The opinion of the court was delivered by: John R. LaCava, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the printed Official Reports.
The trial of this Real Property Tax Law (RPTL) Article 4 proceeding, challenging the denial by the Town of Mount Pleasant (Town) of the real property tax exemption sought by petitioner Legion of Christ, Incorporated (Legion NY) for the Tax Assessment Years 1999 through and including 2006*fn1, for the premises designated on the Town tax map as Section 112.12, Block 1, Lot 1, and known alternately as and located at 500 and 590 Columbus Avenue, Thornwood, Town of Mount Pleasant, New York (the parcel or subject property), took place before the Court on May 12 and May 13, 2008.The subject property is part of a larger parcel which was formerly owned by the International Business Machines Corporation (IBM). It included a Conference Center, an Office Building, and an undeveloped parcel encompassing over 267 acres of land. IBM sold the entire parcel to petitioner in 1996*fn2, who, itself and through other affiliated organizations, then began to make use of the various facilities thereon, as well as conducting long-term planning for eventual uses of other portions of the parcel*fn3.
Prior to June 1, 1999, the taxable status date for the 1999 petition, Legion NY duly filed applications with respondent for a total exemption from property taxes on the subject premises pursuant to RPTL 420-a. In each year up to and including the final tax assessment year at issue, 2006, the Town denied applications for such exemptions. Although granted for 2007, it was again denied in 2008 and another petition, challenging the denial, was timely filed.
As stated above, the matter was tried before the Court on May 12 and May 13, 2008. The only witnesses to testify were called by petitioner, namely James J. Timmings, respondent Assessor, and Fr. Jose Felix Ortega LC, a principal in several of the associated corporations involved. Based upon the credible evidence adduced at the trial, the Court makes the following findings of fact and conclusions of law.
Petitioner first called respondent Assessor James J. Timmings. Timmings testified that denial of Legion NY's applications for tax exemption for tax assessment years 1999 through 2006 was based solely on other pending litigation between Legion NY and respondent (the zoning case.) According to Timmings, he never reviewed the lease arrangements for the subject parcel, or the rent received thereunder, in making his separate determinations to deny the exemption petitions for the subject parcel in the tax assessment years in question; rather, so long as the zoning case was pending, he reflexively denied Legion NY's exemption applications*fn4. When the zoning case was finally resolved in favor of Legion NY (as set forth above), Timmings in turn simply granted the exemption for tax assessment year 2007, based solely on the final resolution of the zoning case in favor of Legion NY. Timmings asserted, however, that the grant of the exemption was "a mistake", which he corrected by denying the exemption for tax assessment year 2008.
Petitioner next called Fr. Jose Felix Ortega, a priest ordained into the Legionaries of Christ (LC or Legionaries), a recognized religious order of the Roman Catholic Church. Fr. Ortega testified that he has been a financial and/or administrative director of several religious corporations run by and affiliated with the Legionaries, and also located at the subject premises. According to Fr. Ortega, petitioner is a not-for-profit religious corporation incorporated in 1978 by the Legionaries pursuant to NPCL Article 1 to further the Order's activities. Legion NY is also recognized, pursuant to IRC 501 (c) 3, as set forth below, as a non-profit corporation*fn5. Legion NY is governed by a Board of Directors consisting of priests, including Fr. Ortega, of the LC Order. Fr. Ortega is also the Treasurer and Secretary of Legion NY. The primary office for Legion NY is housed in the Conference Center, which is adjacent to the subject property.
The Court also finds that Alpha Omega Family Center, Inc (Alpha Omega) is also a not-for-profit, religious corporation organized, pursuant to NPCL Article 1, to further LC's activities, particularly its educational activities. Alpha Omega was incorporated in 1993 by the LC, and is similarly recognized pursuant to IRC 501 (c) 3 as a non-profit corporation. Alpha Omega is similarly governed by a Board of Directors consisting of LC priests including Fr. Ortega. Fr. Ortega is also the Treasurer and Secretary of Alpha Omega, which also has its primary office in the Conference Center.
The Court also finds, as Fr. Ortega further stated, that Consolidated Catholic Administrative Services, Inc. (CCAS), is also a not-for-profit, religious corporation pursuant to NPCL Article 1, established to further the Legionaries' activities, particularly in the administration of the LC and its organizations. It was incorporated in 1999 by the LC, and is similarly recognized pursuant to IRC 501 (c) 3 as a non-profit corporation. The corporation is led by a Board of Directors made up of ordained LC priests and brothers, and has its primary office at the subject property.
The Court credits Fr. Ortega's testimony that The Legion of Christ Inc., a Connecticut non-stock corporation (Legion CT) is a not-for-profit religious corporation incorporated in 1971 by the LC pursuant to Connecticut Law, to further LC's activities, in particular its fund-raising activities, and it is also recognized, pursuant to IRC 501 (c) 3, as a non-profit corporation. The corporation is led by a Board of Directors, consisting of LC priests and/or brothers, which formerly included Fr. Ortega; Fr. Ortega was also formerly an officer of the Legion CT. The primary office for Legion CT is at 393 Derby Avenue, Orange, CT.
While all of the corporations are legally distinct entities, they are financially interdependent with one another and with LC. They often share corporate directors and officers, who are all either priests or brothers of the LC; these corporate officers and directors are bound, by their vow of obedience to their LC superiors, to carry out such directives as are given to them within the religious hierarchy of the LC. Finally, these corporate entities all work exclusively in pursuit of the same religious and educational mission as that which is determined, pursued, and dictated by the LC. The Court accordingly finds that, specifically for tax purposes, all of the above related organizations are wholly-owned subsidiaries of LC.
The Court also finds, based on Fr. Ortega's testimony, that Legion NY and Legion CT are co-signers of the bank note for the subject property; that Legion CT has made, pursuant to that obligation, payments on the note beginning at the time of sale and, therefore, before the initiation of the leases and sub-leases involved herein; and that, also commencing prior to the same leases and sub-leases, Legion CT has periodically made transfers of money to Legion NY (and other LC organizations) in order to further LC operations.
The Court further finds that, beginning in 1996, after the purchase by Legion NY of the entire complex from IBM, Alpha Omega entered into a triple-net lease of the subject property with Legion NY, with a rental amount of $120 per year for ten (10) years. The uses which were permitted on the premises were those related to LC's training and education mission. In August 2002 the lease was amended, extending the term to 2010, and in 2004 it was also amended to reduce the rent for a portion of the term to $100.
The Court further finds that, in September 2002, Alpha Omega entered into a sub-lease of a portion of the subject property with CCAS, with a rental amount of $12 per year for a term of eight (8) years, with CCAS' activities limited to those Catholic administrative, religious, and educational uses approved by Alpha Omega. In February 2003, Alpha Omega also entered into a sub-lease of another portion of the subject property with Legion CT, with a rental amount of $12 per year for a term of seven (7) years, with activities similarly limited to those Catholic administrative, religious, and educational uses approved by Alpha Omega. The administrative offices of LC's Provincial also moved into the wing in which those of the Legion CT were located at this time. Fr. Ortega added that, during the lease term, and currently, and in furtherance of LC's non-profit mission as an order of the Roman Catholic Church, Alpha Omega has maintained storage and administrative offices in the premises; CCAS has storage space, administrative offices, and meeting and educational rooms in the right wing of the premises; and Legion CT has offices, and meeting and classrooms, in the left wing there. No other entities lease space at the premises.
The Court also finds that Fr. Ortega, who has a graduate degrees in both Accounting and Finance, prepared a financial analysis of the income and expenses related to the leases of the property by Legion NY to Alpha Omega, and Alpha Omega to CCAS and Legion CT*fn6. Legion NY chose to adopt a straight-line 30 year amortization method for the subject parcel for tax purposes, which method is a conservative depreciation method under the Generally Accepted Accounting Principles ("GAAP") in these circumstances. The amount of depreciation expense is thus the same in each of the tax assessment years in question in this proceeding, namely $119,402.94 per year.
The annual mortgage expense, according to Fr. Ortega, varied, based on the variable interest rate, between just over $143,000 and $255,000. As co-obligor on the mortgage note, Legion CT has paid these mortgage expenses since the purchase of the property. Nevertheless, since Legion NY is not only also a co-obligor but also administratively responsible for the property, Legion NY also makes an accounting entry in its books which adopts the mortgage payments as an expense.
Additionally, there were maintenance charges associated with the property, which charges, under the leases, were assumed by the sub-lessees, CCAS and Legion CT. These included water, gas, and electric; insurance; elevator and alarm maintenance; and janitorial and cleaning supplies. These expenses, in total, varied between slightly more than $15,000 per lease, per year, and just over $75,000 per lease, per year*fn7. These expenses were paid directly by the sub-lessees (CCAS and Legion CT) to the parties supplying the services and/or the materials.
The Court thus finds that for the tax assessment years in question the amount of rent paid by Alpha Omega, CCAS and Legion CT for the use of the subject premises, which varied between $12 and $120 per year, per lease, was far exceeded by the mortgage, maintenance, and depreciation charges for ...