In a ruling which will have long-ranging implications for local governments, the Ohio Supreme Court held last week that Ohio municipalities may contract with private management companies without jeopardizing their tax-free status.
In Cincinnati v. Testa, Slip Opinion No. 2015-Ohio-1775, the high court overturned an earlier determination by the Ohio Tax Commissioner that the City of Cincinnati owed millions of dollars in back taxes due to its use of a private company to manage its golf courses. The ruling restores Ohio’s public purpose real property tax exemption and ends years of uncertainty regarding its application.
Graydon Head partner Sean Suder, while serving as the City of Cincinnati’s Chief Counsel for Land Use and Planning, represented the City in its 2013 appeal of the Tax Commissioner’s decision to the Ohio Board of Tax Appeals. The Ohio Board of Tax Appeals ruled in favor of the City and overruled the Tax Commissioner’s determination on the basis that the existence of incidental private profits does not defeat the exemption. The Tax Commissioner appealed the decision to the Ohio Supreme Court. Sean’s successor Marion Haynes, Chief Counsel for Land Use and Planning, and Deputy City Solicitor Terry Nestor, successfully defended the appeal before the Ohio Supreme Court.
The Ohio Supreme Court affirmed the Board of Tax Appeals’ decision, holding the public purpose exemption was not defeated because the City’s golf courses are not leased to the private management company, but are rather managed under significant operational control of the Cincinnati Recreation Commission, and because the management company’s profits, if any, were merely incidental to the public purpose. This decision is in keeping with the Court’s decisions in Carney v. Cleveland (a portion of a municipal airport was denied a public purpose exemption where hangars were leased to private entities), Carney v. City of Parma Heights (where a municipal ice rink was denied a public purpose exemption where it was leased to a private entity), and Carney v. Ohio Turnpike Comm. (public purpose exemption granted where portions of toll service plazas were used for private sale of food, gasoline and other incidentals).
The Ohio Supreme Court’s decision provides certainty for municipalities throughout Ohio that they may enter into private management contracts for the operation of public property without the risk of losing their public purpose tax exemption. In Cincinnati, the decision will allow the City to continue to efficiently operate its municipal golf courses using a private golf course management company.