Not All Property Uses Are Equal - Real Property Tax Exemption Denied Where Primary Use is for Private Benefit Rather than Exempt Purpose
A mandatory real property tax exemption in New York is provided by Real Property Law § 420-a(1)(a) for property meeting a two-prong test: first, if owned by an organization formed for “religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes,” and second, if used exclusively for carrying out such purposes. Many a tax exemption application has floundered upon the shoals of the exclusivity requirement, as was the case for a cultural organization where providing private benefits were found to be the true primary use of the property.
In Matter of Germania of Poughkeepsie, Inc. v. Town of Poughkeepsie,[1] the Second Department reversed the lower court and upheld the Town’s denial of a tax exemption. The petitioner, Germania, easily satisfied the first prong of the test. The Court noted it is a § 501(c)(3) corporation “dedicated to the preservation of, and the education of the public about German and German American heritage and culture. The corporation promotes cultural activities, including member and invited guest events, sponsored German culture activities, and educational classes. The corporation provides these services to enable the general public to learn about German and German American heritage and culture, and to explore each of the corporation’s many festivals, events, and activities.”
But turning to the second prong, the Court found “Germania did not meet its burden of showing that the property for which it sought the exemption was primarily used for exempt purposes.” The Court acknowledged that Germania offered German language and cooking classes, hosted German cultural events open to the general public, and provided a free venue to community groups, all for exempt purposes. But the Court held “Germania’s application showed that the property was more frequently used to host regular meals and social gatherings that were closed to the public. These events were open exclusively to members and their invited guests, who were the sole beneficiaries.” That, the Court found, was fatal to the application as it provided a reasonable basis for the Town’s denial.
Hodgson Russ Insights. There are many ways exempt organizations can stumble over the exclusivity requirement. Concerning private versus public benefit, as held by the Court of Appeals: “[T]he tax exemption must be denied if it appears that the primary beneficiaries are the individuals who founded and maintained the organization and that any purported public benefit is a mere pretext or token to shield what is essentially a private enclave from taxation.”[2] It is the burden of the property owner to demonstrate that the actual uses of the property further the exempt purposes of the organization. Germania teaches that even where the public uses are not inconsequential, the exemption is unavailable if the private uses are more than incidental. And while this case turned primarily on evidence in the application, assessors and boards of assessment review have the right to issue discovery requests and conduct an inquiry into the actual use of the property.
[1] 242 A.D.3d 1090, 2025 WL 2969785, 2025 N.Y. Slip Op. 05809 (2d Dep’t 2025).
[2] Matter of North Manursing Wildlife Sanctuary v. City of Rye, 48 N.Y.2d 135, 141 (1979).
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