In the recent decision in Matter of Greater Jamaica Dev. Corp. v. New York City Tax Commn., 111A.D.3d 937, 975 N.Y.S.2d 749 (2d Dep’t 2013), the Appellate Division, Second Department held that five public parking garages owned and operated by a not-for profit entity whose purpose was to promote the cultural and economic development of the “downtown” area of Greater Jamaica in New York City were fully tax exempt as a part of a “charitable organization” under Real Property Tax Law §420-a. These parking facilities charged lower rates than other public garages, but still obviously generated profits for the not-for profit entity.
At first blush, this holding may seem at odds with other recent New York cases, including the Court of Appeals in Matter of Lackawanna Community Dev. Corp. v. Krakowski, 12 N.Y.3d 578, 883 N.Y.S.2d 168 (2009), in which the Court held that property owned by a Community Development Corporation and leased out to a for-profit company to help raise dollars for its tax exempt economic development activities was nonetheless not tax exempt because it was not being used exclusively for the organization’s tax exempt purposes. See also Matter of Miriam Osborn Mem. Home Ass’n v. Assessor of City of Rye, 80 A.D.3d 118, 909 N.Y.S.2d 493 (2d Dep’t 2010), and Matter of Lake Forest Senior Living Community, Inc. v. Assessor of City of Plattsburgh, 72 A.D.3d 1302, 898 N.Y.S.2d 369 (3d Dep’t 2010), both of which held that not-for-profit housing entities lost their tax exempt status when too high a percentage of their residents were affluent and were charged market rates in order to support a small percentage of needy residents.
However, other New York Courts have begun to extend tax exempt status to activities of non-for-profit organizations that realize income specifically for the organization’s tax exempt purposes. For example, in Congregational Rabbinical Coll. v. Town of Ramapo, 72 A.D.3d 869, 900 N.Y.S.2d 103 (2d Dep’t 2010), the Court held that land leased to a for-profit corporation to operate a religious summer camp was still tax exempt because the lease was to be of a limited duration, the religious entity participated substantially in the operation of the camp, and the money it was raising from the for-profit was to be used for the subsequent construction of a religious college on the site.
New York Courts have even hedged on the tax exempt status of parking garages owned by not-for-profits but partially leased to for-profit entities, granting a partial tax exemption for the not-for-profit portion of the use. Matter of Vassar Bros. Hosp. v. City of Poughkeepsie, 97 A.D.3d 756, 948 N.Y.S.2d 403 (2d Dep’t 2012); Ellis Hosp. v. Assessor of Schenectady, 288 A.D.2d 581, 732 N.Y.S.2d 659 (3d Dep’t 2001).
The Court in Greater Jamaica decided not to walk such a fine line on the tax exempt status of the not-for-profit’s parking garages. First, the Court held that even an economic development purpose could be considered “charitable” under RPTL §420-a because of its intent to “relieve poverty” and “advance governmental purposes.” The Court also relied upon the fact that the Internal Revenue Service had ruled that this entity was tax exempt. The Court then went on to determine that the purpose of operating these cheaper garages furthered the not-for-profit’s “charitable purpose” to improve the economic development of Jamaica’s business district. Interestingly, what did not factor in the Court’s decision was the economic success of these garages and how much revenue they generated for the not-for-profit entity – an indication that the courts recognize that revenue generation by a not-for-profit is irrelevant to a determination of whether the property is owned and used by a not-for-profit in furtherance of its exempt purposes. The Court of Appeals has granted leave to appeal. The briefs have been filed but no argument date has been set. It will be interesting to see how the Court of Appeals deals with this case.
*photo credit: Image courtesy of longbeachlouie.com
