New law exempts property leased to State agencies. Effective January 1st, Indiana Code § 6-1.1-10-2(b) exempts real property leased to a state agency if the lease requires the agency to reimburse the owner for property taxes paid. Moreover, if “a state agency leases less than all of a parcel of real property, the exemption . . . is a partial exemption that is equal to the part of the gross assessed value of the real property attributable to the part of the real property leased by the state agency.” If a property owner wants to seek an exemption under this new provision, it should file a Form 136 exemption application for a complete or partial exemption on or by May 15, 2014. The application can be found here (under “Exemption (Real Property) Forms”).
100% exemption applied to for-profit early childhood school; fears of a “chain reaction” of applications “entirely unpersuasive.” Harlan Development – RSGS, LLC v. Hendricks County Assessor, Pet. No. 32-031-11-2-8-00001 (Jan. 23, 2014) (March 1, 2011 assessment). The Harlan family organized Owner LLC for the purpose of constructing and leasing the 8,000 square foot building to School LLC for educational purposes. Both Owner LLC and School LLC are for-profit entities. School LLC is a licensee of an early childhood education company, and the building at issue was built to the specifications of that company. Owner LLC had no other property; it constructed the property “for the sole purpose of assisting [School LLC] with opening” the school. (Page 5, § 11.) The lease stated that the property should only be used to operate the school and for no other purpose. Initially, Owner LLC didn’t make a profit, as the rent charged covered the interest and principal on the mortgage; as principal is paid down and interest rates decrease, Owner LLC will make a small profit.
School LLC used the property to provide early childhood education for children from six weeks to six years of age. Lead teachers had two-year or four-year college degrees in early childhood education, a similar course of study, or a Child Development Associates (CDA) certificate. Assistant teachers had to be enrolled in a teaching or CDA program. School LLC uses a “learning through play curriculum.” Children receive instruction in math, science, writing, manners, American Sign Language, Spanish and yoga. Teachers prepare lesson plans designed to meet age-specific curriculum goals, and they routinely asses the children.
The Assessor argued that providing childcare is a service for parents, not a school. School LLC “does nothing more than what parents do with their children in homes, but parents are not given property tax exemptions,” she argued. (Page 8, § 24.) The Assessor further pointed out that ten similar schools operated in the area, and that nine of them paid property taxes. She warned that a ruling applying the exemption “could cause a chain reaction of other facilities requesting an exemption,” causing counties to “lose hundreds of thousands of dollars in tax revenues.” (Page 8, § 25.)
The Indiana Board applied the exemption. (Page 14, § 47.) The Board first observed that “involvement of for-profit entities does not preclude a property tax exemption.” (Page 9, § 30.) Owner LLC was “organized to build and lease” the early childhood school, and the lease required that the property only be used for that purpose. (Page 9, § 31.) Moreover, the public benefit test for exemptions can be met not only by providing courses found in tax-supported institutions but also by providing “related” programs and courses. Id. The Board identified three similar cases where it applied the educational exemption. In this case, Owner LLC demonstrated that the school’s “programs prepare children for kindergarten or an upper grade within the community” and therefore the property’s use “is related to programs that public schools provide.” (Page 12, § 40.) School LLC’s programs provide a benefit to the public at least to “some limited extent.” Id.
The Assessor failed to effectively impeach or rebut Owner LLC’s evidence. (Page 13, § 41.) The Board found that educational programs were the main focus of the school’s activities – not childcare. (Page 13, § 43.) In addition, the Board concluded that while fee arrangements may have “some relevance” as to whether an exemption is justified, the Assessor submitted “no authority or support for fees to be a bright line test to deny exemption.” (Page 13, § 44.) Finally, the Board found “entirely unpersuasive” the Assessor’s argument that the exemption should be denied to prevent a “chain reaction of appeals for exemptions by similar facilities.” (Page 13-14, § 45.) Every exemption case stands on its own facts and how those facts are presented; in this case, Owner LLC’s case was “more persuasive” because the “weight of the evidence establishes that use of the subject property is almost entirely focused on education.” Id.
Procedural note: Owner objected to the admission of certain of the Assessor’s exhibits and the testimony of her witnesses because she failed to provide copies before the hearing. The Board noted that 52 IAC 2-7-1(b)(1) requires each party to an appeal to provide copies of documentary evidence to the other party at least five business days before the hearing. Under 52 IAC 2-7-1(b)(2) each party shall provide the opposing party a witness and exhibit list at least fifteen business days before the hearing. The Assessor mailed her evidence and lists two days before the hearing. While Owner waived its objections to some exhibits, the administrative law judge sustained the objection as to other exhibits and to all of the testimony from the Assessor’s witnesses, excluding the Assessor herself. (Page 4, § 8.)
Where for-profit builder lacked its “own exempt purpose,” its property leased to School of Dance denied educational exemption. Shubert Construction, Inc./Benefactor to the Arts, LLC v. St. Joseph County Assessor, Pet. No. 71-024-09-2-8-00001 (Jan. 2, 2014) (March 1, 2009 assessment date). Shubert Construction (“Builder”), a for-profit company, claimed a 72% educational exemption under Ind. Code § 6-1.1-10-16 for a facility constructed and used as a School of Dance. Eventually, ownership of the property was transferred to an LLC, whose express purpose was to promote the education of dance. According to Builder, the LLC’s “mission is to provide real estate to a dance school that will provide educational dance programs for public benefit that are substantially equivalent to those that may be provided by public institutions.” (Page 5, § 15.) The parties didn’t dispute that a portion of the property was occupied and used for educational purposes. The sole issue before the Indiana Board was whether the property was owned for an educational purpose.
Builder failed to prove its case. It showed “substantial rental income” from the property in the three years preceding the 2009 assessment at issue. The School of Dance purportedly paid a reduced lease rate as compared to the building’s non-exempt entity, but there was “no evidence in the record explaining what market rent is versus a reduced or discounted rent.” (Page 8, § 28.) Reduced rents alone, however, would not have shown that Builder possessed its “own exempt purpose” that was “separate and apart from that of the School of Dance.” (Pages 8-9, § 29-30) (discussing Hamilton County PTABOA v. Oaken Bucket Partners, LLC, 938 N.E. 954 (Ind. 2010).) The Indiana Board summarized: “[Builder] 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).” (Page 9, § 31.)
Union hall taxable; no evidence it was predominantly used for educational or charitable purposes. Indiana Joint Board v. Allen County Assessor, Pet. No. 02-074-13-2-8-00001 (Jan. 15, 2014) (March 1, 2013 assessment). Union claimed that its hall (consisting of meeting and storage space) was exempt for educational and charitable purposes. According to the Union, it used the hall to conduct its membership’s business – to hold meetings, to train members on health and safety issues, to educate members about, among other things, labor agreements, handling workplace grievances and completing healthcare and pension forms.
The Indiana Board explained, “Broadly speaking, courts have linked a taxpayer’s right to exemption to the taxpayer’s property being used to provide a public benefit.” (Page 5, § 17) (citation omitted). Providing education that is “the substantial equivalent of instruction offered in Indiana’s tax-supported institutions” is a public benefit supporting exemption. (Page 6, § 18.) But “education that primarily serves the private interests of an organization’s members” doesn’t qualify as a public benefit. Id. (quoting Dep’t of Local Gov’t Fin. v. Roller Skating Rink Operators Ass’n, 853 N.E.2d 1262, 1266 (Ind. 2006).)
Here, the Indiana Board reasoned, “the training offered at the [hall] was merely incidental to [Union’s] promotion of its members’ primate economic interests.” (Page 7, § 20.) The Union’s President failed to explain how the training conducted at the hall “compared to offerings from tax-supported institutions.” (Page 7, § 21.) For some of the activities undertaken at the property, Union identified no “purportedly educational component.” Id.
And the Union failed to show how the property was used for charitable purposes. (Page 7, § 22.) To the extent that activities such as assisting members with healthcare and pension forms may have been charitable, Union’s cursory evidence didn’t show the uses to be predominant (a requirement for application of the exemption). (Page 7-8, § 22.) Union’s “charitable-purpose claim rests on the premise that simply conducting union-related activities inherently qualifies as a charitable use” – a position the Board explained had been essentially rejected by the Tax Court. (Page 8, § 23) (citing 6787 Steelworkers Hall, Inc. v. Porter County Assessor, 933 N.E.2d 591 (Ind. Tax Ct. 2010).) The Union’s hall was therefore 100% taxable. (Page 8, § 25.)