CANTON HUMAN SERVS. v. Canton

• Decision Date: 18 May 2004
• Citation: 780 N.Y.S.2d 714,4 Misc.3d 413
• Parties: In the Matter of CANTON HUMAN SERVICES INITIATIVES, INC., Petitioner,<BR>v.<BR>TOWN OF CANTON et al., Respondents.
• Court: New York Supreme Court

4 Misc.3d 413

780 N.Y.S.2d 714

In the Matter of CANTON HUMAN SERVICES INITIATIVES, INC., Petitioner,

v.TOWN OF CANTON et al., Respondents.

May 18, 2004.

Green & Seifter, PLLC, Syracuse (Kimberly M. Zimmer of counsel), for petitioner.

Nash, Palm & LeMay, Canton (Charles B. Nash of counsel), for respondents.

OPINION OF THE COURT

JAN H. PLUMADORE, J.

This CPLR article 78 matter is before the court due to respondents' refusal to grant petitioner tax-exempt status under RPTL 420-a for the 2002 and 2003 tax years. Both sides move for summary judgment. The following material facts are not in dispute and therefore constitute the factual findings of the court.

Factual Findings

1. Petitioner was incorporated on August 31, 2000 as a type C corporation as defined in section 201 (b) of the Not-For-Profit Corporation Law ("any lawful business purpose to achieve a lawful public or quasi-public objective"). It was formed to avail St. Lawrence County of significant cost savings that resulted from: (a) the ability to include the occupation cost (i.e., rent) as a reimbursable expense from the State; (b) the fact that the lease obligation is subject to annual appropriation; (c) the project being developed on a design/build basis which apparently could not have been done on a direct municipal project;^[*] and (d) financing the project through tax-exempt bonds. The final cost of the building was approximately $1.3 million less than the architect's estimate of the cost of a comparable building built as a public works project.

2. The certificate of incorporation specifies its purposes as:

"THIRD

"(a) The development, construction and leasing of a modern human services center to replace the overcrowded and antiquated offices of the County Health Department and other County offices, which new facility will provide one modern facility to house a collection of human services providers including the departments of mental health, public health, veterans services, youth services and office for the aging, will be funded with tax exempt financing, will be leased to the County for a period of 30 years and will become the property of the Village of Canton or the Town of Canton thereafter without any payment or consideration paid;

"(b) The leasing of the facility for the utilization by departments of said County providing administrative services to several agencies, public and private, in said County, engaged in the provision of health related and human services to the residents thereof and

"(c) To meet the public objective to provide an appropriate environment for the various County agencies to offer health and human services in one facility, which facility will not create a capital burden on the County, will be provided through a lease subject to annual appropriation by the County and which will become the property of the Village of Canton or the Town of Canton for use by it or the County at the end of the County lease;

"(d) To reduce the cost of the facility through the utilization of tax exempt financing which will decrease the cost of the delivery of human services in the County and will increase the capabilities of the various County departments; and

"(e) To do any other act or thing incidental to or connected with the foregoing purposes or in advancement thereof.

"FOURTH: Notwithstanding any other provision of these articles, the Corporation is organized exclusively for one or more of the purposes as specified in Section 501 (c) (3) of the Internal Revenue Code."

3. In July of 2001 the Internal Revenue Service (petitioner's exhibit E) determined it to be a "publicly supported organization described in sections (IRC) 509 (a) (1) and 170 (b) (1) (A) (vi)" via 26 USC § 501 (c) (3), to wit:

26 USC § 501 (c) provides that a publicly supported organization includes: "(3) Corporations, . . . organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, . .. or for the prevention of cruelty to children or animals."

26 USC § 170 (b) (1) (A) provides:

"(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501 (a) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public."

26 USC § 170 (c) provides: "Charitable contribution defined.—For purposes of this section, the term `charitable contribution' means a contribution or gift to or for the use of—

"(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.

"(2) A corporation, . . .

"(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;

"(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes,. . . or for the prevention of cruelty to children or animals."

4. In February 2003 the New York State Attorney General's Office recognized petitioner as organized for charitable purposes via the registration requirements of EPTL 8-1.4. (Petitioner's exhibit G.)

5. Petitioner's initial board of directors consists of the County Administrator (who is also the secretary-treasurer), the executive director of the St. Lawrence Aquarium and Ecological Center (also petitioner's president), the executive director of Cornell Cooperative Extension of St. Lawrence County, the president of a private commercial concern and the superintendent of the Canton School District.

6. The County Board "hires and fires" petitioner's board (bylaws, art II, § 2.2). It also fills vacancies unless, via the County Administrator, it fails to notify petitioner's board of the name of the replacement within 90 days (§ 2.4 [b]). That notwithstanding, the County Board has the power to "terminate the tenure" of any and all of petitioner's directors with or without cause (§ 2.4 [a]).

7. In the event of dissolution, all remaining assets and property of the corporation, after necessary expenses, become the property of the Village of Canton (certificate art VI; bylaws ¶ ninth), since the Village's approving resolution superseded the Town's (petitioner's exhibits B, A, respectively, dated Apr. 19, 2001, and Apr. 3, 2001).

8. Both resolutions

"hereby determined to be necessary and proper to ratify (and approve) the creation of the Corporation (Petitioner) as a charitable, non-profit corporation to act on behalf of the Village (or Town) for the purpose of acquiring and constructing the Project, and providing the financing thereof, to be conveyed to the Village (or Town). . . upon the repayment of the Project financing." (Village resolution § 1; Town resolution § 1 [emphasis supplied].)

9. In each resolution's second whereas clause, the corporate formation was approved as aforesaid as "in the best interest" of each municipality; also recited as in the best interest of each was "cooperat[ion] with St. Lawrence County in the provision of appropriate space for delivery of County health services."

10. It was stipulated that the rent paid to petitioner by the County did not exceed expenses and debt service—a situation precluded by petitioner's nonprofit/charitable status in any event (see also petitioner's exhibit H).

11. Once petitioner had been formed by the County on August 31, 2000, the latter acquired options on and later the subject parcel itself in the fall of 2000. The first meeting with Town and Village officials concerning the project was held in January 2001, i.e., well before the approving resolutions. At that meeting local officials inquired as to any proposed or anticipated tax status of the building; the issue, obviously, was not resolved. On June 13, 2001, petitioner leased the property to St. Lawrence County in accordance with its certificate of incorporation, bylaws and both the Town and Village's approving resolutions' acknowledgment of petitioner's corporate purposes as set forth in its certificate of incorporation. In addition, the Village's resolution also includes language that petitioner submit to it prior to closing all funding (bond) documents and all final forms of, among other things, the lease agreement (fifth whereas clause, petitioner's exhibit B, supra).

12. It was also stipulated, as a matter of both fact and law, that had the County built the facility itself on land that it owned within the County, as this parcel certainly is, it would be exempt from real property taxation under RPTL 406, i.e., it is used for public benefit.

Decision

Exemption-from-real-property-taxation and "charitable organization" (or municipal corporation) are not synonymous. The RPTL is replete with distinctions: municipal real property not held for public use, real property owned by a charitable, educational, hospital, etc., organization not used principally or primarily (Mohonk Trust v Board of Assessors of Town of Gardiner, 47 NY2d 476, 483 [1979]) "for carrying out thereupon one or more of such purposes" (RPTL 420-a [1] [a]) are not tax exempt.

Respondents argue that leasing real property which would otherwise qualify prohibits an exemption here, relying principally on Columbia County Mental Retardation Realty Co. v Palen (97 Misc 2d 9 [1978]) and Sisters of St. Joseph v City of New York (49 NY2d 429 [1980]). Reliance on Palen would be problematic as the Court of Appeals has expressly declined to follow it.

Sisters of St. Joseph, the other case primarily relied on by respondents, involved a lease by one Catholic nonprofit to another for $0 rent. One year later that organization sublet...