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Columbus City School District Board of Education v. Testa

November 1, 2011

COLUMBUS CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLANT,
v.
TESTA, TAX COMMR., ET AL., APPELLEES.



APPEAL from the Board of Tax Appeals, No. 2008-M-408.

Per curiam.

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as Columbus City School Dist. Bd. of Edn. v. Testa, Slip Opinion No. 2011-Ohio-5534.]

NOTICE

This slip opinion is subject to formal revision before it is published in an advance sheet of the Ohio Official Reports. Readers are requested to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65 South Front Street, Columbus, Ohio 43215, of any typographical or other formal errors in the opinion, in order that corrections may be made before the opinion is published.

SLIP OPINION NO. 2011-OHIO-5534

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as Columbus City School Dist. Bd. of Edn. v. Testa, Slip Opinion No. 2011-Ohio-5534.]

Taxation--Tax on income from property used for the support of a state university--R.C. 3345.17--Income-producing property may not be exempted under the statute unless the activity conducted on the property bears an operational relationship to university activities--Decision reversed.

Submitted October 18, 2011

{¶1} 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 R.C. 3345.17, which provides that state-university property is exempt from real property taxation if it is "used for the support of such university."

{¶2} 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 R.C. 3345.17 to the extent that the income generated by the property is devoted to university purposes. The school board contends that income-producing property may not be exempted under the statute unless the activity conducted on the property bears an operational relationship to university activities. We agree with the school board, and we therefore reverse.

I. Factual Background

{¶3} 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 was occupied at the time of the application by a McDonald's, and later by a credit union.

{¶4} 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.

{¶5} 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."

{¶6} 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-medicine college. Under the MoU, proceeds of a sale by OSU would be directed to the veterinary-medicine college, and that college also would enjoy an option to occupy the building if a tenant vacated.

{ΒΆ7} 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 ...


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