Greater Jam. Dev. Corp. v. N.Y.C. Taxi Comm'n

• Decision Date: 01 July 2015
• Citation: 25 N.Y.3d 614,15 N.Y.S.3d 738,36 N.E.3d 645,2015 N.Y. Slip Op. 05620
• Parties: In the Matter of GREATER JAMAICA DEVELOPMENT CORPORATION et al., Respondents, v. NEW YORK CITY TAX COMMISSION et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

25 N.Y.3d 614

36 N.E.3d 645

15 N.Y.S.3d 738

2015 N.Y. Slip Op. 05620

In the Matter of GREATER JAMAICA DEVELOPMENT CORPORATION et al., Respondents

v.NEW YORK CITY TAX COMMISSION et al., Appellants.

Court of Appeals of New York.

July 1, 2015.

Zachary W. Carter, Corporation Counsel, New York City (Vincent D'Orazio, Leonard Koerner and Andrea M. Chan of counsel), for appellants.

Manatt, Phelps & Phillips, LLP, New York City (Ronald G. Blum, Kimo S. Peluso and Andrew Case of counsel), for respondents.

Richard J. Sinnott, New York State Conference of Mayors and Municipal Officials, Albany, for New York State Conference of Mayors and Municipal Officials, amicus curiae.

Greenberg Traurig, LLP, New York City (James W. Perkins, Edward C. Wallace and Lauren B. Grassotti of counsel), for Lawyers Alliance for New York and others, amici curiae.

OPINION OF THE COURT

PIGOTT, J.

Petitioner Jamaica First Parking, LLC owns and operates five commercial parking facilities for the purpose of furthering the goal of its sole member—not-for-profit corporation Greater Jamaica Development Corporation—to revitalize downtown Jamaica, Queens. The issue on this appeal is whether respondent New York City Tax Commission improperly revoked Jamaica First's real property tax exemption pursuant to Real Property Tax Law § 420–a (1)(a). We hold that because Jamaica First's ownership and operation of the parking facilities is not incidental to a tax-exempt purpose, it is not entitled to a real property tax exemption under that statute.

I.

Greater Jamaica was formed in 1967 to promote commerce and business growth in downtown Jamaica. It is exempt from federal income taxation pursuant to Internal Revenue Code (26 USC) § 501(c)(3),¹ and, as Greater Jamaica's certificate of incorporation states, it is “organized and ... operated exclusively for charitable, scientific and educational purposes within the meaning of [that section].” Such purposes include, among other things, the promotion and coordination of Jamaica's business, commercial and retail districts; the encouragement of development of Jamaica's commercial, industrial and manufacturing facilities; and the provision of support and assistance in the planning, development and expansion of Jamaica's cultural, recreational, governmental and transportation facilities.

Consistent with those purposes, in 1996, Greater Jamaica purchased a parking garage from the City of New York through New York City's Economic Development Corporation (EDC). Two years later, Greater Jamaica formed Jamaica First, a Delaware limited liability company, with Greater Jamaica constituting Jamaica First's sole member. Jamaica First's amended and restated limited liability company agreement states that Jamaica First was “formed for the purpose of acquiring, owning, developing and operating public parking facilities on a nonprofit basis, including financing the acquisition and development of three public parking facilities in Jamaica, New York, in furtherance of the charitable purposes of the Member.” Jamaica First's certificate of formation provides that it “shall carry on any lawful purpose or activity not inconsistent with” Greater Jamaica's tax-exempt status under Internal Revenue Code (26 USC) § 501(c)(3).

In 2001, Jamaica First purchased three parking facilities from the City of New York through the EDC; said facilities had previously been operated by the New York City Department of Transportation. Greater Jamaica expended monies to renovate and upgrade the facilities. That same year, the Internal Revenue Service (IRS) issued Greater Jamaica a private letter ruling explaining that the separate legal existence of Jamaica First would be disregarded for federal income tax purposes, such that the acquisition, financing, renovation, operation and use of the parking facilities by Jamaica First would be treated for federal income tax purposes as the acquisition, financing, renovation, operation and use of the parking facilities by Greater Jamaica. Moreover, according to the letter ruling, Jamaica First's operation of the parking facilities would be substantially related to Greater Jamaica's charitable exempt purposes under Internal Revenue Code (26 USC) § 501(c)(3) and would lessen the burdens of government within the meaning of 26 CFR 1.501(c)(3)–1 (d)(2).

In 2004, Greater Jamaica conveyed the parking garage it purchased in 1996 to Jamaica First. Jamaica First thereafter purchased vacant land from the City and finished construction of a 410–car parking garage on that property in 2006. According to Greater Jamaica and Jamaica First, all five parking facilities provide below-market, reasonably-priced parking for local retail stores, state and federal office buildings and religious organizations.

In 2007, respondent New York City Department of Finance (DOF) granted real property tax exemptions for the five parking facilities pursuant to RPTL 420–a (1)(a). Four years later, the DOF revoked the exemptions, stating that the properties' uses as parking facilities did not fall into any of the enumerated uses of section 420–a and asserting that the status that the IRS bestowed upon Greater Jamaica was “not determinative of the issue of charitable use of the property as defined by 420–a.” The DOF determined that the use of the parking facilities, even for economic development of an underdeveloped area, did not constitute a “charitable” use, and that the parking facilities were “not incidental to another recognized charitable purpose but [were] the very purpose for which the property [was] being used.” According to the DOF, although the parking facilities served an important public purpose like community development, that purpose by itself did not qualify the properties for a charitable exemption under section 420–a.

II.

Greater Jamaica and Jamaica First (collectively, petitioners) commenced this hybrid proceeding pursuant to RPTL article 7 and CPLR article 78 against the DOF and the New York City Tax Commission (collectively, City) requesting a judgment declaring that the City's decision to revoke the exemptions was arbitrary and capricious and contrary to law and that Jamaica First was entitled to the exemptions. Petitioners also sought a judgment directing the City to grant the tax exemptions.² The City cross-moved for an order dismissing that part of the petition seeking relief pursuant to CPLR article 78, relying on its 2011 revocation letter along with the statements in the amended verified petition and Jamaica First's amended limited liability agreement that Jamaica First was “formed for the purpose of acquiring, owning, developing and operating public parking facilities on a nonprofit basis” as part of Greater Jamaica's charitable purpose of promoting commerce and business growth in Jamaica. The City argued that the parking facilities were not entitled to a section 420–a exemption because they were neither owned nor operated exclusively for a charitable purpose. Supreme Court upheld the City's revocation of the tax exemption and granted its cross motion to dismiss the petition.

The Appellate Division reversed the order and judgment insofar as appealed from by petitioners, granted the parking facilities the tax exemption, annulled the City's determination and denied the City's cross motion (111 A.D.3d 937, 937, 975 N.Y.S.2d 749 [2d Dept.2013] ). It held that the City failed to meet its burden of establishing “revocation of the tax exemption on the grounds that the petitioners' activity did not conform to a charitable purpose within the meaning of RPTL 420–a ” (id. at 939, 975 N.Y.S.2d 749 ). The Court explained that

“[a]bsent a precise statutory definition of ‘charitable purpose,’ courts have interpreted this category to include relief of poverty, advancement of governmental and municipal purposes, and other objectives that are beneficial to the community. Furthermore, a property owner seeking a real property tax exemption which demonstrates that it is a not-for-profit entity whose tax-exempt status has been recognized by the [IRS] and whose property is used solely for charitable purposes has made a presumptive showing of entitlement to exemption” (id. [some internal quotation marks, brackets and citations omitted] ).

The Appellate Division pointed to petitioners' submission of the IRS's letter ruling recognizing them as charitable organizations, and also to Greater Jamaica's certificate of incorporation—which stated that Greater Jamaica was to be operated for charitable purposes—as proof that it was operated for a charitable purpose (see id. ). As to Jamaica First, the Court observed that Jamaica First's certificate of formation explained that it was created to carry out Greater Jamaica's “charitable purposes by acquiring and operating public parking facilities on a nonprofit basis,” such that both organizations had established that they were formed for a charitable purpose pursuant to RPTL 420–a (id. at 939–940, 975 N.Y.S.2d 749 ). Finally, according to the Appellate Division, “petitioners demonstrated that the use of their public parking facilities was consistent with their exempt purpose, as expressly noted by the IRS in granting such operation tax exempt status,” because their “charitable purpose was to improve Jamaica's business district through further economic development, [and] offering convenient and inexpensive public parking to attract visitors and businesses was central to their aim” (id. at 940, 975 N.Y.S.2d 749 ).

We granted the City leave to appeal (23 N.Y.3d 908, 2014 WL 2936019 [2014] ) and now reverse.

III.

RPTL 420–a (1)(a) provides that real property owned by a corporation or association that is “organized or conducted exclusively for ... charitable ... purposes,” if used “exclusively” for such purposes, will be exempt from taxation. We have held that “[t]he term ‘exclusively’, in this context, has been broadly defined to connote ‘principal’ or ‘primary’ such that purposes and uses merely ‘auxiliary or incidental to the main and...