Cincinnati can keep its property tax exemption for city-owned golf courses even if a private company operates the courses, the Ohio Supreme Court ruled.

Cincinnati can keep its property tax exemption for city-owned golf courses even if a private company operates the courses, the Ohio Supreme Court ruled.

A private management firm operating Cincinnati’s public golf courses earns fees and income from running the courses, but does not benefit in a way that would strip the facilities of their state property tax exemptions, the Ohio Supreme Court ruled today.

In a unanimous decision, the Supreme Court found the Ohio Board of Tax Appeals (BTA) correctly reversed State Tax Commissioner Joseph P. Testa’s decision to deny property tax exemptions for the six public golf courses the city employs Virginia-based Billy Casper Golf Management, Inc. to manage. Testa had stripped Cincinnati of its exemption after receiving a complaint from Paul Macke, the owner of several privately owned golf courses in the Cincinnati area, who argued he had to close one of his courses based on the lowering of the fees by a nearby city course operated by Golf Management. Testa had found the golf courses are not used exclusively for a public purpose, a requirement for the exemption, but the city appealed his decision the BTA, which sided with the city. Testa then appealed to the Supreme Court.

Exclusively for a Public Purpose at Issue
Testa argued that Golf Management is a for-profit entity granted the right to operate a for-profit business on the public golf courses. When doing so, in competition with private golf courses and with an intent to profit, the land is no longer used exclusively for a public purpose, which is required under R.C. 5709.121(A)(2).

Writing for the court, Justice Judith L. French outlined three requirements in the law to be deemed as used for a public purpose: first, it must be used by the public entity; second, it must be under the control of the public entity; and finally, it is not used “with the view to profit.” Cincinnati makes its golf course available to any member of the public and the contract the Cincinnati Recreation Commission (CRC) has with Golf Management places the city in control of the property, she noted. The only issue of dispute is whether the money Golf Management earns makes the use of the golf course land with a view to profit.

Golf Management is paid an monthly management fee, totaling $165,000 a year. It also was paying the CRC a minimum of $220,000 for food and beverage sales while retaining the rest, and it is required to give the city 10 percent of merchandise sales at the courses. It was eligible for incentive bonuses for reaching certain revenue targets for the courses, but had never attained the incentive.

Justice French indicated that Golf Management revenues were incidental compared to the fees the CRC earns from the golf operations, which come from all green fees and car rentals and totaled about $6.2 million a year from 2007 to 2012. The courses operated at an average annual deficit those years of $158,000, which the city was able to balance because in two of the years it had surplus revenues.

“Over the long haul, though, the municipal golf fund can fairly be characterized as operating on a close-to-break-even basis,” Justice French wrote.

Justice French noted that, in the Supreme Court’s 1995 Whitehouse v. Tracy decision, the village of Whitehouse retained its exemption for a well field even though it allowed a local farmer to grow crops on the land and profit from the crops. The court upheld the BTA’s determination that the activity was incidental and not the type that would defeat the exemption for property used exclusively for a public purpose.

“Here, the sales of food, beverages, and merchandise from which Golf Management derived revenue are incidental to the public purpose of making the golf courses available to the general public,” she wrote.

Contract Did Not Act Like Lease
Testa argued the contract put Golf Management in control of the entire property to make a profit, and while the city did not lease the courses to Golf Management, the agreement essentially functions as a lease transforming the land to be used for profit. Both Testa and the BTA pointed to the 2005 City of Parma Heights v. Wilkins Supreme Court decision to assess the golf course’s exemptions. In the Parma Heights case, the city leased its ice rink to a private operator, and claimed the public purpose was to provide better ice-skating facilities to its citizens. The BTA pointed out the key factors in the denial to Parma Heights included: the private operator had a lease; the lease allowed the operator to use and occupy the rink; the company was solely responsible for the operation and management; the operator’s income was derived by the rink’s operation; and the operator had to pay all property taxes on the rink.

Siding with the BTA, Justice French pointed to the fact that Cincinnati, not Golf Management, pays the property taxes, if there are any; the recreation commission sets the golf course rates and approves the hours and operations (noting that it even denied rate increases proposed by Golf Management); and the city retains control of the property and is allowed on it at any time without Golf Management’s permission. Additionally, Golf Management did not pay the city any rent or have any agreement to exclude city officials from coming on the property, which would be elements of a lease.

Justice French concluded with the understanding that Macke is in a difficult position with a saturated golf course market and that Golf Management was able to lower the green fees at some courses to compete with private competitors. But that does not mean having a private operator makes the land no longer used for a public purpose, she wrote.

“To the contrary, lower green fees arguably advance the public purpose of making the city courses more accessible to the golfing public,” she wrote.

2014-0531. Joseph P. Testa, Tax Commissioner of Ohio v. City of Cincinnati, Slip Opinion No. 2015-Ohio-1755.

View oral argument video of this case.

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