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Volume 5 - Opinions of Counsel SBEA No. 90

Opinions of Counsel index

Municipal corporations exemption (New York City water supply system); Public Authorities exemption (Power Authority of the State of New York) (Gilboa reservoir) - Public Authorities Law, § 1012; Real Property Tax Law, § 406:

Pursuant to section 406 of the Real Property Tax Law, the water supply system of New York City, except for its aqueducts, is taxable. Pursuant to section 1012 of the Public Authorities Law, property acquired by the Power Authority of the State of New York (PASNY) for its power projects is exempt from taxation. Thus if New York City were to own water power facilities at the Gilboa reservoir and lease these improvements to PASNY, the improvements and the reservoir would be taxable. If, however, PASNY were to construct the improvements under development rights acquired in perpetuity from New York City, the improvements made and owned by PASNY would be exempt.

Our opinion has been requested as to taxable status of the reservoir belonging to New York City located in the Town of Gilboa and proposed improvements which may be made to develop electrical power.

We have been told that the Power Authority of the State of New York (PASNY) proposes to develop the water power inherent in the Gilboa reservoir for sale to the MTA for use by the New York City subway system. A bill was introduced this year but not passed (Assembly Bill No. 12839) which would have authorized PASNY to acquire all or part of the reservoir. Apparently that is no longer the plan. The precise plan is not presently known but two possibilities come to mind: (1) New York City would own the new water power facilities and lease them to PASNY; or (2) PASNY would own the new improvements which it constructs under development rights or other interest acquired from the city.

The water supply system of New York City other than its aqueducts is taxable (Real Property Tax Law, § 406(4)). On the other hand, PASNY “shall be required to pay no taxes or assessments upon any of the property acquired by it for [its power] projects” (Public Authorities Law, § 1012). In other words, property owned by it is exempt from taxation.

In the first situation mentioned above - ownership of the new improvements by the City with a lease to PASNY- the improvements in our opinion would be taxable along with the reservoir.

The second situation is different. In many cases, improvements have been separately assessed from the land and one or the other held to be exempt (Smith v. Mayor, 68 N.Y. 552; People ex rel. Muller v. Board of Assessors, 93 N.Y. 308; Matter of Fort Hamilton Manor v. Boyland, 4 N.Y.2d 192, 149 N.E.2d 856, 173 N.Y.S.2d 560; ACF Industries Inc. v. Board of Assessors, 13 App.Div.2d 154, 214 N.Y.S.2d 915, aff’d, 14 N.Y.2d 539, 197 N.E.2d 784, 248 N.Y.S.2d 397; and National Cold Storage Co. v. Boyland, 16 App. Div. 2d 267, 227 N.Y.S.2d 147, affd w/o, 12 N.Y.2d 808, 187 N.E.2d 129, 236 N.Y.S.2d 62).

In the last cited case, Justice Breitel stated as follows:

Nor is there any reason in law or in policy why there may not be a separate ownership of buildings apart from the lands upon which they rest. A fortiori, there is no reason why the concepts of separate ownership and separate liability for taxes may not be acceptable under the taxing statute defining real property to include buildings and certain other improvements (Real Property Tax Law, § 102, par. 12). Nor is there any ground in the natural order which makes unworkable such a concept of separate ownership. Consequently, unless statute or precedent requires otherwise the agreement of the parties is sufficient to establish such separate taxable property interest. (227 N.Y.2d at 150)

The only case which might cast doubt on the subject is United States v. Tax Commission, 22 App. Div.2d 290, 254 N.Y.S.2d 785, in which title to improvements made by the U. S. Government to and integrated in a building leased for a 10-year period was held to be in the owner of the building for tax purposes and therefore not exempt even though the lease agreement provided otherwise. This case would be distinguishable if PASNY acquires development rights in perpetuity.

Thus, in the second situation, it would be our opinion that improvements made and owned by PASNY would be exempt.

In conclusion, however, it is to be noted that this opinion is rendered on the basis of very bare assumptions of fact, and obviously the results discussed above would require legislation which may or may not reflect the actual facts when the plan is finally carried out.

August 12, 1976