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Volume 6 - Opinions of Counsel SBEA No. 82

Opinions of Counsel index

Firm structures and buildings exemption (housing for employees) (residence of immediate family) (officers of closely held corporations) - Real Property Tax Law, § 483:

A residence occupied by a part owner of a closely held corporation organized for the purpose of operating a farm does not qualify for the exemption authorized by section 483 of the Real Property Tax Law.

Our opinion has been requested concerning the limitation upon the partial exemption for buildings and structures used in agricultural and horticultural production where the residence of an owner is involved. The specific situation involves a father who owns a farm which is operated by a closely held corporation owned by the father and a son. The son is an employee of the corporation as well as a shareholder. An exemption under section 483 has been sought for the son’s residence.

Section 483 of the Real Property Tax Law provides for an exemption for the construction or reconstruction of structures and buildings essential to lands used in agricultural and horticultural production. The measure of the exemption is any increase in value resulting from the construction. Structures and buildings are defined in subdivision 3(b) to include:

structures and buildings used to provide housing for regular and essential employees and their immediate families who are primarily employed in connection with the operation of lands actively devoted to agricultural and horticultural use, but not including structures and buildings occupied as a residence by the applicant and his immediate family.

The purpose of this subdivision is to assure that residential buildings which are an integral part of an agricultural operation, such as housing for migrant workers, receive the benefit of the exemption, while at the same time preventing abuse of the section. It was clearly not the intent of the Legislature to shift the burden of taxation for farmers’ residences to other property owners in the jurisdiction.

We have issued two previous opinions which provide guidance in the instant situation. The first opinion (1 Op.Counsel SBEA No. 14) discussed how broad an interpretation would be given to the phrase “immediate family.” In that opinion, we concluded that a rule of reason must be applied. Where a married child has established a separate household apart from the parent-applicant, the child should no longer be considered a member of the parent-applicant’s immediate family. So long as the remaining statutory requirements are satisfied, the family relationship per se will not invalidate the exemption for the residence of such a child who is in fact a regular and essential employee.

The second opinion (5 Op.Counsel SBEA No. 104) involved the effect of corporate ownership upon section 483 (3)(b). There, exemptions were sought for the residences of a father and son who were both employees of the corporation which owned and operated the farm and also officers and principal shareholders of the corporation. While the corporation was the owner-applicant, a rule of reason was again applied. Owners of agricultural property should not be able to flout legislative intent by mere incorporation. The corporate veil must be pierced to establish whether the ultimate owners of the property would be benefited from the exemption. When read together, the two opinions establish the basis for answering this inquiry.

The family relationship per se does not defeat the exemption, assuming the agricultural operation and construction satisfy the statutory requirements. In such case three elements must be present. First, the residence must be essential to the operation of the farm. Second, the son must have established a household apart from his parents. Third, the son must be a regular and essential employee primarily employed in the operation of the farm.

In the instant situation, the first two elements appear to be satisfied, but the third element is not. Although the son may be termed an employee of the closely held corporation operating the farm, he is in fact part owner of the corporation. As part owner of the operating corporation, the son has failed to satisfy the statutory requirement that he be a regular and essential employee. As stated in 5 Op.Counsel SBEA No. 104, the clear intent of section 483 is to exclude residential structures occupied by principals of a farming operation.

Accordingly, a residence occupied by a part owner of a closely held corporation organized for the purpose of operating a farm does not qualify for the exemption authorized by section 483 of Real Property Tax Law, notwithstanding the fact that the part owner may be an employee of the corporation and that the farm and the operating corporation are separately owned.

May 16, 1979