Being a Charity Doesn't Mean You Qualify for the "Charitable Use" Property Tax Exemption in Ohio

When it comes to claiming a property tax exemption based on charitable use, merely owning the property in a 501(c)(3) nonprofit corporation is not sufficient to succeed.  On July 27, 2016, the Ohio Supreme Court issued its decision in Innkeeper Ministries, Inc. v. Testa, Slip Opinion No. 2016-Ohio-5104, in which it sided with the tax commissioner in denying Innkeeper Ministries, Inc. (Innkeeper) its tax exemption.

Innkeeper owns real property (over 71 acres) that includes two residential buildings and other recreational amenities, such as a swimming pool, basketball court, fishing ponds and a prayer walk through wooded property. Its stated mission is to provide a spiritual retreat for pastors, other church leaders and missionaries along with their spouses, which includes free meals and use of the amenities on the site.  A couple resides on the property, and act as caretakers.

While the caretakers advertise the services available at the property they had not succeeded in filling the rooms at any given time. Testimonials were provided on the mission of the organization and its use of the property, but no concrete evidence. What was missing from the record were financial information or documentation on the number of people served.

Innkeeper had applied for and was denied its property tax exemption by the tax commissioner. The Board of Tax Appeals overruled the tax commissioner, finding that Innkeeper’s “year round use of the subject property, in providing g a place of respite for the physical and spiritual renewal of Christian leaders, without charge [is] sufficiently charitable in nature to fall with the definition of charity set forth in Planned Parenthood [5 Ohio St.2d 117, 214 N.E.2d 222].”  The BTA concluded that Innkeeper used its property “in furtherance of or incidental to its charitable …purposes and not with the view to profit” within the meaning of R.C. 5709.121(A)(2).

Ohio law provides a specific tax exemption for church retreats but Innkeeper’s property does not qualify. It is not owned by a church and is subject to substantial residential use by the caretakers.  R.C. 5709.121, which contains an expanded definition of “exclusive charitable use”, residential use doesn’t defeat the exemption so long as such use is purely incidental to the charitable purposes of the property owner. However, the underlying issue is what the property owner qualifies as a “charitable institution” under that statute. In the instant case, this would require Innkeeper to show that its use of the property at issue, which is its only activity, can qualify as charitable.

The Ohio Supreme Court found that given the residential use of Innkeeper’s property, the BTA erred in not also requiring proof of the primacy of Innkeeper’s charitable hospitality.  It held that Innkeeper had the burden of proof to demonstrate that the hospitality it extended to others was primary over the personal, familial and residential use it made of the property. While the property was owned by a 501(c)(3) entity, the caretakers controlled that entity. As the court pointed out, “…the accommodation of guests at no cost in a spacious residence cannot by itself turn the residence into a charity.”

While Innkeeper provided some evidence that it advertised for guests in accordance with its mission, as stated earlier, it did not provide any other documentation. Useful documentation, which one would expect from any 501(c)(3), would have included how many responded to the advertisement, how many stayed at the property each year, how many were turned down, etc.

As evidenced by the court’s decision against Innkeeper, the use of a property by a 501(c)(3) entity as a residence without quantitative evidence of its use in connection with its stated charitable mission defeats a claim for property tax exemption in Ohio.

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