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Volume 10 - Opinions of Counsel SBRPS No. 95

Opinions of Counsel index

Nonprofit organizations exemption (religious) (bookstore) - Real Property Tax Law, § 420-a:

Whether a religious book and music store owned by a religious corporation is exempt from real property taxation depends on whether it is primarily used for the production of income or is merely incidental to the corporation’s religious purposes.

Our opinion has been requested concerning the eligibility of a Christian center for a nonprofit organizations exemption (Real Property Tax Law, § 420-a). The principal concern is a Christian book and music store which occupies a large portion of the property.

Section 420-a of the RPTL provides an exemption for the real property of a nonprofit corporation or association organized or conducted exclusively for certain specified exempt purposes (e.g., religious) and used exclusively to carry out such purposes, so long as no officer, member or employee of the corporation or association is eligible to receive pecuniary profit in excess of reasonable compensation. The term “exclusive” has been defined in this context to mean “principal” or “primary” (Association of Bar of the City of New York v. Lewisohn, 34 N.Y.2d 143, 313 N.E.2d 30, 357 N.Y.S.2d 555 (1974)).

The application forms promulgated by the State Board (e.g., RP-420-a-ORG) are intended to assist assessors in making informed decisions as to whether property qualifies for such exemption. A determination from the Internal Revenue Service that the organization is exempt from Federal income taxation pursuant to section 501(c)(3) of the Internal Revenue Code is a reliable indication that the organization is indeed nonprofit (see discussion in 10 Op.Counsel SBRPS No. 43).

A determination of whether an organization is organized or conducted exclusively for religious purposes is not easily made. In Matter of Holy Spirit Association for the Unification of World Christianity v. Tax Commission of the City of New York, 55 N.Y.2d 512, 435 N.E.2d 662, 450 N.Y.S.2d 292 (1982), the Court of Appeals prescribed the allowable inquiry:

In determining whether a particular ecclesiastical body has been organized and is conducted exclusively for religious purposes, the courts may not inquire into or classify the content of the doctrine, dogmas, and teachings held by that body to be integral to its religion but must accept that body’s characterization of its own beliefs and activities and those of its adherents, so long as that characterization is made in good faith and is not sham (55 N.Y.2d at 518, 435 N.E.2d at 663, 450 N.Y.S.2d at 293).

Citing Holy Spirit, another court said:

Petitioner’s corporate purposes clearly revolve around beliefs which petitioner asserts are religious in nature, and through its teachings and activities petitioner has defined what its religion is. In the absence of any evidence of insincerity or deception on petitioner’s part, we conclude that, on the facts presented in this record, petitioner is a corporation organized exclusively for religious purposes within the meaning of RPTL 420-a (1)(a) (In the Matter of Foundation for “A Course in Miracles”, Inc. v. Theadore,172 A.D.2d 962, 568 N.Y.S.2d 666, 668 (3d Dept. 1991), app. den., 78 N.Y.2d 856, 580 N.E.2d 409, 574 N.Y.S.2d 937 (1991)).

Should the assessor determine that the Christian center satisfies the nonprofit and organizational purpose requirements, he or she must then decide if the property is exclusively (again, meaning principally or primarily) used for exempt purposes. Here, presumably, the only question is as to the portion of the property used for retail sales. There are precedents on this issue.

In People ex rel. Watchtower Bible and Tract Society, Inc. v. Haring, 8 N.Y.2d 350, 170 N.E.2d 677, 207 N.Y.S.2d 673 (1960), the Court of Appeals exempted a farm, the vast majority of the produce of which was used by the members of the religious organization. In reaching its conclusion, however, the Court said, “It is a new and inadmissible idea that an organization not organized for profit but for religious or educational purposes loses its status as such because out of the sale of books and pamphlets it makes a first profit which goes into its capital funds or because the distributors of the books make a tiny gain therefrom” (8 N.Y.2d at 355, 170 N.E.2d at 679, 207 N.Y.S.2d 676).

In Matter of Stuyvesant Square Thrift Shop, Inc. v. Tax Commission of the City of New York et al.,54 N.Y.2d 735, 426 N.E.2d 478, 442 N.Y.S.2d 984 (1981), the Court of Appeals held a thrift shop to be taxable, finding that the primary purpose of the enterprise was to generate profits. This was the holding even though the net cash profits were ultimately distributed to various institutions organized for charitable purposes.

However, in the Matter of the Salvation Army v. Town of Ellicott Board of Assessment Review et al.,100 A.D.2d 361, 474 N.Y.S.2d 649 (4th Dept. 1984), the court distinguished Stuyvesant Square and found a Salvation Army thrift store to be exempt. The court said, “a tax exemption is warranted here if the use of property as a thrift store carries out the Army’s primary exempt purposes and is not a guise for profit making” (100 A.D.2d at 362, 474 N.Y.S.2d at 650). The court noted, “if the thrift stores [were] merely a profit-making venture to finance the Army’s charitable purposes, then the argument of the town that these retail stores are indistinguishable from any other commercial enterprise selling general retail merchandise to the general public would have merit” (100 A.D.2d at 364, 474 N.Y.S.2d at 651). The court continued:

Unlike the thrift store in Stuyvesant, Salvation Army thrift stores are not organized and operated for the sole purpose of generating income and making a profit. These stores may not be equated to the operation on the premises of a gas station, grocery store or similar retail outlet. They are operated as an integral part of the program of rehabilitation and therapy under the religious and charitable purposes for which the Salvation Army was incorporated, and not solely as a profit-making enterprise (100 A.D.2d at 365, 474 N.Y.S.2d at 652).

This last case would seem most relevant here. As the initial trier of fact, the assessor must determine if the use of the book/music store is primarily for the production of income or is reasonably incidental to the Christian center’s religious purposes. If the assessor determines that the store is not entitled to the exemption, he or she may treat as taxable that portion of the property (Trustees of the Sailors’ Snug Harbor in the City of New York v. Tax Commission, 26 N.Y.2d 444, 259 N.E.2d 910, 311 N.Y.S.2d 486 (1970)). The applicant may seek administrative and judicial review of such determination.

January 5, 2000