St. Joseph's Health Center Properties, Inc. v. Srogi

• Decision Date: 16 October 1980
• Parties: , 412 N.E.2d 921 In the Matter of ST. JOSEPH'S HEALTH CENTER PROPERTIES, INC., Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City of Syracuse, Appellant. (And Four Other Proceedings.)
• Court: New York Court of Appeals Court of Appeals

Page 865

432 N.Y.S.2d 865

51 N.Y.2d 127, 412 N.E.2d 921

In the Matter of ST. JOSEPH'S HEALTH CENTER PROPERTIES,

INC., Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City

of Syracuse, Appellant. (And Four Other Proceedings.)

Court of Appeals of New York.

Oct. 16, 1980.

David M. Garber, Corp. Counsel, Syracuse (Anthony S. Bottar, Syracuse, of counsel), for appellant.

Charles E. Cooney, Jr., and Angela S. Cooney, Syracuse, for respondent.

OPINION OF THE COURT

MEYER, Judge.

Real property which is owned by a not-for-profit corporation and used exclusively to provide housing for staff personnel of a separate hospital corporation is "conducted" exclusively for hospital purposes and is, therefore, exempt from taxation under section 421 (subd. 1, par. (a)) of the Real Property Tax Law, where the property owning corporation operates solely to carry out a purpose of the exempt corporation. The order of the Appellate Division affirming the judgment of the Supreme Court declaring the property exempt and directing a refund of taxes paid by petitioner should be affirmed, with costs.

On this appeal from the Appellate Division order, 72 A.D.2d 905, 422 N.Y.S.2d 896, here by our leave, the affirmed findings of fact establish that petitioner, St. Joseph's Health Center Properties, Inc. ("Properties"), is a not-for-profit corporation the purposes of which, as stated in its certificate of incorporation and by-laws, include "To receive and pay over monies to St. Joseph's Hospital Health Center ¹ for its corporate purposes" and "to carry out such programs, research or activities as may be necessary or desirable to further the corporate interests of St. Joseph's Hospital Health Center" and limit Properties' purposes "to those which are strictly scientific, educational and charitable as more specifically described above " (emphasis supplied). Paragraph 7 of the certificate also requires that there be not less than three nor more than nine directors "all of whom shall be members of the Board of Trustees of St. Joseph's Hospital Health Center and they shall be designated at the Annual Meeting by the President of St. Joseph's Hospital Health Center." ² Equity Term also found that: the properties in question in these proceedings are adjacent to the Hospital and its school of nursing; they are used exclusively to house Hospital personnel, which makes it possible to attract desirable personnel from outside the area; the rents are nominal; the properties are managed by Hospital's director of special services and security and are maintained by Hospital to which the rents are turned over and which pays for all utilities and maintenance of the properties.

The city argues that Properties does not satisfy the exclusive purposes requirement of section 421 (subd. 1, par. (a)) of the Real Property Tax Law, that to be exempt the properties must be owned by Hospital rather than an alter ego and that to hold otherwise is inconsistent with the legislative purpose to stem erosion of municipal tax bases. As hereafter demonstrated these arguments ignore both judicial precedent and the addition to the subdivision in question by chapter 414 of the Laws of 1971 of the words "or conducted" after the word "organized", which amendment makes clear the legislative purpose to grant tax exemption to a corporate property owner conducted for a hospital purpose, even though the owner corporation is not itself authorized to operate a hospital.

The city's argument concedes that if Hospital itself owned the properties in question they would be within the exemption granted by the Legislature and thus by legislative design unavailable as a part of the municipal tax base. The concession is not surprising in view of our decision in Matter of St. Luke's Hosp. v. Boyland, 12 N.Y.2d 135, 237 N.Y.S.2d 308, 187 N.E.2d 769. In St. Luke's we held exempt apartment buildings owned by a hospital corporation, located in close proximity to the hospital, to the extent used as living accommodations for hospital personnel and their immediate families, reasoning that such use was " 'reasonably incident' to the major purpose of the hospital" (12 N.Y.2d at p. 143, 237 N.Y.S.2d 308, 187 N.E.2d 769) and that neither the fact that the buildings were not immediately contiguous to the hospital nor that rent was paid by the hospital personnel occupying the apartments destroyed the exemption. Not only was that holding amply supported by prior precedents of our and other courts cited at pages 143 and 144, 237 N.Y.S.2d 308, 187 N.E.2d 769 of the St. Luke's decision, but it has been followed consistently since in Matter of Genesee Hosp. v. Wagner (47 A.D.2d 37, 364 N.Y.S.2d 934, affd. on opn. below 39 N.Y.2d 863, 386 N.Y.S.2d 216, 352 N.E.2d 133); Matter of Shrine of Our Lady of Martyrs at Auriesville v. Board of Assessors of Town of Glen (40 A.D.2d 75, 337 N.Y.S.2d 786, affd. 33 N.Y.2d 713, 349 N.Y.S.2d 993, 304 N.E.2d 563); Matter of Chautauqua Inst. v. Town of Chautauqua (35 A.D.2d 1, 312 N.Y.S.2d 364, mot. for lv. to app. den. 27 N.Y.2d 485, 315 N.Y.S.2d 1025, 263 N.E.2d 563); see Matter of Faculty-Student Assn. of State Univ. Coll. at Oswego v. Sharkey (35 A.D.2d 161, 316 N.Y.S.2d 698, affd. 29 N.Y.2d 621, 324 N.Y.S.2d 411, 273 N.E.2d 139).

The city's alter ego contention is answered by the last cited case as well as by Matter of Beth Israel Hosp. Housing Co. (Catherwood) (35 A.D.2d 397, 316 N.Y.S.2d 462). Matter of Faculty-Student Assn. (supra) involved two nonprofit corporations, one organized to promote educational relations at a college of the State University and which under contract with the State University operated food services, a book and supply store and other activities at the college; the other organized to promote fellowship among students at the same college and which operated off-campus properties for recreation and housing of students and faculty members of the college. The same section of the Real Property Tax Law (then numbered § 420) was involved, but since the proceedings arose before 1971 its then wording required that to be exempt, property be "owned by a corporation or association organized exclusively for" educational purposes, among others. The conclusion was that the corporations were "organized exclusively" for educational purposes since their functions were "necessary to the college community and so further the goal of education" (35 A.D.2d, at p. 166, 316 N.Y.S.2d 462). Beth Israel (supra) concerned a membership corporation organized under the Private Housing Finance Law for the purpose of building and operating housing facilities for hospital personnel and their families. The Appellate Division, Third Department, noting that occupancy of the housing company's properties was limited to hospital personnel, that the company's directors were required to be directors or trustees of the hospital, and that on dissolution its property reverted to the hospital, held the company to be "merely an appendage of the hospital" and therefore "operated exclusively for hospital purposes" ³ within the meaning of the requirement of subdivision 4 of section 560 of the Labor Law, as it then read, that the corporation be "organized and operated exclusively for * * * charitable purpose".

If any question remained after the Faculty-Student and Beth Israel decisions about the right to exemption of a corporation which performed a function "reasonably incident to the major purpose of" a separate exempt corporation (People ex rel. Watchtower Bible & Tract Soc. v. Haring, 8 N.Y.2d 350, 358, 207 N.Y.S.2d 673, 170 N.E.2d 677, accord Matter of St. Luke's Hosp. v. Boyland, 12 N.Y.2d 135, 237 N.Y.S.2d 308, 187 N.E.2d 769, supra ), it was removed by the enactment of chapter 414 of the Laws of 1971. Adopted after intensive study by the Joint Legislative Committee to Study and Investigate Real Property Tax Exemptions culminating in a report (N.Y. Legis. Doc., 1970, No. 15) which pointed up the need of municipalities for a broader tax base and which, therefore, inserted a new subdivision (b) making the exemptions enumerated therein subject to local option rather than absolute, as they previously had been, it nevertheless inserted in both subdivision (a), which continued the State mandated exemption of hospitals, among others, and in the new subdivision (b), which established "local option" exemptions, the words "or conducted" between "organized" and "exclusively". Such legislative history as there is concerns the reasons for the local option provision and does not discuss the reason for the insertion of the words "or conducted." ⁴ The facts that the insertion is in the disjunctive, that it was made at a time when municipalities were being granted relief the need for which was well documented, that it was made in both subdivisions, and that it was made but shortly after the Faculty-Student and Beth Israel ⁵ decisions, strongly suggest however, the Legislature's intention to exempt property owned by a corporation conducted for a purpose reasonably incident to the major purpose of another subdivision (a) exempt corporation, even though not itself organized to engage in all of the activities of the latter corporation.

There is yet another argument by analogy supporting the conclusion reached. Subdivision 2 of section 421 provides that such portion of real property as is used for exempt purposes is exempt even though some part of the property is used for nonexempt purposes. That declaration is, however, followed by a proviso that "such real property (i. e., that specified in paragraphs (a) and (b) of subdivision 1) shall be fully exempt from taxation although it or a portion thereof is used * * * for purposes which are exempt pursuant to this section * * * by another corporation which owns real property exempt from taxation * * * or whose real property if it owned any would be exempt from taxation". That provision derives from an amendment adopted in 1948 in order to...