Hamilton County Assessor v. SPD Realty, LLC
2014 WL 2191062, 2014 Ind. Tax LEXIS 22, 9 N.E.3d 773 (2014)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
For a property to receive a charitable purposes tax exemption when ownership and occupancy are divided, both the owning and occupying entities must serve a charitable purpose. A for-profit owner can be found to have a charitable purpose if it was created solely to support a related charitable entity and does not operate with a commercial profit motive.
Facts:
- In May 2008, several individuals formed New Life Generation, Inc., a non-profit public benefit corporation, to procure and provide transplantable human tissue.
- After New Life Generation had difficulty finding a suitable rental space for its tissue bank operations, its owners decided to purchase a property.
- On October 15, 2008, the same owners formed SPD Realty, LLC, a for-profit company, for the sole purpose of acquiring a property for New Life's use.
- Shortly after its formation, SPD Realty purchased a 9,500 square foot office building and leased a majority of it to New Life for a 10-year term.
- The lease required New Life to use the space exclusively as a tissue bank and to pay rent equivalent to SPD's entire mortgage, property taxes, and all operating and build-out expenses.
- SPD Realty did not enforce annual rental increases provided for in the lease and its owners paid a property tax installment from personal funds when neither entity could cover the liability.
Procedural Posture:
- SPD Realty, LLC filed an Application for Property Tax Exemption with the Hamilton County Property Tax Assessment Board of Appeals (PTABOA).
- On August 6, 2009, the PTABOA denied SPD's application.
- SPD Realty, LLC appealed the denial to the Indiana Board of Tax Review.
- Following an administrative hearing, the Indiana Board of Tax Review issued a final determination on March 11, 2011, granting the exemption.
- The Hamilton County Assessor (appellant) initiated an original tax appeal of the Indiana Board's decision to the Indiana Tax Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a property owned by a for-profit limited liability company (SPD) and leased to its related non-profit tissue bank (New Life) qualify for Indiana's charitable purposes property tax exemption?
Opinions:
Majority - Wentworth, J.
Yes, the property qualifies for the charitable purposes property tax exemption. For an exemption to apply where ownership and occupancy are split, all entities must have a charitable purpose. First, New Life occupied and used the property for a charitable purpose by providing human tissue, and the Assessor failed to present substantive evidence to dispute this. Second, SPD owned the property for a charitable purpose because the evaluation is a fact-sensitive inquiry. The court found that SPD was not a typical commercial landlord; it was formed as an 'outgrowth' of New Life for the sole purpose of providing it a facility, the owners were identical, rent was set to cover costs rather than generate profit, and rent increases were not enforced. Finally, the property was 'predominantly used' for a charitable purpose because it was used 100% of the time for that purpose during the four months it was occupied, satisfying the statutory requirement that it be used for a charitable purpose for more than 50% of the time it is 'actually used or occupied'.
Analysis:
This decision clarifies the 'charitable purposes' exemption for properties with divided ownership and use, particularly between related for-profit and non-profit entities. It establishes that courts will look beyond a landlord's formal for-profit status to its actual purpose and operational realities in a fact-sensitive inquiry. The ruling provides a framework for non-profits to use separate, for-profit holding companies for real estate without necessarily forfeiting tax exemptions, provided the for-profit's existence and operations are exclusively in furtherance of the non-profit's charitable mission. Furthermore, the court's interpretation of 'predominantly used' focuses on the proportion of time during actual use, not the entire calendar year, which is significant for properties that are not in use for a full tax year.
