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Volume 3 - Opinions of Counsel SBEA No. 12

Opinions of Counsel index

Public Authorities exemption (hospital district authority) (space leased for private health care center) - Public Authorities Law, § 1776; Real Property Tax Law, § 421:

Property owned by a hospital district authority, created by Title 7 of Article 8 of the Public Authorities Law, leased and exclusively used by a group of doctors for the treatment of their private patients for personal gain is not entitled to exempt status under section 1776 of that law.

Our opinion has been requested as to the taxable status of that portion of a hospital leased to a group of doctors for a private health care center.

We have previously stated that office or clinic space belonging to a not-for-profit organization used exclusively by doctors for the treatment of their private patients for personal gain is not entitled to an exemption under section 421 (formerly § 420) of the Real Property Tax Law (1 Op.Counsel SBEA No. 64).

In this case we are told that the office space leased to the physicians (for a yearly rental of $7,200) is owned by a hospital district authority (hereinafter called “authority”). The authority was created in 1959 by Title 7 of Article 8 of the Public Authorities Law for the purpose of creating and operating a public general hospital serving the city in which it is located and any nearby towns which should elect to participate.

Subdivision 1 of section 1776 of the Public Authorities Law, the section which provides the tax exemption for the authority, reads as follows:

It is hereby determined that the creation of the authority and the carrying out of its corporate purposes is in all respects for the benefit of the people of the state and of the hospital district and its environs for the improvement and care of their health and general welfare, and is a public purpose. The authority shall be regarded as performing an essential governmental purpose and function in the exercise of the powers conferred upon it by this title and shall be required to pay no taxes or assessments upon any of the properties acquired by the authority or under its jurisdiction, control or supervision or upon its activities, or any revenue, contributions or other income received by the authority. (emphasis supplied)

The taxpayer suggests that the leased space is exempt under the quoted provision.

The new information raises a new question, and we agree that section 421 of the Real Property Tax Law is not relevant. However, we still are of the opinion that the leased doctor’s offices are not entitled to an exemption.

Real property tax exemption statutes must be strictly construed against the taxpayer seeking exemption. (In the Matter of City of Lackawanna v. State Board of Equalization and Assessment, 16 N.Y.2d 222, 212 N.E.2d 42, 264 N.Y.S.2d 528) and all doubts caused by ambiguities in the statutes must be resolved against the exemption (People v. Brooklyn Garden Apts., 283 N.Y. 373, 28 N.E.2d 877; People ex rel. Mizpah Lodge v. Burke, 228 N.Y. 245, 126 N.E. 703).

It is our firm conviction that if this hospital were owned by the city or any of the participating towns, any office space leased to doctors for their private use would not be entitled to exemption under section 406 of the Real Property Tax Law. In other words, such space would not be considered to be “held for a public use”, as is required by that section, any more than hangars at a county airport which are rented to private companies for their private use are “held for a public use”. Such hangars were held not to be exempt in Town of Harrison v. County of Westchester, 34 Misc.2d 1020, 231 N.Y.S.2d 20, aff’d, 18 App.Div.2d 1136, 239 N.Y.S.2d 862, aff’d, 13 N.Y.2d 258, 196 N.E.2d 240, 246 N.Y.S.2d 593.

Thus, the anomaly presented is that the offices would not have been entitled to exemption if the hospital had belonged to a municipality but seemingly is under the special exemption statute covering property of the authority.

Further analysis of the law however convinces us that under strict construction principles this property is still not entitled to exemption. Our reasoning is this.

The “essential governmental purpose” which the authority is authorized to perform is the creation and operation of a public general hospital (Public Authorities Law, § 1762(1) ). Although the powers of the authority in regard to operating and managing the hospital are set forth with some particularity in sections 1763 and 1764 of said law, as in regard to the employment of personnel and providing for a medical staff and ambulance service, nowhere do we find explicit authority to lease space to doctors for the pursuit of their private practices. In the absence of such an express authority, we do not believe that the leasing of space for private purposes constitutes using the property of the authority for a governmental purpose. Such a use is necessary in our opinion in order to qualify the property for tax exemption under section 1776.

We think the situation presented is clearly distinguishable from that in Bush Terminal Co. v. City of New York, 282 N.Y. 306, 26 N.E.2d 269. There, the Court of Appeals held that office space rented by a public authority for private purposes in a public terminal building was an incidental use which was nonetheless public since the rental revenue was necessary to permit operation of the public terminal. It therefore held the space to be entitled to exemption from taxation. In the case, the court also specifically found that the Legislature contemplated that in constructing the terminal the authority might erect buildings including additional space for rental from which revenue might be derived and that the Legislature intended to confer upon the authority the power to construct such a building.

Here, there is no such express authority to rent offices and, also to the point, no indication that without the revenue from the doctor’s offices ($7,200 per annum) the hospital purpose cannot be carried out. And we would seriously doubt that $7,200 is a material monetary contribution to the total hospital revenues which are needed to pay expenses.

An example of what we mean may be found in section 72-j of the General Municipal Law. This section specifically authorizes the renting of municipal parking facilities for other commercial uses to provide revenue adequate to permit operation of the parking facilities. Under the holding of the Court of Appeals in Bush Terminal Co., supra, it has been our opinion that the commercial space is exempt since (1) the statute expressly authorizes these leases for private use, but (2) the revenue derived therefrom must be necessary to permit operation of the parking facilities.

At this juncture, note should be taken that section 1776 does not contain the unequivocal wording which the tax exemption statutes provide for the property of most other public authorities. Those statutes leave no doubt as to legislative intent when they provide that “the property of the authority shall be exempt from taxation” in one form or another (see, e.g., Public Authorities Law, §§ 371, 585, 833, 1064, 1296, 1316, 1341 and 2027).

Accordingly, for the reasons assigned above, we still are of the opinion that the space rented to doctors for treatment of their private patients is not entitled to tax exemption.

July 20, 1973