When it comes to claiming a property tax exemption based on
charitable use, merely owning the property in a 501(c)(3) nonprofit corporation
is not sufficient to succeed. On July
27, 2016, the Ohio Supreme Court issued its decision in Innkeeper
Ministries, Inc. v. Testa, Slip Opinion No. 2016-Ohio-5104, in which it
sided with the tax commissioner in denying Innkeeper Ministries, Inc. (Innkeeper)
its tax exemption.
Innkeeper owns real property (over 71 acres) that includes
two residential buildings and other recreational amenities, such as a swimming
pool, basketball court, fishing ponds and a prayer walk through wooded property.
Its stated mission is to provide a spiritual retreat for pastors, other church
leaders and missionaries along with their spouses, which includes free meals
and use of the amenities on the site. A couple
resides on the property, and act as caretakers.
While the caretakers advertise the services available at the
property they had not succeeded in filling the rooms at any given time.
Testimonials were provided on the mission of the organization and its use of
the property, but no concrete evidence. What was missing from the record were
financial information or documentation on the number of people served.
Innkeeper had applied for and was denied its property tax
exemption by the tax commissioner. The Board of Tax Appeals overruled the tax
commissioner, finding that Innkeeper’s “year round use of the subject property,
in providing g a place of respite for the physical and spiritual renewal of Christian
leaders, without charge [is] sufficiently charitable in nature to fall with the
definition of charity set forth in Planned Parenthood [5 Ohio St.2d 117, 214
N.E.2d 222].” The BTA concluded that
Innkeeper used its property “in furtherance of or incidental to its charitable …purposes
and not with the view to profit” within the meaning of R.C. 5709.121(A)(2).
Ohio law provides a specific tax exemption for church
retreats but Innkeeper’s property does not qualify. It is not owned by a church
and is subject to substantial residential use by the caretakers. R.C. 5709.121, which contains an expanded
definition of “exclusive charitable use”, residential use doesn’t defeat the
exemption so long as such use is purely incidental to the charitable purposes
of the property owner. However, the underlying issue is what the property owner
qualifies as a “charitable institution” under that statute. In the instant
case, this would require Innkeeper to show that its use of the property at
issue, which is its only activity, can qualify as charitable.
The Ohio Supreme Court found that given the residential use
of Innkeeper’s property, the BTA erred in not also requiring proof of the primacy
of Innkeeper’s charitable hospitality. It held that Innkeeper had the burden of proof
to demonstrate that the hospitality it extended to others was primary over the
personal, familial and residential use it made of the property. While the
property was owned by a 501(c)(3) entity, the caretakers controlled that entity.
As the court pointed out, “…the accommodation of guests at no cost in a
spacious residence cannot by itself turn the residence into a charity.”
While Innkeeper provided some evidence that it advertised
for guests in accordance with its mission, as stated earlier, it did not
provide any other documentation. Useful documentation, which one would expect
from any 501(c)(3), would have included how many responded to the
advertisement, how many stayed at the property each year, how many were turned
down, etc.
As evidenced by the court’s decision against Innkeeper, the
use of a property by a 501(c)(3) entity as a residence without quantitative
evidence of its use in connection with its stated charitable mission defeats a
claim for property tax exemption in Ohio.
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