COLUMBUS CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLANT, v. TESTA, TAX COMMR., ET AL., APPELLEES.
No. 2010-1754
Supreme Court of Ohio
Submitted October 18, 2011—Decided November 1, 2011
130 Ohio St.3d 344, 2011-Ohio-5534
{11} In this real property tax exemption case, the Columbus City School District Board of Education (“school board“) appeals from the decision of the Board of Tax Appeals (“BTA“), which affirmed the tax commissioner‘s grant of tax-exempt status to certain property owned by the “State of Ohio for the use and benefit of the Ohio State University” (“OSU“). The dispute centers on the proper construction of
{12} Under this statute, the tax commissioner and the BTA granted exemption to a two-story building with basement that generates rental income from a first-floor commercial tenant and second-floor residential tenants. OSU received title to the building through a bequest intended to provide scholarships to veterinary-medicine students at OSU. Before this court, the tax commissioner argues that income-producing property like the parcel at issue qualifies for exemption under
I. Factual Background
{13} The two-story building at issue is located south of the Ohio State University campus in Columbus. It houses four residential rental units on the second floor and a commercial space on the first floor and in the basement that
{14} OSU acquired title to the property in 1992 through the estate of Mabel Elizabeth White, who bequeathed it subject to the requirement that the “real estate, or the proceeds from any sale therefrom” be “used to further fund, or establish, the David Stuart White Fellowship Fund.” The testator then specified that the fund should be “invested and the income therefrom used for providing graduate fellowships * * * in any branch of veterinary medicine.” When OSU acquired title, the property was subject to a 99-year renewable lease held by Long‘s College Book Company. In 2000, Long‘s had transferred the leasehold interest to Campus Partners for Community Urban Redevelopment. In October 2002, Campus Partners assigned the leasehold interest to OSU in consideration of a payment of $500,000, which led to a merger of title and termination of the lease.
{15} A memorandum of understanding (“MoU“) was executed on March 26, 2004, to “document[] the agreement, responsibilities and commitments of various [OSU] offices regarding the assignment of the [property at issue] in exchange for payment for all costs incurred by [OSU].” The stated “primary goal” of the MoU is to “fund the David Stuart White Fellowship Fund (‘Fund‘) to the fullest extent allowable under University policy and the law.”
{16} According to the MoU, income from the property at issue would be applied first to paying down OSU‘s acquisition expense, after which the property would be assigned to the veterinary college. Under the MoU, proceeds of a sale by OSU would be directed to the veterinary college, and that college also would enjoy an option to occupy the building if a tenant vacated.
{17} OSU hired a commercial property-management firm, Buckeye Realty, to collect rents and maintain the property. Buckeye Realty retained a portion of rent to pay its management-related fees and expenses. There was no evidence whether the residential tenants were OSU students.
{18} The McDonald‘s lease called for the tenant to pay to the landlord two-thirds of the real estate taxes plus 100 percent of any increased taxes attributable to improvements made by McDonalds. Under its 2006 lease, the credit union pays 100 percent of real estate taxes based on the square footage that it occupies. Under these circumstances, the benefit of a tax exemption inures in part to OSU‘s commercial tenants.
II. Procedural History
{19} On May 18, 2004, OSU filed an application to exempt the property for 2004, predicating the exemption claim on
{110} The school board appealed the final determination to the BTA, which held a hearing on August 14, 2009. At that hearing, OSU presented four witnesses and several exhibits in support of the claim, and the school board‘s counsel cross-examined the OSU witnesses. On September 14, 2010, the BTA issued its decision upholding the commissioner‘s determination. Columbus City School Dist. Bd. of Edn. v. Levin (Sept. 14, 2010), BTA No. 2008-M-408, 2010 WL 3614560, *6. Reiterating the commissioner‘s reliance on Univ. of Cincinnati and citing Ohio State Univ. Bd. of Trustees v. Kinney (1983), 5 Ohio St.3d 173, 5 OBR 392, 449 N.E.2d 1282, the BTA rejected the school board‘s contention that the use of property under
{111} The school board has appealed, and we now reverse.
III. Analysis
{12}
A. The language of R.C. 3345.17 ties the exemption to the use of the property, not to the use of the proceeds
1. OSU had the burden to show clear entitlement to the exemption
{13}
{14} In construing statutory language, we “must ascertain and give effect to the intent of the legislature,” which we determine by “read[ing] words and phrases in context and constru[ing] them in accordance with rules of grammar and common usage.” HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio St.3d 481, 2010-Ohio-687, 923 N.E.2d 1144, ¶ 15, quoting State ex rel. Russell v. Thornton, 111 Ohio St.3d 409, 2006-Ohio-5858, 856 N.E.2d 966, ¶ 11.
{15} In Univ. of Cincinnati, 51 Ohio St.3d at 7, 553 N.E.2d 1056, fn. 1, we cited a dictionary definition of “support“: support means “‘actively promote the interest or cause of,’ ” ” ‘give assistance to,” and “‘pay the costs of: maintain.” Id., quoting Webster‘s Third New International Dictionary (1986) 2297. But while “support” unquestionably could encompass the use of proceeds to defray costs incurred by the university, the statute subordinates the concept of support to the concept of use: to qualify for exemption, the property must be used for the support of the university. The statute notably does not explicitly allow or tie the exemption to the use of income from the property, but rather to the use of the property itself.
{16} In light of the foregoing discussion, an expansive reading of the phrase would permit the use of income by itself to qualify the property for exemption. But reading
{17} The need to focus on the use of the property itself, as opposed to the use of the proceeds from the property, is underscored by the existence of a much older companion provision to
{18} The state-university provision in this case,
{19} Any doubt that the legislature enacted
{120} The tax commissioner characterizes the language of
B. The case law does not establish the availability of exemption under R.C. 3345.17 based solely on the use of income
{22} Central to the appellees’ arguments is the contention that the case law has already furnished the expansive reading that is required to justify the grant of exemption in this case. This argument necessitates a close look at those cases.
{123} In Kinney, 5 Ohio St.3d 173, 5 OBR 392, 449 N.E.2d 1282, OSU had acquired a 1.993-acre parcel adjacent to its airport. The property was part of the airport‘s “control zone” and was also used as part of the agriculture college‘s program for crop production to support animals that were “part of the teaching and research mission in animal husbandry.” Id. at 173-174. On a small portion of the parcel was a house that was subject to a residential lease, under the terms of which the university received rent. Id. at 173. The tax-equalization commissioner contended that the half acre with the rented house could not be exempted, but the BTA and the court disagreed. The court characterized the house rental as a “secondary use” and held that the primary use was “in support of the academic mission of the Department of Aviation and Aeronautical and Astronautical Engineering and the College of Agriculture.” Id. at 174–175.
{24} In Univ. of Cincinnati, 51 Ohio St.3d 6, 7, 553 N.E.2d 1056, a 1.13-acre parcel improved with two buildings was donated to the university. One of the buildings housed a Laundromat, and the other was occupied in part by a convenience store. Id. at 6-7. These two establishments occupied 12 percent of the property and paid rent that was directed into the university‘s general fund. But the other 88 percent of the property was occupied, in part, by the university‘s College of Design, Architecture, Art, and Planning, with the remainder being planned as either a maintenance garage for the main campus or as a residence facility for the medical center. Id. at 7. The court affirmed the BTA‘s grant of exemption based not only on the finding that the rent went into the university‘s general operating fund, but also on the finding that “there were plans to develop the property in a manner to serve the university‘s medical center or its main campus.” Id.
{125} The tax commissioner (who in the earlier cases took a more restrictive approach to
{126) As the foregoing discussion of the cases reveals, however, Kinney and Univ. of Cincinnati do not stand for the proposition advanced by the appellees. To be sure, the use of rental income for the support of the university was an element in each of those cases, but in neither case did the court understand the university to be using the property solely for the production of income through rent paid by private parties—which is the situation that we confront in the present case. To the contrary, in Kinney, we specifically declared that the use of the house and grounds as rental property was a secondary use, and in Univ. of Cincinnati, we emphasized that the commercial use encompassed only 12 percent of the property, which was also subject to both current and prospective uses that supported university activities apart from the generation of any income.
{127} Indeed, the principle to be derived from Kinney and Univ. of Cincinnati is that an ancillary use of property that generates income does not defeat exemption as long as the property is used, to some degree, either currently or prospectively, in a way that operationally relates to university activities. The use of the income to support university activities, whenever there is any such income, is probably a necessary condition for exemption. But that does not mean, as the appellees assert here, that the use of income, by itself, suffices to qualify the property for exemption. Indeed, allowing an exemption for property leased to a commercial tenant is particularly troubling, since it makes the tax exemption inure to the benefit of a commercial enterprise rather than the intended nonprofit beneficiary.
{28} The tax commissioner also contends that the narrower reading of
C. Neither the location of the property nor its status as a bequest to provide scholarships establishes its entitlement to exemption
{29} Although endorsing the broad view of exemption under
{30} In particular, OSU points to (1) the location of the property on “one of the main arteries running through campus,” Neil Avenue, as well as in the south campus Gateway area and (2) the property‘s status as a bequest intended to generate money for veterinary-medicine scholarships. While the properties at issue in both Kinney and Univ. of Cincinnati were near a university facility or campus, neither decision attached overriding significance to the bare fact of physical proximity.
{131} In Kinney, 5 Ohio St.3d at 174, 5 OBR 392, 449 N.E.2d 1282, the residential parcel at issue was close to the university‘s airport, but the overriding factor was that the parcel “was a small part of a seventy-eight acre acquisition which was intended to and does further teaching and research in aviation and agriculture.” In Univ. of Cincinnati, 51 Ohio St.3d at 7, 553 N.E.2d 1056, the proximity to the nursing college and the university hospital was significant because of the “plans for development of the site as a maintenance service garage for the main campus or as a residence facility for the medical center.”
{132} Moreover, the fact that the ultimate destination of the property‘s income was a scholarship fund does not change the analysis. Use of income from property can “support” the university whether the income is placed into general revenues or into an earmarked fund. But in neither instance does the statute permit the exemption based upon the use of income.
{133} Nor is it insignificant that the commercial tenant who pays the tax with respect to the square footage that it occupies receives the actual benefit of the exemption. To be sure, the tax commissioner argues that the existence of the tax exemption may permit OSU to extract a higher rent in future years to benefit the scholarship fund. But OSU would be able to do so only because the exemption allows it to enjoy a preferred tax status as a commercial landlord—a competitive advantage that the legislature does not appear to have intended.
IV. Conclusion
{135} For all the foregoing reasons, the BTA acted unlawfully when it affirmed the tax commissioner‘s grant of exemption. We therefore reverse the decision of the BTA.
Decision reversed.
O‘CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O‘DONNELL, LANZINGER, CUPP, and MCGEE BROWN, JJ., concur.
Rich Gillis Law Group, L.L.C., Mark Gillis, and Kelley Gorrey, for appellant.
Michael DeWine, Attorney General, and Julie E. Brigner, Assistant Attorney General, for appellee tax commissioner.
Carlile, Patchen & Murphy, L.L.P., and Jackie Lynn Hager, for appellee state of Ohio for the use and benefit of Ohio State University.