Wednesday, February 12, 2014

Board Finds Property Owner Had No Exempt Purpose Despite Property's Educational Use

Excerpts of the Board's Determination follow:

26. The Petitioners contend that the portion of the property leased to the School of Dance qualifies for a charitable and educational purpose exemption because it is owned, occupied, and used to teach dance. The parties do not dispute that a portion of the property is used and occupied for an educational purpose.6 The question is whether Shubert Construction’s ownership of the real property is also for an exempt purpose.

27. The Indiana Supreme Court recently issued a decision in Hamilton County Property Tax Assessment Board of Appeals v. Oaken Bucket Partners, LLC, 938 N.E.2d 654 (Ind. 2010) discussing this question. In Oaken Bucket, the Court stated that to qualify for an exemption, “the taxpayer must demonstrate that its property is owned for exempt purposes, occupied for exempt purposes, and predominately used for exempt purposes. Id. at 657. “Once these three elements are met, regardless of by whom, the property can be exempt from taxation.” Id. (citing Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm’rs., 686 N.E.2d 954, 959 (Ind. Tax. Ct. 1997)). Unity of these elements is not required, but when such is lacking, both entities must demonstrate they both possess their own exempt purposes. Id.

28. Oaken Bucket is instructive to the facts of this case. Like Oaken Bucket, Shubert Construction is a for-profit company that owned the subject property on March 1, 2009, Shubert Construction showed substantial rental income from this property for the years 2006, 2007, and 2008. Ms. Shubert was unsure about the rents for 2006, but testified the 2007 and 2008 rents were from the School of Dance and the other tenant. And, while Ms. Shubert contends the School of Dance paid a reduced rate, more than 50% less than the other portion of the building, there is no evidence in the record explaining what market rent is versus a reduced or discounted rent as there was in Oaken Bucket. In fact, the Petitioners did not introduce any evidence specifying the rent it charged to either the exempt entity or the non-exempt entity.

29. Nonetheless, assuming Shubert Construction did charge the School of Dance significantly below market rent, this fact alone does not answer the question of whether Shubert Construction possessed its “own exempt purposes.” Id. at 658. To be eligible for an exemption, Shubert Construction must show that it possessed its own exempt purposes. Id. Here, Shubert failed to show that it had an exempt purpose separate and apart from that of the School of Dance. There is no question that the School of Dance is an educational institution and possesses an exempt purpose in its own right. But aside from arguing that it charged the School below market rent, Shubert Construction failed to demonstrate an exempt purpose separate from that of the School.

30. Further, Shubert Construction does not “own” this property for an exempt purpose. On this point, Oaken Bucket is again instructive. In Oaken Bucket, the Supreme Court determined that a for-profit leasing company leasing space to a not-for-profit church, did not “own” the property for an exempt purpose even if it leased the space for below market rent. Id. at 658-59. The Court held that “absent evidence that an owner of leased property possesses an exempt purpose separate and distinct from the exempt purpose of its lessee, the owner holds the property for its own benefit, not that of the public, and thus its property is not entitled to the statutory exemption.” Id. at 659.

31. In sum, Shubert Construction has failed to demonstrate that it owned the property for educational purposes (or that it has an exempt purpose independent of the School’s educational purposes).7

32. As such, the Petitioner failed to meet its burden of proving it is entitled to an exemption.