Over the past 25 years, Rye Country Day School, a non-profit college preparatory school in New York, has used several tax-exempt, single-family residential properties to provide housing for faculty and administrators. On December 14, 2015, the School purchased a parcel of property containing six townhouses within the City of Rye. On May 1, 2018, when full-time faculty occupied all six townhouses, the School applied to the city assessor for a tax exemption. The assessor denied the application on the ground that the School did not sufficiently establish that the property is an integral part of the education process. The School filed a complaint with the City’s Board of Assessment Review, arguing that the property was exempt under the law, and the School used the property as a recruitment tool by providing short-term housing for desired faculty from outside the area. The Board agreed with the assessor and denied the application for a tax exemption.
The School filed a claim arguing that denying the tax exemption was improper. Under New York’s property laws, there is a mandatory tax exemption for real property of non-profit corporations. The burden for establishing that a property is entitled to a tax exemption rests with the taxpayer. For a non-profit to qualify for the tax exemption, the owner must show that: (1) the owner of the property is organized or conducted exclusively, or primarily, for an exempt purpose; and (2) the property itself is primarily used for an exempt purpose.
The Court found that the School is organized and conducted primarily for exempt purposes, as it is a school, and so organized for educational purposes. The Court also found that the School demonstrated that the primary use of the townhouses furthered its primary purpose of operating as a school. The Court noted that New York has long recognized that residential property used for housing a school’s faculty and staff is entitled to a tax exemption, and the School had other properties that were long recognized as tax exempt. The townhouses were used to attract talented faculty and staff, which is necessary and incidental to the School’s primary educational purpose. The Court overturned the tax exemption denial.
Rye Country Day School v. Whitty (N.Y. App. Div. 2023) 212 A.D.3d 819.
Note: This case is an important reminder that school-provided housing must tie to a school’s tax-exempt purposes in order for the school to receive the tax benefit.