For nonprofits that own real property and enjoy exemption from real property taxes, this time of year can be a little treacherous. The law requires such tax-exempt nonprofits to renew their real property tax exemption by filing certain forms by March 1.
The tricky part is that some taxing authorities will send the forms to the property owner, and some will not. Nonprofits should determine whether or not their taxing authority will send them forms. If not, the nonprofit will need to remember the annual filing requirement and to download the forms from the website of the New York State Department of Taxation and Finance. Links are found below. The forms must be submitted to the taxing authority before March 1. The “taxing authority” usually means the Tax Collector in the town where the real property is situated.
Not all nonprofits that own real property are exempt from real property taxes. State tax law creates two classes of nonprofits with respect to real property tax. Those described in Real Property Tax Law Section 420-a are called “mandatory” and will be exempt from real property tax if they meet the statutory definition, as follows:
Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association or by another such corporation or association as hereinafter provided shall be exempt from taxation as provided in this section.
As you can see, there is a 2-part test for tax exemption. First, the corporation or association that owns the property must be organized or conducted exclusively for religious, charitable or other listed purposes. Second, the property must actually be used for religious, charitable or other listed purpose. So for example, if a qualified charitable hospital owned a parcel of real estate but leased it to a for-profit factory, that parcel would not be eligible for tax exemption.
In addition to the “mandatory” class, there is a “permissive” class described in Real Property Tax Law section 420-b. This class is called permissive because local tax authorities may elect to deny them tax exemption. This class includes
…a corporation or association which is organized exclusively for bible, tract, benevolent, missionary, infirmary, public playground, scientific, literary, bar association, medical society, library, patriotic or historical purposes, for the development of good sportsmanship for persons under the age of eighteen years through the conduct of supervised athletic games, for the enforcement of laws relating to children or animals …
Each nonprofit of the permissive kind must check with its local authorities to determine whether or not it is eligible for real property tax exemption.
It should be noted that exemption from real property taxes normally does not include exemption from levies or ad valorem assessments on real property. Thus, tax exempt nonprofits will usually still be obligated to pay charges assessed for being situated in fire, water and sewer, ambulance, library, lighting and similar districts.
What if a tax-exempt nonprofit fails to timely file its annual tax exemption renewal forms? Is its tax exemption lost? This question was answered in the case Kahal Bnei Emunim v. Town of Fallsburg, 78 N.Y.2d 194, 577 N.E.2d 34, 573 N.Y.S.2d 43 (1991). The nonprofit there was a religious corporation, thus a “mandatory” nonprofit. The nonprofit failed to timely file its annual renewal form, and the tax assessor put the property back on the tax roll, assessing taxes for the coming tax year. The nonprofit contested the assessment, and extensive litigation ensued that went all the way to the state’s highest court, the Court of Appeals. Construing section 420-a, the court held that tax exemption for nonprofits was not based on the filing of forms, but on the 2-part test described in 420-a: the tax-exempt nature of the organization, and the tax-exempt nature of the use of the property. As long as those two conditions are met, the property owner is entitled to tax exemption. Failure to timely file the annual renewal form, without more, is not an adequate basis for revoking tax exemption.
Although the nonprofit in that case maintained its tax exemption, it had to endure and pay for years of litigation. Nonprofits that fail to timely file their renewals can anticipate being placed back on the tax rolls and having to contest that action, likely with the help of attorneys. That waste of time, effort and expense is easily avoided. Nonprofits should make sure they file their annual tax exemption renewal forms, also being sure to specifically include every tax parcel they own.
There are two forms to be filed. The first, called RP-420-a/b-Rnw-I, assures that the property owner is still a qualified tax-exempt organization:
The second form, called RP-420-a/b-Rnw-II, assures that the property is still being used for tax-exempt purposes:
Nonprofits in need of assistance in analyzing their situation or filing the forms should contact attorneys experienced in representing nonprofits.
Gary Schuster is Senior Counsel on the Business & Estates Team. He can be reached by phone at 845-778-2121 toll free or 845-778-2121 and by email.