August 21, 2013
Educational Institutions & Tax Exemptions

by Justice Paul E. Pfeifer

Cincinnati Community Kollel is a nonprofit corporation that is devoted to the advanced study of Jewish religious texts. Because of an issue over property taxes, the institute was at the center of a case that we reviewed here – at the Supreme Court of Ohio.

According to the kollel’s constitution, its purpose is to “provide an environment of Torah study, combining the advanced studies of the kollel staff scholars with a venue for community learning.” The kollel performs this service “in the sincere belief that this Institution will elevate the spirit of, and thereby enhance, the Jewish Community of Cincinnati.”

The tax case arose when the kollel sought property tax exemptions on three parcels that it owns in the Hamilton County village of Golf Manor. The parcels are adjacent and each contain one building. The buildings are divided into two residential apartments, which are occupied by the kollel’s “staff scholars” and their families.

The staff scholars are Torah scholars who have moved to the kollel to continue their own Torah studies and to teach others in the Cincinnati community. While the staff scholars study and teach at the kollel, they and their families live rent-free in the apartment buildings.

The first issue with this property began when the kollel applied for tax-exempt status for two of the buildings for the tax years 1998 through 2002. The Board of Tax Appeals (“BTA”) held that the buildings were not entitled to an exemption. Specifically, the BTA found that irrespective of how the property was used, the kollel was not entitled to an exemption because it was not an “educational institution” within the meaning of the tax code.

But in 2007, our court reversed the BTA ruling and held that the kollel did, indeed, qualify as an educational institution. We did not, however, decide whether the kollel’s properties were being used in a manner that qualified for an exemption.

On reconsideration, the BTA found that while some learning occurs at those properties, the “principal use” of the apartments was “residential in nature.” Thus, the BTA determined that the kollel did not qualify for an exemption because the apartments were “used at all times and primarily as a private personal residence.”

This time around, the kollel sought exemptions relating to tax years 2004 through 2007 for the two original apartment buildings, plus a third that was purchased after the earlier case. But once again, the tax commissioner denied the exemption.

In denying the exemption, the commissioner did not expressly determine whether the kollel was an educational institute under the definition of the tax law. Instead, the commissioner focused primarily on the fact that the buildings were used as residential apartments that house the staff and their families.

After the denial by the commissioner, the kollel appealed to the BTA. But the BTA held – as it had in that earlier case – that the buildings were not used to further the kollel’s educational purposes, because their primary use was residential. After that, the kollel filed an appeal with our court.

The appeal questioned the BTA’s interpretation and application of the tax law which says that property belonging to a charitable or educational institution shall be considered as being used exclusively for charitable or public purposes if it “is made available under the direction ... of such institution ... for use in furtherance of or incidental to its charitable, educational, or public purposes and not with the view to profit.”

There was no dispute that the kollel is an educational institution, that the property has been made available under the kollel’s direction, and that there is no view to profit. The question was whether the property is made available for use “in furtherance of” the kollel’s educational purposes.

In making its determination this time, the BTA relied on its 2007 decision regarding the exemption status of the apartments, concluding that the use of the buildings had not changed since then. But we determined that the BTA erred by relying on the 2007 evaluation.

The BTA’s focus should have been on whether the use of the property was “in furtherance of” the kollel’s educational purposes, and that question differs from the question of whether the use of the property was one that involved “other charitable, educational, or public purposes.”

The BTA acknowledged that some educational activities were taking place at the apartments, but the BTA focused on the amount of time that the apartments were being used for educational activities and found that the level of activity was insufficient to qualify for a tax exemption.

According to the BTA, even though the properties were used at certain times for education, the primary use was as private residences. But we concluded that, in reaching that decision, the BTA misconstrued the meaning of the language in the law. In effect, the BTA imposed a “primary-use” test to qualify the apartments for tax exemption.  But the law requires no such test.

Rather, the law provides a clear test for exemption: property belonging to an educational institution is marked for exemption if it is “used in furtherance of or incidental to” the institution’s educational purposes and not with “a view to profit.”

The kollel also challenged the evidence relied on by the BTA to support its decision. The kollel argued that the BTA cited no evidence that would support a finding that the apartment buildings were not being used in furtherance of the kollel’s educational goals. We agreed.

In its application, the kollel stated that, in addition to living in the apartments, “the scholars, alone, and with their wives, carry on activities in their residences that are an integral part of the Kollel’s various educational programs.”  The BTA seemingly overlooked this part of the application.

For all the reasons mentioned above, we reversed the BTA’s decision – by a seven-to-zero vote – and sent the case back to the BTA to review the evidence submitted and determine whether the apartments were used in furtherance of the kollel’s educational purposes, and thus eligible to be tax exempt.

EDITOR'S NOTE: The case referred to is Cincinnati Community Kollel v. Testa, 135 Ohio St.3d 219, 2013-Ohio-396. Case No. 2012-0015. Decided February 13, 2013. Opinion Per Curiam.