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Volume 6 - Opinions of Counsel SBEA No. 118

Opinions of Counsel index

Correction of errors (unlawful entry) (partially invalid assessment); Real property, definition of (asphalt plant equipment) - Real Property Tax Law, §§ 102(1),(f), 550:

Where an assessor includes in the assessment of taxable property a value for exempt machinery of a “9-A corporation” (Tax Law, Article 9-A), it constitutes an assessment “erroneous by reason of overvaluation,” and title 3 of Article 5 of the Real Property Tax Law is therefore inapplicable.

The taxable status of asphalt plant equipment, which is owned by a “9-A corporation” (Tax Law, Article 9-A), must be decided on a case-by-case basis. If equipment is not to be considered taxable real property, it must be both theoretically possible and economically feasible to move.

We have received an inquiry concerning the taxable status of certain asphalt plant equipment. The equipment in question was assessed as taxable real property on the 1976 assessment rolls of a village and a town, with no complaint being filed at either the village or town grievance day. However, after payment of school taxes levied on this property, an attorney for the owners of the asphalt plant sought redress under the so-called “correction of errors law” (Article 5, title 3 of the Real Property Tax Law). The owners claimed that the property came within the exception provision of paragraph (f), subdivision 12 of section 102 of the Real Property Tax Law and that, as a result, the assessment of such equipment was an “unlawful entry” as that term is defined in section 550 of the Real Property Tax Law.

Subdivision 12 of section 102 of the Real Property Tax Law defines “real property.” However, paragraph (f) of subdivision 12 excludes from this definition certain machinery or equipment. To come within this exclusion, the property must satisfy the following tests:

(1) it must be movable machinery or equipment;

(2) it must not be essential to the support of a building or structure, and it must be removable without material injury to the structure;

(3) it must be used for trade or manufacture; and

(4) it must be owned by a corporation taxed under Article 9-A of the Tax Law.

The last two conditions are satisfied: Article 9-A of the Tax Law imposes a “franchise tax” upon corporations for the privilege of doing business in New York State and the owners in question are liable for this tax. Likewise, the test of “for trade or manufacture” is satisfied where equipment is used in the production of asphalt (for an extended discussion of the meaning of “trade or manufacture” in paragraph (f), see, West Mountain Corp. v. Miner, 85 Misc.2d 416, 381 N.Y.S.2d 606).

Whether the equipment in question satisfies the first two conditions must be decided on a case-by-case basis. The test on which most cases are resolved is that of “movability.” The courts have indicated that it is not enough that it be theoretically possible for certain property to be moved, but that it also be “economically feasible” to move it (see, City of Lackawanna v. State Board of Equalization and Assessment, 21 App. Div.2d 318, 250 N.Y.S.2d 369. mod., 16 N.Y.2d 222, 212 N.E.2d 42, 264 N.Y.S.2d 528). In the Lackawanna case, the Court of Appeals rejected the idea that “movable machinery or equipment” included the movement of blast furnaces of the Bethlehem Steel Company which “could be accomplished by dismantling or cutting it (by acetylene torch) into pieces of movable size” (16 N.Y.2d at 226, 212 N.E.2d 42, 264 N.Y.S.2d at 531).

At the trial level in Lackawanna, Justice Staley declared that the question of movability turned on whether the property

was contemplated by the taxpayer as capable of being removed as a separate entity from another immovable structure for further use at some other trade or manufacturing site (42 Misc.2d 58, 247 N.Y.S.2d 585 at 588).

In short, under ordinary circumstances, the question is whether it would be economically feasible for the owner to move the equipment in question, in the sense that it would be cheaper than purchasing and installing a new piece of the same equipment. Of course, the best evidence of such feasibility would be the fact that the subject equipment itself had previously been moved from one site to another. In lieu of such evidence, proof that the common practice was to move such property as a whole would also be supportive of a contention that the property was movable.

In regard to asphalt plant equipment there are judicial decisions directly on point which are of assistance. In Matter of Metropolitan Sand & Gravel Corp. v. Boyland, 126 N.Y.L.J., No. 5, p. 1738 (12-21-51), the hoppers, boiler, wiring compressor, oil tank and burner of an asphalt plant were all declared personal property pursuant to former section 3 of the Tax Law (now Real Property Tax Law, § 102(12)(f)). Subsequently, in Tri-County Asphalt and Stone Co. v. Board of Assessors of the Town of Kingsbury, 17 Misc.2d 437, 190 N.Y.S.2d 1021, the court held asphalt crushers, bins, screens, scales and two conveyors to be personal property within the meaning of that same provision of the Tax Law, noting, however, that “[c]oncededly, the foundations and piers are properly taxed as real property” (190 N.Y.S.2d at 1022). Finally, in Martin v. Gwynn, 18 A.D.2d 851, 236 N.Y.S.2d 755, the following equipment (used in connection with a gravel pit) was declared personalty:

(1) a hopper, constructed of wood, lined with steel, and resting on the ground;

(2) primary and secondary crushers fastened to a concrete foundation by anchor bolts;

(3) a two-decked screen mounted on four steel columns fastened to a concrete foundation by anchor bolts;

(4) conveyors supported by the columns fastened to a concrete foundation;

(5) a classifying device;

(6) electric motors; and

(7) a triple-deck screen mounted on steel columns.

Whether these cases are applicable to the question herein depends on the similarity between the various pieces of equipment. However, it seems likely that the concrete footings and piers, assuming these to be foundations, would be taxable real property, while the hopper bins would not. It seems equally unlikely that a “cement block control building” would be considered “movable machinery or equipment,” although the owner may present evidence to the contrary. The question of the taxable status of a “storage silo,” “asphalt storage tanks” and “concrete pits” would have to be determined through the application of the principles set forth above.

The assessor included in the 1976 assessment of this asphalt plant both taxable and exempt real property. “[E]xempt real property” rather than “personal property” is how the Court of Appeals characterized paragraph (f) of subdivision 12, section 102, in the Lackawanna case; this despite the fact that as originally enacted (L.1917, c.726), the “movable machinery or equipment” of a corporation taxable under Article 9-A of the Tax Law was defined as “personal property,” and then an exemption from the personal property tax (abolished in 1933) was established for personal property owned by such corporations.

Thus, at first reading, it would appear that the exception for “movable machinery or equipment” was an exclusion from the definition of real property (i.e., a classification as personal property), rather than an exemption from taxation for certain real property. However, in Lackawanna, the Court of Appeals declared:

We deal, unquestionably, with a statute of exemption. Not only has the Legislature consistently and expressly referred to the exclusion as an “exemption” (Tax Law, § 3 [last sentence]; Tax Law, § 219-l, as amd. by L.1919, ch. 628, § 14) but the courts have so characterized it. (See, e.g. Martin v. Gwynn, 18 App. Div.2d 851, 852, 236 N.Y.S.2d 755, 757). (16 N.Y.2d 222 at 230, 212 N.E.2d 42, 264 N.Y.S.2d 528 at 534.)

The question for us, then, is whether the combining of taxable and exempt real property in the assessed value of property of a corporation taxable under Article 9-A of the Tax Law is an error correctable under the so-called “correction of errors law.” The taxpayer has alleged that this is an “unlawful entry” within the meaning of subdivision 6 of section 550 of the Real Property Tax Law.

Subdivision 6 of section 550 reads as follows:

6. “Unlawful entry” means:

(a) an entry on the taxable portion of the assessment roll, or the tax roll, or both, of the assessed valuation of real property which, except for the provisions of section four hundred ninety of this chapter, is wholly exempt from taxation; or

(b) an entry . . . of the assessed valuation of real property which is entirely outside the boundaries of the assessing unit, the school district or the special district in which the real property is designated as being located; or

(c) an entry of assessed valuation . . . which has been made by a person or body without the authority to make such entry.

Paragraph (b) clearly has no relevance to the facts before us. Similarly, our interpretation of paragraph (c) precludes the application of that paragraph to this case. It is our understanding that paragraph (c) was intended to apply to situations where, for example, a board of assessment review makes a change on an assessment roll rather than making a listing of its changes and then ordering the assessor to make the appropriate entries on the assessment roll; or, where an assessor makes a change on an assessment roll after the filing of the tentative roll, without being ordered to do so by the board of assessment review.

Paragraph (a), however, permits the use of the “correction of errors law” where the property is “wholly exempt” from taxation. For example, property owned by a nonprofit organization and used exclusively for exempt purposes, would be “wholly exempt” from taxation (pursuant to § 420 of the Real Property Tax Law). Therefore, it the assessor placed the property on the roll as fully taxable, the owner could seek relief pursuant to the “correction of errors law.” Of course, the owner could have first pursued his normal administrative and judicial review procedures. However, in addition, in such a case, collateral judicial attack would also be permissible (i.e., other than an Article 7 proceeding, as, for example, an Article 78 (CPLR) proceeding or an equity action to remove a cloud on title).

It is our opinion that paragraph (a) of subdivision 6 of section 550 was intended to apply solely to such assessments. For example, “movable machinery or equipment” etc., of a corporation taxable under Article 9-A of the Tax Law is exempt from taxation pursuant to paragraph (f) of subdivision 12 of section 102 of the Real Property Tax Law. Therefore, if only such exempt equipment were separately assessed to a “9-A” corporation on a particular assessment roll, such assessment would be an “unlawful entry,” within the meaning of paragraph (a) of subdivision 6 of section 550.

Where, however, as is the apparent case here, an assessor includes, in the valid assessment of taxable property, some wholly exempt machinery of a “9-A corporation” (Tax Law, Article 9-A), it is our opinion that the case is one of an assessment “erroneous by reason of overvaluation,” and that the “correction of errors law” is therefore inapplicable. A long series of cases confirms that in such a case an Article 78 proceeding or the like would be equally unavailable since the assessment was not wholly void for lack of jurisdiction, and therefore may not be collaterally attacked.

One oft-cited case is Sikora Realty Corporation v. City of New York, 262 N.Y. 312, 186 N.E. 796, where the plaintiffs brought an action to eliminate (as a cloud on title) a portion of the taxes of several years levied on their property, the buildings of which were apparently entitled to exemption but the land of which was clearly taxable. The plaintiffs had made no application for assessment review in the years in question. In declaring that the only proper avenue of relief for the property owner was through administrative and judicial review proceedings, the Court of Appeals stated:

[We] have shown that the tax board has full power to hear the true fact, correct the assessment and grant the exemption. We have then, the ordinary case of an erroneous but not an illegal assessment, a case in which the only relief is by certiorari proceedings. “If partial invalidity only is established, no case is made for the interposition of equity to remove a cloud. It is no cloud if the lien is to any extent valid.” Heywood v. City of Buffalo, 14 N.Y. 534, 542 (262 N.Y. at 318, 186 N.E. 796).

Similarly, in Y.W.C.A. v. City of New York, 217 App.Div. 406, 216 N.Y.S. 248, aff’d w/o, 245 N.Y. 562, 157 N.E. 858, aff’d w/o, 247 N.Y. 591, 161 N.E. 194, the portion of a building used as a cafeteria was held to be taxable, while the remaining portion used as a lodging house for girls was found to be exempt. In declaring that the statutory writ of certiorari was the only remedy, the court stated as follows:

The plaintiff here charges and claims that the assessment for taxes was illegal and void. The tax assessors having jurisdiction, the assessment was not illegal. There probably was an overvaluation by the improper inclusion of exempt property. This at most was an error in valuation and not a lack of power to assess the premises as a whole. (217 App. Div. 406, 216 N.Y.S. at 252 (emphasis added).)

(See also, Y.W.C.A. v. City of New York, 220 App. Div. 49, 220 N.Y.S. 365, aff’d, 247 N.Y. 591, 161 N.E. 194; Congregation Gedulath Mordecai v. City of New York, 135 Misc. 823, 238 N.Y.S. 525.)

Accordingly, the provisions of title 3 of Article 5 of the Real Property Tax Law are inapposite in this factual situation.

March 7, 1977

NOTE: Subdivision 6 of section 550 of the Real Property Tax Law, referred to above, was renumbered subdivision 7 by chapter 390 of the Laws of 1978.