A Financial History of Cooper Union

Chapter 8

Legal Battles Over the Tax Exemption

 

Immediately after receiving the property as a gift, Cooper Union claimed a tax exemption on the rental income for 1903. The City of New York challenged the exemption, but lost the battle in a decision by the Appellate Division in 1904[i] that was affirmed by the Court of Appeals in 1905.[ii]

 

A year after the Chrysler Building opened, the City assessed the new building for taxation, exempting only the land underneath it, “upon the theory that the building was not owned by the Relator [Cooper Union]”.[iii] Until 1936, when the matter was settled in court, Cooper Union was actually assessed taxes on both the land and the building, and additional arguments were leveled, including General Tax Law of 1896 effectively repeals Cooper Union’s Special Act of 1859.

 

The Court of Appeals of the State of New York ruled in Cooper Union’s favor in 1936, establishing that the building is indeed the property of Cooper Union, the original legislation granting the tax exemption is not repealed by subsequent legislation, the 1905 court ruling stands as a precedent, and the original legislation’s inclusion in the Charter has the standing of a contract:

“Even if the State Legislature intended to destroy the contract for exemption from taxation (which intention appellants [Board of Taxes and Assessments of the City of New York] claim and respondent [Cooper Union] denies) such attempt was an unconstitutional impairment of the obligation of said contract.” “The property is no less exempt today than it was in 1903.”[iv]

 

Cooper Union sued the City of New York in 1947 for “the attempted imposition on its property… of the so-called ‘Assessment Rate for Special Improvements’ or ‘Partial Tax Rate’ for the years 1937-1945-6 on the ground that this levy is a tax…. The amounts involved for the years in question total $209,070, exclusive of interest”.[v] The levies were “based on public or special improvements which the Board of Estimate has determined shall be paid by the borough or the City”. The court ruled in Cooper Union’s favor, declaring that such levies by either the City or a Borough constitute a tax, thereby violating Cooper Union’s tax-exempt status.

 

Still, the matter kept coming up. In January 1969, referring to “New York City’s budget tax loophole, the vast holdings of real estate on which no property taxes are paid”, The New York Times wrote that “the acute shortage of tax revenues has spurred Finance Administrator Fioravante G. Perrottato to actions that should close at least a small part of this drain.”[vi] One of the propose pieces of legislation “would limit the tax exemption on owned by Cooper Union”. The Times exercised its own opinion by stating that the “distinguished institution plays a useful educational role, but it should not be exempt from paying taxes on the Chrysler Building, a purely commercial property assessed at $19.8 million, which it owns.”

 

A month later, The New York Times announced that the “Assembly’s Committee on New York City Affairs today approved a bill that would rescind the tax-exempt status of the Chrysler Building, which stands on land owned by Cooper Union.”[vii] This was not accurate. The bill retained the tax-exempt status, but it did introduce a caveat: “provided, however, that all property acquired, and all improvements made on or after the effective date of this act shall be exempt from taxation only to the extent provided by law for property used for educational purposes.”[viii]

 

The Cooper Union Board of Trustees agreed to amend the Charter as part of Chapter 257 of the Laws of 1969, and the Regents of the University of the State of New York approved the amendment in 1972.[ix]

 

There was occasional public criticism of Cooper’s special tax arrangement[x], and as we shall see in a later part of this financial history, the 1969 amendment became the subject of conflicting interpretations when in 2006 Cooper Union sought to redevelop several properties on Astor Place. Cooper Union had planned on receiving tax equivalent payments for the Astor Place properties as part of a new financial model, but was forced to forfeit half of it as payment in lieu of taxes (PILOT).

 

Notes

[i] 98 App. Div. 623 (1st Dept. 1904).

[ii] People ex rel. Cooper Union v. Wells, 180 N.Y. 537 (1905).

[iii] People ex rel. Cooper Union v. James J. Sexton, et al (1936)

[iv] op. cit., People ex rel. Cooper Union (1936).

[v] The Cooper Union for the Advancement of Science and Art v. The City of New York (1947).

[vi] “Action on Tax Exemption”, The New York Times, January 31, 1969.

[vii] “Bill Names Chrysler Building”, The New York Times, February 24, 1969.

[viii] Chapter 257, Laws of 1969, State of New York.

[ix] Charter of the Cooper Union for the Advancement of Science and Art, 1859. As Ammended by Chapter 257 of the Laws of 1969 and by Resolution of the Regents of the State of New York, January 26, 1972.

[x] Werner Cohn, Cooper Union and the Chrysler Building. 1996. http://www.wernercohn.com/Chrysler.html