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Volume 5 - Opinions of Counsel SBEA No. 21

Opinions of Counsel index

Nonprofit organizations exemption (charitable) (benevolent) (thrift shop) - Real Property Tax Law, § 421:

A thrift shop operated for certain enumerated charitable purposes, including the delivery of goods, services and money to local hospitals and institutions, while a laudable enterprise, lacks an important element of “charity” or “benevolence” when it exists independent of any parent organization and is an entirely self-sustaining business venture, and therefore it is not entitled to an exemption from real property taxation under section 421 of the Real Property Tax Law.

We have received an inquiry concerning the taxable status of real property used as a thrift shop and owned by a private corporation.

The corporation has requested an exemption pursuant to section 421 of the Real Property Tax Law. Pursuant to paragraph (a) of subdivision 1 of section 421:

Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, moral or mental improvement of men, women or children or cemetery purposes, . . . and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association, or by another such corporation or association as hereinafter provided, shall be exempt from taxation; . . .

The certificate of incorporation for the subject property provides that, “the purposes for which the corporation is to be formed are to operate a thrift shop” for certain enumerated charitable purposes, including the provision of funds for medical research and equipment in local hospitals and institutions established for medical research, the provision of materials, games and equipment for the entertainment of hospital patients, and general assistance in the activities of hospitals both financially and by means of volunteer employment or work at such hospitals. In addition, the certificate authorizes “any other act or thing incidental to or connected with the foregoing purposes or in advancement thereof, but not for the pecuniary profit or financial gain of its members, directors or officers except as permitted under Article 5 of the Not-For-Profit Corporation Law.” The corporation is a Type B Corporation.

The situation in question is one which we consider to be subject to persuasive argument both in favor of and against an interpretation that an exemption pursuant to section 421 should be granted. That is, in one sense it can be said that the provision of goods and services and money for hospital and medical facilities is a laudable function which can be classified as a charitable activity within section 421 of the Real Property Tax Law. However, it is also true that the operation of a thrift shop, in and of itself, can be considered to be a business function which exists in direct competition with taxpaying, property-owning businesses.

In determining whether real property satisfies the requirements of section 421, it must be borne in mind that statutes exempting real property from taxation must be strictly construed, and that no exemption will be granted by any doubtful implication. In other words, the right to the exemption must be clearly established according to the statutory provision, and, if a doubt exists, then that doubt should be resolved in favor of taxation (Lawrence-Smith School, Inc. v. City of New York, 280 N.Y. 805, 21 N.E.2d 93). Our interpretation of ambiguities in exemption statutes is guided by this principle.

We have rendered a formal opinion concerning the taxable status of a somewhat analogous organization (see, 1 Op.Counsel SBEA No. 99). However, in that situation, where we recommended that an exemption be granted, the organization which owned the property had as its primary purpose the training, instruction and rehabilitation of physically and mentally handicapped persons. The products which these persons produced were sold to the general public, and the money was returned to the training program. However, it was our opinion that the sale of the goods was an integral part of an educational and charitable activity, and, accordingly, such sales were considered to be reasonably incidental to the maintenance of the exempt activity.

In the situation presented, it appears that the sole and primary purpose of the organization is to operate the thrift shop, and, in our opinion, such purpose clearly distinguishes this situation from the incidental sales operation described in the opinion cited above. Case law supports the proposition that the operation of a business or other venture which services the general public in competition with similar taxpaying businesses or ventures cannot qualify for exemption under section 421, even though the income is used to support exempt activities (Y.W.C.A. v. City of New York, 217 App.Div. 406, 216 N.Y.S. 248, aff'd, 245 N.Y. 562, 157 N.E. 858; Watchtower Bible and Tract Society, Inc. v. Mastin, 191 Misc. 899, 80 N.Y.S.2d 323; see also, Shrine of Our Lady of Martyrs of Auriesville v. Board of Assessors, 54 Misc.2d 145, 281 N.Y.S.2d 544, mod, 40 App. Div.2d 75, 337 N.Y.S.2d 786, aff’d, 33 N.Y.2d 713, 304 N.E.2d 563, 349 N.Y.S.2d 993).

We are seriously concerned with the element of competition between the thrift shop and the on-going businesses of the community. If a thrift shop operation were to qualify for an exemption, a factor which we would consider to be significant, though perhaps not determinative of the issue, would be the existence of an element of “giving.” When the thrift shop exists independent of any parent organization, and when the enterprise is entirely self-sustaining, then we believe that an important element of “charity” or “benevolence” is lacking.

For example, in the case of American-Russian Aid Assn v. City of Glen Cove, 41 Misc.2d 622, 246 N.Y.S.2d 123, aff’d, 23 App. Div.2d 966, 260 N.Y.S.2d 589, the court pointed out, in finding a charitable and benevolent use of the property, that the homes rented to indigent aged persons were maintained at an annual deficit made up by personal contributions. Cases which have exempted educational, religious or hospital facilities which were operated on a fee or rental basis (e.g., housing and recreational facilities at a religious camp from which a profit was derived, Gospel Volunteers, Inc. v. Village of Speculator, 33 App. Div. 2d 407, 308 N.Y.S.2d 785, aff’d, 29 N.Y.2d 622, 273 N.E.2d 139, 324 N.Y.S.2d 412; a parking lot maintained by a hospital which charged parking fees. Matter of Ellis Hospital v. Fredette, 27 App. Div.2d 390, 279 N.Y.S.2d 925; and a cafeteria used by students of a college, operated on a self-maintaining basis, Pace College v. Boyland, 4 N.Y.2d 528, 151 N.E.2d 900, 176 N.Y.S.2d 356), are not relevant to charitable exemptions. In each of these cases the court found that the activity was reasonably incidental to and necessary for carrying out the primary educational, religious or hospital purpose and the fact that income was derived from the activity was immaterial.

In conclusion then, we find that the situation presented is one which is very ambiguous as to its application to the exemption authorized by section 421. However, in view of the fact that the entity in question exists independently of any apparent charitable organization, and because it exists essentially as a business venture (except for the distribution of profits to hospital and medical facilities), we believe that a strict interpretation of the requirements of section 421 require us to conclude that the property in question should be placed on the taxable portion of the assessment roll.

August 15, 1975