Case Name: 2350 Morse, L.L.C., Appellant, v. Testa, Tax Commr., et al., Appellees
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 2017-09-26
Citations: 151 Ohio St. 3d 261
Docket Number: No. 2015-0342
Parties: 2350 Morse, L.L.C., Appellant, v. Testa, Tax Commr., et al., Appellees.
Judges: O’Donnell, Kennedy, Fischer, and Dewine, JJ., concur.
Reporter: Ohio State Reports, Third Service
Volume: 151
Pages: 261–265

Head Matter:
2350 Morse, L.L.C., Appellant, v. Testa, Tax Commr., et al., Appellees.
2017-Ohio-7800.]
(No. 2015-0342
Submitted February 28, 2017
Decided September 26, 2017.)

Opinion:
Per Curiam.
{¶ 1} 2350 Morse, L.L.C., appeals the decision of the Board of Tax Appeals affirming the tax commissioner's denial of its application for tax exemption of real property leased to a community school. The Board of Tax Appeals ("BTA") rejected 2350 Morse's claim that it was entitled to either the public-schoolhouse exemption codified at former R.C. 5709.07(A)(1), 2005 Am.Sub.H.B. No. 66, 151 Ohio Laws, Part II, 2868, and Part III, 4397, or the expanded charitable-or-public-use exemption under R.C. 5709.12, as clarified in R.C. 5709.121.
{¶ 2} This appeal presents the same overall corporate structure and the same claims for exemption as those at issue in 250 Shoup Mill, L.L.C. v. Testa, 147 Ohio St.3d 98, 2016-Ohio-5012, 60 N.E.3d 1254, and Breeze, Inc. v. Testa, — Ohio St.3d -, 2017-Ohio-7801, — N.E.3d —. In all three cases, the BTA found a "view to profit" in the leasing arrangement that defeated the claims for exemption. In Shoup Mill, we determined that the record supported that finding and affirmed. Id. at ¶ 4. In Breeze, announced this day, we vacated the decision of the BTA and remanded for further proceedings. Id. at ¶ 1. In the present appeal, we hold that the BTA unreasonably ignored evidence of 2350 Morse's intent in leasing the property. The only reasonable conclusion based on the evidence is that there was no view to profit. We therefore reverse the decision of the BTA.
Factual Background
{¶ 3} 2350 Morse is part of the arrangement of community schools and related entities that we described more fully in Breeze. Id. at ¶ 2. As part of this arrangement, 2350 Morse holds title to property used by a community school referred to as Horizon Science Academy-Columbus Middle School ("Horizon Middle School"). The property is made up of several contiguous parcels that are located in the Columbus City School District and in the Westerville City School District. 2350 Morse collects the rent, with which it pays the mortgage for the property. Surplus rental income is passed to New Plan Learning, Inc. ("New Plan"), a nonprofit corporation at the head of the arrangement, for use in support of all the affiliated community schools. In this case, according to New Plan's financial statements, the monthly mortgage payment for the property was $26,002. The record also shows that Horizon Middle School paid $30,000 a month in rent—an amount set at the lender's insistence that rental income be 15 percent greater than the loan-payment amount.
{¶ 4} 2350 Morse sought an exemption for the property for tax year 2010 under both R.C. 5709.07 and 5709.121. The tax commissioner's final determination, however, addressed only R.C. 5709.07. As in Breeze, the tax commissioner determined that because 2350 Morse had collected "substantial market-rate rent," the property had been leased "with a view to profit" for purposes of former R.C. 5709.07(A)(1). Thus, 2350 Morse was not entitled to an exemption. 2350 Morse appealed to the BTA, which affirmed the denial of the exemption.
The Statutory Provisions
{¶ 5} Former R.C. 5709.07(A)(1) provided a tax exemption for "[p]ublic schoolhouses, the books and furniture in them, and the ground attached to them necessary for the proper occupancy, use, and enjoyment of the schoolhouses, and not leased or otherwise used with a view to profit." 151 Ohio Laws, Part III, at 4397. Under R.C. 5709.12(B), property "used exclusively for charitable purposes" is exempt from taxation. And R.C. 5709.121(A)(2) provides that real property "belonging to a charitable or educational institution shall be considered as used exclusively for charitable or public purposes by such institution," if the property "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." "[T]he key inquiry in determining whether property is leased with a view to profit focuses on the aim or intention of the lessor." Breeze, — Ohio St.3d -, 2017-Ohio-7801, — N.E.3d -, at ¶ 8.
Analysis
{¶ 6} 2350 Morse contends that it did not intend to generate a profit from the lease. Murat Arabaci, New Plan's president and chief financial officer, explained that the amount of rent charged to Horizon Middle School was dictated by the lender. According to Arabaci, a lender normally would require a 20 to 25 percent "cushion" of rental income over expenses, but New Plan was able to negotiate that cushion to 15 percent. The goal, Arabaci maintained, was to minimize the rent paid by the school. In fact, New Plan had a practice of deferring or writing off the rental-payment amount when a school encountered budgetary problems and was unable to pay.
{¶ 7} As in Breeze, this evidence was virtually ignored. As it did in that case, the BTA concluded that 2350 Morse's lease had been done with a view to profit because there was an "excess of rental income over expenses" that was distributed to all the schools in the arrangement. BTA Nos. 2012-1934 and 2012-2214, 2015 WL 731779, *2 (Jan. 28, 2015). But as we explained in Breeze, although the fact that rental income exceeds expenses may be relevant in determining whether property was leased with a view to profit, the "overriding focus—as prescribed by the language of the statutes—must be on the intent of the lessor." Breeze at ¶ 13. The BTA's singular focus on the excess of rental income to the exclusion of 2350 Morse's undisputed evidence about the intent behind the lease was unreasonable. We therefore reverse its decision. See R.C. 5717.04.
{¶ 8} In Breeze, we remanded the case and instructed the BTA to focus on the lessor's intent under the lease. Breeze at ¶ 16. Here, a remand is not necessary: No reasonable reading of the record could support a finding that 2350 Morse leased the property with a view to profit. The only fact relied upon by the BTA— the modest excess of rental income over expenses—resulted not from an intent to profit from the lease but from compliance with a precondition set by the lender. 2350 Morse's evidence that it did not intend to profit was uncontradicted.
Conclusion
{¶ 9} For the foregoing reasons, we reverse the decision of the BTA and order that the exemption be granted in accordance with this opinion.
Decision reversed.
O'Donnell, Kennedy, Fischer, and Dewine, JJ., concur.
O'Connor, C.J., concurs in judgment only, with an opinion.
French, J., concurs in judgment only.
O'Neill, J., dissents, with an opinion.
. 2350 Morse indicated that it was seeking an exemption under R.C. 5709.121, but that statute simply provides definitions for the phrase "used exclusively for charitable or public purposes." The actual source of the eharitable-or-public-use exemption is R.C. 5709.12.