Van Yoorhis, J.
This appeal concerns exemption from taxation of real property under subdivision 6 of section 4 of the Tax Law, upon the ground that it is used exclusively for educational purposes.
During fifty-two years prior to October, 1950, Rosa Gunter Semple owned and conducted a girls’ private secondary school in the city of New York. In 1930 she moved the school to a large stone mansion at 351 Riverside Drive, which is the subject of this proceeding, that had been purchased for the purpose for $200,000 by Semple Realty Corporation. That corporation was wholly owned by Mrs. Semple. In 1950, appellant, the Semple School For Girls, was incorporated as a nonprofit, nonstock educational institution to which a provisional charter was granted by the Board of Regents. There was then outstanding against this real property a first mortgage of $39,204, in addition to which Semple Realty Corp. owed to Mrs. Semple $157,051.36. It then transferred 351 Riverside Drive to appellant subject to the mortgage. In consideration of this transfer, appellant gave its unsecured fifteen-year bond for $111,746, which was assigned to Mrs. Semple to apply upon the indebtedness to her of Semple Realty Corp. She received another unsecured bond of $16,784.50, also due in 1965, in payment for the furnishings and other personal property transferred to the school. Neither of .these bonds contained acceleration clauses, nor was annual interest payable upon them unless the school operated at a profit, and not even in that event unless its trustees should decide that the profit was not needed for the purposes of the school. It thus appears that these obligations could not be enforced until 1965, whether interest upon them was paid or not, and that meanwhile interest was payable if, and only if, the trustees voted to pay it out of annual profits earned in the operation of the school.
[387] The Appellate Division has affirmed the order of Special Term denying exemption from taxation. Under the facts of this case, we think that this determination was correct.
In order to qualify for exemption, it is necessary for appellant to establish that this real property is “ used exclusively ” for educational purposes, which cannot be true “ if any officer, member or employee ” of the school “ shall receive or may be lawfully entitled to receive any pecuniary profit from the operations thereof, except reasonable compensation for services in effecting ” such purposes, or “if the organization thereof for any such avowed purposes be a guise or pretense for directly or indirectly making any other pecuniary profit for such corporation or association, or for any of its members or employees, or if it be not in good faith organized or conducted exclusively ” for educational purposes (Tax Law, § 4, subd. 6).
Appellant is organized exclusively for educational purposes, and the real property at 351 Riverside Drive is used exclusively for carrying out such purposes except insofar as Rosa Semple “ may be lawfully entitled to receive any pecuniary profit from the operation The circumstance that the venture is being operated at a loss does not signify that she is not lawfully entitled to receive pecuniary profit that may be earned. Exemption from the general property tax is not conditioned upon whether an enterprise is profitable. It depends upon whether one would reasonably expect that if a profit were made it would inure to the benefit, among other aspects, of any “ officer, member or employee ” of the educational corporation. Mrs. Semple is the president and chairman of the board of trustees of this school.
Special Term considered that whether Mrs. Semple may be entitled to receive pecuniary profit from the operation of the school depends upon whether the real property is worth less than the consideration appellant paid for it, and held that appellant had not proved that the property was worth as much as the purchase price. In a memorandum decision, the Appellate Division stated that “ Aside from the finding of Special Term with respect to the value of the property, the petitioner has not made a showing to satisfy the requirements of the statute.’ ’
We base our decision upon all of the particular facts and circumstances of the case.
[388] It is hardly necessary to state that appellant is not to be deprived of exemption for the reason that it is a private school. It is likewise true that exemption may not be denied for the reason that the pupils pay for the education which they receive (People ex rel. Doctors Hosp. v. Sexton, 267 App. Div. 736, affd. 295 N. Y. 553). Provided only that it meets the educational standards required by the Board of Regents, which is conceded, any appraisal by the Tax Commission of its usefulness to the City of New York would be irrelevant. The decision depends entirely upon whether the burden has been sustained of proving that any profit from the school would not redound to the benefit of Mrs. Semple. The date as of which exemption is to be determined is, of course, the tax status date (Matter of Mary Immaculate School, 188 App. Div. 5). Nevertheless, whether Mrs. Semple held a proprietary interest in the school at that time is affected, under the facts of this case, by whether it was then reasonable to believe that its indebtedness to her would be satisfied from its capital assets irrespective of the success of its operations. If, under the guise of a bondholder, she was really the owner of a proprietary interest in the school, exemption should be disallowed.
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Van Yoorhis, J.
This appeal concerns exemption from taxation of real property under subdivision 6 of section 4 of the Tax Law, upon the ground that it is used exclusively for educational purposes.
During fifty-two years prior to October, 1950, Rosa Gunter Semple owned and conducted a girls’ private secondary school in the city of New York. In 1930 she moved the school to a large stone mansion at 351 Riverside Drive, which is the subject of this proceeding, that had been purchased for the purpose for $200,000 by Semple Realty Corporation. That corporation was wholly owned by Mrs. Semple. In 1950, appellant, the Semple School For Girls, was incorporated as a nonprofit, nonstock educational institution to which a provisional charter was granted by the Board of Regents. There was then outstanding against this real property a first mortgage of $39,204, in addition to which Semple Realty Corp. owed to Mrs. Semple $157,051.36. It then transferred 351 Riverside Drive to appellant subject to the mortgage. In consideration of this transfer, appellant gave its unsecured fifteen-year bond for $111,746, which was assigned to Mrs. Semple to apply upon the indebtedness to her of Semple Realty Corp. She received another unsecured bond of $16,784.50, also due in 1965, in payment for the furnishings and other personal property transferred to the school. Neither of .these bonds contained acceleration clauses, nor was annual interest payable upon them unless the school operated at a profit, and not even in that event unless its trustees should decide that the profit was not needed for the purposes of the school. It thus appears that these obligations could not be enforced until 1965, whether interest upon them was paid or not, and that meanwhile interest was payable if, and only if, the trustees voted to pay it out of annual profits earned in the operation of the school.
[387] The Appellate Division has affirmed the order of Special Term denying exemption from taxation. Under the facts of this case, we think that this determination was correct.
In order to qualify for exemption, it is necessary for appellant to establish that this real property is “ used exclusively ” for educational purposes, which cannot be true “ if any officer, member or employee ” of the school “ shall receive or may be lawfully entitled to receive any pecuniary profit from the operations thereof, except reasonable compensation for services in effecting ” such purposes, or “if the organization thereof for any such avowed purposes be a guise or pretense for directly or indirectly making any other pecuniary profit for such corporation or association, or for any of its members or employees, or if it be not in good faith organized or conducted exclusively ” for educational purposes (Tax Law, § 4, subd. 6).
Appellant is organized exclusively for educational purposes, and the real property at 351 Riverside Drive is used exclusively for carrying out such purposes except insofar as Rosa Semple “ may be lawfully entitled to receive any pecuniary profit from the operation The circumstance that the venture is being operated at a loss does not signify that she is not lawfully entitled to receive pecuniary profit that may be earned. Exemption from the general property tax is not conditioned upon whether an enterprise is profitable. It depends upon whether one would reasonably expect that if a profit were made it would inure to the benefit, among other aspects, of any “ officer, member or employee ” of the educational corporation. Mrs. Semple is the president and chairman of the board of trustees of this school.
Special Term considered that whether Mrs. Semple may be entitled to receive pecuniary profit from the operation of the school depends upon whether the real property is worth less than the consideration appellant paid for it, and held that appellant had not proved that the property was worth as much as the purchase price. In a memorandum decision, the Appellate Division stated that “ Aside from the finding of Special Term with respect to the value of the property, the petitioner has not made a showing to satisfy the requirements of the statute.’ ’
We base our decision upon all of the particular facts and circumstances of the case.
[388] It is hardly necessary to state that appellant is not to be deprived of exemption for the reason that it is a private school. It is likewise true that exemption may not be denied for the reason that the pupils pay for the education which they receive (People ex rel. Doctors Hosp. v. Sexton, 267 App. Div. 736, affd. 295 N. Y. 553). Provided only that it meets the educational standards required by the Board of Regents, which is conceded, any appraisal by the Tax Commission of its usefulness to the City of New York would be irrelevant. The decision depends entirely upon whether the burden has been sustained of proving that any profit from the school would not redound to the benefit of Mrs. Semple. The date as of which exemption is to be determined is, of course, the tax status date (Matter of Mary Immaculate School, 188 App. Div. 5). Nevertheless, whether Mrs. Semple held a proprietary interest in the school at that time is affected, under the facts of this case, by whether it was then reasonable to believe that its indebtedness to her would be satisfied from its capital assets irrespective of the success of its operations. If, under the guise of a bondholder, she was really the owner of a proprietary interest in the school, exemption should be disallowed.
As has been stated, Mrs. Semple held bonds of the school in the amounts of $111,746 and $16,784.50. A memorandum submitted to the Board of Regents states that the school had personal assets approximating the latter amount, although it is not evidence of value. Appellant attempted to prove that this real property, which was the only other asset of -the school, was worth $167,933.44 and that, after deducting $39,204, being the unpaid balance secured by the outstanding mortgage, a net value of $128,729.44 remains, which would be $16,983.44 in excess of the $111,746 bond held by Mrs. Semple, that had been given by the school to purchase this real property. The trial court held, however, that the only expert witness called by appellant was not qualified to testify concerning construction costs or depreciation. This witness was a real estate broker but not a builder or an architect. He would have been competent to have testified to market value based on sales or economic return from similar properties, but was not asked to do so. His appraisal of the building was based entirely upon reproduction cost less depreciation, sometimes known as ‘ ‘ sound value ’ ’. Such a method of [389] building valuation has been held to be appropriate in case of “ specialties ”, that is to say, structures designed for unique purposes (People ex rel. New York Stock Exch. Bldg. Co. v. Cantor, 221 App. Div. 193, affd. 248 N. Y. 533; People ex rel. Hotel Astor v. Sexton, 159 Misc. 280, affd. 256 App. Div. 912, motion for leave to appeal denied 280 N. Y. 853; People ex rel. Hotel Paramount Corp. v. Chambers, 298 N. Y. 372, 375). These decisions hold that, even in such instances, the full structural value of the building (less depreciation) may only be added to the value of the land where the structural improvements are suitable to the site. The present building is not a specialty; it is a large stone mansion on Riverside Drive, obsolete for its intended use as a single-family residence, but utilized for a school. Except in the case of specialties, reproduction cost less depreciation is accepted only as establishing maximum value (People ex rel. Manhattan Sq. Beresford v. Sexton, 284 N. Y. 145). In the instant proceeding, regardless of the correct measure of value, the witness who testified upon this point was not qualified to testify to reproduction cost or depreciation. His opinion was correctly held to lack probative force upon this aspect. He could have testified concerning “ sales ” value or “ economic ” value of land and building, but appellant chose not to elicit his views in those respects concerning the building. Consequently the record is barren of evidence of the value of this real property as a whole, except that the total assessed valuation was $145,000. That might be regarded as some evidence of value (Heiman v. Bishop, 272 N. Y. 83), although for this purpose we cannot separate the land and building values comprising the assessment (Tax Law, § 21, subd. 3; People ex rel. MacKay v. McGregor, 271 App. Div. 798).
Under different circumstances, the deficiency of $5,950, being the total assessed valuation less the outstanding mortgage and Mrs. Semple’s bond, might not be significant. This educational corporation, however, never had an endowment; its grantor, Semple Realty Corp., made no donation, nor has any other person made any contribution to appellant; Semple Realty Corp. was evidently insolvent and even though Mrs. Semple voluntarily accepted a bond which was $45,305.36 less than the indebtedness to her from Semple Realty Corp., nevertheless appellant obligated itself for more than the record shows the [390] real estate to have been worth. The entire purchase price was paid by the issuance of a bond for $111,746. If this had been an ordinary business transaction, Mrs. Semple’s bond would at least have been likely to have been secured by a purchase-money mortgage. Not only did this bond represent merely the debenture obligation of this educational corporation, as did also the $16,784.50 bond given to buy the personal property, but also, as has been previously noted, neither of these bonds could be enforced until 1965, and meanwhile neither bond carried interest, except as interest might be declared annually by resolution of the board of trustees (of which Mrs. Semple was chairman), and only then if it were payable out of annually earned profits of the corporation. Both bonds contain clauses providing that interest shall be payable only if the net earnings of the school for any twelve-month fiscal period shall exceed expenses, and only if the trustees ‘ ‘ in their uncontrolled discretion shall determine ” that the funds necessary to pay such interest are not needed for the purposes of the school. Mrs. Semple expressly waived the payment of interest unless it were earned, and even if earned unless the board of trustees declared it to be payable. There is no acceleration clause maturing either bond in event of nonpayment of interest; these bonds represent no fixed liability of the corporation payable before the expiration of fifteen years, nor do they operate as liens upon any real or personal property.
No adverse criticism is made of Mrs. Semple or of anyone for having cast the transaction in this form. The question is whether the pattern which it took results in tax exemption.
Although this was in form a nonprofit, nonstock educational corporation, the practical effect was to place Mrs. Semple in the position of the holder of an equity interest in the enterprise. Her situation was analogous to that of a stockholder, having the right to receive dividends payable out of earnings if and when declared by a board of directors. Parenthetically, it may be observed that the saving in real property taxes if 351 Riverside Drive were held to be exempt would be approximately equivalent to the amount needed to enable the school trustees to declare and pay a return of 5% upon the obligations of the school held by Mrs. Semple.
[391] We pass only upon the question as it is presented by the present record on appeal. This decision is not inconsistent with tax exemption for the school if Mrs. Semple were to cancel the bonds of appellant which she holds, or if she were to reduce appellant’s legal liability to her so substantially that it would be reasonable to believe that any bonds which she might hold could be collected when due with interest out of assets of appellant corporation, irrespective of fluctuations in the current earnings of the school. No decision is rendered now concerning the legal effect of any future changes in arrangements which may be made, but the existing pattern of ownership of the enterprise in its various ramifications creates a present obstacle to exemption under subdivision 6 of section 4 of the Tax Law.
These conclusions are in accord with the law as heretofore established in this State (Lawrence-Smith School v. City of New York, 166 Misc. 856, affd. 255 App. Div. 762, affd. 280 N. Y. 805 [People ex rel. Manlius School v. Adams, 143 Misc. 459, affd. 232 App. Div. 869, affd. 257 N. Y. 549, is distinguished in the case cited, per Shientag, J., 166 Misc. 860]; People ex rel. Rye Country Day School v. Schmidt, 266 N. Y. 196).
The order appealed from should be affirmed, with costs.