REAL ESTATE TAXATION ON NONPROFIT CORPORATIONS

Tim Burke, Manley Burke, tburke@manleyburke.com

In 1997, Case Western Reserve University leased the Magnolia House on its campus to the Zeta Pi Chapter of Alpha Phi Fraternity House Corporation.  The University had little reason to believe that unlike the rest of its private campus, by leasing the house to a fraternity, the house and land on which it sat would become subject to real estate taxation.

Typically, in Ohio, land owned by nonprofit corporations, particularly by colleges and universities, is exempt from real estate taxation.

However, the Tax Commissioner of Ohio denied the application for real estate tax exemption on the Magnolia House, finding that because it was used by Alpha Phi, it was not open to the general student population.  As a result, it was not being used for the College’s educational purposes.  The Ohio Board of Tax Appeals agreed with the Tax Commissioner and ultimately the matter was appealed to the Ohio Supreme Court.  On April 20, 2005, the Ohio Supreme Court¹ — on a vote of 6 to 1 — refused to overturn the denial of real estate tax exemption.  The Court found that the use of the Magnolia House was not “for other charitable, educational or public purposes,” agreeing with the Board of Tax Appeals that Alpha Phi “is a private not-for-profit social organization, and not an educational institution.”  The Court also found that “providing housing for the exclusive use of a private fraternal organization is not in furtherance of or incidental to CWRU’s educational purpose,” rejecting the argument that the leasing of the house to Alpha Phi was incidental to the purposes of the College by providing housing to the University’s students.

The Court curiously argued “the house is not being used by CWRU to house its students.  Instead, the house is being used by the House Corporation to house members of the Alpha Phi Sorority.”  The Court overlooked the fact that all of the members of the Alpha Phi Sorority living in the Magnolia House were students of CWRU.

Only Justice Lundberg Stratton dissented.  As she pointed out, “the fact that these students [living in the Magnolia House] are also members of the Alpha Phi Sorority does not diminish their status as CWRU students.”  Justice Stratton also recognized the philanthropic efforts of Alpha Phi and the Greek system at CWRU, noting:

“Finally, I also believe that Alpha Phi uses the house in other ways that are in furtherance of or incidental to CWRU’s educational purposes.  Part of CWRU’s educational mission is encouraging students to become involved in the community.  Greek organizations provide a formal approach to promoting community service.  CWRU encourages Greek organizations, including Alpha Phi, to participate in charitable activities through the Panhellenic Council and intra fraternal conference in a program called ‛365 Days of Service,’ through which each organization develops a quota of hours for community service.  Thus, Alpha Phi certainly uses the house for activities that promote CWRU’s educational purposes.”

Her argument was the lone voice on the Court supporting the University’s position and that of Alpha Phi and the National Panhellenic Conference which filed an amicus curiae (friend of the court) brief in this case.

¹ Case Western Reserve University v. Wilkins, Tax Commissioner, 105 O.S.3d 276 (2005).