Pace College v. Boyland

• Decision Date: 25 June 1958
• Citation: 151 N.E.2d 900,72 A.L.R.2d 515,176 N.Y.S.2d 356,4 N.Y.2d 528
• Parties: , 151 N.E.2d 900, 72 A.L.R.2d 515 In the Matter of PACE COLLEGE, Appellant, v. William E. BOYLAND et al., Constituting the Tax Commission of the City of New York, Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 356

176 N.Y.S.2d 356

4 N.Y.2d 528, 151 N.E.2d 900, 72

A.L.R.2d 515

In the Matter of PACE COLLEGE, Appellant, v. William E. BOYLAND et al., Constituting the Tax Commission

of the City of New York, Respondents.

Court of Appeals of New York.

June 25, 1958.

Herbert Plaut and Charles E. Scribner, New York City, for appellant.

Peter Campbell Brown, Corp. Counsel, New York City (Edith I. Spivack and Morris Handel, New York City, of counsel), for respondents.

VAN VOORHIS, Judge.

Subdivision 6 of section 4 of the Tax Law exempts from the general property tax the real property of a corporation or association organized exclusively for educational or other benevolent purposes, provided that the property is used by it exclusively for such purposes. This section further provides: 'The real property of any such corporation not so used exclusively for carrying out thereupon one or more of such purposes but leased or otherwise used for other purposes, shall not be exempt, but if a portion only of any lot or building of any such corporation or association is used exclusively for carrying out thereupon one or more such purposes of any such corporation or association, then such lot or building shall be so exempt only to the extent of the value of the portion so used, and the remaining or other portion, to the extent of the value of such remaining or other portion, shall be subject to taxation'.

Petitioner-appellant Pace College's property consists of a 16-story office building at 41 Park Row, opposite City Hall Park, in the borough of Manhattan, New York City. It has been converted into a building suitable for educational purposes in which space was set aside for use as a cafeteria. There is a student enrollment of 3,800, a faculty of 140 members and a staff of 129. The use of this cafeteria is restricted to the students, faculty and staff. A uniformed guard employed by the school has the duty of preventing other persons from using this facility, assisted by a sign on the door stating that the cafeteria is not open to the public. Pace College purchased and installed the cafeteria equipment (including gas, steam and electric cooking facilities) at a cost of $35,000. It was thought to be too expensive for the college to operate this cafeteria directly, consequently in September, 1953, it entered into a contract with a food service management and consultant firm providing that the college would furnish equipment, gas, electricity and water and that the firm would pay to the college 2% of the gross receipts monthly, and that net operating profits at the end of a year would be divided equally between the college and the firm. While this arrangement was in effect, this entire building of Pace College was treated as exempt by the Tax Commission of the city. This mode of operation proved to be unsatisfactory to the college, so that effective January 1, 1955, it entered into an agreement with a chain restaurant corporation known as Horn & Hardart to operate the cafeteria. No rent or other remuneration was to be paid to Pace College by Horn & Hardart, which would retain the profit or stand the loss from operations; the arrangement was to continue for five or six months on an informal or tentative basis, and then at will. The college, as before, was to furnish equipment, gas, electricity and water, scrub and wax the floors in the dining-room area once every two weeks, and Horn & Hardart would provide all of the personnel, assume responsibility for garbage disposal and liability insurance and serve food similar in variety and quality to that served in their automats at comparable prices. It was contemplated that after a test period the financial relationship would be re-examined and formalized, and, if it were found that Horn & Hardart were making what Pace College regarded as an undue profit, some different arrangement would be made. No major changes have been made in this agreement which has been carried into effect.

Due to this method of operating the college cafeteria, Pace College was notified by the Tax Commission of the City of New York on March 2, 1955 that $50,000 of the previous tax exemption had been withdrawn from its building. This proceeding has been instituted by the college for the restoration of this portion of its tax exemption, so that its building at 41 Park Row may in the future be entirely exempt as it was before the operation of its cafeteria through Horn & Hardart began.

A final order sustaining the Tax Commission's position was entered by the Official Referee, which was affirmed by the Appellate Division. Leave to appeal was granted by this court. We think that Pace College is entitled to complete tax exemption. It is true that subdivision 6 of section 4 of the Tax Law withholds exemption from educational or other benevolent corporations to the extent that their properties are leased for other purposes (except under certain circumstances to a similarly exempt organization), but that is not this case. This is not an instance where property has been leased for other than the purposes of incorporation of the lessor (e. g. People ex rel. Frick Collection v. Chambers, 196 Misc. 1026, 91 N.Y.S.2d 525, affirmed 276 App.Div. 891, 94 N.Y.S.2d 819). This cafeteria is not being used by the public paying a revenue to the college as in the case of the restaurant in Young Women's Christian Ass'n v. City of New York (217 App.Div. 406, 216 N.Y.S. 248, affirmed 245 N.Y. 562, 157 N.E. 858) nor was the property otherwise held as an investment as in People ex rel. Young Men's Ass'n v. Sayles (32 App.Div. 197, 53 N.Y.S. 67, affirmed 157 N.Y. 677, 51 N.E. 1093). The situation is different from that in People ex rel. Adelphi College v. Wells (97 App.Div. 312, 89 N.Y.S. 957, affirmed 180 N.Y. 534, 72 N.E. 1147), where a college athletic field, which the court said would be exempt if used by the college, was held to be taxable for the reason that it was also 'utilized as a source of pecuniary income by renting it to outside parties for contests in which the Adelphi College students do not participate and over which the college officers have no control' (97 App.Div. 314, 89 N.Y.S. 958).

Here the cafeteria is not used as a source of income and the equipment which the college owns is put to its own use. This cafeteria is part of the operation of Pace College. Furnishing of meals to students, faculty and staff on college premises is recognized as entering into their use for educational purposes, nor does it customarily disturb full tax exemption (People ex rel. Seminary of Our Lady of Angels v. Barber, 42 Hun 27, affirmed 106 N.Y. 669, 13 N.E. 936; Matter of Syracuse University, 214 App.Div. 375, 377, 212 N.Y.S. 253, 256; People ex rel. Board of Trustees of Mt. Pleasant Academy v. Mezger, 98 App.Div. 237, 90 N.Y.S. 488, affirmed 181 N.Y. 511, 73 N.E. 1130). Y.M.C.A. cafeterias and dining rooms for members do not impair their tax exemption (People ex rel. Young Men's Christian Ass'n v. Miller, 253 App.Div. 804, 2 N.Y.S.2d 1009, affirmed 278 N.Y. 651, 16 N.E.2d 302; People ex rel. Christodora House v. Miller, 254 App.Div. 670, 4 N.Y.S.2d 993, affirmed 278 N.Y. 652, 16 N.E.2d 303). Hospitals and other eleemosynary, charitable, religious and educational institutions are similarly situated (see People ex rel. Doctors Hospital v. Sexton, 267 App.Div. 736, 48 N.Y.S.2d 201, affirmed 295 N.Y. 553, 64 N.E.2d 273, holding Doctors Hospital to be tax exempt notwithstanding that its facilities are used by physicians for their pecuniary gain).

The reason on account of which part of appellant's tax exemption has been withdrawn is not that it conducts a cafeteria, but that it does so through Horn & Hardart. We think that Pace College is not the less operating this cafeteria for its own educational purposes within the meaning of the Tax Law for the...