In the course of its opposition, the city sought to contest certain factual issues by alleging what was observed on two unauthorized visits onto the premises. The court would not consider anything gained by the visits, stating,

This court has ruled in Schlesinger v. Town of Ramapo, (Supreme Court, Rockland County, Dickerson, J., Jan. 24, 2006), that an entry upon a premises by an assessor, for the purpose of gaining information to prepare an assessment, without the permission of the owner, or a court order, is an unauthorized search as contemplated under the United States and New York State Constitutions. (See also Camara v. Municipal Court, 387 US 523, unauthorized entry is, at the very least, suspect.)

The court stated that there has been no evidence presented by the respondent that the premises is not owned by Southwinds, a not-for-profit corporation organized and conducted exclusively for charitable purposes, including the moral or mental improvement of men, women, or children, and hence the court found that the city had failed to meet its burden on that issue.

Further, where it is alleged that the property was leased to another charitable institution, the burden of proof is upon the city to demonstrate, pursuant to RPTL §420-a(2), that:

The real property at issue, while not so used by the corporation, is not leased or otherwise used by another 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; or the property (or a portion of it) is not devoted to such exempt purposes; or the monies paid for the use of the property exceed the amount of the carrying, maintenance and depreciation charges of the property or portion thereof.

The court held that as a matter of law Southwinds could avail itself of the exemption provided for pursuant to RPTL §420-a(2) for the portion of the warehouse parcel leased to the State University of New York (SUNY), since the city has failed to demonstrate that the use to which the SUNY portion of the premises has been put is not exclusively for educational purposes, and that the corporation or institution leasing that portion of the property (SUNY-Empire State College) is not a New York state agency operated for educational purposes. Indeed the record established both.

The court further determined that the city failed to demonstrate that the income from the SUNY lease exceeded the carrying, maintenance and depreciation charges of the property as set forth under RPTL §420-a(2).

Since the remainder of the warehouse parcel was retained by Southwinds for its use in conjunction with the retirement parcel, application of RPTL §420-a(1) rather than (2) is appropriate here. Consequently, the issue was whether the city has demonstrated that petitioner has not used the remainder of the warehouse parcel exclusively for carrying out one or more of its nonprofit purposes.

The court further held as a matter of law that Southwinds may also avail itself of the exemption provided for pursuant to RPTL §420-a(2) for the 3,738 square feet of the retirement home premises which was leased by the petitioner to the associated not-for-profit corporation Homemaker for an adult day care facility, since the respondent city has failed to demonstrate that the use to which the Homemaker portions of the premises have been put is not associated with those of a retirement home, and that Homemaker is not a not-for-profit corporation operated for charitable (adult non-residential care) purposes.

Court of Appeals Recent Case

The Court of Appeals recently decided a similar tax assessment revocation case, Matter of Lackawanna Community Development Corporation v. Krakowski, —NY3d— (June 11, 2009). In Lackawanna, the property was owned by a local development corporation organized under the not-for-profit corporation law. The property had been exempt from taxes but the assessor concluded that the real property was not entitled to an exemption because it was leased by the Development Corporation to a for-profit corporation that carries out for-profit manufacturing activities on the property. The Court of Appeals held,

It is the actual or physical use of the property that the Real Property Tax Law is concerned with when it exempts from taxation property ” used exclusively for carrying out thereupon one or more” exempt purposes (RPTL §420-a(1) [emphasis added]; See Matter of Adult Home at Erie Sta. Inc. v. Assessor & Bd. of Assessment Review of City of Middletown, 10 NY3d 205, 216 (2008)) (the “issue is…whether the property is ‘used exclusively’” for an exempt purpose, and property used to provide housing for the indigent and property used to provide housing for people “while they participate in social work programs” is “used” within the meaning of the statute).

Chief Judge Lippman stated,

We find no support in the Real Property Tax Law or the Not-for-Profit Corporation Law for LCDC’s argument that the 100 Ridge Road property is “used” by LCDC because LCDC is leasing it in furtherance of LCDC’s purpose of spurring economic development. There is no question that local development corporations formed under the Not-for-Profit Corporation Law for the “charitable or public purposes of relieving and reducing unemployment…bettering and maintaining job opportunities, instructing or training individuals to improve or develop their capabilities for such jobs,” and “encouraging the development of, or retention of, an industry in the community or area,” among other purposes (N-PCL 1411 (a)), are pursuing laudable goals that better the State’s communities, and LCDC is no exception. Not all laudable activities, however, entitle the actor to a property tax exemption, and we decline LCDC’s invitation to read the Real Property Tax Law together with the Not-for-Profit Corporation Law in such a manner as to establish a “tax loophole” where one would not otherwise exist (See Sisters of St. Joseph v. City of New York, 49 NY2d 429, 441 (1980)).