The Court of Appeals, New York’s highest court, recently published decisions in the Maetreum of Cybele v. McCoy and Merry-Go-Round Playhouse, Inc. v. Auburn cases. In these decisions, the Court affirmed that the exemptions provided to religious and charitable organizations by RPTL Section 420-a apply to residential property owned and used to house the organizations’ congregation members or employees. The long-standing rule for this type of exemption stands: so long as the residential use advances the non-profit organization’s charitable or religious purpose, the residential real property is tax exempt.
In a unanimous decision, the Court of Appeals upheld the Maetreum of Cybele’s RPTL 420-a exemption. As we have previously reported, the petitioner, a religious entity, applied for and was denied an exemption on a homestead property that it claimed was used in furtherance of its religious purposes. Among the religious uses occurring on site (rituals, meditations, services), the property was also used as a residence for the sect’s priestesses and the Holy Mother herself. The Town of Catskill argued that the religious use of the property was not primary, instead claiming that the property was primarily used as affordable cooperative housing. The Court ultimately sided with the petitioner, finding that it had established that the property was used in furtherance of its religious purposes. The Court’s decision appears to have given little weight to the Town’s defense – commenting only that the Town called no witnesses at trial. The lesson is this: if a nonprofit property owner proves that it uses its property primarily in furtherance of its stated nonprofit purposes, a residential component will not defeat the exemption.
The Court found that the RPTL 420-a test was also met in the Merry-Go-Round Playhouse case. The case involved a theatre which owned and used two nearby apartment buildings to house its full time staff and temporary performers. In a longer, eight-page decision, Chief Judge Lippman compared the facts of the Merry-Go-Round Playhouse case to the long-standing judicial precedent in which courts granted real property tax exemptions to: (1) property owned and used by hospitals to house physicians, nurses and hospital staff; and (2) property owned and used by colleges and universities to house faculty members. Here, as with the Maeteum of Cybele case, the Court found that the nonprofit property owner proved that it used its property in furtherance of its nonprofit, charitable purposes. Therefore, the Court sustained the exemption.
One parting thought: would a nonprofit organization be entitled to the exemption if it earned rental income by leasing a portion of its residential properties? Judge Graffeo raised this issue in oral argument, asking “if [Merry-Go-Round Playhouse] were to rent these apartments during the year when there were not actors or staff [present] . . . would that change the equation.” The Court did not fully address the issue in these cases because neither petitioner derived any rental income. The answer to this question will certainly depend on the facts of the case. However, in our opinion, the relevant inquiry is not whether rental income is collected, but rather is whether the rental of property is connected with one of the exempt purposes for which the nonprofit is organized. Nevertheless, uncertainty on this point remains.
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