The Supreme Court ruled today that a property owner who leases a building or a portion of a building to a college cannot claim the exemption from state and local property taxes for property connected with public colleges.

The court’s 4-3 decision reverses the Ohio Board of Tax Appeals (BTA), which had approved tax exemptions for two office complex buildings leased by Columbus State Community College for its branch campuses in Dublin and Groveport.

Writing for the majority, Justice Terrence O’Donnell explained that the statutory tax exemption for property “connected with” public colleges applies only to property that is owned, occupied, and used by the college in support of its educational mission.

Background
Columbus State leased a building in the Dublin City School District from Equity Dublin Associates and a building in the Columbus City School District from SHSCC #2 Limited Partnership.

In March 2005, the property owners applied for tax exemptions for tax years 2002 through 2005, relying on Ohio statutes that exempt the property of public colleges from state and local property taxes. Ohio’s tax commissioner denied the applications, concluding that the properties were not exempt pursuant to R.C. 5709.07(A)(4), which provides a tax exemption for property connected with a public college.

The property owners appealed to the BTA, which ruled that R.C. 5709.07(A)(4) did apply to property owned by private landowners leased to a public college. The tax commissioner and the school boards appealed the case to the Ohio Supreme Court.

The majority opinion
The court rejected the argument that the property owners’ failure to identify R.C. 5709.07(A)(4) as a basis for the tax exemption in their applications to the tax commissioner precluded review by the BTA or the Supreme Court, because no statute required the taxpayer to identify the specific statute that is the basis of the exemption in the application.

The court also rejected the claim that R.C. 3354.15, a tax exemption specific to community colleges, is the exclusive exemption allowed for property used by a community college. And although R.C. 5709.07(B) provides that the tax exemption for property connected with a public college does not apply to leased property, Justice O’Donnell clarified that this provision has only been applied to property that the college owns and leases to a third party.

The court next considered R.C. 5709.07(A)(4), which provides a tax exemption for “public colleges and academies and all buildings connected with them, and all lands connected with public institutions of learning, not used with a view to profit.” Justice O’Donnell explained that the tax exemption for public colleges primarily applies to property that “is owned and occupied and used by those institutions for their basic institutional purposes.”

Justice O’Donnell distinguished the court’s decision in Cleveland State Univ. v. Perk (1971), which had held that modular buildings Cleveland State University had leased from a for-profit company were connected with a public college and therefore not subject to taxation. Perk differed, he explained, because the buildings in that case were placed on land owned by the university that was already exempt from taxation as public property used exclusively for public purposes.

The court concluded that property leased to a public college such as Columbus State is not exempt from state and local taxes pursuant to R.C. 5709.07(A)(4), and it reversed the decision of the BTA.

The majority opinion was joined by Chief Justice Maureen O’Connor and Justices Sharon L. Kennedy and Judith L. French.

The dissent
Writing for the dissent, Justice Paul E. Pfeifer maintained it was reasonable and lawful for the BTA to permit the exemptions for the leased buildings. He concluded the locations were “connected with” Columbus State because the school used them to educate nearly 2,000 students each year.

“I would hold that those facts, which demonstrate a use of the property for core educational purposes, provide the requisite connection between the buildings and Columbus State to allow the exemption,” he wrote.

In Justice Pfeifer’s view, the majority has inserted the requirement that the buildings be on land owned by the public colleges through its interpretation of Perk. However, the fact that the buildings were on the campus in the Perk case was not an essential factor in determining whether to grant the exemption, he added.

“Yes, the court noted that the buildings were on the campus of Cleveland State and used exclusively for classrooms and offices, but this court in no way held that buildings must be on an institution’s main campus in order to qualify for the exemption,” Justice Pfeifer wrote.

Joining the dissent were Justices Judith A. Lanzinger and William M. O’Neill.

2014-0168. Equity Dublin Assocs. v. Testa, Slip Opinion No. 2014-Ohio-5243.

View oral argument video of this case.

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