In the Matter of Merry-Go-Round Playhouse, Inc., Respondent,v.Assessor of City of Auburn, et al., Appellants.BriefN.Y.October 21, 2014To be Argued by: Charles H. Lynch, Jr. Auburn, New York (Time Requested: 15 Minutes) APL-2013-00298 Appellate Division, Fourth Department Docket No. CA 12-01797 Cayuga County Clerk’s Index No. 11-0635 Court of Appeals of the State of New York In the Matter of the Application for a Review Under Article 7 of the Real Property Tax Law of the Tax Assessments by MERRY-GO-ROUND PLAYHOUSE, INC., Petitioner-Respondent, - against - The Assessor of the CITY OF AUBURN, COUNTY OF CAYUGA, NEW YORK; the BOARD OF ASSESSMENT REVIEW for the CITY OF AUBURN, COUNTY OF CAYUGA, NEW YORK; and the CITY OF AUBURN, COUNTY OF CAYUGA, NEW YORK, Respondents-Appellants. BRIEF FOR PETITIONER-RESPONDENT BOYLE & ANDERSON, P.C. Charles H. Lynch, Jr., Esq. Attorneys for Petitioner-Respondent 110 Genesee Street, Suite 300 Auburn, New York 13021 Tel.: (315) 253-0326 Fax: (315) 253-4968 January 20, 2014 1 DISCLOSURE STATEMENT Merry-Go-Round Playhouse, Inc., is a New York not-for-profit corporation, and is the sole member of Musical Theatre Festival, Inc., a subsidiary corporation. Merry-Go-Round Playhouse, Inc., has no other parent or subsidiary corporations, entities or affiliates. 2 TABLE OF CONTENTS Page DISCLOSURE STATEMENT .................................................................................. 1 TABLE OF AUTHORITIES ..................................................................................... 3 STATEMENT OF FACTS ........................................................................................ 5 POINT I Merry-Go-Round Playhouse, Inc. is a corporation organized or conducted exclusively for exempt purposes ............................. 11 POINT II Merry-Go-Round's use of the Properties is reasonably incidental to its primary purposes............................................ 14 CONCLUSION ........................................................................................................ 20 3 TABLE OF AUTHORITIES Page Cases: Matter of Adult Home at Erie Sta., Inc. v. Assessor & Bd. Of Assessment Review of City of Middletown, 10 N.Y.3d 205, 216, 886 N.E.2d 137, 856 N.Y.S.2d 515 (2008) ......................................................................................... 18 Matter of Association of Bar of City of N.Y. v. Lewisohn, 34 N.Y.2d 143, 313 N.E.2d 30, 356 N.Y.S.2d 555 (1974) ................................................. 14, 16 Matter of Foundation for a Course In Miracles, Inc. v. Theadore, 172 A.D.2d 962, 568 N.Y.S.2d 666, lv denied 78 N.Y.2d 856 (3 rd Dept. 1991) ........... 19 Matter of Genesee Hospital v. Wallace Wagner as Assessor of the City of Rochester, 47 A.D.2d 37, 364 N.Y.S.2d 934 (4th Dept. 1975) ............... 14-15, 16 Matter of Merry-Go-Round Playhouse, Inc. v. Assessor of City of Auburn, 104 A.D.3d 1294, 961 N.Y.S.2d 686 (4 th Dept. 2013) ............................................ 19 Matter of St. Joseph’s Health Center Properties, Inc. v. Srogi, 51 N.Y.2d 127, 412 N.E.2d 921, 432 N.Y.S.2d 865 (1980).............................. 18-19 Matter of St. Luke's Hospital v. Boyland, 12 N.Y.2d 135, 187 N.E.2d 769, 237 N.Y.S.2d 308 (1962) ........................................................................... 15, 16 Matter of Yeshivath Shearith Hapletah v. Assessor of the Town of Fallsburg, 79 N.Y.2d 244, 590 N.E.2d 1182, 582 N.Y.S.2d 54 (1992)........................ 15, 16, 18 Matter of Young Women’s Christian Association of Rochester v. Wallace Wagner as Assessor of City of Rochester, 96 Misc.2d 361, 409 N.Y.S.2d 167 (Sup. Ct. 1978) ........................................................................... 16 Mohonk Trust v. Board of Assessors of Town of Gardiner, 47 N.Y.2d 476, 392 N.E.2d 876, 418 N.Y.S.2d 763 (1979) ............................................................. 12 Otrada Inc. v. Assessor, Town of Ramapo, 41 A.D.3d 678, 839 N.Y.S.2d 123 (2 nd Dept. 2007) ................................................................................................. 18 People ex rel. Watchtower Bible & Tract Socy. V. Haring, 8 N.Y.2d 350, 170 N.E.2d 677, 207 N.Y.S.2d 673 (1960) ............................................................. 16 4 Sephardic Congregation of South Monsey v. Town of Ramapo, 47 A.D.3d 915, 849 N.Y.S.2d 662 (2 nd Dept. 2008) ................................................................. 19 University of Rochester v. Wagner, 63 A.D.2d 341, 408 N.Y.S.2d 157, affd for the reasons stated 47 N.Y.2d 833 (1978) .................................................... 19 Other Authorities: Internal Revenue Code § 501(c)(3) ............................................................................ 5 N.Y. Real Property Tax Law § 420-a ....................................... 10, 11, 12, 13, 14, 18 N.Y. Not-For-Profit Corp. Law § 402 ....................................................................... 5 5 STATEMENT OF FACTS The facts are fully set forth in the accompanying record on appeal. The facts are undisputed by both parties [R 10, 230]. The parties have agreed and the Supreme Court recognized that the issue before the Court is purely a question of law [R 10, 230]. Respondent, Merry-Go-Round Playhouse, Inc., is a not-for-profit corporation, organized under Section 402 of the New York Not-For-Profit Corporation Law, and is recognized by the Department of Treasury, Internal Revenue Service, as a tax-exempt entity under Section 501(c)(3) of the Internal Revenue Code [R 11, 122, 184]. Merry-Go-Round is comprised of two theatres, namely, Merry-Go-Round Playhouse Musical Theatre (the "Musical Theatre") and Merry-Go-Round Youth Theatre (the "Youth Theatre") [R 184]. The Musical Theatre produces six musical performances in a historic carousel building located at Emerson Park on Owasco Lake during the summer and fall. [R 184]. The Youth Theatre tours New York State schools and produces ten different productions each year in its curriculum-based in-school workshop and performance program, called the Sequential Dramatics Program [R 184]. The Youth Theatre serves over 120,000 students in 60 school districts each year, and also produces family-oriented performances during the summer. [R 184-5]. 6 Merry-Go-Round's tax exempt purposes as stated in its Articles of Incorporation are: to augment the speech and drama training of Auburn area children and develop crafts and skills; to help young people gain self-confidence by learning to express themselves effectively; to develop personality and social awareness of young people; to present theatre as a show case for all the arts; to encourage appreciation of wholesome entertainment in the Auburn area; to conduct year round programs in the performing arts for children, teenagers, and adults; to hire professional teachers and directors in the fields of education, music, dance, creative drama and theater to conduct classes; to offer the following workshops: creative drama for young children, formal drama, a puppet workshop, and a clown school for junior and senior high school students and teacher training courses in creative techniques; 7 to offer training in classical ballet and interpretive dancing for preschool through adult age levels; to provide touring productions throughout the year, sponsored by nonprofit organizations, at schools, churches, service clubs, parks and play grounds throughout Central New York; In cooperation with the public school systems, to do the following: -provide a volunteer traveling troupe of adult actors to perform at schools; -to provide classroom actor-teacher visits to bring informal creative drama directly to grade school classrooms; -to provide after school workshops in creative learning for underprivileged children in public elementary schools in Auburn; to do any other act or thing incidental to or connected with the foregoing purposes or in advancement thereof [R 122]. In order to fulfill its stated purposes, Merry-Go-Round must recruit highly qualified and talented actors and staff from across the country each year to work in both of its theatres. [R 185]. In its recruitment process, Merry-Go-Round offers short-term and long-term housing as part of the compensation packages 8 offered to approximately 180 actors and staff [R 185-186]. This provision of housing is customary for seasonal theatres and allows Merry-Go-Round to compete with successful "for profit" theatre companies, which can offer higher salaries and steady, year round employment [R 185]. Over the course of the last 40 years, Merry-Go-Round has provided housing to its actors and staff [R 185]. While growing and expanding, Merry-Go-Round has found that its housing needs have steadily outgrown the available local housing resources in the small city of Auburn, New York. The process of finding apartments and negotiating lease agreements for various lease terms with various landlords in Auburn, New York, has become difficult, time consuming and expensive for Merry-Go-Round [R 185-6]. Accordingly, in the spring of 2010, the Board of Directors of Merry-Go-Round resolved to find and purchase suitable housing stock [R 186]. In January, 2011, Merry-Go-Round purchased two properties located respectively at 112 Franklin Street and 230 Genesee Street, in the City of Auburn, New York, (the "Properties"), consisting of 30 apartments in the aggregate [ R 186, 192, 203]. The Properties are not available for rent by the public, but are provided solely to Merry-Go-Round's actors and staff [R 186]. The Properties generate no rents for Merry-Go-Round, but are provided to Merry-Go-Round actors and staff as a part of their employment compensation [R 186]. 9 The Properties have reduced Merry-Go-Round's time, expense and difficulty in finding apartments and negotiating leases with various landlords, and also have aided in cultivating a community spirit among its staff and actors [R 186-7]. Merry-Go-Round actors and staff spend countless hours, off-stage and off-the-clock, running lines or rehearsing, blocking scenes, discussing creative ideas, working on wardrobes, creating sets and working in furtherance of the purposes and mission of Merry-Go-Round [R 186-7]. On January 28, 2011, after purchasing the Properties, Merry-Go-Round filed two applications for real property tax exemption with the Assessor of the City of Auburn [R 187, 41-105, 106-170]. On February 16, 2011, the Assessor of the City of Auburn and the Real Property Appraiser mailed a letter to Merry-Go-Round denying the Properties tax exempt status [R 189-191]. In response, Merry-Go-Round, through its attorneys, duly filed a Complaint on Real Property Assessment for each of the Properties [R 192-207]. On March 30, 2011, the Board of Assessment Review for the City of Auburn issued Notices of Determination to Merry-Go-Round upholding the denial of tax exempt status for both Properties [R 208-211]. On June 24, 2011, Merry-Go-Round filed a Notice of Petition and Petition, pursuant to New York Real Property Tax Law Article 7, seeking a determination that the Properties are entitled to tax exempt status [R 21-31]. On 10 August 22, 2011, appellants filed a Notice of Motion to Dismiss together with supporting affidavits, exhibits, and memorandum of law [R 32-178]. On October 6, 2011, Merry-Go-Round filed a Notice of Cross-Motion for Summary Judgment together with supporting affidavits and exhibits [R 179-228]. On November 8, 2011, appellants filed an attorney's affidavit and brief in further support of the Motion to Dismiss [R 229-235]. On November 16, 2011, Merry-Go-Round filed a reply brief in response to appellants' supplemental attorney affidavit and brief [R 236-241]. The Supreme Court filed its Memorandum Decision and Order in the Cayuga County Clerk’s Office on April 2, 2012 [R 7-20], wherein it elected to treat appellants' motion to dismiss as one for summary judgment [R 10] and held that Merry-Go-Round failed to satisfy both the first and second prongs of RPTL § 420-a(1)(a) [R 19]. By its Memorandum and Order entered March 22, 2013, Appellate Division Fourth Department unanimously reversed the decision of the Supreme Court, granted Merry-Go-Round’s cross-motion for summary judgment, and remitted the matter to Supreme Court to calculate the amount of real property tax to be refunded [R CA-6]. Appellant’s motion to the Court of Appeals for leave to appeal was granted by decision entered October 22, 2013 [R CA-4]. 11 POINT I: MERRY-GO-ROUND IS A CORPORATION ORGANIZED OR CONDUCTED EXCLUSIVELY FOR EXEMPT PURPOSES The parties admit and the Supreme Court recognized that there are no triable questions of fact in this proceeding [R 10, 230]. The uncontroverted affidavit of Respondent’s producing and creative director [R 183-188] sets forth the facts upon which this case is based. The only issue to be decided is a question of law, namely, whether the Properties owned by Merry-Go-Round qualify for tax exempt status pursuant to New York Real Property Tax Law §420-a(1)(a). In order to qualify for tax exempt status under Real Property Tax Law § 420-a(1)(a), Merry-Go-Round must meet the requisite criteria contained in the statute [R 12]. This "requisite critera" mandates tax exempt status for all real properties owned by corporations or associations that satisfy the two-part statutory test. The first part requires that the corporation in question be organized or conducted exclusively for one or more of the purposes stated in the statute. The second part of the test requires that the real property owned by the corporation be used exclusively for carrying out one or more of such purposes. If both parts of this test are met, the real property owned by the corporation shall be granted tax exempt status. 12 Appellants stipulated that Merry-Go-Round satisfies the first part of statutory the test, namely, that Merry-Go-Round is a corporation "organized or conducted exclusively for...educational, or moral or mental improvement of men, women or children purposes, or for two or more of such purposes..." [R 174, 234]. However, while acknowledging that appellants do not contest this issue and also recognizing that Merry-Go-Round is organized as a not-for-profit corporation [R 14], the Supreme Court erroneously held that Merry-Go-Round failed to satisfy the first prong of Section 420-a(1)(a). The Court stated is was "not able to conclusively determine that as a 'matter of law' respondent’s activity of its professional summer stock theatre is an exempt purpose" [R 14] (emphasis added). By holding that Merry-Go-Round be both organized and conducted for the exempt purposes stated in Section 420-a(1)(a), the Supreme Court effectively altered the language of the statute. Yet, the statute only requires that a corporation be "organized or conducted," exclusively for the stated purposes in order to qualify for tax exempt status (emphasis added). In Mohonk Trust v. Board of Assessors of Town of Gardiner, 47 N.Y.2d 476, 392 N.E.2D 876, 418 N.Y.S.2D 763 (1979), the Court of Appeals granted tax exempt status to a Trust on the basis that the Trust was "organized or conducted" for the exempt purposes stated in Section 420-a(1)(a). In its reasoning, the Court of Appeals discussed that the addition of the "or conducted" language in 13 Section 402-a(1)(a) after 1971 was meant to broaden the scope of corporations that could qualify for tax exempt status, not limit them. Notably, the Court of Appeals stated that, prior to 1971, the conduct or activities of the corporation seeking tax exempt status were "irrelevant" in making a determination as to whether it qualified for tax exemption under Section 420(a)(1)(a). Now, however, "an organization may be entitled to an exemption if it is either "organized Or conducted" primarily for an exempt purpose or purposes." Id. At 6. In the present case, it is admitted by appellants, acknowledged by the Supreme Court, and affirmed by the Appellate Division Fourth Department, that Merry-Go-Round is organized primarily for the exempt purposes stated in RPTL Section 420-a(1)(a). Even assuming, arguendo, that Merry-Go-Round must also be conducted for the purposes delineated in Section 420-a(1)(a), the record shows that its activities do qualify as exempt purposes. Both the Youth Theatre and the Musical Theatre primarily fulfill educational purposes. The Youth Theatre targets younger student audiences, while the Musical theatre targets the public at large, and both theatres produce musical productions after countless hours of rehearsals, training and education in the dramatic arts [R 183-188]. The record further demonstrates that the Musical Theatre also fulfills the “moral or mental improvement of men, women or children” purpose. The 14 Supreme Court recognized this fact in its decision wherein is said the Musical Theater "contribute(s) to the arts and cultural fabric of the community, enhances its quality of life, encourages tourism and has a positive impact on the community" [R 14]. These contributions improve the moral and mental health of men, women and children in the local community and across New York State. For the reasons set forth herein, Merry-Go-Round respectfully submits that it is organized or conducted for one or more of the purposes stated in RPTL § 420-a(1)(a) and that the Appellate Division Fourth Department acted properly in reversing the order of the Supreme Court and granting respondent’s cross-motion for summary judgment. POINT II MERRY-GO-ROUND’S USE OF THE PROPERTIES IS REASONABLY INCIDENTAL TO ITS PRIMARY PURPOSES The second prong of the test for tax exemption under RPTL § 420-a(1)(a), requires that the property in question be "used exclusively for carrying out thereupon one or more of such purposes...by the owning corporation.." The term “used exclusively” in this context has been interpreted to mean the “principal” or “primary” use. Matter of Association of Bar of City of N.Y. v. Lewisohn, 34 N.Y.2d 143, 153, 356 N.Y.S.2d 555 (1974). In other words, the determination of whether the property is used for the statutory purposes depends upon whether its primary use is in furtherance of the permitted purposes. Matter of Genesee Hospital 15 v. Wallace Wagner as Assessor of the City of Rochester, 47 A.D.2d 37, 364 N.Y.S.2d 934 (4th Dept. 1975). This Court has expressly held that this part of the test "is whether the particular use is reasonably incidental to Petitioner's purposes." Matter of Yeshivath Shearith Hapletah v. Assessor of the Town of Fallsburg, 79 N.Y.2d 244, 582 NYS2d 54 (1992), quoting Matter of St. Luke's Hospital v. Boyland, 12 N.Y.2d 135, 237 N.Y.S.2d 308 (1962). In determining whether a use is "reasonably incidental," New York courts have considered key factors, which include: Whether the property is used solely by the corporation and is closed to the general public; Whether the corporation derives income from the use of the property and if so, whether that income is applied to the maintenance and support of the not-for-profit; Whether charitable contributions to the corporation are used to defray operating costs; Whether the property is provided to place the corporation at a competitive advantage in recruiting and retaining employees and staff; Whether provision of housing by the not-for-profit corporation to its staff and employees is customary in the field in which it operates; Whether the employees and staff who use and benefit from the housing 16 would not continue their employment, if the housing was not provided; and Whether pecuniary profit from operations of the organization inures to any of the organizations officers, member or employees. Yeshivath Shearith Hapletah, 79 NY2d at 248; Matter of St. Luke's Hospital, 12 NY2d at 141, 143; Matter of Genesee Hospital, 47 AD2d at 44; In the Matter of Young Women’s Christian Association of Rochester v. Wallace Wagner as Assessor of City of Rochester, 96 Misc2d 361, 409 NYS2d 167 (Sup. Ct. 1978). The uncontradicted record in this case demonstrates that the use to which respondent puts its properties meets each of these key factors. Appellants’ interpretation of Hapletah that would require the existence of communal cooking and eating facilities as a condition for exemption is unreasonably narrow and misplaced. Although exemption statutes are to be strictly construed against the taxpayer, the interpretation of those statutes “should not be so narrow and literal as to defeat [their] settled purpose”. People ex rel. Watchtower Bible & Tract Socy. V. Haring, 8 N.Y.2d 350, 358, 207 N.Y.S.2d 673, 170 N.E.2d 677; Matter of Association of Bar, 34 N.Y.2d at 153. Respondent's Properties are not open to the public and do not generate any rental income. [R 186]. Rather, Merry-Go-Round provides the Properties solely to its actors and staff, as a part of their compensation package in order to make 17 up for lower salaries and seasonal employment, which is customary in the field of performing arts [R 185-186]. Respondent also offers the Properties to its employees and staff so that it can encourage and cultivate a sense of community among the staff and actors [R 186-187]. Merry-Go-Round's use of the Properties is a vital component of its ability to recruit talented actors and staff and is essential to the fulfillment of its tax-exempt purposes [R 183-188]. There is no merit to appellants’ argument that some undefined geographic nexus between the tax exempt properties and the owner’s primary place of activity must exist. Merry-Go-Round would embrace a campus-like setting to accommodate all of its theatre and housing needs in one location but that is not a realistic possibility in Auburn, New York. Respondent has three current theatre locations, one in downtown Auburn, one on Auburn’s near “west side”, and one in the Town of Owasco on the outskirts of the City. The greatest distance between any two of its theatres is less than three miles. Appellants’ use of the terms “remote” and “distant” in describing the distance between the Properties and respondent’s theatres is misleading and unsupported in the record. In fact, Auburn is a typical, small, central New York city, where nothing is remote or distant. It is a matter of public record that respondent’s Properties at 112 Franklin Street and 230 Genesee Street are one mile and seven-tenth’s mile distant respectively from downtown Auburn. Appellant is correct in saying that no such geographic nexus rule has ever been 18 enunciated, nor should it be in this case. Appellants did not argue that respondent’s primary purposes do not support respondent’s tax exempt status. Rather, appellants took issue with whether the Properties were used primarily for the furtherance of said purposes. On this record, respondent met its burden on its cross motion for summary judgment by presenting evidence that the primary use of the Properties furthers a primary purpose of the corporation. The burden then shifted to appellants to demonstrate that the use of the Properties was other than reasonably incidental to a main purpose of the respondent. Otrada Inc. v. Assessor, Town of Ramapo, 41 AD3d 678 (2 nd Dept. 2007). In support of its position, appellants submitted and relied exclusively on an affidavit by the real property appraiser of the City of Auburn. On this record, appellants failed to meet their burden of showing that respondent’s use of the residential Properties was other than reasonably incidental to respondent’s primary purposes in accordance with the requirement of the second prong of the test for tax exemption under RPTL § 420-a(1)(a). Finally, the Appellate Division cited seven cases in support of the proposition that “housing used to further an exempt purpose has been found tax exempt in numerous other contexts (see e.g. Matter of Adult Home at Erie Sta., Inc. v. Assessor & Bd. Of Assessment Review of City of Middletown, 10 N.Y.3d 205, 216; Yeshivath Shearith Hapletah, 79 NY2d at 247-251; Matter of St. Joseph’s Health 19 Ctr. Props. V. Srogi, 51 N.Y.2d 127, 129; University of Rochester v. Wagner, 63 A.D.2d 341, 355-356, affd for the reasons stated 47 N.Y.2d 833; Sephardic Congregation of S. Monsey v. Town of Ramapo, 47 A.D.3d 915, 916-918; Matter of Foundation for a Course In Miracles v. Theadore, 172 A.D.2d 962, 964. lv denied 78 N.Y.2d 856)”. In the Matter of Merry-Go-Round Playhouse, Inc. v. Assessor of City of Auburn, 104 A.D.3d 1294, 1297. In alleging that the Appellate Division has mistakenly relied on the cited cases, appellants have mischaracterized respondent’s purposes and conduct, ignored the factual record, and applied inapposite interpretations of the cited cases in an attempt to overturn the decision of the Appellate Division. 20 CONCLUSION For the reasons set forth herein and based upon the record on appeal, respondent respectfully submits that the decision of the Appellate Division, Fourth Department, dated March 22, 2013, should be affirmed. Dated: January 20, 2014 BOYLE & ANDERSON, P.C. By:____________________________ Charles H. Lynch, Jr., Esq. Attorneys for Petitioner-Respondent 110 Genesee Street, Suite 300 Auburn, New York 13021 Tel. (315) 253-0326 To: Andrew S. Fusco, Esq. Assistant Corporation Counsel Attorney for Appellants City of Auburn 24 South Street Auburn, New York 13021 (315) 255-4176