Title: Northeast Ohio Psych. Inst. v. Levin

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Northeast Ohio Psych. Inst. v. Levin, 121 Ohio St.3d 292, 2009-Ohio-583.] 
 
 
NORTHEAST OHIO PSYCHIATRIC INSTITUTE, APPELLANT, v. LEVIN,  
TAX COMMR., APPELLEE. 
[Cite as Northeast Ohio Psych. Inst. v. Levin, 
 121 Ohio St.3d 292, 2009-Ohio-583.] 
Real property taxation — Charitable-use exemption — Board of tax appeals acted 
reasonably and lawfully — Decision affirmed. 
(No. 2008-0033 — November 19, 2008 — Decided February 17, 2009.) 
APPEAL from the Board of Tax Appeals, No. 2005-Z-1683. 
__________________ 
CUPP, J. 
{¶1} 
Appellant, Northeast Ohio Psychiatric Institute (“Northeast”), 
seeks to exempt 68 percent of a building and its grounds from real property 
taxation through a “split listing” pursuant to R.C. 5713.04 for tax year 2003.  The 
portion of the building and grounds that is the subject of the exemption was leased 
to and used by another entity, Portage Path Behavioral Health, which operates the 
Portage Path Community Health Center (“Portage Path”) at the site.  Portage Path 
provides behavioral health services to the general public pursuant to a provider 
agreement with the Summit County Alcohol, Drug Addition, and Mental Health 
(“ADAMH”) Board. 
{¶2} 
Exemption is sought for charitable use pursuant to R.C. 
5709.12(B) and 5709.121 by virtue of the behavioral health services provided by 
Portage Path at the site.  The Tax Commissioner and the Board of Tax Appeals 
(“BTA”) denied exemption, ruling that Northeast cannot rely for an exemption on 
the charitable activities of Portage Path, because Northeast itself does not qualify 
as a “charitable institution” under R.C. 5709.121. 
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{¶3} 
On appeal to this court, Northeast renews its argument that four 
factors justify exempt status for the property:  (1) Northeast’s own status as a 
qualifying entity under Section 501(c)(3) of the Internal Revenue Code; (2) 
Northeast’s affiliation with Portage Path; (3) Portage Path’s activities on the 
subject premises; and (4) Portage Path’s ultimate enjoyment and use of any 
income generated by Northeast’s activities.  According to Northeast, these factors 
establish that Northeast qualifies as a “charitable institution” under R.C. 5709.121 
and that, as a result, Northeast may rely on the lessee’s own charitable activities to 
claim exemption for the premises.  R.C. 5709.121(A)(1)(b).  We disagree, and we 
therefore affirm. 
Facts 
{¶4} 
Northeast’s articles of incorporation establish the entity’s nature as 
a nonprofit corporation organized to “carry out the purposes of any organization 
described in sections 501(c)(3) and 509(a)(1) or (2) of the Internal Revenue Code, 
as it now exists or is hereafter amended.”  More specifically, the corporate 
regulations set forth the purpose of Northeast:  to “operate in connection with and 
carry out the exempt purpose of Portage Path Community Mental Health Center.”  
Its purpose includes “promot[ing] mental health by meeting a community need to 
concentrate the mental health resources of the region in order to increase and 
improve the diagnosis and treatment of emotional illness.”  Additional stated 
purposes include the training of mental health professions and research on mental 
illness.  The articles and regulations contain typical provisions prohibiting private 
inurement of corporate assets. 
{¶5} 
Portage Path furnishes behavioral health services to the public 
pursuant to a provider agreement with the Summit County ADAMH board.  The 
agreement allows Portage Path to obtain reimbursement for services if it abides by 
various covenants.  Among other things, the agreement states, “No person in need 
of service, who is otherwise eligible, shall be denied services based on that 
January Term, 2009 
3 
person’s inability to pay for necessary services providing the agency adheres to 
the guidelines for the ‘Ability to Pay Scale.’ ” 
{¶6} 
Organizationally, a majority of the 15 trustees who govern 
Northeast must be on the board of Portage Path.  According to Jerome Kraker, the 
president of both Northeast and Portage Path, who testified at the BTA hearing, 
Northeast and its board of trustees “exist to support Portage Path and mental 
health operations in Ohio.” 
{¶7} 
Kraker offered testimony in support of the charitable status of 
Portage Path, testifying among other things that “Portage Path provides 
behavioral health psychiatric services to the residents of Summit County who 
otherwise would not be able to afford such services.”  Those services include a 
24-hour, seven-day-a-week emergency service, a “24-7” suicide hotline, and a 
partial hospitalization program.  Patients do not pay the cost of care entirely out of 
pocket; Portage Path uses a sliding scale of fees based on financial-need criteria, 
with Summit County reimbursing most, but not all, unpaid costs.  Another 35 
percent of patients are covered by Medicare or Medicaid. 
{¶8} 
With respect to the use of the 5,700 square-foot building at issue, 
Kraker testified that as of 2003, some 68 percent of the space was used by Portage 
Path.  Nine hundred eighty square feet were leased to a physician for his office, 
and another 582 square feet were leased to Lab Care, which performs much of its 
lab work for Portage Path patients by referral.  The Tax Commissioner’s 
determination characterizes Lab Care as for profit. 
{¶9} 
As for rent, Portage Path was obligated to pay $5,500 per month, 
but in practice, Northeast would discount the rent to make sure Portage Path was 
not paying more than 68 percent of the cost of operating the building.  In 2003, 
the private physician paid $17,425, and Lab Care paid $11,000.  Those amounts 
were not subject to being discounted, and to the extent they exceeded building 
cost, the surplus would “benefit Portage Path Behavioral Health.”  Notably, 
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Portage Path’s rent was not discounted so that the total rent proceeds from all 
tenants would equal the building costs – in other words, Northeast retained any 
surplus generated by the sum of Portage Path’s paying its costs and of the other 
tenants paying fixed amounts.  Indeed, the financial statements for 2002 and 2003 
showed that rent revenue exceeded building-associated costs for both years. 
{¶10} In addition to owning and leasing property, Northeast engaged as 
of the tax-lien date in providing psychiatric-staffing services, albeit from a 
different location.  Those services supplied revenues of $932,446 for 2003 and 
$616,096 for 2002, offset by related expenses of $809,833 and $566,041 
respectively.  On cross-examination, Kraker admitted that furnishing psychiatric-
staffing service and leasing property constituted “primary operations” of 
Northeast at the relevant time.  During the two years, expenses exceeded revenues 
by virtue of a “Lifescapes” program, an off-site mental health clinic operated by 
Northeast.  No testimony was offered on direct examination concerning the 
Lifescapes program. 
Analysis 
Northeast does not qualify as a charitable institution. 
{¶11} The central issue we confront is whether a nonprofit entity 
constitutes a “charitable institution” under R.C. 5709.121 when it (1) enjoys 
Section 501(c)(3) status under the Internal Revenue Code and (2) is organized to 
hold and lease real property for use by another charitable institution.  That 
question is crucial because the court has long held that under the general 
exemption for “exclusive charitable use” of property set forth at R.C. 5709.12(B), 
it is the owner’s use of the property, not a lessee’s use, that determines whether 
the property should be exempted.  See First Baptist Church of Milford v. Wilkins, 
110 Ohio St.3d 496, 2006-Ohio-4966, 854 N.E.2d 494, ¶ 12-13, citing Lincoln 
Mem. Hosp., Inc. v. Warren (1968), 13 Ohio St.2d 109, 110, 42 O.O.2d 327, 235 
N.E.2d 129.  Under that principle, the property at issue plainly would not qualify 
January Term, 2009 
5 
for exemption, because Northeast is using that property for leasing, not for 
providing mental health care. 
{¶12} As a result Northeast must qualify, if at all, under R.C. 5709.121.  
That provision expanded the charitable-use exemption to encompass (among 
other situations) the situation in which an entity that qualifies as a “charitable 
institution” itself leases property to another charitable institution for charitable 
purposes.  R.C. 5709.121(A)(1)(b).1  See First Baptist Church, 110 Ohio St.3d 
496, 2006-Ohio-4966, 854 N.E.2d 494, ¶ 15, 16; Community Health 
Professionals, Inc. v. Levin, 113 Ohio St.3d 432, 2007-Ohio-2336, 866 N.E.2d 
478, ¶ 17, 18. 
{¶13} Logically, the first among Northeast’s arguments is the contention 
that because Northeast has a federal certification as a 501(c)(3) organization, it 
should enjoy a legally conclusive presumption that it qualifies as a charitable 
institution under R.C. 5709.121, so long as it complies with its articles and 
bylaws.  We do not consider this contention, because it is jurisdictionally barred.  
Northeast did not specify the failure to apply such a presumption as an error, 
either in its notice of appeal to the BTA or in its notice of appeal to the court.  
That omission is striking in light of the Tax Commissioner’s explicit statement 
that “[a]lthough organized as an IRC 501(c)(3) corporation there is no evidence in 
the record that shows that the applicant is a charitable entity.”  By not asserting as 
error the failure by the commissioner and the BTA to apply a presumption based 
on 501(c)(3) status, Northeast failed to create jurisdiction to obtain relief on that 
ground.  See Satullo v. Wilkins, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 
954, ¶ 23, 24; Dayton-Montgomery Cty. Port Auth. v. Montgomery Cty. Bd. of 
Revision, 113 Ohio St.3d 281, 2007-Ohio-1948, 865 N.E.2d 22, ¶  32. 
                                                 
1.  2005 Am.Sub.H.B. No. 66 amended R.C. 5709.121(A)(1)(b).  As of 2003, the tax year at issue, 
this provision was codified at R.C. 5709.121(A)(2).  149 Ohio Laws, Part IV, 6465, 6596. 
SUPREME COURT OF OHIO 
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{¶14} Next, we address Northeast’s contention that the totality of 
evidence in the record established its status as a “charitable institution” as a 
matter of law.  In this regard, the most significant precedent is our decision in 
OCLC Online Computer Library Ctr., Inc. v. Kinney (1984), 11 Ohio St.3d 198, 
11 OBR 509, 464 N.E.2d 572.  In that case, we stated that the status of an 
institution as “charitable” under R.C. 5709.121 depends upon the “charitable 
activities of the taxpayer seeking the exemption,” not the “charitable nature of the 
institutional customers.”  Id. at 201.  A clear corollary of that principle applies in 
this case, namely, an entity that leases property to another must establish its 
charitable status based on the range of its own activities and may not rely upon the 
activities of a particular lessee. 
{¶15} In this case, the BTA reasonably and lawfully concluded that 
Northeast’s own activities did not qualify it as a charitable institution for purposes 
of R.C. 5709.121.  Northeast generates substantial revenue through leasing and 
through providing psychiatric-staffing services.  Although Northeast ties Portage 
Path’s rent to that entity’s share of building maintenance costs, other tenants pay 
without regard to cost, including a for-profit physician’s office and a laboratory 
services provider.  Additionally, in 2003, Northeast operated an off-site mental 
health clinic, but no evidence was presented as to whether that clinic operated on 
a charitable basis. 
{¶16} Northeast argues that its income-producing activities actually 
redound to the advantage of the charitable activities of Portage Path, which 
derives the ultimate economic benefit on account of its control of Northeast.  It is 
true that Northeast operates on a nonprofit basis, and there is no evidence of 
private inurement of its earnings.  But that fact alone does not establish charitable 
status.  To be sure, we have held that charitable activities may generate incidental 
revenue and still qualify as charitable.  Community Health Professionals, Inc. v. 
Levin, 113 Ohio St.3d 432, 2007-Ohio-2336, 866 N.E.2d 478, ¶ 23; Girl Scouts-
January Term, 2009 
7 
Great Trail Council v. Levin, 113 Ohio St.3d 24, 2007-Ohio-972, 862 N.E.2d 493, 
¶ 17.  But that does not mean, as Northeast appears to suggest, that all income-
producing activities will qualify as charitable merely because their proceeds are 
applied to charitable purposes. 
{¶17} In this regard, Northeast’s reliance on Akron Golf Charities, Inc. v. 
Limbach (1987), 34 Ohio St.3d 11, 516 N.E.2d 222, is misplaced.  The entity in 
that case existed in order to organize an annual golf outing that raised money for 
local charities.  By contrast, Northeast engages in the ongoing business activities 
of leasing and providing staffing services – activities that generate substantial 
revenue and that have not been found in other cases to be charitable in character.  
See Hubbard Press v. Tracy (1993), 67 Ohio St.3d 564, 566, 621 N.E.2d 396 
(printing envelopes for use by churches not in itself a charitable activity). 
{¶18} The present case resembles OCLC.  In that case, OCLC engaged in 
“the business of providing a computerized library network, the storing of library 
related bibliographical catalog data, and the selling or licensing the use of 
equipment necessary to gain access to such stored data or to communicate with 
member organizations having a contractual relationship to OCLC.”  OCLC Online 
Computer Library Ctr., Inc. v. Kinney (Oct. 11, 1983), BTA No. 81-D-602.  As 
the BTA explained in OCLC, such continuous business activity is not charitable 
inasmuch as “[t]here are many data processing corporations providing data 
storage capabilities for the benefit of its users.”  Id.  We affirmed the decision of 
the BTA in OCLC, 11 Ohio St.3d 198, 11 OBR 509, 464 N.E.2d 572.  It is OCLC, 
not Akron Golf Charities, that applies to the facts of the present case. 
{¶19} Northeast also seeks support from our decision in Community 
Health Professionals, Inc. v. Levin, 113 Ohio St.3d 432, 2007-Ohio-2336, 866 
N.E.2d 478, but that case is inapposite.  In that case, the property owner, 
Community Health Professionals, did lease portions of the property to affiliated 
charitable institutions, but that activity was incidental to its main purpose:  it 
SUPREME COURT OF OHIO 
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“provide[d] skilled, in-home nursing care and hospice services to those in the 
community who have approval and a care plan from a physician.”  Id. at ¶ 3.  By 
contrast, none of the services that Northeast provides has been shown to be 
charitable in character. 
{¶20} The BTA reasonably and lawfully found that Northeast’s activities 
were not charitable and properly concluded that Northeast was not entitled to an 
exemption under R.C. 5709.121. 
Portage Path’s status as a charity is not before the court. 
{¶21} Under R.C. 5709.121(A)(1)(b), both the lessor and the lessee of 
real property must be charitable institutions.  In his final determination, the 
commissioner found no evidence that Portage Path qualified as a charitable 
institution.  At the BTA, Northeast presented evidence that Portage Path (1) 
provided its care pursuant to an ADAMH-board provider agreement, (2) did so on 
a sliding-scale basis, and (3) did so without regard to ability to pay.  The BTA 
found that “Portage Path is a charitable entity.” 
{¶22} The Tax Commissioner contends, as an alternative ground for 
affirmance, that the BTA lacked a factual record to support this finding.  Because 
we affirm the BTA’s determination that Northeast is not a charitable institution, 
and because that determination disposes of Northeast’s exemption claim, we need 
not address the question whether the BTA correctly found that Portage Path itself 
qualifies as a charitable institution. 
{¶23} We do note, however, that the commissioner’s contention is 
jurisdictionally barred.  In order to contest the finding, the Tax Commissioner 
needed to file a protective cross-appeal and assign the finding as an error of the 
BTA.  Polaris Amphitheater Concerts, Inc. v. Delaware Cty. Bd. of Revision, 118 
Ohio St.3d 330, 2008-Ohio-2454, 889 N.E.2d 103, ¶ 13-15.  As Polaris explains, 
“Our cases do not permit us to rectify an alleged error of the BTA unless that 
error was set forth in a proper notice of appeal, even if the alleged error aggrieved 
January Term, 2009 
9 
the party only because of the success of another party’s appeal.”  Id. at ¶ 14.  
Because the commissioner did not file a protective cross-appeal, the court has no 
jurisdiction to grant him relief on that finding. 
Conclusion 
{¶24} For all the foregoing reasons, the BTA acted reasonably and 
lawfully when it affirmed the commissioner’s denial of Northeast’s exemption 
application.  We therefore affirm the BTA’s decision. 
Decision affirmed. 
 
MOYER, C.J., and PFEIFER, O’CONNOR, O’DONNELL, and LANZINGER, JJ., 
concur. 
 
LUNDBERG STRATTON, J., dissents. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting. 
{¶25} I believe that the portion of the property leased by the Northeast 
Psychiatric Institute (“Northeast”) to Portage Path Community Health Center 
(“Portage Path”) is exempt from taxation under R.C. 5709.12.  As a result, I 
respectfully dissent. 
{¶26} Property is exempt from taxation under R.C. 5709.12 if it belongs 
to an institution, charitable or otherwise, and it is used by that institution 
exclusively for a charitable purpose.  True Christianity Evangelism v. Zaino 
(2001), 91 Ohio St.3d 117, 118, 742 N.E.2d 638.  R.C. 5709.121(A)(2) provides 
that the phrase “used exclusively for charitable purposes” within R.C. 5709.12(B) 
includes property “belonging to a charitable * * * institution” that “is made 
available under the direction or control of such institution * * * for use in 
furtherance of or incidental to its charitable, educational, or public purposes and 
not with the view to profit.” (Emphasis added.) 
{¶27} The majority holds that the property in question is not exempt from 
taxation under R.C. 5709.12(B) as “property belonging to institutions that is used 
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exclusively for charitable purposes” or, under R.C. 5709.121(A), as “property 
belonging to a charitable or educational institution” that “is made available under 
the direction and control of such institution * * * for use in furtherance of or 
incidental to its charitable, educational or public purposes and not with the view 
to a profit.”  In the first instance, the majority holds that Northeast “is using the 
property for leasing, not for providing mental health care.”  In the second 
instance, the majority holds that Northeast is not a charitable institution, and 
therefore it cannot rely on the definition in R.C. 5709.121, which applies to only 
charitable institutions. 
{¶28} I would hold that the property in question is exempt from taxation 
under R.C. 5709.12 because it belongs in fact to Portage Path, which is a 
charitable institution, and it is used by Portage Path exclusively for a charitable 
purpose. 
{¶29} R.C. Chapter 340 of the Ohio Revised Code created Alcohol, Drug 
Addiction, and Mental Health (“ADAMH”) districts in Ohio to provide 
community-based mental-health care.  R.C. 340.02.  Each district contains an 
ADAMH board.  Id.  ADAMH boards are required to hire service providers to 
administer mental-health-care services.  R.C. 340.03(A)(8)(a). 
{¶30} In Summit County, the ADAMH board contracted with Portage 
Path to provide “behavioral health psychiatric services” to persons irrespective of 
whether they are able to pay for such care.  Jerome T. Kraker, president of both 
Northeast and Portage Path, testified that the board of trustees determined that it 
would be financially advantageous for Portage Path to own its own treatment 
facility.  However, Kraker testified that Portage Path’s contract with ADAMH did 
not provide Portage Path with authority to purchase property.  Thus, Portage Path 
created Northeast to acquire and hold property, which it leased back to Portage 
Path.  Northeast is nothing more than a mechanism used to acquire property for 
Portage Path. 
January Term, 2009 
11 
{¶31} Northeast’s organizational documentation requires a majority of its 
board of trustees to be members of Portage Path’s board of trustees.  In fact, all of 
Northeast’s trustees are trustees of Portage Path.  Portage Path and Northeast also 
share the same president.  Thus, Portage Path controls the actions of the Institute. 
{¶32} This evidence indicates that Northeast is merely an instrument 
created and controlled exclusively by Portage Path and used by Portage Path 
primarily to secure property for its treatment center.  This structure is similar to 
that in First Baptist Church of Milford v. Wilkins, 110 Ohio St.3d 496, 2006-
Ohio-4966, 854 N.E.2d 494, in which a church sought a tax exemption for its 
print shop, which was used by a nonprofit corporation called Bearing Precious 
Seed-Milford, Inc. (“BPS”) to print Bibles.  BPS and the church shared the same 
trustees, and testimony indicated that BPS was part of the church.  Id. at ¶ 28 
(Lundberg Stratton, J., dissenting).  In my dissent, I concluded that the nonprofit 
corporation was nothing more than an alter ego of the church, and therefore in 
determining whether the property was exempt from taxation, we should conclude 
that the church itself was the user of the print shop.  Id. 
{¶33} Applying that logic in the instant case, I would hold that for 
purposes of R.C. 5709.12, the property in question in fact belongs to Portage Path, 
not Northeast.  Thus, I believe that the first element required for an exemption 
under R.C. 5709.12 is satisfied because the property in question effectively 
belongs to Portage Path, which is a charitable institution, as determined by the 
BTA below. 
{¶34} In order to be exempt from taxation, R.C. 5709.12 also requires 
that the property in question be “used exclusively for charitable purposes.”  
Pursuant to the “split listing” application for exemption, the only property sought 
to be exempted was the property used by Portage Path for its treatment center.  
Portage Path uses the property as a treatment center to provide mental-health-care 
SUPREME COURT OF OHIO 
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services to those who could otherwise not afford such treatment.  The BTA below 
held that these services were charitable in nature as a matter of law. 
{¶35} Therefore, I would find that the property in question belongs to a 
charitable institution, Portage Path, and that it is used by Portage Path exclusively 
for the charitable purpose of providing mental-health treatment for those who 
could not otherwise afford such treatment.  Accordingly, I would hold that that 
this property is exempt from taxation under R.C. 5709.12. 
{¶36} To hold otherwise would place form over substance and deprive 
organizations of tax exemptions that are justified by work that is clearly 
charitable.  As Northeast states in its brief, “Corporate structure should not 
obscure charitable purpose, nor create anomalies in exemptions.”  Funding for 
social services such as mental-health care for the underprivileged is scarce enough 
and is increasingly being cut during these tough economic times.  Permitting the 
taxation of the property herein further deprives a charitable-care provider of 
funding to continue treatment, much of which is provided by the state through the 
ADAMH board in the first place.  Peter is being robbed to pay Paul instead. 
{¶37} Where the BTA has denied a tax exemption that is not consistent 
with legislative intent, the General Assembly has acted to correct such decisions.  
For example, in Columbus Bd. of Edn. v. Limbach (June 26, 1992), BTA No. 86-
H-566, 1992 WL 153126, * 14, the BTA denied a property-tax exemption to the 
American Chemical Society, a nonprofit professional association.  In 1993, the 
General Assembly amended R.C. 5709.12 to establish that associations like those 
in Limbach were “conclusively presumed” to be charitable or educational 
institutions.  See 144 Ohio Laws, Part IV, 6487, 6491.  Similarly, if the majority 
has misconstrued the General Assembly’s intent in denying a tax exemption in the 
instant case, a legislative fix may be needed here as well.  Therefore, I 
respectfully dissent. 
__________________ 
January Term, 2009 
13 
 
Vorys, Sater, Seymour & Pease, L.L.P., and Mary C. Henkel, for 
appellant. 
 
Richard Cordray, Attorney General, Sheryl Creed Maxfield, First 
Assistant Attorney General, and Damion M. Clifford, Assistant Attorney General, 
for appellee. 
 
Vorys, Sater, Seymour & Pease, L.L.P., John J. Kulewicz, and Michael J. 
Hendershot, urging reversal for amicus curiae Ohio Council of Behavioral 
Healthcare Providers. 
 
Brindza, McIntyre & Seed, L.L.P, David H. Seed, and Daniel McIntyre, 
urging affirmance for amici curiae Ohio School Boards Association, Ohio 
Association of School Business Officials, and Buckeye Association of School 
Administrators. 
______________________