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Volume 10 - Opinions of Counsel SBRPS No. 36

Opinions of Counsel index

Agricultural exemption (conversion) (liability of tax exempt purchaser); Nonprofit organizations exemption (generally) (liability for conversion of agricultural lands) - Agriculture and Markets Law, §§ 305, 306; Real Property Tax Law, §§ 420-a, 481:

Where agricultural land receiving an agricultural assessment is sold and converted to another use, the property is liable for payments for conversion, unless the conversion falls within one of the limited statutory exceptions. Such liability results even if the buyer would be entitled to an exemption from taxation under some other statute, except if the conversion occurs after purchase by the Federal or State government.(8 Op.Counsel SBEA No. 109 overruled in part)

Our opinion has been requested concerning the Agricultural Districts Law (Agriculture and Markets Law, Art. 25-AA; Real Property Tax Law, § 481), specifically, the effects of a sale of land committed to agricultural use, which receives an agricultural assessment (Agriculture and Markets Law, § 306), to a nonprofit organization presumably entitled to a nonprofit organizations exemption (RPTL, § 420-a). The farmer last filed a commitment form two years ago for two parcels: a 33 acre parcel and a four acre parcel located across the road from the larger parcel. The nonprofit organization owns a 20 acre parcel (contiguous to the farmer’s larger parcel) on which the organization receives an exemption pursuant to section 420-a, including a portion thereof which is also farmed. The organization intends to purchase the 33 acre parcel and use it in conjunction with its own farming operations. After purchase, the organization intends to seek to extend its nonprofit organizations exemption.

Given these facts, several questions are raised:

1. Would the conveyance of the 33 acre parcel to the nonprofit organization result in any liability for payments for conversion?

2. May the organization seek its nonprofit organizations exemption while the property still enjoys an agricultural assessment or must it wait to apply until the farmer’s commitment expires?

3. If the farmer sells or converts the use of the four acre parcel, will that trigger a penalty on the 33 acre parcel? Does it make a difference if the sale or conversion occurs before or after the organization’s purchase of the larger parcel?

Agricultural land located outside of an agricultural district may receive an agricultural assessment if it satisfies the criteria of section 306 of the Agriculture and Markets Law. If land which receives such an assessment “is converted at any time within eight years from the time an agricultural assessment was last received, such conversion shall subject the land so converted to payments in compensation for the prior benefits of agricultural assessments” (Agriculture and Markets Law, § 306(2)(a)(i)). {1}  Similarly, if land used in agricultural production within an agricultural district receives an agricultural assessment and is converted to non-agricultural use, the “land so converted shall be subject to payments...” (Agriculture and Markets Law, § 305(1)(d)(i)). In the case of land within an agricultural district, there is no payment due if the property last benefited from an agricultural assessment more than five years prior to the year in which payments would otherwise be levied (ibid.). (For purposes of this opinion, we will hereafter refer to the “statutory period” to refer to the applicable eight or five year period during which “payments” for conversion may be due.)

The law provides a very limited class of exceptions to this general rule of liability for payments in the event of a conversion to a non-agricultural use. The first, enacted the year after the Agricultural Districts Law was created, provides an exception for liability where the land was “converted to a use other than agricultural production by virtue of a taking by eminent domain or other involuntary proceeding, other than a tax sale . . .” (L.1972, c.712). This limited exception was expanded to include one type of “voluntary” conversion in 1982, to wit, where the land was converted by virtue of “oil or gas exploration, development, or extraction activity . . .” (L.1982, c.564). No other exceptions have received legislative protection (see, Agriculture and Markets Law, §§ 305(1)(d)(iv) and 306(2)(c)).

Land so converted, whether within or outside of an agricultural district, is subject to a payment equaling five times the taxes saved in the last year in which the land benefited from an agricultural assessment, plus interest of six percent per year compounded annually for each year in which an agricultural assessment was granted, not exceeding five years. The amount of taxes saved is determined by applying the applicable tax rates to the excess amount of assessed valuation of such land over its agricultural assessment as set forth on the last assessment roll. If only a portion of a parcel is converted, the assessor must apportion the assessment and agricultural assessment attributable to the converted portion. The difference between the apportioned assessment and the apportioned agricultural assessment is the amount upon which the payment is based (Agriculture and Markets Law, §§ 305(1)(d)(i), 306(2)(a)(ii).

In answer to the first question presented, the mere sale of either of the farmer’s parcels does not constitute a conversion. A “conversion” is defined as “an outward or affirmative act changing the use of agricultural land and shall not mean the nonuse or idling of such land” (Agriculture and Markets Law, § 301(8); 9 NYCRR 194.1(i)). If the buyer continues to farm the parcel, no conversion has occurred (4 Op.Counsel SBEA No. 13, 6 id. No. 66). {2}  To avoid the aforementioned payments for conversion, a new owner who wishes to convert the land, must delay that process and not take advantage of the agricultural assessment for whatever portion of the statutory period remains (id.).

As to the second question, section 420-a of the RPTL provides an exemption from taxation and certain special ad valorem levies and special assessments to real property owned by a nonprofit organization organized or conducted for one or more of the statutorily specified purposes (e.g., religious, educational) which property is used exclusively for exempt purposes. In certain circumstances, farm property owned and used by such a nonprofit organization has been determined to be entitled to such exemption (e.g., People ex rel. Watchtower Bible & Tract Society, Inc. v. Haring, 8 N.Y.2d 350, 170 N.E.2d 677, 207 N.Y.S.2d 673 (1960); Rudolf Steiner Educational and Farming Association, Inc. v. Brennan, 65 A.D.2d 868, 410 N.Y.S.2d 404 (3d Dept., 1978), app. den., 46 N.Y.2d 709, 387 N.E.2d 624, 414 N.Y.S.2d 1027 (1979)). For purposes of this opinion, we assume that the nonprofit organization is entitled to exempt status on its farm property.

The answer to the second question, then, depends on the organization’s use of its new property. If it continues to farm the property for at least the balance of the statutory period following the conveyance, there will be no conversion and no conversion payment. Presumably, the organization’s now larger farm will continue to be eligible for a nonprofit organizations exemption. As noted above, alternatively, the nonprofit organization could make no use of the property and avoid the payment, but then it might not qualify for a nonprofit organizations exemption due to lack of use (RPTL, § 420-a(1)(a); but see § 420-a(3) regarding exemption for unused land where exempt use is contemplated in good faith). If, however, the organization were to convert its new parcel to non-farm purposes, albeit nonprofit purposes which might qualify for exemption from taxation pursuant to section 420-a, in our opinion, the conversion payment would still be due.

The real property of corporations or organizations which otherwise meet the requirements of section 420-a of the RPTL are “exempt from taxation . . .” (RPTL, § 420-a(1)(a)). Long ago, in the context of another matter of the privilege of an exemption from real property taxes, the Court of Appeals stated that “[t]axes, as the term is generally used, are public burdens imposed generally upon the inhabitants of the whole State, or upon some civil division thereof, for governmental purposes without reference to peculiar benefits to particular individuals or property” (Roosevelt Hospital v. Mayor, 84 N.Y. 108, 111 (1881)). In explaining the scope of the exemption from taxation in that case, the Court said further that “[w]hat the legislature undoubtedly meant was to exempt the plaintiff from such taxation as it would, but for the exemption, have to share for governmental purposes with all the other persons in the ward or city or State” (id., at 112). (To the same effect, see, People ex rel. New York School for the Deaf v. Townsend, 173 Misc. 906, 18 N.Y.S.2d 865 (Sup.Ct., Westchester Co., 1940), aff’d, 261 App.Div. 841, 25 N.Y.S.2d 1002 (2d Dept. 1941), aff’d, 298 N.Y. 645, 82 N.E.2d 37 (1948).)

Note that when the Agricultural Districts Law was first enacted, the applicable provision of section 306, subdivision 2, provided that a conversion of lands committed to agricultural use would subject the land to “an additional amount in compensation for the prior benefits of agricultural value assessments . . .” (as added by L.1971, c.479 [emphasis added]). {3}  That remained the law until 1987 when the terms “penalties” or “penalty taxes,” were added (L.1987, c.774); they were then deleted by amendment in 1992 (L.1992, c.797).

Clearly, both by title and by intent, these payments are not “taxes” in the ordinary sense of that word, as defined by the Court of Appeals, but rather are compensatory levies for revenue foregone while the property was still being used for agricultural purposes. Moreover, since the law recognizes specific exceptions to this rule of liability, as noted above, we believe conversions under any other circumstances subject the property to liability for payments. {4}  Accordingly, it is our opinion that an exemption from “taxation” (except where sovereign immunity is applicable) does not extend to payments for conversion of agricultural lands to a non-farm use, be that use one for nonprofit or other purposes. {5}

Therefore, it is now our opinion that where agricultural land receiving an agricultural assessment is sold and converted, the statutory “payments” due upon conversion should be charged even if the buyer is exempt (but not immune) from “taxation” of that property. Administratively, the parcel may then appear twice on the next assessment roll: as an exempt parcel on the section of the assessment roll in which wholly exempt property is listed (9 NYCRR 190-1.3(a)(2)(i)(f)) and on the portion where converted agricultural property is listed (9 NYCRR 190-1.3(a)(2)(ii)(c)). In other words, the property may be otherwise exempt from taxation, but still liable for payments resulting from the conversion. {6}

Finally, in answer to the third question, as noted above, payments are due only on converted lands or those portions of lands that are converted. So, if only the four acre parcel is converted, the payment owed for conversion should be calculated using the amount of taxes saved on those four acres. It is irrelevant whether the conversion occurs before or after the conveyance so long as that conversion occurs within the statutory period (of five or eight years) of the last time an agricultural assessment was received.

February 12, 1997

{1}  In prior opinions, we discussed the “penalties” imposed for the conversion of agricultural land (e.g., 6 Op.Counsel SBEA No. 66). The terms “penalty” or “penalty tax” are no longer used in connection with agricultural assessments. Both sections 305 (i.e., for land located within an agricultural district) and 306 of the Agriculture and Markets Law now provide that the conversion of land which received an agricultural assessment shall subject the land to a payment for such conversion.

{2}  Note that the cited opinions refer to “commitments” which were formerly required in § 306. Formal, recorded commitments have been eliminated (L.1994, c.680).

{3}  We recognize that the term first applied to amounts due attributable to conversion of lands within an agricultural district was “roll-back taxes,” but, as noted, the statute currently labels all these charges as “payments.”

{4}  As stated in McKinney’s Statutes, § 240, “It is a universal principle in the interpretation of statutes that expressio unius est exclusio alterius. That is, to say, the specific mention of one person or thing implies the exclusion of other persons or things.”

{5}  To the extent that 8 Op.Counsel SBEA No. 109 is inconsistent with this conclusion, it is hereby superseded. That Opinion incorrectly analogized acquisition and conversion by a municipal corporation to that by the Federal or State government. Since the Federal and State governments enjoy sovereign immunity - to which a municipal corporation is not entitled - the analogy and the opinion based thereon is incorrect. (With respect to the Federal or State government, we call attention to our opinion, 8 Op.Counsel SBEA No. 44, cited with approval by the Court of Appeals in LIPA v. Shoreham-Wading River Central School District, 88 N.Y.2d 503, 512, 647 N.Y.S.2d 135, 139 (1996), and United States v. Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L.Ed. 1327 (1941).)

{6}  Although section 306(2)(a)(ii) of the Agriculture and Markets Law provides, in part, that the payments for conversion are to “be levied in the same manner as other taxes,” in our opinion, this does not transform the payments into taxes. Instead, we read this provision as prescribing the means to administer the payments. We construe section 305(d)(iii)(b), which provides that the payments are “subject to administrative and judicial review as provided by law for review of assessments,” in a similar manner.