With the increasing number of families in which both spouses are employed full-time, together with the emphasis on early childhood education, more parents are opting for early childhood learning centers as opposed to traditional daycare. The early learning centers may offer basic childcare needs (such as changing diapers, feeding, tying shoes, etc.) but the core focus is on education, even for their youngest clientele.

On April 1, 2015, the Indiana Tax Court affirmed the conclusion of the Indiana Board of Tax Review finding that an early learning center qualified for an educational purposes real property tax exemption.[1] KinderCare Learning Centers is a Delaware corporation that operates early education facilities throughout the county. KinderCare formed KC Propco to acquire and develop real estate for its educational centers. In 2005, KC Propco acquired property in Greenwood, Indiana and KinderCare renovated the property and began operating an early education facility at the premises.

In May 2009, KC Propco filed an Application for Property Tax Exemption based on the educational purposes exemption found in Indiana Code § 6-1.1-10-16. The Indiana Code states that “[a]ll or part of a building is exempt from property taxation if it is owned, occupied, and used by a person for educational…purposes…” KC Propco asserted that the real estate was owned, occupied, and used as an early learning center and thus was exempt from property taxes. The Johnson County Property Tax Assessment Board of Appeals (the “Assessor”) denied the exemption application. The Indiana Board of Tax Review, however, found that the real property was exempt from taxation. The Assessor sought review from the Tax Court.

The Assessor contended on appeal, in part, that the property did not qualify for an exemption because certain non-educational activities took place there – such as feeding, quiet time, and, for the younger children, changing diapers and tying shoes. However, the Indiana Board of Tax Review found that, although both educational and child care activities occurred at the property, the “educational programs are the focus and the child care activities are merely incidental.” Further, the Indiana Board of Tax Review found that the use of the property was “most accurately described as educational.” The Indiana Tax Court declined to reweigh the evidentiary findings made by the Indiana Board of Tax Review.

The Assessor also argued that, even if the one acre of land upon which the building and parking lot sat was tax exempt, KC Propco failed to demonstrate that the remaining, vacant 1.607 acres was entitled to an exemption. The Tax Court held that if a building is exempt from taxation because it is owned, occupied, or used for an educational purpose, the land upon which such a building sits is also entitled to an exemption. The Tax Court held that the “entire parcel is exempt, not just the land attributable to the building’s footprint.”

The issue of whether an early childhood learning center is exempt from property taxation is clearly important to the early childhood learning center, but also the parents, as it may impact affordability, and also to the County, as such property may not generate property taxes. In KC Propco, the Tax Court held an exemption for the entire parcel upon which such an early childhood learning sits is proper when the core focus of the property is educational even if there are incidental acts of childcare.