Apartment Buildings Used to House Actors and Staff of a Youth and Summer Theater Entitled to Exemption from Real Property Tax Under Real Property Tax Law (RPTL 420-a)—Property Used to Further “Educational, Moral and Mental Improvement”

The Court of Appeals, in a full-fledged opinion by Judge Lippman, affirmed the appellate division’s finding that two apartment buildings used to house the actors and staff of a not-for-profit theater corporation (Merry-Go-Round Playhouse) were entitled to (real estate) tax-exempt status. The fact that admission is charged for performances did not warrant denial of  the exemption:

Under the Real Property Tax Law, “[r]eal 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 . . . and used exclusively for carrying out thereupon one or more of such purposes . . . shall be exempt from taxation as provided in this section” (RPTL 420-a [1] [a]). The burden of establishing that the property is entitled to a tax exemption rests with the taxpayer … .

Here, it is clear that petitioner is organized exclusively for an exempt purpose, in that it is intended to promote appreciation for the arts/musical theater, thereby providing education to the community and advancing the moral or mental improvement of area residents. The summer stock theater does not have the same educational component as the youth theater, but is similarly geared toward promoting the arts. In addition, although the summer stock theater charges admission, that bare fact cannot nullify petitioner’s tax exempt purpose. We have previously observed that “[a] ‘commercial patina’ alone is not enough to defeat tax-exempt status” … . Merry-Go-Round asserts without contradiction that the theater generally either breaks even or operates at a loss. There is no indication that petitioner is organized for the purpose of making a profit and this limited commercial aspect does not preclude it from receiving a tax exemption.

“The test of entitlement to tax exemption under the used exclusively clause of the statute is whether the particular use is reasonably incidental to the primary or major purpose of the facility. Put differently, the determination of whether the property is used exclusively for the statutory purposes depends upon whether its primary use is in furtherance of the permitted purposes” … . …

…[T]he primary use of the apartment buildings is in furtherance of Merry-Go-Round’s primary purpose. Petitioner established that the housing is used to attract talent that would otherwise look to other theaters for employment, that the living arrangement fosters a sense of community and that the staff spends a significant portion of its off-hours in furtherance of theater-related pursuits. In addition …the record shows that petitioner would have difficulty recruiting qualified staff if it did not provide the housing, which would undermine its primary purpose. Although we have not previously addressed the provision of tax exempt housing in relation to an arts organization, the statute does not elevate one exempt purpose over another. Under these circumstances, the use of the property to provide staff housing is reasonably incidental to petitioner’s primary purpose of encouraging appreciation of the arts through theater. Matter of Merry-Go-Round Playhouse Inc v Assessor of City of Auburn, 2014 NY Slip Op 07928, CtApp 11-18-14