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Volume 9 - Opinions of Counsel SBEA No. 17

Opinions of Counsel index

Industrial development agencies exemption (eligibility of leased land held by IDA) - General Municipal Law, § 874; Real Property Tax Law, § 412-a:

Leased land held by an industrial development agency is eligible for exemption pursuant to section 874 of the General Municipal Law and section 412-a of the Real Property Tax Law.

We have received an inquiry concerning the eligibility of certain property for the exemptions authorized by section 412-a of the Real Property Tax Law (RPTL) and section 874 of the General Municipal Law (GML). The facts are as follows: A developer has obtained a long-term ground lease of certain land and is building a shopping center upon that land with funding provided by the local Industrial Development Agency (IDA). The developer is conveying its ownership interest in the improvements and its leasehold interest in the land to the IDA, which will hold these interests until the bonds issued to finance the project have been repaid. We are asked whether the land and improvements will be taxable.

Section 412-a of the RPTL states: “Real property owned by industrial development agencies enumerated in the general municipal law shall be entitled to such exemption as may be provided therein.” However, the exemption provided by the General Municipal Law is not limited to property owned by an IDA. {*}  Section 874(1) of the GML provides that an IDA “shall be required to pay no taxes or assessments on any of the property acquired by it or under its jurisdiction or control or supervision or upon its activities” (emphasis added).

In the factual situation presented, the IDA will be both the owner of the improvements and the lessee of the land during the term of the financing arrangement. Clearly, property owned by an IDA is exempt pursuant to either section 412-a or 874, so the improvements will be exempt during this period. However, the taxable status of the land leased by the IDA is less clear. Although under these circumstances, the leased land is certainly under the jurisdiction, control or supervision of the IDA, sections 874 and 412-a seem to be in conflict as to whether such lands are taxable. Thus, the determination of the eligibility of the leased land for the exemption requires a resolution of the apparent discrepancy between the two statutes.

A general rule of statutory construction is that “if possible, all parts of an enactment shall be harmonized with each other as well as with the general intent of the whole enactment” (McKinney’s Statutes, § 98). Sections 874 and 412-a were both enacted by chapter 1030 of the Laws of 1969. Therefore, resolution of the apparent discrepancy requires an examination of the intent of that legislation.

Chapter 1030 of the Laws of 1969 enacted Article 18-A of the General Municipal Law, which provides the statutory framework for the creation and operation of IDAs. In a statement of legislative policy and intent, section 852 of the GML provides, in pertinent part:

It is hereby declared to be the policy of this state to promote the economic welfare, recreation opportunities and prosperity of its inhabitants and to actively promote, attract, encourage and develop recreation economically sound commerce and industry and economically sound projects . . . through governmental action for the purpose of preventing unemployment and economic deterioration by the creation of industrial development agencies which are hereby declared to be governmental agencies and instrumentalities and to grant to such industrial development agencies the rights and powers provided in this article. The use of all such rights and powers is a public purpose essential to the public interest and for which public funds may be expended.

Section 856 of the General Municipal Law provides that an IDA may be established on a municipal basis (i.e., county, city, village, town or Indian reservation) by special act of the State Legislature. After this is accomplished, and assuming that the necessary local action has been taken pursuant to section 856 (to appoint the members and to satisfy the filing requirements), then the agency may pursue the activities which are authorized in Title 18-A.

Section 858 sets forth the “Purposes and powers” of industrial development agencies, which include the following:

The purposes of the agency shall be to promote, develop, encourage and assist in the acquiring, constructing, reconstructing, improving, maintaining, equipping and furnishing industrial, manufacturing, warehousing, commercial, research and recreation facilities including industrial pollution control facilities, educational or cultural facilities, railroad facilities and horse racing facilities and thereby advance the job opportunities, health, general prosperity and economic welfare of the people of the state of New York and to improve their recreation opportunities, prosperity and standard of living; and to carry out the aforesaid purposes, each agency shall have the following powers:

* * *

(4) To acquire by purchase, grant, lease, gift, [condemnation], or otherwise and to use real property or rights or easements therein necessary for its corporate purposes . . .

* * *

(9) To make contracts and leases and to execute all instruments necessary or convenient to or with any person, firm, partnership or corporation, either public or private[.]

(10) To acquire, construct, reconstruct, lease, improve, maintain, equip or furnish one or more projects[.]

* * *

(16) To do all things necessary or convenient to carry out its purposes and exercise the powers expressly given in this title.

Section 874(1), which authorizes tax exemptions for IDA property, itself contains a statement of legislative policy:

(1) It is hereby determined that the creation of the agency and the carrying out of its corporate purposes is in all respects for the benefit of the people of the state of New York and is a public purpose, and the agency shall be regarded as performing a governmental 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 property acquired by it or under its jurisdiction or control or supervision or upon its activities.

Thus, IDAs have been created to promote economic activity for the benefit of the public and have been granted broad powers to carry out their purposes. The exemption conferred by section 874 is an integral part of this statutory scheme. As we stated in 1 Op.Counsel SBEA No. 23:

We are, in fact, dealing with a quasi-public body which is conceived, created and operated for the purpose of providing some form of service or activity which will be of benefit to the general public. The body is organized and funded outside of the strict framework of the formal government of the state or municipality primarily in order to avoid increasing the financial obligations of the government involved. The foundation of this relatively new concept of quasi-public activity is the financial self-sufficiency which the body is intended to maintain. And the cornerstone of this financial self-sufficiency is the agreement by the State Legislature, in the form of a statutory direction, that the body will not be subject to general taxes such as the income and property taxes (section 874(1)). The elimination of these significant expenses, plus the elimination of the possibility of loss of property due to tax sales, is considered to be a major incentive in the purchase of bonds for the financing of the body.

As noted, the IDA has the power to lease property to be used in furtherance of its corporate purposes. It would be entirely consistent with the purpose of the legislation for leased property to be exempt from taxation. Conversely, it could impede the ability of the agency to carry out its purposes if property it leases were subject to taxation. Thus, the broader exemption authorized by section 874 for property subject to the “jurisdiction or control or supervision” of an IDA would be most consistent with the underlying purpose of the legislation.

Moreover, even if sections 412-a and 874 were fundamentally incompatible, the provisions of section 874 should be given precedence by virtue of section 888 of Article 18-A of the GML, which states: “Insofar as the provisions of this title are inconsistent with the provisions of any other act, general or special, or of any local laws of the municipality, the provisions of this title shall be controlling.” In construing this language, the Appellate Division has concluded section 874 supercedes inconsistent provisions in the Tax Law with respect to sales taxes (Wegmans Food Markets, Inc. v. Dept. of Taxation and Finance, 126 Misc.2d 144, 481 N.Y.S.2d 298 (Sup.Ct., Monroe Co, 1984), aff’d, 115 A.D.2d 962, 497 N.Y.S.2d 790 (4th Dept. 1985), app. den., 67 N.Y.2d 606, 495 N.E.2d 1233, 501 N.Y.S.2d 1025 (1986)).

Accordingly, it is our opinion that both the leased land and the improvements thereon will be exempt from taxation while held by the IDA.

July 23, 1987

{*}  Chapter 228 of the Laws of 1988 (§ 1) amended section 412-a to conform the exemption language to that used in the General Municipal Law, thereby codifying this Opinion.