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Court News Ohio
Court News Ohio

High School’s Nature Preserve, Commercially Farmed Land Exempt From Property Tax

A change to a 137-year-old state tax exemption applied to 34 acres of land owned by a southwestern Ohio school district, even though the land was used as a nature preserve and leased for farming, the Ohio Supreme Court ruled today.

In a 7-0 decision, the Supreme Court reversed the Ohio Board of Tax Appeals (BTA) and granted Talawanda City School District in Butler County a property tax exemption for the acreage adjacent to its new high school. Writing for the Court, Chief Justice Maureen O’Connor found the BTA failed to apply the plain terms of an 1873 law regarding the taxation of public school property in light of a 2010 amendment passed by the legislature.

Land Acquired as Law Changed
In early 2009, Talawanda acquired 154 acres to construct a new high school that was scheduled to open for the 2011-2012 school year. Among the parcels purchased was a 34-acre plot that was being farmed. The district agreed to continue the farmer’s lease through April 2012, and the parcel produced $2,200 annually for the school district. As part of the agreement, the farmer agreed to restore 17 acres to form a nature preserve for school programs, and to conduct farm-related school activities such as Future Farmers of America on the 17 acres of farmland. The school district asserted it benefited from the private farming as the farmer helped control the cost of maintaining the property.

In June 2010, the Ohio General Assembly approved a bill with multiple funding and tax changes, including modifying R.C. 3313.44. As amended, the statute states: “Real or personal property owned by or leased to any board of education for a lease term of at least fifty years shall be exempt from taxation.” Lawmakers also assured the provision would apply to pending applications for property exemptions, including one filed by Talawanda in January 2010. The Ohio tax commissioner granted an exemption to all the high school land except the 34-acre farm and nature preserve. He cited a 2001 BTA ruling that found land rented for farm use is not exempt because the school earned income from farming and it was not used for school purposes. The BTA affirmed the tax commissioner relying on a case decided before the 2010 amendment, and the school district appealed.

Lawmakers Broaden Exemption
Chief Justice O’Connor noted that the original version of the law dates back to comprehensive school reform enacted in 1873, and that in 1948 the Court found there was an implied restriction in the original law that exemptions were only granted for the land being used for school purposes. “Before the 2010 amendment, there was reason to consider that the exemption for board-of-education property incorporated an implied use restriction,” she wrote.

Chief Justice O’Connor explained that, when the 1873 exemption law was approved, the 1851 version of the Ohio Constitution limited the General Assembly’s power to exempt taxes to only specific circumstances, one being for “public schoolhouses” and “public property used exclusively for any public purpose.” What the law did not cover was the type of exemption Talawanda was seeking - exemption merely because the property was owned by the school district.

However, in 1931, the state constitution was amended to give the legislature broad power to determine exemptions. Chief Justice O’Connor explained that, although the constitutional change alone did not modify how the school property exemption worked, the new constitutional provision allowed the legislature to expand the exemption to all property owned by a school district, and by passing the amendment in 2010 the legislature exercised that power. “It follows that after the 2010 amendment, there is no use restriction, because the legislature did not include one in the statutory language,” she wrote.

The Court distinguished this ruling from prior ones refusing exemptions, including one sought by Ohio State University for property leased for commercial purposes, noting the state laws in those cases condition the tax exemption on a specified use of the property. It also rejected the tax commissioner’s argument that R.C. 3313.17 limits the authority of school boards and does not allow it to lease land for non-public use. The Court held that compliance with R.C. 3313.17 was not a condition on the tax exemption set forth in R.C. 3313.44. The Court also pointed to prior decisions where land generating a modest amount of farming income qualified for exemption, and it found Talawanda was following an Ohio Attorney General opinion that allowed land not presently being used for school purposes to be leased as long as the school could terminate the lease if the property was needed for school purposes.

2014-1798. Talawanda City School Dist. Bd. Of Edn. v. Testa, Slip Opinion No. 2015-Ohio-5450.

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