Ohio exempts from property taxes real property that is used exclusively for charitable purposes. Often, we are asked two related questions about the application of this exemption. One is where a charitable entity leases property from a private, for-profit owner. The other is where a charitable entity leases a portion of its property to a private, for-profit lessee. In both cases, the answer is that the lease will defeat the claim for exemption.
The exemption extends to property that is used exclusively for charitable (or sometimes public) purposes. The courts in Ohio have consistently ruled that when a private owner leases property to a charitable or public entity, the owner’s leasing of the property is inherently a private, for-profit use that does not qualify for exemption. As the Supreme Court has said it will not permit a private entity to claim a “vicarious” exemption based on the status of the lessee of the property.
Similarly, when a charitable entity leases a portion of its property to a for-profit entity, the use of that portion of the property ceases to be used exclusively for charitable purposes. Even if the rental proceeds support the charitable activities of the owner, the Supreme Court has often observed that it is the use of the property, not the use of the proceeds from the property, that controls the exemption.
Finally, leases between charitable and public entities generally are acceptable; however, there are some pitfalls to be avoided.