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Volume 8 - Opinions of Counsel SBEA No. 119

Opinions of Counsel index

Real property, definition of (water) - Real Property Tax Law, § 102(12):

Although land under water is real property, the water itself is not real property.

We have been asked whether the water impounded in a reservoir is assessable as real property. As authority for this proposition, reference is made to “the Water Act of 1905” and New York Jurisprudence to the effect that “[w]ater, when reduced to possession, is property” (47 N.Y.Jur, Property § 3).

In New York State, personal property is not subject to ad valorem taxation; only real property is taxed (Real Property Tax Law, § 300). The taxation of real property in New York is authorized solely by statute (Matter of Crystal v. City of Syracuse, Dept. of Assessment, 47 A.D.2d 29, 30, 364 N.Y.S.2d 618 (4th Dept. 1975), aff’d, 38 N.Y.2d 883, 346 N.E.2d 546, 382 N.Y.S.2d 745 (1976)), and in determining whether property is subject to taxation, tax statutes are to be construed most strongly against the taxing authority and in favor of the taxpayer (see, Matter of Grace v. New York State Tax Commission, 37 N.Y.2d 193, 332 N.E.2d 886, 371 N.Y.S.2d 715 (1975)). Real Property Tax Law, section 300, makes all real property within the State subject to real property taxation, unless exempt therefrom by law. In considering whether property is classified as real property, consideration must be given to the definition of real property contained in Real Property Tax Law, section 102(12) (Matter of City of Lackawanna v. State Board of Equalization & Assessment, 16 N.Y.2d 222, 226-227, 212 N.E.2d 42, 264 N.Y.S.2d 528 (1965)).

Real Property Tax Law, section 102(12), in addition to numerous specific inclusions, provides that real property shall mean and include “[l]and itself, above and under water, including trees and undergrowth thereon and mines, minerals, quarries and fossils in and under same . . . and other articles and structures, substructures and superstructures erected upon, under or above the land . . . .” This definition, which does not include water, is to apply for the purposes of real property taxation “unless otherwise expressly stated or unless the context otherwise requires” (§ 102), for the Legislature has the power to classify property as real property or not for purposes of taxation, provided there is reasonable basis for classification (Metromedia, Inc. v. Tax Commission of the City of New York, 60 N.Y.2d 85, 455 N.E.2d 1252, 468 N.Y.S.2d 457 (1983)).

Although it may be true that water, when reduced to possession, is property (47 N.Y.Jur., Property § 3), whether such water is taxable, as a general rule, is not clear from the cases or from the statutes (1 Clark, Waters and Water Rights 458). Water is not land, but is an incident to land which gives to the owner of the land certain rights and privileges in the use of the water. If it flows over his own land, it is so identified with the realty as to be a “corporeal hereditament,” or tangible, visible property (I Bouvier’s Law Dictionary, 444 (1897) hereinafter cited as “Bouvier”). If the right is to use the water as it flows over the lands of another, it is an “incorporeal hereditament,” or property which is not tangible or visible (I Bouvier, 1008). In either event, the right is not an ownership in the water as such, but the right to its flow for the various lawful uses to which it may be subjected. Such a “hereditament” or thing (I Bouvier, 944) is incident to the land (Tracy Development Co., v. Becker, 212 N.Y. 488, 106 N.E. 330 (1914)).

In Matter of City of New York v. Schwartz, 36 A.D.2d 402, 320 N.Y.S.2d 983 (3rd Dept. 1971), lv. denied, 29 N.Y.2d 482, 273 N.E.2d 575, 324 N.Y.S.2d 1026 (1971) at issue was the taxation of certain riparian, or water rights acquired by the City of New York for water supply purposes. The Appellate Division held that “riparian rights” or rights of an owner of land on the bank of a water course (I Bouvier, 931) are incorporeal hereditaments but constitute real property for some purposes. Riparian rights appurtenant to riparian land, while not land itself, are includable in the assessment of such land as an enhancement to its value. However, riparian rights severed from the land to which they were appurtenant, which do not become appurtenant to other riparian land, are not real property within the meaning of Real Property Tax Law, section 102(12) and, therefore, not taxable pursuant to Real Property Tax Law, section 300. The opinion in Schwartz was cited with approval in Niagara Mohawk Power Corporation v. Cutler, 109 A.D.2d 403, 492 N.Y.S.2d 137 (3d Dept. 1985), aff’d, 67 N.Y.S.2d 812, 492 N.E.2d 398, 501 N.Y.S.2d 325 (1986) (see also, In re Town of West New York, 25 N.J. 377, 136 A.2d 654 (1957), where the New Jersey Supreme Court, although recognizing that diverted water might be property, refused to hold that the Legislature intended that water be taxed because of the difficulty involved).

We believe that the reference to the “Water Act of 1905” is to chapter 724 of the Laws of 1905. That Act provided for an additional supply of water for the City of New York, for the acquisition of lands and for the construction of reservoirs, dams, aqueducts, filters and other appurtenances. Section 25 of chapter 724 provides, in pertinent part, that:

[t]he term real estate as used in this act shall be construed to signify and embrace all uplands, lands under water, the waters of any lake, pond or stream, all water rights or privileges, and any and all easements and incorporated [sic] hereditaments and every estate, interest and right, legal and equitable, in land or water, including terms for years, and liens thereon by way of judgment, mortgages or otherwise, and also all claims for damage to such real estate.

Section 39 of chapter 724 provides that real estate acquired pursuant to the provisions of the act shall be taxable in the counties and taxation districts in which such real estate is situated.

In defining the term “real estate” in section 25 of chapter 724 of the Laws of 1905, to include the waters of any lake, pond or stream and all water rights or privileges, it appears that the Legislature merely included those property rights which the City could take by eminent domain (L.1905, c.724, § 11). The definition does not add to the definition of taxable real property in the Real Property Tax Law. The reference in section 39 of chapter 724 of the Laws of 1905 is to situs of taxation and, in our opinion, should not be construed as making taxable property which is not taxable pursuant to the Real Property Tax Law (§ 302(1); People v. Wilson, 113 A.D. 1, 98 N.Y.S. 1080 (3d Dept. 1906); 1 Clark, Waters and Water Rights 473). Further, chapter 724 refers to the waters of any lake, pond or stream; it does not mention the waters of a reservoir.

However, as indicated above, in the definition of real property for assessment administration purposes, a reservoir is real property. In 7 Op.Counsel SBEA No. 125, we concluded that a reservoir should not be considered a “specialty” for real property valuation purposes, unless its conversion to a use such as recreational purposes is impracticable or prohibitively expensive. We also determined that whether the reservoir should be valued on the basis of current use or highest and best use must be decided on a case-by-case basis. We did not make any finding that the water in the reservoir should or could be valued separately from the entire unit. Nor did we answer the question as to whether water should be valued separately from the water right (1 Clark, Waters and Water Rights 458). The value of the right to the water, as a riparian right derived from ownership of the land constituting the reservoir, and the value of the water itself, are equivalent, and the distinction should not affect valuation.

Accordingly, it is our opinion that water is not taxable as real property, notwithstanding the provisions of chapter 724 of the Laws of 1905.

February 24, 1987