Matter of United Church Residences of Fredonia NY Inc. v Newell
Annotate this CaseDecided on August 4, 2006
Supreme Court, Chautauqua County
In the Matter of the Petition of United Church Residences of Fredonia New York, Inc., d/b/a Concord Estates, Petitioner
against
Roger Newell, Assessor of Town of Pomfret, Village of Fredonia & Fredonia Central School District, Respondents.
K1-2005-663
David R. Pfalzgraf, Jr., Esq., Attorney for Petitioner
Samuel L. Drayo, Jr., Esq., Attorney for Respondent Village of Fredonia
Jeffrey G. Passafaro, Esq., Attorney for Roger Newell, Assessor of Town of Pomfret
Paula L. Feroleto, J.
The plaintiff, United Church Residences of Fredonia New York, Inc, d/b/a Concord Estates, (hereinafter "Concord Estates") a nonprofit corporation, is moving pursuant to Article 78 to declare a determination by the Assessor denying petitioner's application for tax exempt status arbitrary, capricious, an abuse of discretion and an error of law.
The Respondents have opposed the motion.
Petitioner submitted an application for real property tax exemption pursuant to Section 420-a of the Real Property Tax Law on or about February 28, 2005. The submitted form was returned with a box checked "disapproved", signed by the Assessor from the Town of Pomfret and dated April 27, 2005.
This Court then remanded the matter to the Assessor to provide a reasoned opinion for the denial. A second denial was issued with a detailed opinion provided by Kevin Muldowney, Assessor of the Town of Pomfret dated January 24, 2006. Additional motion papers were provided by counsel for the Petitioner and Respondent and oral argument of the motion was held on July 24, 2006. Substantial documentation was provided to the Court by attorneys for the Petitioner and the Town of Pomfret and Village of Fredonia.
The issue in this case is whether the property of the Petitioner qualifies for the exemption from real property taxes provided by statute for property owned by a corporation or organization and used exclusively for "charitable" purposes. The United Church Residences of Fredonia New [*2]York, Inc. d/b/a Concord Estates is a not-for-profit corporation in Ohio and registered as an authorized foreign not-for-profit corporation in New York State.
The Petitioner applied for the exemption under Section 420-a of the Real Property Tax Law. The Respondents have suggested the only appropriate application for real property exemption is pursuant to Section 422 of the Real Property Tax Law. Section 422 applies to property "owned by a not-for-profit corporation organized pursuant to the not-for-profit corporation law and the provisions of article two of the private housing finance law". The record before the Court does not establish United Church Residences of Fredonia, New York, Inc. was organized pursuant to the private housing finance law of New York State. If it were, this property would automatically qualify for an exemption of taxes paid to the municipalities. (See Section 422 Real Property Tax Law and Section 577 Subd. 3 of the Private Housing Finance Law and Opinion No. 82-268 OSC of NY).
The Legislature has not mandated that all housing for the low income elderly be constructed pursuant to the provisions of the private housing finance law in order to obtain tax exempt status. Doing so would discourage charities from financing low income housing with their own funds or with funds obtainable from sources other than those provided in the private housing finance law (See Belle Harbor Home of Sages Inc. v. Tishelman, 81 AD2d 886 (2d Dept.1981)). The Petitioner may properly use Section 420-a to obtain a tax exemption.
"The question as to what property shall be exempt from taxation and under what circumstances is a legislative question." In the Matter of Lady Cliff College v. The Town of Highlands, 266 A.D. 753 (2d Dept. 1943)).
Exemption statutes should be construed strictly against the taxpayer seeking the benefit of the exemption but an "interpretation so literal and narrow that it defeats the exemption's settled purpose is to be avoided". In the Matter of the Association of the Bar of the City of New York v. Lewisohn, 34 NY2d 143 (1974) citing People ex rel. Watchtower Bible & Tract Soc. v. Haring, 8 NY2d 350, 358.
The initial test to be applied for tax exempt status is whether the corporation is "organized exclusively" for one of the enumerated purposes in Section 420-a. (See University of Rochester v. Wagner, 63 AD2d 341 (4th Dept.1978)); In the Matter of the Association of the Bar of the City of New York v. Lewisohn, 34 NY2d 143 (1974)). The second test relates to the actual use of the realty in question and requires a showing the property is "used exclusively" for the exempt statutory purpose. (See University of Rochester, supra; The Matter of the Association of the Bar of the City of New York v. Lewisohn, supra.)
The only relevant category in § 420-a to the application of the United Church Residences is "charitable". The exemption could not be claimed under any of the other categories.
Is Petitioner Organized Exclusively for Charitable Purposes?
The United Church Residence of Fredonia, New York, Inc. was formed as a corporation in Ohio on November 4, 1993 (Portion of Exhibit A to the Notice of Petition). Its stated purpose (Articles of Incorporation Paragraph Fourth) is to "provide elderly persons and handicapped persons with housing facilities and services specially designed to meet their physical, social and psychological needs ... irrevocably dedicated to and operated exclusively for nonprofit purposes; [*3]and no part of the income or assets of the Corporation shall be distributed to, nor inure to the benefit of, any individual." No part of the net earnings are distributable to members and upon dissolution of the corporation the assets are distributed for exempt purposes within the meaning of the Internal Revenue Code or pursuant to Court Order.
United Church Residences of Fredonia, New York, Inc. is exempt from taxation under Section 501(c) 3 of the Internal Revenue Code. A company exempt from Federal taxes under 501(c)3 of the Internal Revenue Code does not automatically mean its purposes are charitable.
The test of "charitable use" has been defined by the Fourth Department. "If the purpose to be attained is personal, private or selfish, it is not a charitable trust. When the purpose accomplished is that of public usefulness unsustained by personal, private or selfish consideration, its charitable character insures its validity." In the Matter of the Church Home of the Protestant Espisposal Church v. Wagner, 58 A.D.2d 972 (4thDept.1977).
The private housing finance law notes, "It is hereby declared that there exist in the municipalities in this state a seriously inadequate supply of safe and sanitary dwelling or non-housekeeping accommodations for families of low income ... and aged care accommodations for aged persons of low income". (Private Housing Finance Law Section 11). This seriously inadequate supply of low income housing for the aged and handicapped is one of the purposes for which this corporation was formed. Under the Petitioner's Articles of Incorporation there is no personal or private gain which can be realized. The purpose accomplished here is one of public usefulness by providing subsidized housing for very low income elderly.
The Court finds United Church Residences of Fredonia, New York, Inc. is organized exclusively for charitable purposes and meets the first prong of the test.
Are the Concord Estates being used exclusively for the charitable purpose for which the Corporation was formed?
United Church Residences of Fredonia, New York, Inc. entered into an agreement with HUD on September 28, 1995 under a capital advance program pursuant to Section 202 of the Housing Act and Section 811 of the National Affordable Housing Act. HUD provided funding for the Concord Estates project which is the subject of this petition. Pursuant to their agreement with HUD the owner is to operate the project as "rental housing for very low income elderly or disabled persons for not less than 40 years from October 1, 1996 unless otherwise approved by HUD". (Capital Use Agreement attached as Exhibit A to the Affidavit of Cheryl Wickersham sworn to on August 25, 2005).
The Concord Estates in Fredonia has 39 housing units. All 39 of the residents meet the income requirement set by the U.S. Secretary of Housing and Urban Development. The average yearly income is $12,290.00. The "very-low income limit" for the Jamestown Metropolitan area is $17,450.00. "Very low income limits" are set at 50 per cent of the median area income for HUD 202 projects. The average yearly income of the Concord Estate residents at $12,290.00 is well below the "very low income limit" for the Jamestown area. The principal activity of the Concord Estates is providing housing to "very low income" residents.
The Town and Village argue this is not a "charitable" use of the property as the rent, as [*4]subsidized by HUD, represents rentals at or about fair market value for the area. The amount paid by the individual resident, which averages $200.00 per month, is below market value. Residents also receive a credit against their payments for certain medical expenses and their electric bill. The residents are all re-certified annually to meet HUD income requirements.
The Village argues the Form 990 tax return of the corporation for 2003 shows a profit of $1,000.00 if one were to disregard the depreciation expense. Although not dispositive, Section 420-a Subd. 2 comments on depreciation charges for purposes of tax exemptions for certain properties. It states, the property will be "exempt from taxation only so long as it or a portion thereof, as the case may be, is devoted to such exempt purposes and so long as any money paid for such use does not exceed the amount of the carrying, maintenance and depreciation charges of the property or portion thereof". The income from rentals, including the money received from HUD, does not exceed the amount of the carrying, maintenance and depreciation charges. The income is substantially less than those combined charges. (990 form attached to application forming part of Exhibit A.)
The record establishes that 39 of the 39 available housing units of the Concord Estates meet the income requirements set by HUD which are "very low income limits" or "50 per cent of the area median income". The New York State Office of Real Properties Services has interpreted "exclusive use" to require finding that a large percentage of the clients must be in need of and receive a real and substantial charitable benefit. There is nothing to contradict that 100 per cent of the residents are "persons in need" as they all have incomes below the "very low income limit" set by HUD for the Jamestown Metropolitan Statistical area. The test enunciated in Belle Harbor for "exclusive use" is whether a "large percentage of residents receive only governmental support" compared with the small percentage of residents who are able to pay for their services with private income. In this case all of the residents are subsidized by HUD, none of the residents have private resources to fully pay the rent, and fifty one percent receive their only income from social security.
It is a burden on municipalities to have property exempt from taxation. The question as to what property shall be exempt and under what circumstances is a Legislative question . The Legislature seeks to encourage accommodations for persons of low income, particularly for low income aged care. Under their agreement with HUD United Church Home agreed "the project shall be used solely as rental housing for very low income and elderly disabled persons".
Petitioner has met its burden of proof to show it is organized for a charitable purpose and that it meets the exclusive use requirement set forth in RPTL Section 420-a (1)(a) since fully 100 per cent of their residents require HUD assistance to pay their rent.
It is hereby
ORDERED, the assessors denial of a tax exemption is vacated as of the date of the original denial. The Concord Estates property is declared tax exempt pursuant to Real Property Tax Law Section 420-a as of the date of the original denial; and it is further
ORDERED, that Petitioner's counsel must present to the Court for filing a recital of the papers submitted by all parties, pursuant to CPLR 2219 and furnish a copy thereof to opposing counsel.
This constitutes the Decision and Order of this Court. Submission of an Order by the [*5]parties is not necessary. The mailing of a copy of this Decision and Order by this Court to counsel shall not constitute notice of entry.
Signed at Mayville, New York this 4th day of August , 2006.
______
PAULA L. FEROLETO, J.S.C.
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