In a recent settlement, The Interchurch Center, a well-established Manhattan institution serving religious and charitable organizations, successfully secured the restoration of its full property tax exemption after a legal dispute with the New York City Department of Finance (DOF).
Background of the Case
The Interchurch Center, located at 475 Riverside Drive, has been in operation since the late 1950s. The 587,690-rsf building, owned by The Interchurch Center and ground-leased from the Rockefeller Brothers Fund, provides office space for various religious, educational, and charitable entities. This arrangement aligns with the Center’s mission of fostering interfaith work.
For 65 years, The Interchurch Center benefited from a full exemption from real property taxes under New York State’s Real Property Tax Law (RPTL) § 420-a. This exemption applied even when parts of the building were temporarily vacant, which is common in any multi-tenant office building. The Center consistently leased space exclusively to organizations eligible for tax-exempt status.
However, during the 2023/24 tax year, the DOF partially revoked this exemption, reducing it by 12% due to temporary vacancies in the building. This decision resulted in a significant tax liability of over $700,000 for The Interchurch Center, leading the organization to challenge the DOF’s determination.
The Legal Challenge
The Interchurch Center filed an Article 78 petition, arguing that the DOF’s partial revocation of the exemption was arbitrary and not supported by law. The petition emphasized that temporary vacancies had never previously affected the Center’s tax-exempt status, and the vacant spaces were being marketed to other qualifying non-profit organizations. The Center contended that the DOF had misinterpreted the nature of these vacancies and applied the policy inconsistently.
The petition also pointed out that other properties with temporary vacancies had maintained their full exemptions. The Interchurch Center’s legal team argued that the building’s purpose and usage had not changed, and therefore, the DOF had no basis for altering the tax exemption status.
The Settlement: A Win for The Interchurch Center
After nine months of legal proceedings, the DOF agreed to a settlement in June 2024, reinstating the full tax exemption for The Interchurch Center. The DOF also corrected the final assessment roll for the 2023/24 tax year, ensuring that the property was fully exempt from property taxes, consistent with its historical treatment.
It took an additional two months for the DOF to implement the changes and refund the overpaid taxes to The Interchurch Center. The refund, processed in August 2024, did not include any interest on the excess taxes paid.
While the settlement does not set a legal precedent, it is a significant outcome for The Interchurch Center and serves as a reminder to non-profit organizations to be vigilant in managing their property tax exemption status.
Considerations for Non-Profits and Property Tax Law
This case highlights the importance of non-profit organizations carefully managing their property tax exemption status. The DOF’s policy, as stated in their communication, does not grant a not-for-profit exemption to vacant spaces unless those spaces qualify for a “contemplated use exemption.” The distinction between temporarily unused spaces and spaces with no plan for exempt use can be important in determining tax liability.
For non-profits, a practical tip to avoid similar issues is to be diligent in completing the annual property tax exemption renewal, known as the Certificate of Continuing Use (CCU), due on January 5th each year. If vacant spaces in the building are only temporary, organizations might consider indicating on the CCU that none of the building is vacant. This approach could prevent unnecessary disputes with the DOF over the interpretation of “exempt use.”
As The Interchurch Center continues its mission of promoting interfaith cooperation and supporting charitable endeavors, this legal outcome ensures that it can do so without the additional financial burden of property taxes. This case emphasizes the importance of careful management and advocacy in protecting the rights of non-profit entities in New York City.