The Empire State's exemptions can undoubtedly be subject to interpretation, and some communities ultimately opt out.

Property taxes are a substantial expense for businesses and commercial property owners in New York, and taxpayers in the state are contesting property assessments in record numbers. Many owners are going the extra mile, however, by exploring exemption opportunities. Exemptions can significantly reduce property taxes and free capital to invest in new developments, renovations, and long-term growth.

State and local governments offer commercial property owners a variety of tax exemptions, all of which reduce a property's taxable assessed value and thereby lower the taxpayer's overall liability. Full exemptions eliminate the entire tax obligation, while partial exemptions reduce the taxable amount.

Since local governments administer many exemptions, eligibility requirements and benefits often depend on the municipality. Generally, owners must prove that the property is being used for the exempt purpose specified in the governing statute; that all portions of the property contribute to that purpose; and that no profit derives from its operation. For a full exemption, the entire property must be used for the exempt purpose. Any portion not meeting this requirement is typically returned to the tax rolls.

Qualifying scenarios

Taxpayers must decide not only which exemption to pursue, but also whether the property and ownership structure qualify. Here are several provisions and programs that have helped New York property owners garner tax exemptions.

A temporarily vacant or unused property could qualify for an exemption if the owner can demonstrate its imminent use with an exempt purpose. Municipalities may accept proof such as construction plans, site grading, or renovation projects as evidence of intended use. In recent years, however, local governments have tightened their interpretations of these requirements and are actively seeking opportunities to return exempt properties to the taxable assessment roll.

A common question arises when a taxable property is leased to a tax-exempt entity: Does the property qualify for an exemption based on the tenant's nonprofit status? The short answer is, sometimes. In New York, the prevailing legal interpretation is that ownership, rather than tenancy, determines exemption eligibility. However, Section 420-b of the New York Real Property Tax Law (RPTL) includes an important exception. The statute holds that a property owned by a for-profit entity and leased to a nonprofit organization may still qualify for an exemption—but only if the rent does not exceed the actual costs of carrying, maintaining, and depreciating the property. Since the statute does not precisely define these terms, courts have been left to interpret their meaning, leading to legal disputes over compliance.

Economic development.

Section 485-b of NY RPTL provides property tax relief to encourage economic development. This provision benefits property owners who undertake construction, renovations, or improvements to commercial properties by offering a partial exemption on increased property taxes resulting from these enhancements. The exemption follows a declining scale over 10 years, starting with a 50% exemption on the increased assessed value in the first year and decreasing by 5% each subsequent year. To qualify, projects must meet specific criteria set by local governments, which also have the authority to opt into or out of the statute.

Industrial development agencies or IDAs provide various incentives to businesses that create jobs and stimulate the local economy. 

For projects that contribute to economic development, potential benefits include exemptions on sales tax for construction materials and equipment purchases, and exemptions that can substantially reduce or eliminate mortgage recording taxes. IDA offerings can also include real estate tax exemptions under a payment-in-lieu-of-taxes or PILOT agreement. The latter typically requires the property to be removed from the taxable assessment roll and the owner to make scheduled, agreed-upon tax payments for the term of the agreement as opposed to less predictable property taxes, which can change based on the budgetary needs of the taxing municipality. Apply directly to the local IDA for these benefits and be prepared to demonstrate how the project will benefit the community. Manufacturing and industrial projects typically qualify, and other commercial developments may be eligible, such as rental housing.

For commercial property owners, reducing tax liabilities can lower costs and support business growth. Whether through annual assessment appeals, Section 485-b exemptions or IDA incentives, avenues exist that can yield significant tax savings. While navigating these opportunities, pay special attention to nuanced statutory language and keep abreast of evolving judicial interpretations. An experienced, local advisor can help property owners identify and pursue exemptions, ensure compliance and maximize tax savings.

While in the process of navigating these various and sundry opportunities, it is critical to pay special attention to nuanced statutory language and keep abreast of evolving judicial interpretations. To that end, having an experienced, local advisor can also be instrumental in helping property owners identify and pursue exemptions, ensure compliance and maximize tax savings.