The New York State Tax Appeals Tribunal, affirming the decision of an Administrative Law Judge, rejected a charitable trust’s claim that it should be considered an agency or instrumentality of the government and, therefore, exempt from New York State real estate transfer tax on its sale of real property. Matter of Robert J. Randell as Executor of the Estate of Phyllis Millstein & as Trustee of the Irving & Phyllis Millstein Charitable Trust for Animals, DTA No. 827359 (N.Y.S. Tax App. Trib., July 24, 2019). 

Facts. The Irving and Phyllis Millstein Charitable Trust for Animals (the “Trust”) was established in 2001 under the last will and testament of Phyllis Millstein to provide “for the care of neglected and homeless animals and for the prevention of cruelty to animals, which may include public and private education, and research in connection therewith.” The Trust was exempt from federal income tax under IRC § 501(c)(3) and was similarly granted New York State and local sales tax exempt status with regard to its purchases. One of the assets held by the Trust was title to real property situated at 22 East 81st Street in Manhattan (the “Property”). 

In 2015, the Trust sold the Property for $15.6 million. It filed transfer tax returns reporting the transaction, claiming an exemption from both New York State real estate transfer tax (“RETT”) and New York City real property transfer tax (“RPTT”), and paying both taxes under protest. After initially rejecting the Trust’s refund claim, New York City refunded the Trust’s payment of RPTT, but New York State denied the refund claim. The Trust filed a Petition with the New York State Division of Tax Appeals protesting the refund denial.

Law. Where either the State of New York or the United States (including any agency or instrumentality thereof) is a transferor of real property, it is exempt from the RETT. Tax Law § 1405(a).

ALJ Determination. ALJ upheld the Tax Department’s denial of the Trust’s refund claim and rejected the Trust’s argument that it should be considered an agent or instrumentality of the government and, therefore, be exempt from RETT. The ALJ further noted that the fact that the trust is exempt from both New York State sales tax and federal income tax by reason of its charitable status does not concomitantly qualify it for any exemption under the RETT. The RETT law does not contain an exemption for IRC § 501(c)(3) organizations.

Tribunal Decision. The Tribunal upheld the determination of the ALJ and rejected the Trust’s argument that it should be considered an agent of the government because, the Trust claimed, the goal of the Trust was aligned with the public policy of the State of New York and the United States and because the government exercised “extraordinary control and oversight over the Trust.” The Tribunal explained that, in order to establish an agency relationship, the principal must expressly authorize the agent to act on its behalf as an agency or instrumentality and that there was no evidence of such authorization in this case. While it acknowledged the Trust was subject to various requirements at the state and federal level, the Tribunal found that these requirements were merely general regulations that apply to all charitable organizations similarly classified by the IRS and the State of New York. “Simply put, the regulatory scheme set up by the federal and state governments to protect and safeguard against improper expenditure of charitable funds does not transform the Trust into a government agency or instrumentality.” 

The Tribunal also rejected the Trust’s argument that RETT should not apply because the government and general public directly benefited from the net proceeds of the sale of the Property since they were used to fund the Trust’s charitable purposes. The Tribunal noted that the assets of the Trust were not federal or state money nor was there any evidence that the proceeds of the sale of the Property were distributed to state or federal governments or counted as state or federal revenue. Finally, the Tribunal also rejected the Trust’s argument that imposing a tax on an otherwise tax-exempt entity that is engaged in furthering a public policy places an undue burden on the implementation of that public policy, holding that it could not construe a policy to protect animals as giving the Trust an exemption from RETT without express authorization from the Legislature.


In light of the narrow construction given to tax exemption provisions, the Tribunal’s decision is not surprising. While New York State’s RETT and New York City’s RPTT are similar in many ways, and often apply to the same transactions, it is important to remember that they are not identical. For example, unlike the RETT, the RPTT exempts any transfer by or to a charitable organization (such as the Trust) from the transfer tax. Thus, and as was the case here, it is possible that a transaction may be exempt from one tax but subject to the other.