Kiryas Joel sites may lose tax-exempt status
Move affects space used for business
By Chris Mckenna • Times Herald-Record
KIRYAS JOEL — The five-story office building that opened on Bakertown Road two years ago was the sort of development local officials generally crave — a rich source of property taxes, not only for Kiryas Joel and its public school but also for Orange County and the Town of Monroe.
But the owners of the Kiryas Joel Business Center pay no property taxes at all: The town assessor granted their request for tax exemption in 2008 because they said they were a nonprofit organization that raises money for the religious school system that most Kiryas Joel children attend.
The owners also pay no property taxes for another major commercial site: an 87,000-square-foot shopping center that has been tax-exempt since it opened in 1987, long before it came under the United Talmudical Academy in 2004, according to town officials and property records.
At stake in the exemptions are tens of thousands of dollars a year in property taxes.
If the two properties had been fully taxable, their owners would have paid more than $148,000 in taxes in 2009, including $110,000 to the Kiryas Joel School District, $28,000 to Orange County and almost $10,000 to the Town of Monroe, county records show. The additional amount they would have owed the village government in taxes was unavailable.
What enabled the owners to apply for exemptions in 2008 was a section of state law that waives taxes for nonprofits involved in education, religion, charity and a few other roles. Their mantle was religion, since they said they were affiliated with the 6,000-student United Talmudical Academy.
Changes in tax status
But their rationale overlooked a critical rule for exemption: that the space itself be used for religious or other exempt purposes, not for selling insurance, peddling produce or any of the other profit-making enterprises that occupy the shopping center and office building.Monroe Assessor Dorothy Post, who granted the exemptions, said last month that she plans to revise the tax status of the two properties in response to questions by county officials and the Times Herald-Record. She now intends to exempt only eligible portions, such as municipal and school offices, and let the rest of the buildings be taxed.
"It never has been questioned until now, so next year I'm going to apportion it out," she said.
John McCarey, director of the county's Real Property Tax Service Agency, said he agrees the commercial parts of those buildings should be taxed.
"If I was an assessor, that's the way I would handle it," he said.
Elozer Gruber, the Kiryas Joel man who filed the exemption applications, didn't respond to requests for comment. Nor did Don Nichol, the village attorney for Kiryas Joel; the name of his Walden law firm, Jacobowitz & Gubits, was stamped on the forms.
Much of the activity at the bustling shopping center on Forest Road is unmistakably commercial: The 34 tenants include two grocery stores, two jewelers and shops that sell toys, shoes and appliances. Municipal offices on the second floor take up 8,000 square feet, less than 10 percent of the total space, according to an inventory Gruber submitted.
Property transfers
The 80,000-square-foot Business Center has stores and a restaurant on its first level, and insurance offices, real estate companies and other businesses on the upper floors, according to its directory. Other spaces, such as the 4,000-square-foot school district offices, would likely remain tax-exempt.The properties are owned by two entities that were created, along with one other, in July 2004 as the prelude to a series of property transfers and mortgages. Each was named with the initials for the United Talmudical Academy and the property it would soon possess, as in UTA of KJ SC Inc. for the shopping center owner.
Mortgage records show that between December 2004 and July 2008, these three landholders borrowed $25 million from three banks and $3 million from the quasi-governmental Kiryas Joel Municipal Local Development Corp. At least some funds were used to finish construction of the office building — which had stalled for lack of financing — and build a new school for the public Kiryas Joel School District.
Subject to challenge
Post says she approved the exemptions because the applicants said all rent paid by their tenants would go to the religious schools. But given the enormous debt the entities accrued, it is difficult to see how they could generate income for the UTA if the rent is used to pay off the mortgages.The tax exemptions remain in effect this year. Post's decisions about what parts of those buildings should be taxed will be conveyed this spring to the owners, who can challenge them before a town panel and then in court. The taxes would not take effect until next year.
Even then, her decisions would affect only town and county taxes for the two properties. Whether or not the owners are charged village and school taxes rests with Kiryas Joel Administrator Gedalye Szegedin, who is also the village assessor.
[Hat Tip: Joel Katz.]