Indiana offers several property tax exemptions, but the most common – and the most contested – is the exemption for (among other things) charitable, educational and religious purposes permitted by Indiana Code § 6-1.1-10-16. To qualify its real and/or personal property for the exemption, a taxpayer must meet a three-part test by showing that the property is owned, occupied and predominantly used to further an exempt purpose. Following are four 2013 decisions from the Indiana Board of Tax Review analyzing that question.
Non-profit’s property is not automatically exempt; meaningful evidence of its exempt use is required. Knox County Ass’n v. Knox County Assessor, Pet. No. 42-027-11-2-8-00002 (Feb. 19, 2013) (March 1, 2011 assessment). The Indiana Board held that a 501(c)(3) non-profit corporation failed to prove that its office and manufacturing space deserved a 100% exemption under Ind. Code § 6-1.1-10-16 as property predominately used for charitable purposes. (Pages 2, ¶ ¶ 1, 11.) The Board noted that the mere “grant of a federal or state income tax exemption does not entitle a taxpayer to a property tax exemption.” (Page 9, ¶ 23.) The criteria for income and property tax exemptions are different. Id. Whereas an income tax exemption focuses on how money is spent, a property tax exemption focuses on how property is used. Id. (citation omitted). “Thus, the Board must look at the use of the subject property to determine whether the property is entitled to a full exemption.” Id.
Owner provided little evidence of its chartable use of the property. Its representative testified that some people with disabilities worked there and were supervised by people without disabilities. (Pages 9-10, ¶ 25.) Owner provided little information beyond this general statement. For example, it provided no evidence of how many disabled people were employed, how much they were paid, how many found gainful employment elsewhere after learning a skill on the job, etc. (Page 10, ¶ 25.) Thus, the Board held that while the Owner “provided some evidence that it employed disabled individuals, simply employing disabled individuals does not prove charitable intent.” Id. Rather, the property owner “needed to show that it was providing services to disabled individuals ‘different from the everyday purposes and activities of man in general.’” Id. (quoting College Corner, L.P. v. Department of Local Government Finance, 840 N.E.2d 905, 908 (Ind. Tax Ct. 2006)).
Moreover, although there was a general agreement that the property was used to earn money for other charitable programs, Owner “failed to provide any meaningful evidence” of these programs. (Page 10, ¶ 26.) While “the subject property may, in fact, be used to support a comprehensive program for the benefit of disabled individuals,” Owner failed to provide evidence of the scope of its programs and services. Id.
Finally, evidence that the property had not made profits on the property for the past two years did not support application of the exemption. (Page 10, ¶ 27.) “[T]he failure to make a profit does not convert a business into a charitable institution.” Id. (quoting Cullitan v. The Cunningham Sanitarium, 16 N.E.2d 205, 207 (Ohio 1938)).
Building leased to government funded non-profit was not exempt where lessor failed to show it owned the building for an exempt purpose. Rossman & Associates, Inc. v. Lake County Assessor, Pet. Nos. 45-042-10-2-8-00001 and -2 (Jan. 29, 2013) (March 1, 2010 assessment). The issue in this case is whether the Property Owner’s office building “should be exempt from taxation . . . because it is owned, occupied, and used for charitable and educational purposes” or, alternatively, because the lessee (a 501(c)(3) organization funded by the government that provides services for developmentally challenged children up to three years of age) “is a quasi-governmental agency to which no taxes should apply.” (Pages 1-2, ¶ 1.) The Board explained that the Indiana Supreme Court addressed a similar situation in Hamilton County Property Tax Assessment Board of Appeals v. Oaken Bucket Partners, LLC, where a property owned by a for-profit owner and leased to a non-profit church was taxable because the owner failed to show that it owned the property for an exempt purpose. (Page 13, ¶ 27) (quoting Oaken Bucket, 938 N.E.2d 654, 659 (Ind. 2010)).
Owner argued that Oaken Bucket should not apply because its current lawsuit was filed before the Supreme Court issued its decision. The Board rejected this argument. The Board held that “the Supreme Court did not establish a new principle of law in the Oaken Bucket case, and therefore the precedent established by the Supreme Court in Oaken Bucket applies to all pending cases.” (Page 13, ¶ 28) (citation omitted).
Owner also contended that the Oaken Bucket decision should not apply because the case can be distinguished on two grounds. (See page 14, ¶ 29.) First, Owner asserted that, unlike in Oaken Bucket, here there was no dispute over whether the lessor charged below market rent. Id. Rather, it was clear that Owner had been charging below market rent. The Board disagreed, finding that, “[C]ontrary to the [Owner’s] argument, the evidence is not clear that [Owner’s] rent is ‘below market rates.’” Id. Second, Owner pointed out that in the current case it, as the lessor, had been paying the property taxes. This distinction only hurt Owner’s claims. (Page 15, ¶ 30.) The Board stated that “the only beneficiary of an exemption granted in this case would be the [the Owner]. And allowing [Owner] a greater profit on its lease to [the lessee] runs far afield of the purposes for which property exemptions were created.” Id.
Finally, Owner reasoned that the lessee was a quasi-governmental entity, and, as such, it should receive the same exemption as a governmental agency (a “pass through” exemption). (Page 16, ¶ 33 and 17, ¶ 35.) The Board disagreed, reasoning, “While [lessee] serves an important function, this does not entitle what is essentially an independent contractor to receive the same benefits that accrue to governmental agencies.” (Page 16, ¶ 33.) Owner “failed to cite any statute that would grant an exemption to a private entity assuming the function of operating and managing an early education program for developmentally disabled children.” (Page 16, ¶ 34.) And the Board found no law or authority granting the type of lessee in question the exemption. Id. Consequently, the Board concluded, ”[I]f the legislature had intended to make the provision of early childhood education to developmentally disabled children by a private entity through a state or federal program exempt from property taxation, it would have promulgated a statute codifying it.” (Page 17, ¶ 34.) The property was taxable. (Page 17, ¶ 35.)
Assisted living facility deemed 100% exempt as charitable use. American Eagle Sanders Glen, LLC v. Hamilton County Assessor, Petition No. 29-014-10-2-8-00001 (June 25, 2013) (March 1, 2010). American Eagle Sanders Glen LLC (American Eagle) is a not-for-profit Indiana limited liability company. American Eagle’s sole member is American Eagle LifeCare Corporation (LifeCare), which is also a 501(c)(3) not-for-profit organization. American Eagle owns an assisted living facility, Sanders Glen, which is managed by Medical Rehabilitation Centers (MRC). Sanders Glen has special amenities for residents that suit the needs of the elderly population. It “employs a full-time activities director who provides a variety of scheduled activities for the residents, coordinates volunteers to visit Sanders Glen and enables residents to continue serving as volunteers in the community.” (Page 8, ¶ 19.) No resident had been discharged for lack of funds. The Board observed, “Caring for the aged is a recognized benefit to the community at large and to society as a whole.” (Page 15, ¶ 43) (citation omitted). American Eagle met the three-pronged exemption test under Ind. Code § 6-1.1-10-16. The Board explained that Sanders Glen:
- Was owned by an Indiana non-profit organization with the purpose of operating an assisted living facility and providing health services to the elderly.
- Was occupied by residents who are “elderly and infirm or disabled and/or disadvantaged.”
- Was used as an assisted living facility.
- Charged a below market rent to its residents and will help residents find ways to stay if they can’t afford the rent (and has never evicted a resident for his or her inability to pay).
- Offered daily activities to keep the residents engaged.
- Had “donated” part of its own property to the City of Westfield to encourage more citizens to interact with the elderly residents.
- Used common areas and activities and longstanding relationships with outside organizations to foster the “sense of community and involvement.”
- Had its profits, if any, “go to the furtherance of [American Eagle's] mission.”
(Page 15, ¶ 44.) That the Board of Directors and President were paid a salary or that residents were charged for amenities failed to show that Sanders Glen’s operation was driven by a profit motive. (Pages 16-17, ¶¶ 47-49.) Most non-profits pay such salaries, and “a non-profit entity is entitled to recoup costs” of providing services. Id. And Sanders Glen was doing more than providing seniors with social and leisure activities: it provided “a safe living environment for the elderly population that fosters a sense of community and involvement, which the Tax Court has deemed a charitable activity.” (Page 18, ¶ 50.) Finally, the Board contrasted the decision in Oaken Bucket, explaining the facts in that case “involved renting business space and not the renting of apartment units for elderly individuals to reside in.” (Page 18, ¶ 51.)
The property was 100% exempt because the “evidence in this case shows that [American Eagle] owns, occupies and uses the property to provide housing and care for the elderly.” (Page 18, ¶¶ 53.) But the Board emphasized that it was “not ruling that every single assisted living facility is entitled to a charitable exemption.” (Page 18, ¶ 52.) “The Board continues to recognize the long standing principle that each exemption application must be examined on its own facts, as it was in this case.” Id.
Assessor’s standing argument fails, but Board denies exemption due to lack of “meat on the bones” regarding exempt use of property. International Free and Accepted Modern Masons and Order of Eastern Stars, Inc. v. Allen County Assessor, Petition No. 02-074-10-2-8-00004 (July 31, 2013) (March 1, 2010 assessment). Petitioner (Order) described itself as a “religious fraternal order” operating “under the guidance of the International Masons.” (Page 3, ¶ 18.) The Order sought exemptions for its lodge and personal property. However, its witness provided inconsistent information about how the Order used the property, saying that it was both solely used for the Order’s operations and “from time to time” was used for social gatherings. (Page 4, ¶ 10.) The Assessor argued that an exemption was improper because the Order (a) lacked standing to appeal since it wasn’t incorporated until two months following the 2010 assessment date and (b) failed to show the property was predominantly used to further an exempt purpose.
The Board quickly rejected the standing argument, see Page 5, ¶ 14, reasoning:
Whether the [Order] existed as a legal entity at the time of the assessment . . . is beside the point. It exists now and owns the property. And there is nothing to suggest that anyone other than the [Order] would be responsible for paying the taxes on the subject property should we determine that the property is taxable.
The Order, however, fell short in its efforts to prove an exempt use of the property. The Board explained that “there are no bright-line tests” in determining exemption appeals and that every appeal “stands on its own facts and, ultimately, how the parties present those facts.” (Page 6, ¶ 16) (citations and internal quotations, punctuation omitted). The Order “offered little meat on the bones of its case.” (Page 6, ¶ 17.) Describing the organization as a “religious brotherhood” was not enough. Id. The Order had to prove that the property was “predominantly used for religious or charitable purposes.” (Page 6, ¶ 18.) The little evidence presented as to the property’s use was ambiguous. Id. While the witness indicated that the Order didn’t charge for social events, “that fact does not automatically make the gatherings charitable.” (Page 7, ¶ 19) And the Order offered no evidence, such as a log, regarding how much time its property was used for social gatherings. Id. Vague testimony alone couldn’t support application of the exemption. But “[h]ad the [Order] more fully developed the facts, [the Board] might have reached a different conclusion.” (Page 7, ¶ 20.)
Nick Alford, a summer associate at Faegre Baker Daniels working in our Indianapolis office, co-authored this post. Nick will be starting his third year of law school at the Maurer School of Law in Bloomington, Indiana, this fall.