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Volume 10 - Opinions of Counsel SBRPS No. 29

Opinions of Counsel index

Nonprofit organizations exemption (generally) (purposes of organization); (educational) (museum) - Real Property Tax Law, § 420-a:

A museum may qualify for an exemption pursuant to section 420-a of the Real Property Tax Law despite the fact that its corporate charter indicates that it is organized for scientific and cultural purposes as well as educational purposes.

Our opinion has been requested as to the eligibility of a museum for a nonprofit organizations exemption (Real Property Tax Law, §§ 420-a, 420-b). The museum’s charter (granted in 1951 by the State Education Department) provides that it shall be “organized and operated exclusively for educational, scientific and cultural purposes.”

There are essentially three tests for the exemption: nonprofit status, organization for exempt purpose, and use of property for exempt purposes. For purposes of this inquiry, we assume there is no question as to the museum’s nonprofit status. The question is as to organizational purpose and property use.

Although the statutes require “exclusive” organization and use for exempt purposes, the courts have construed the term “exclusive” to mean “principal” or “primary” (Association of the Bar of the City of New York v. Lewisohn, 34 N.Y.2d 143, 313 N.E.2d 30, 356 N.Y.S.2d 555 (1974)). The issue of exclusivity of organizational purpose was addressed by the Court of Appeals in Mohonk Trust v. Board of Assessors, 47 N.Y.2d 476, 392 N.E.2d 876, 418 N.Y.S.2d 763 (1979). The Court’s decision on this issue was discussed at length in a law review article:

[T]he court stressed . . . the amendment to subdivision one of section 420 [now RPTL, §§ 420-a, 420-b], wherein the words “or conducted” were added, thereby resulting in the requirement “organized or conducted exclusively” for one or more of the specified exempt purposes. The court in Mohonk states that prior to the 1971 amendment [i.e., c.414], an essential element of the test for exemption was to be “organized” for an exempt purpose, which determination was in large part limited to an examination of the applicant’s corporate documents. In Mohonk it appears that the court determined that the 1971 amendment meant that a determination of an organization’s primary purpose may now turn upon the extent to which it carries out exempt purposes and is no longer dependent upon the language of its organizational documents. [footnote omitted]

*** [O]f even greater import is the court’s apparently substantial modification of the organization test. The first manifestation of this new issue was not long in coming.

In St. Joseph’s Health Center Properties, Inc. v. Srogi [51 N.Y.2d 127, 412 N.E.2d 921, 432 N.Y.S.2d 865 (1980)], a sharply divided [C]ourt of [A]ppeals appears to have extended the incidental use doctrine to the organizational test on the basis of the “or conducted” change. The majority correctly pointed out there is nothing in the scant legislative history of chapter 414 of the Laws of 1971 to explain the insertion of the words “or conducted,” although the amendment “was made at a time when municipalities were being granted relief the need for which was well documented.” However, the majority concluded that the absence of intent in regard to the addition of “or conducted” suggested “the Legislature’s intention to exempt property owned by a corporation conducted for a purpose reasonably incident to the major purpose of another subdivision (a) exempt corporation, even though not itself organized to engage in all of the activities of the latter corporation.” [footnote omitted] The dissent restated the court’s holding in Mohonk, but concluded that the 1971 amendment was not intended to eliminate the dual test for exemption pursuant to section 420 (that is, organizational purpose and property use). The dissenters charged that the majority was overlooking the organization requirement and focusing solely upon the use requirements, thereby applying only half of the statutory test for exempt status (Beebe & Harrison, A Law in Search of a Policy: A History of New York’s Real Property Tax Exemption For Nonprofit Organizations, 9 Fordham Urban L.J. 533, 578-80 (1980-81)).

While the dissenters’ point is well taken, the decision of the majority obviously controls.

Indeed, even before the St. Joseph’s (supra) decision, another court stated:

The general method by which an organization’s purposes are discovered is a perusal of its enabling documents (see Matter of De Peyster, 210 N.Y. 216, 104 N.E. 714). However, in determining whether activities are consistent with an organization’s purposes under section 421, one must look beyond the four corners of its charter to the manner in which it pursues its organizational purposes [citing Mohonk] (Mary Immaculate School of Eagle Park v. Wilson, 73 A.D.2d 969, 424 N.Y.S.2d 251, 252-53 (2d Dept., 1980)).

Similarly, in reliance on Mohonk and Mary Immaculate, the same court later said, “Since an organization may be exempt if it is ‘organized or conducted’ for an exempt purpose or purposes, one must look to both its organizational documents and activities to determine the purpose of the organization” (Independent Church, etc. v. Board of Assessors, 81 A.D.2d 579, 437 N.Y.S.2d 435, 437 (2d Dept., 1981)). Still later, the Court of Appeals explained its Mohonk decision: “In fact, rather than dissecting each exempt purpose, this court has indicated that the statute may encompass property used primarily for various and varied charitable and educational purposes and the moral or mental improvement of the citizenry” (Symphony Space, Inc. v. Tishelman, 60 N.Y.2d 33, 37, 453 N.E.2d 1094, 466 N.Y.S.2d 677, 679 (1983)).

Here, the museum’s charter lists three purposes: educational (a mandatorily exempt purpose included in RPTL, § 420-a), scientific (a permissively exempt purpose included in § 420-b) and cultural (included in neither section). It has been suggested that, because the museum’s purposes are not all within section 420-a or section 420-b, it cannot receive an exemption pursuant to either section. Put differently, does the inclusion of one corporate purpose, foreign to both sections 420-a and 420-b, defeat the right to exemption? {1}

Given the Mohonk decision and those that followed it, we think we would be remiss to advise an assessing unit to deny exempt status on such bases. {2}  We believe that a court would not take such a strict constructionist approach, but would instead look to the actual use of the applicant’s property, then decide if the applicant was organized or conducted primarily for an exempt purpose.

As to the issue of property use, we note the aforecited Symphony Space decision in which the Court of Appeals held a theater to be exempt pursuant to section 420-a. Given decisions of that type, we believe that otherwise qualifying property actually and primarily used for museum purposes may receive exemption pursuant to section 420-a (In re American Museum of Natural History, 17 Misc.2d 855, 187 N.Y.S.2d 390 (Suffolk Co.Ct., 1959); see also, New York Botanical Gardens v. Assessors, Town of Washington, 55 N.Y.2d 328, 434 N.E.2d 703, 449 N.Y.S.2d 467 (1982); In re Mergentime’s Estate, 129 App. Div. 367, 113 N.Y.S. 948 (1st Dept. 1908), aff’d, 195 N.Y. 572, 88 N.E. 1125 (1909); In re Major Deegan Boulevard, NOR, 131 N.Y.S.2d 330 (Sup.Ct. Bronx Co., 1954); but cf., Hotel Dorset Co., v. Trust for Cultural Resources, 46 N.Y.2d 358, 386 N.E.2d 1284, 413 N.Y.S.2d 357 (1978)).

In the first instance, of course, the assessor is to determine whether a particular organization and its property qualify for exemption pursuant to section 420-a or 420-b. That determination is then subject to administrative and judicial review.

January 10, 1997

{1}  In this respect, note that while “cultural” is not a defined exempt purpose, neither were “environmental” and “conservation” until Mohonk, supra.

{2}  We note that the “four corners of the charter” approach referred to in Mary Immaculate, supra, might still be possible where an organization is claiming exemption only pursuant to section 420-b. That section still requires that the applicant be “organized exclusively” for exempt purposes; there is no “or conducted” language therein (§ 420-b(1)(a)).