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Volume 5 - Opinions of Counsel SBEA No. 82

Opinions of Counsel index

Real property, definition of (private telephone transmission equipment) - Real Property Tax Law, § 102(12)(d):

Privately owned portable plug-in telephone instruments are not real property for purposes of taxation. However, a telephone or telegraph system incorporated as part of the real estate is taxable real property pursuant to section 102(12)(d) of the Real Property Tax Law regardless of ownership.

Our opinion has been requested concerning the assessment and taxation of private telephone transmission equipment. It is stated that several years ago a company purchased private telephone transmission equipment. A year later the equipment was apparently assessed as real property and taxes have been levied on the assessment every year thereafter, including this year.

The company contends that the equipment is not taxable under the recent holding of the Court of Appeals in the case of Matter of Crystal v. City of Syracuse, 38 N.Y.2d 883, 346 N.E.2d 546, 382 N.Y.S.2d 745. Apparently, also, someone from the assessor’s office has advised the company that the State Board of Equalization and Assessment is making a distinction between “portable” and “permanent” private telephone transmission equipment. We are asked to clarify our position.

Until several years ago. Federal law did not permit the use of telephone equipment owned by other than the regulated telephone companies. Then a Federal ruling was made that telephone users could purchase or lease telephone equipment and telephone companies had to “interface” their lines with the equipment owned or leased by the telephone user. Up to that time, pursuant to long established case law, a provision in the Real Property Tax Law [i.e., § 102(12)(d)] which classifies “telephone and telegraph lines, wires, poles and appurtenances” as real property for taxation purposes had been held to include all telephone equipment necessary for the completion of a telephone call from the central office equipment through the telephone instrument located on a subscribers property. By the year 1973, the State Board and local assessors were just becoming aware of the growth of companies engaged in manufacturing telephone equipment in competition with the telephone companies and of the sale or lease of this equipment to subscribers. Also up to that time neither the local assessors nor the courts had considered the question of whether or not such equipment was taxable real property.

The issue came to a head in 1973 when a ceiling type of exemption law was enacted by the Legislature (Real Property Tax Law, § 470). This law provides that certain telephone equipment, including central office equipment, drop lines, private branch exchanges and telephone instruments, would be subject to a ceiling in that the assessed value thereof could not exceed the aggregate assessment on those items that appear on the last assessment roll completed before December 31, 1974. In connection with the administration of this new exemption law, on February 15, 1974 the State Board issued instructions to local assessors to ascertain as quickly as possible the existence of telephone equipment which did not belong to the telephone companies and to assess them on the 1974 rolls then being prepared. The importance of doing this was the danger that failure to assess privately-owned equipment of the 1974 roll might result in the inability in future years to assess this type of equipment at all. The assessment of portable plug-in type telephone instruments involved in the Crystal case resulted from the instructions given by the State Board as did the assessment of the equipment involved in this inquiry. The plug-in telephones were held to be personal property and not real property in the Crystal case under the above-quoted provision of the Real Property Tax Law.

However, the Court of Appeals in affirming the Appellate Division holding (47 App. Div.2d 29, 364 N.Y.S.2d 618) said the following: “In so doing, it is noted that the court does not have before it the situation in which the owner of the real estate has incorporated as part of the real estate a telephone or telegraph system.” It is now the opinion of the State Board that the Crystal case did not hold that any “portable” telephone equipment owned by one other than the telephone company is not real property for taxation purposes. At least one Judge is of the same opinion. On April 9, 1976, on a motion for summary judgment. Justice Robert C. Meade of Nassau County Supreme Court concluded that, as a matter of law, the petitioner, an automobile dealer, had not proven that telephone equipment installed on his business premises and owned by him constituted personal property within the meaning of the Crystal case. (The equipment in question consisted of an apparatus cabinet, a console, 10 trunk relays and 26 telephone instruments all of which the petitioner claimed were portable.) It is our understanding that other assessors continue to assess privately owned telephone equipment which they consider to be a telephone “system,” regardless of whether they are owned by a telephone company, the property owner or some other enterprise.

It appears that the law in this area is still not entirely clear and is likely to remain so until such time as either the courts or the Legislature resolve the grey area resulting from the recent rulings of Federal law, the passage of section 470 and the Crystal case.

June 8, 1976
Revised October 26, 1978

NOTE: At the trial of the matter in Crossman Cadillac, Inc. v. Board of Assessors and the Board of Assessment Review, Justice Meade concluded that, on the facts presented, the telephone equipment in question did not constitute a telephone “system” which had been incorporated as part of the real property to which it was attached. (Decision unreported, April 4, 1977; aff’d, 60 A.D.2d 842, 400 N.Y.S.2d 850, aff’d, 44 N.Y.2d 963, 380 N.E.2d 157, 408 N.Y.S.2d 326.)