Ct., Queens County, the court denied an exemption to a community center for the Greek-American community of Astoria, Queens, that was primarily used for social, fraternal, cultural and recreational purposes.

As the initial trier of fact, if the assessor determines that the Society is more than incidentally a social (or fraternal) organization, the application for exemption should be denied. If the Society disagrees, it may seek administrative and judicial review of such determination.

October 16, 2000

{1}  While sections 420-a and 420-b include similar provisions, they are not identical. For instance, organizations seeking exemption under section 420-b must do so on a timely filed, State Board-prescribed application form (RPTL, § 420-b(7)); organizations seeking exemption under section 420-a enjoy greater flexibility in their filing requirements (RPTL, § 420-a(11)).