Monday, March 3, 2014

Board Finds For-Profit Entity Predominantly Educational Rather than Predominantly Child Care

Excerpts of the Board's Determination follow:

In this case, the Petitioner owns the real property, while LCG occupies and uses it. Both the Petitioner and LCG are for-profit entities. Nevertheless, the involvement of for-profit entities does not preclude a property tax exemption. See College Corner, L.P. v. Dep’t of Local Gov’t Fin., 840 N.E.2d 905, 908 (Ind. Tax Ct. 2006). See also Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm’rs, 686 N.E.2d 954, 956 n.2 (Ind. Tax Ct. 1997). In addition, being owned, occupied, and used by a single entity is not a requirement for exemption. “Importantly however, ‘when a unity of ownership, occupancy, and use is lacking (as is the case here), both entities must demonstrate that they possess their own exempt purposes[.]’” Hamilton Co. Property Tax Assessment Bd. of Appeals v. Oaken Bucket Partners, LLC, 938 N.E.2d 654, 657 (Ind. 2010).

31. The Petitioner was organized to build and lease the subject property to LCG for the purpose of operating a Goddard School. The Petitioner built the property to the design and specifications of the Goddard Systems. The Petitioner does not own any other property. Its sole business is to own and lease the property for use as The Goddard School. Indeed, the lease agreement specifies that the property will only be used as The Goddard School.

32. The Petitioner charges LCG rent that is enough to cover the interest and principle on a mortgage loan that the Petitioner secured to build the facility for LCG. The Petitioner makes a small profit, but also subsidizes LCG’s shortfalls on occasion. Ultimately, the record establishes that the Petitioner and LCG share the same overarching purpose for the property, even though two entities are involved. Furthermore, no substantial evidence in the record disputes that the subject property is owned, occupied and used for the sole purpose of operating The Goddard School. Accordingly, the case turns on whether that operation is predominantly or entirely educational within the meaning of Indiana Code § 6-1.1-10-16.

33. As the term is broadly understood, “education” can occur anywhere, including private homes, but a more restrictive definition is required to avoid irrationally applying the exemption. See St. Bd. of Tax Comm’rs, et. al. v. Fort Wayne Sports Club, Inc., 258 N.E.2d 874, 881 (Ind. Ct. App. 1970). Accordingly, applicants for the educational exemption must show their use of the property provides some public benefit. See Oaken Bucket, 938 N.E.2d at 658; Dep’t of Local Gov’t Fin. v. Roller Skating Rink Operators Ass’n, 853 N.E.2d 1262, 1266 (Ind. 2006). Examining “the public benefits that accrue from a property’s use [is] a method of determining whether the predominant use of a property is educational.” Trinity School of Natural Health, Inc. v. Kosciusko Co. Property Tax Assessment Bd. of Appeals, 799 N.E.2d 1234, 1237 (Ind. Tax Ct. 2003). 34. The closer the activity is to traditional educational programs offered in public schools, the more obvious is the public benefit. St. Bd. of Tax Comm’rs v. Prof’l Photographers of Am., Inc., 268 N.E.2d 617 (Ind. Ct. App.1971). “The educational exemption is available to taxpayers who provide instruction and training equivalent to that provided by tax supported institutions of higher learning and public schools because to the extent such offerings are utilized, the state is relieved of its financial obligation to furnish such instruction.” Miniature Enthusiasts, 671 N.E.2d at 221 (quoting Ft. Wayne Sport Club, 258 N.E.2d 874, 881-882).

35. While the public benefit test can be met by providing courses found in tax-supported institutions, it also can be met by providing “related” programs and courses. Indeed, “a taxpayer need only relieve the State’s burden ‘to some limited extent’ with programs and courses merely ‘related’ to those found in tax-supported schools.” Trinity School, 799 N.E.2d at 1238 (italics in original); see also Roller Skating Rink Operators Ass’n, 853 N.E.2d at 1266 (stating that “educational” programs need not be the same as offerings of public schools).

36. The Board has made prior determinations with similar facts that provide guidance for the issue presented in this case. For example, in Richmond Day Nursery (March 2004), the Board held that Richmond Day Nursery was entitled to an exemption in connection with its operation of a daycare and pre-school facility. In that case, the Board relied on evidence that Richmond Day Nursery provided scheduled educational training, employed teachers with educational degrees, offered educational opportunities to children from lower income families who attended the daycare on a government voucher program, and provided a program similar to the government sponsored Head Start program. Approximately five to six hours each school day were devoted to age-related education for children enrolled at Richmond Day Nursery, where a program similar to typical preschool education was provided. The Board concluded that Richmond Day Nursery “demonstrated that their educational activities and curriculum confer a benefit to the general public, (e.g. families, children, public schools, community) similar to the government based Head Start program, but with the added bonus of onsite training in conjunction with the child’s full time day care.” As a result, Richmond Day Nursery’s property was determined to be 100% exempt.

37. Similarly, in KC Propco LLC, d/b/a KinderCare Learning Center (November 2011), the Board held that a facility was entitled to an exemption based on the educational use of the property. Specifically, the Board found that the use of the subject property was substantially related to the programs and courses public schools provide. In doing so, the Board noted that the petitioner employed teachers with educational degrees, scheduled educational training, and offered educational opportunities to children from lower income families who attended the early learning center on the government voucher program. The Petitioner also was able to show that at least to “some limited extent” the curriculum, goals, and educational and physical activities provided a benefit to the public. Thus, the Board found that KinderCare Learning Center was 100% exempt.

38. Recently, in Charles Duke (August 2013), the Board also found a similar use of another property was entitled to an exemption. Specifically, the Board relied on evidence that the programs involved were accredited, provided scheduled educational learning, had detailed lesson plans prepared by teachers with post secondary education training, and had a curriculum that taught reading, writing, math, science, history, physical education, language arts, social studies, music and art. The Board also relied on evidence that teachers evaluated students’ academic progress and reported the progress to parents and conducted parent-teacher conferences. The Board found that the programs were a complement to and prepared children for enrollment in school.

39. In the instant case, LCG/The Goddard School presents itself as a school that provides educational programs to preschool aged children. The Goddard School also provides a kindergarten class within its facility. Specifically, the Goddard School provides a curriculum of instruction in various areas such as math, science, writing, manners, American Sign Language, Spanish, and yoga. The teachers at The Goddard School have post secondary education. They prepare lesson plans for each class. They assess and evaluate children. The teachers also communicate with parents about academic progress during parent/teacher conferences twice each year. The Goddard School has a Level 3 certification in the Paths to Quality program and is working toward other accreditations.

40. The Goddard School’s programs prepare children for kindergarten or an upper grade within the community. Accordingly, the Petitioner has shown that the use of the subject property is related to programs that public schools provide. In turn, the Petitioner has also shown that at least to “some limited extent” the curriculum, goals, and educational activities provide a benefit to the public.

41. Significantly, the Respondent failed to effectively impeach or rebut the Petitioner’s evidence about its motives and purpose for the subject property or about the curriculum, teaching staff, accreditation, and programs at The Goddard School.

42. Instead, the Respondent claims that the property is no longer exempt because the LCG’s personal property return identifies the nature of its business as “child services” and LCG has a Child Care Center License. According to the Respondent, that fact shows the business is not primarily education and it is primarily childcare. The weight of the evidence, however, does not lead the Board to that same conclusion. The Respondent’s evidence and conclusory argument do not overcome the Petitioner’s stronger evidence regarding the educational activities that actually occur on the property.

43. The Respondent also argues that the activities taking place at The Goddard School are the same learning activities that are taught by parents in their homes or at other childcare centers. Again, this argument does not effectively discredit the Petitioner’s evidence. After considering all of the evidence, it is clear that educational programs and child care both take place at The Goddard School. Furthermore, in this case the Board concludes that the educational programs are the main focus and the child care activities are merely incidental.

44. The Respondent argues that the property is not providing a public benefit because a fee is charged to attend The Goddard School. The Respondent merely touched on this point and did virtually nothing to develop the argument. Although fee arrangements might have some relevance to the question, the Respondent provided no authority or support for fees to be a bright line test to deny exemption. And the Board has found other facilities are tax exempt even though fees were charged. (See KC Propco, LLC. (November 2011)).

45. According to the Respondent, the Board should deny an exemption in this case to prevent a chain reaction of appeals for exemption by similar facilities, but this point is entirely unpersuasive. Indeed, every exemption case depends on its own facts and, ultimately, how those facts were presented. See Jamestown Homes of Mishawaka, Inc. v. St. Joseph Co. Assessor, 914 N.E.2d 13, 15 (Ind. Tax Ct. 2009). Here, the Respondent simply has not provided enough evidence or argument to impeach or rebut the Petitioner’s case. The Petitioner’s point of view is more persuasive—the weight of the evidence establishes that use of the subject property is almost entirely focused on education.

46. Therefore, the subject property is owned, occupied and used for an exempt purpose. As a result, an educational exemption should be granted.