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Volume 9 - Opinions of Counsel SBEA No. 70

Opinions of Counsel index

Senior citizens exemption (income requirement) (retirement benefits - employee contributions) - Real Property Tax Law, § 467:

Retirement benefits received by an applicant for the senior citizens exemption are generally considered to be income, but that portion of retirement benefits received by a retired employee representing a return of capital due to contributions the applicant made while an employee is not considered income.

We have been asked whether retirement benefits should be excluded from the computation of income for purposes of the senior citizens exemption (RPTL, § 467), where the retiree contributed to the New York State Employee’s Retirement System (ERS) in order to qualify for retirement benefits.

Among the requirements of section 467 is that the income of the owner(s) of the property (including an owner’s spouse’s income where the spouse is not an owner) may not exceed the income ceiling established by the municipal corporation in which exemption is sought. Income is defined to include “social security and retirement benefits, interest, dividends, total gain from the sale or exchange of a capital asset which may be offset by a loss from the sale or exchange of a capital asset in the same income tax year, net rental income, salary or earnings, and net income from self-employment, but shall not include a return of capital, gifts, or inheritances” (§ 467(3)(a), emphasis added). {1}

Chapter 535 of the Laws of 1975 amended section 467(3)(a) to exclude a “return of capital” from income for purposes of the section. The amendment was to conform the statute to the holding of the Court of Appeals in Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973). {2}

Thus, section 467 specifically requires that retirement benefits be included as income for purposes of the exemption, notwithstanding the fact that the retiree contributed to the retirement fund during employment years in order to qualify for pension benefits. However, the portion of retirement received by the applicant which represents a return of capital contributed by the retired employee is not considered income for section 467 purposes.

Pursuant to Retirement and Social Security Law (RSSL), section 22, upon retirement, an ERS member’s accumulated contributions to the retirement system are used to provide the member with an annuity (see RSSL, § 2(1)), which constitutes part of the employee’s retirement benefits from New York State (see also RSSL, § 2(3); 83 N.Y. Jur.2d § 132). A portion of each monthly annuity payment to the retiree represents a repayment of the employee’s contribution to the pension fund.

Given the holding in the Engle case, and the provisions of section 467(3)(a), in our opinion, retirement benefits received by an applicant for exemption from ERS are considered income for purposes of determining eligibility except to the extent that those amounts are a return of his or her original investment. However, amounts received representing contributions by the applicant’s employer to the fund on behalf of the applicant are merely a form of deferred compensation and, thus, are income for purposes of section 467 (5 Op.Counsel SBEA No. 1).

It is the applicant’s burden to prove entitlement to exemption (People ex rel. Mizpah Lodge v. Burke, 228 N.Y. 245, 126 N.E. 902 (1920)). Thus, in this situation, the applicant must establish to the satisfaction of the assessor the extent to which amounts he or she receives from the pension fund represent contributions. The balance of the retirement benefits constitute income for senior citizens exemption purposes.

January 6, 1992

{1}  In responding to inquiries regarding the income requirement of the statute, we have said that income includes such sources as social security benefits (2 Op.Counsel SBEA No. 50), dependency and indemnity compensation (1 id. No. 109) and payments to a retired former employee from a non-contributory trust fund (5 id. No. 1).

{2}  In Engle, the Court held that amounts received by an applicant for exemption pursuant to section 467, representing a return of capital from a mutual fund investment and an annuity, were not income for purposes of determining eligibility for the exemption. The Court noted the fact that the Legislature did not express any intention to utilize the Federal or State income tax rules in determining eligibility under section 467.