Auburn, NY — The state’s highest court ruled today that two apartment buildings purchased by Auburn’s Merry-Go-Round Playhouse are not subject to taxes.
The unanimous ruling opens the door for non-profit educational and artistic entities to provide tax-free housing — and perhaps other benefits — for employees who are working toward the group’s primary mission.
The theater’s longstanding tax dispute started when the non-profit purchased 30 units to provide free housing for artists and other staff. The city of Auburn rejected a bid to remove the two buildings, at 120 Franklin St. and 230 Genesee St, from the tax rolls.
The city’s lawyer, Andrew Fusco, estimated the city, county and schools would lose $35,000 to $40,000 a year if the buildings, assessed at nearly $1 million, were removed from the tax rolls.
The groups who represent towns and mayors across the state warned that a win for the theater would erode the tax base, hurt the economy and force everyone else to pay more.
But the Court of Appeals, the state’s highest court, ruled that the apartment buildings were part of the theater’s primary artistic and educational mission. Therefore, they should be tax free under state law.
In the theater’s case, the lawsuit started in 2012 after Auburn rejected the theater’s bid to remove the apartment buildings from the tax rolls. A judge ruled in favor of the city, sending the case to an appeals court. The appeals court ruled unanimously to reverse the lower court’s decision, granting the playhouse tax-exempt status for the apartments.
The city then appealed to the Court of Appeals, which settled the matter in an 8-page ruling today. In it, the court unanimously ruled in favor of the playhouse.
The court’s decision, written by Chief Judge Jonathan Lippman, compared the case to a hospital providing tax-exempt housing for its staff or a religious group owning 10 acres of wooded land used for religious and educational activities.
Lippman said the court was swayed by the theater’s argument that free housing was needed to attract traveling artists who are given small salaries. The space was not only a place to live, but a place to rehearse and further the theater’s primary goals. Non-theater people were not allowed to live there.
The panel of seven judges was not convinced by Auburn’s argument that the theater had done just fine for decades by paying the rent for staff who stayed in apartments owned by private landlords — who are not tax-exempt.
What else can a theater make tax free?
During October court arguements, Judge Eugene Pigott explored how far a non-profit could take this tax-exempt rule. Could the playhouse buy a restaurant and make it tax-exempt, for example?
The theater’s lawyer, Charles Lynch, didn’t speculate because the theater had no plans to buy a restaurant. But Justice Robert Smith wondered if buying a standalone restaurant would be any different than building a cafeteria inside a tax-exempt theater.
In the end, all seven judges agreed that the apartment buildings should be tax free.
“…the use of the property to provide staff housing is reasonably incidental to petitioner’s primary purpose of encouraging appreciation of the arts through theater,” Lippman’s decision concludes.
Merry-Go-Round’s board chairman, Robert Simmons, said the theater was “very happy” with the decision.