Miriam Osborn Mem. Home Assn. v. Assessor of City of Rye, 2006 NY Slip Op 52461(U) (N.Y. Sup. Ct. 12/30/2006)

• Decision Date: 30 December 2006
• Docket Number: 17175/97.
• Parties: MIRIAM OSBORN MEMORIAL HOME ASSOCIATION, Petitioner, v. THE ASSESSOR OF THE CITY OF RYE, THE BOARD OF ASSESSMENT REVIEW OF THE CITY OF RYE, and THE CITY OF RYE, Respondents, and THE RYE CITY SCHOOL DISTRICT, Intervenor-Respondent.
• Court: New York Supreme Court

Page 1

2006 NY Slip Op 52461(U)

MIRIAM OSBORN MEMORIAL HOME ASSOCIATION, Petitioner, v. THE ASSESSOR OF THE CITY OF RYE, THE BOARD OF ASSESSMENT REVIEW OF THE CITY OF RYE, and THE CITY OF RYE, Respondents, and THE RYE CITY SCHOOL DISTRICT, Intervenor-Respondent.

17175/97.

Supreme Court of the State of New York, Westchester County.

Decided December 30, 2006.

TO: Peter Bergmann, Esq., Brian T. McGovern, Esq., Mathew S. Fenster, Esq., Cadwalader, Wickersham, & Taft, Attorneys for Petitioner, New York, NY.

John E. Watkins, Esq., Liane V. Watkins, Esq., Watkins & Watkins, LLP, Attorneys for Petitioner, White Plains, NY.

Robert A. Weiner, Esq., Lisa Linsky, Esq., McDermott Will & Emery LLP, Attorneys for Respondents, New York, NY.

Daniel G. Vincelette, Esq., Daniel G. Vincelette, P.C., Attorney for Respondents, Albany, NY.

THOMAS A. DICKERSON, J.

The trial of this Real Property Tax Law ["R.P.T.L."] Article 7 proceeding challenging the real property tax assessments for the years 1997-2003 imposed upon the Petitioner, The Miriam Osborn Memorial Home Association ["The Osborn"] by the Respondents, The City of Rye ["the City"] and its Assessor ["the Assessor"] and Board of Assessment Review ["BAR"], lasted seventy-four (74) days during which numerous witnesses testified on the exemption¹ and valuation² issues and numerous Decisions were rendered³.

Seeking Restoration Of 100% Tax Exemption

First, the Osborn seeks the restoration of a 100% real property tax exemption pursuant to R.P.T.L. § 420(a)(1)(a)["RPTL § 420-a"]["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" [emphasis added] which it enjoyed from 1908 to 1996 when it was revoked by the Assessor and partially restored by the

BAR.

Charitable Use & Hospital Use Exemptions

Specifically, the Osborn seeks the full restoration of a RPTL § 420-a "charitable use exemption" [See Matter of Miriam Osborn Memorial Home Association v. Assessor of the City of Rye, 275 AD2d 714, 713 NYS2d 186 (2d Dept. 2000)] and a RPTL § 420-a "hospital use exemption" [See Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, 6 Misc 3d 1035, 800 NYS2d 350 (2005 )].

An Issue Of First Impression

The Osborn is a modern Continuing Care Retirement Community

["CCRC"] and the application of the charitable use exemption and/or the hospital use exemption pursuant to RPTL § 420-a to a CCRC is an issue of first impression in New York State. However, the nature of CCRCs⁴ and other types of senior housing⁵ has been examined by the Courts of many States not only within the context of whether and to what extent they should be exempt from the payment of real property taxes because of a charitable use and/or hospital use, but also whether they should be exempt from the payment of excise taxes on entrance and monthly service fees⁶ and the payment of sales and use taxes⁷. The Courts have also resolved

Page 13

other disputes⁸ including challenges to the assessments imposed upon CCRCs⁹. In addition, the

Page 14

Internal Revenue Service has issued Revenue Rulings 72-124¹⁰, 72-209¹¹, 79-18¹², Private Letter

Page 15

Rulings PLR 200250038¹³ and PLR 200437036¹⁴ and a General Counsel Memorandum¹⁵, all of

Page 16

which discuss the charitable nature of senior housing including CCRCs.

The Burden Of Proof

Having revoked the Osborn's long standing real property tax exemptions the Respondents had the burden of proof to explain why the Osborn was no longer entitled to a charitable use exemption [Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, No: 17175/97, Slip Op. February 3, 2005 at pp. 4-5 ("it would be efficient and fair to require the Respondents to go first and present their case on why the Osborn's real property is no longer entitled to [a tax] exemption , in whole or in part")] or a hospital use exemption [Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, 6 Misc 3d 1035, 800 NYS2d 350 (2005)("since the City of Rye withdrew (the Osborn's) existing hospital exemption the burden is on the Respondents to prove that the Osborn is no longer entitled to the hospital use exemption under RPTL § 420-a")].

The Scope Of Respondents' Burden Of Proof

The Osborn seeks to limit the data upon which the Respondents may rely in carrying their burden of proof to "only those facts that the Assessor actually considered when she made her determination ... Factors or information that the Assessor did not know or consider at the time of her determination were not part of her decision-making process and may not be cited at trial to justify her action "¹⁶. The Osborn relies upon Otrada, Inc. v. Assessor of Ramapo, 9 Misc 3d 1116 (Rockland Sup. 2005), mod'd 11 Misc 3d 1058 (Rockland Sup. 2006)("It is evident to this Court that Defendants did not provide sufficient evidence at trial to meet their burden of proving why the exemption on the subject property was reduced from 100% to 67%... The Court

Page 17

is not expected to make any assumptions as to why the Assessor chose to reduce Otrada's tax exemption.") and dicta¹⁷ in Salvation & Praise Deliverance Center, Inc. v. Assessor of The Town of Poughkeepsie, 6 Misc 3d 1021 (Dutchess Sup. 2005).

The Brave New World Of CCRCs

To the extent the Osborn seeks to limit this Court's review and consideration of all of the evidence introduced at trial on the tax exemption and valuation issues its position is rejected as counterproductive. It is after all The Osborn that makes much of the brave new world of CCRCs [and its accreditation by the Continuing Care Accreditation Commission [CCAC]¹⁸] and, notwithstanding a legion of out of state cases finding CCRCs¹⁹ and similar senior care facilities²⁰ not tax exempt, urges this Court to ignore New York law on charitable use exemptions as it relates to adult homes²¹ and nursing homes²² which focuses upon the percentage of indigent

Page 18

seniors cared for²³ and take a fresh look and consider its evidence and its analytical framework²⁴ using thirty year old Internal Revenue Service Rulings²⁵ and more recent Private Letter Rulings²⁶.

The Paragon Of Charity Care

Indeed, it is The Osborn that asks this Court to look beyond its original charitable purpose of caring for "indigent" aged women [and not "hold(ing) [The Osborn] to its levels of support in years past"²⁷] and expand the definition of charitable use beyond "a Depression-era soup kitchen or orphanage...or alms giving"²⁸ to include the modern concept of a CCRC [of which

Page 19

"The Osborn (asserts that it) exceeds all others on every conceivable measure of charitable activities (and) emerges as the unassailable paragon of charity care²⁹"] which "is a setting in which [healthy and wealthy³⁰] elderly residents can transition along a continuum of care from independent living to assisted living or skill nursing care, allowing a resident to spend the rest of his or her life residing on one campus without the trauma and dislocation associated with transferring to another health care facility or residential location"³¹.

Good Faith Investigation

A careful review of the trial testimony³² of the Assessor, Ms. McCarthy, reveals that she acted in good faith based upon available information and a comprehensive investigation in revoking The Osborn's 100% real property tax exemption, i.e., that the use of The Osborn had dramatically changed from being a nursing home caring for indigent residents to a continuing care retirement community catering to the needs of wealthy and healthy seniors. Further, a careful review of the evidence presented by Respondents during the trial demonstrates that such proof is relevant to the reasons why the Assessor revoked The Osborn's 100% real property tax exemption.

Valuation

Page 20

Second, and on the premise that the Osborn's 100% exemption from real property taxation would not be restored, in whole and or in part, the Osborn pursued its challenge to the assessments imposed upon its property for the tax years 1997 through 2003, seeking a reduction in assessed value and appropriate refunds of taxes paid [Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, No: 17175/97, Slip Op. February 3, 2005 at pp. 4-5 ("Were...the Osborn's 100% tax exempt status restored then there would be no further need for evidence on the issue of market value for assessment purposes. However, if such (is not found) then the trial will continue with the Petitioner presenting its case on the tax exemption issue after which the Petitioner shall present its case on the valuation issue followed by the Respondents' case")]. This Court's Decision on valuation appears in a separate Opinion.

No Longer The Nursing Home It Once Was

Stated, simply, and after careful consideration of the trial record and exhibits and the excellent post trial Memorandum of Law of the Osborn³³ and the Respondents³⁴ on the issue of tax exemption including their respective Proposed Findings of Fact³⁵, this Court finds that while it is true that "The Osborn is no longer the nursing home it once was"³⁶ it is still a "residential health care facility", a portion of which [i.e., The Pavilion] is licensed by the New York State

Page 21

Department of Health and, therefore, is entitled to a hospital use exemption [San Simeon By The Sound, Inc. v. Russell, 250 AD2d 689, 671 NYS2d 699 (2d Dept. 1998); Cobble Hill Nursing Home, Inc. v. Axelrod, 196 AD2d 564, 601 NYS2d 334 (2d Dept. 1993), lv. to appeal denied 83 NY2d 756 (1994); Miriam Osborn Memorial Home Association v. Assessor of the City of Rye, ...