Private Property Leased to For-Profit School Not Tax-exempt in Ohio

In a ruling that could be catastrophic for some charter schools, the Ohio Supreme Court yesterday said a property tax exemption for public schools does not extend to property leased to a "school for profit," following the precedent it had set back in its1874 case, Gerke v. Purcell, between the City and Cincinnati Archdiocese.

The case here in point, the Court's summary explained, "involved for-profit company, Anderson/Maltbie Partnership (AMP), leased property from October 1999 through October 2004 to a nonprofit corporation, which in turn used the property to operate a community or charter school called the Cincinnati College Preparatory Academy (CCPA). Under the lease agreement, CCPA paid AMP $275,000 a year for the use of the building.

"AMP filed an application with the Ohio tax commissioner seeking a property tax exemption for the 2002 tax year and remission of taxes it had paid for 1999, 2000 and 2001, asserting that because the property was used by the lessee as a public school facility, it qualified for exemption from property taxes under R.C. 5709.07(A)(1), a provision of state law that grants exemption to 'public schoolhouses.' The commissioner denied the requested exemption and AMP appealed to the Board of Tax Appeals. On review, the BTA overruled the commissioner and ordered him to approve the requested exemption

The commissioner exercised his right to appeal the BTA ruling to the Supreme Court. [ Case and Court’s Summary ]

"Gerke holds that the public-schoolhouse exemption does extend to privately owned property, but only when that property is 'appropriated to the support of education for the benefit of the public without any view to profit,' an essential element being the 'exclusion of all idea of private gain or profit.' … But by seeking to exempt a commercial office building that is leased to the school for profit, AMP seeks a broader exemption….

"AMP relies on Bexley Village, Ltd. v. Limbach (1990)," the Court said, "… to maintain that the commissioner and the BTA must focus exclusively on the lessee's use of the property. … (But) because Bexley Village addresses the public-college exemption, we regard the case as inapposite. We hold that under the public-schoolhouse exemption, the restriction that the property not be used with a view to profit requires examination of the total use of the property by both lessor and lessee. If the lease is intended to generate profit for the lessor, the property does not qualify for exemption; similarly, the property does not qualify if the lessee’s use is intended to generate profit. It follows that because AMP leases the property to CCPA under a for-profit lease, the public-schoolhouse exemption is not available in the present case."