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Unused vacant land owned by charities is now often tax-free

Legislation Would Tighten Laws Allowing Tax Exempt Properties

Reforms would reduce shift of tax burden to homeowners from tax-exempt organizations

The tax burden to other property owners caused by non-profit tax-exempt properties is being addressed in the New York State Legislature. In late January, Sen. John J. Bonacic (R-C, Mt. Hope) and Sen. Betty Little (R-I-C, Queensbury) introduced legislation to tighten standards for qualifying charities, to require clear and convincing proof that the property is being used for the charitable purpose, and to give localities the option of whether to grant exemptions for certain charities that are now entitled to the exemptions.

In announcing a package of six bills to reform laws governing tax-exempt properties and address school and local municipal tax burdens, Senator Bonacic said, according to the Hamilton County News, "Nearly one-third of the property value across New York state is exempt from taxation. Some of those exemptions serve important public functions, but others do nothing more than further personal preferences, while driving the costs homeowners pay in property taxes through the roof."

Four of the bills tackle laws governing tax-exempt properties owned by charities. In the memorandum of support for one of the bills, Senators Little and Bonacic pointed out that "a high level of property tax exemptions is deleterious to home ownership efforts. People are being 'taxed out' of the ability to share in the American dream of home ownership in some localities because of extreme levels of tax-exempt land."

The two senators emphasized that they are not intending to remove exemptions for seniors, veterans or others that serve an essential and compelling public purpose, but are intending to scrutinize tax exemptions for charitable purposes more closely. Senator Little emphasized that homeowners cannot afford to pick up the tab when exemptions are given unnecessarily to some groups.

One of the bills to amend the real property tax law, S.1127, addresses the definitions and requirements for tax-exempt status. This bill requires that the group's incorporation limit the purposes of the group to tax-exempt purposes. It tightens the requirement that the property be "used exclusively" for the tax-exempt purpose, meaning that any other use would subject that part of the property to taxation. It requires that the property owner provide clear and convincing evidence that each acre is actually used for the tax-exempt purpose at least 120 days a year. This emphasis on the burden of proof falling on the tax-exempt group is the sole objective of another bill, S.1123, requiring that the burden of establishing the tax exemption be met yearly with clear and convincing evidence.

This bill responds to a need resulting from successful lawsuits by non-profit organizations for exemption of vacant land. The memorandum of support states that the New York State Court of Appeals, in Mohonk Trust v. Board of Assessors of Town of Gardiner, 47 NY2d 476, 483 (1979), read the term "used exclusively" to mean "principal" or "primary." "That ruling has led to a softening of the statutorily spelled out standard and has diminished the tax base of localities throughout the State," the memo states.

The memo points out that the decision In the Matter of Nassau County Council of Boy Scouts of America v. Board of Assessors of the Town of Rockland, 444 N.Y.S. 2d 755 (1981), presents further evidence of the erosion of the real property tax law from the statutory intent.

"In that case, some 3,700 acres was removed from the tax role even though much of that acreage was rarely, if ever used. The statute is clear - the property must be used for exempt purposes. The respondent in this case argued that the property was in fact in a state of 'non-use' in terms of exempt purposes," the memo states. The Court cited Mohonk and ignored the fact that much of the property was not in use at all.

By making it clear that each acre of exempt property must be in use a minimum of 120 days yearly, the legislation would undo these court precedents.

Under S.1127, land used for meditation is specifically eliminated from tax-exempt status.

Another bill, S.1398, gives discretion to localities in granting exemptions for certain organizations, those devoted to the "moral or mental improvement of men, women, or children." This category of organizations has been automatically entitled to the tax exemption. Converting this exemption to optional status is meant to strengthen the real property tax base of local communities.

One of the bills, S.1126, would also prohibit land-banking, by requiring that, when an exempt organization purchases vacant land on which to build, the organization develop and implement plans to build on the land within two years.

The key bill memo points out that seven of the State's cities and twenty-three of the State's Towns have tax bases that were reduced by at least 50 percent as a result of tax-exempt property in 2000.

Major groups representing local municipalities and school boards support the legislation, including the New York State Association of Counties (NYSAC), the New York State Association of Towns, the New York State Conference of Mayors, and the New York State School Boards Association.

Carol W. LaGrasse, February 28, 2003

"Statement in Support of Legislation to Reform Laws Governing Tax Exempt Properties" — By Carol W. LaGrasse (PRFA, March 13, 2003)

Additional information: Please contact Senator Elizabeth O'C Little, Chairman, NYS Senate Committee on Local Government; Senator John J. Bonacic, Chairman, NYS Committee on Housing, Construction, and Community Development - (518) 455-3181

For copies of bills and accompanying memos, please contact Senator Bonacic's office or see the Assembly or Senate web sites. (Senate bill numbers can be used on the Assembly web site, which is simpler to use.)

Public Hearing: Olympic Regional Development Authority Offices, Hall of Fame Room, 218 Main St., Lake Placid, NY -Thursday, March 13, 2003 from 1 pm to 3 pm. Those wishing to testify MUST call Senator Bonacic's office at (518) 455-3181 by 5 pm March 11, 2003.

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