Parma Hts. v. Wilkins

• Decision Date: 22 June 2005
• Docket Number: No. 2003-2029.,2003-2029.
• Citation: 828 N.E.2d 998,105 Ohio St.3d 463,2005 Ohio 2818
• Parties: CITY OF PARMA HEIGHTS, Appellant, v. WILKINS, Tax Commr., et al., Appellees.
• Court: Ohio Supreme Court

828 N.E.2d 998

105 Ohio St.3d 463

2005 Ohio 2818

CITY OF PARMA HEIGHTS, Appellant, v. WILKINS, Tax Commr., et al., Appellees.

No. 2003-2029.

Supreme Court of Ohio.

Submitted May 11, 2005.

Decided June 22, 2005.

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Joseph D. Carney, Westlake, for appellant.

Jim Petro, Attorney General, and Janyce C. Katz, Assistant Attorney General, for appellee Tax Commissioner.

PER CURIAM.

{¶ 1} The city of Parma Heights seeks an exemption from its obligation to pay real property taxes on an ice-skating rink owned by the city. The property in question —identified in the Cuyahoga County Auditor's records as parcel number 471-17-025—is known as the Greenbrier Ice Rink.

{¶ 2} At issue here are tax years 1996, 1997, 1998, and 1999, when the city owned the property but leased it to an entity known as Voinovich-Carney Ice Facilities Group or "VC Ice." VC Ice was an Ohio limited-liability company that marketed itself to the city as "an ice facilities development and management firm specializing in structuring entities which, with partners, it operates through autonomous investment vehicles."

{¶ 3} The lease signed by representatives of the city and VC Ice in 1995 called for VC Ice to pay the city a rental fee of $60,000 annually for ten years. In return for the payments, VC Ice was entitled under the lease to "use and occupy" the ice rink and to operate and maintain the rink as an ice-skating facility for the paying public. The lease also indicated that any employees hired by VC Ice to operate the ice rink would be VC Ice employees, not public employees, and VC Ice was required under the lease to pay for liability and property insurance as well as all utility charges for the rink. In addition, VC Ice was obligated by the terms of the lease to pay "all taxes * * * whatsoever, including all governmental charges of whatsoever name, nature or kind, which may be levied, assessed or charged * * * against the land * * * or * * * any building or buildings, or any other improvements now or hereafter thereon."

{¶ 4} VC Ice terminated its lease with the city in 1999.

{¶ 5} In 2000, the city sought an exemption under R.C. 5713.08 for real property taxes owed or paid on the property for 1996, 1997, 1998, and 1999. The city's application identified three statutory provisions as grounds for the exemption request: (1) R.C. 5709.08, which exempts from taxation any "public property used exclusively for a public purpose"; (2) R.C. 5709.081, which exempts certain publicly owned athletic facilities; and (3) R.C. 5709.12, which exempts some public property used for charitable purposes.

{¶ 6} The Tax Commissioner denied the exemption request, finding that the property "was used for a private purpose during tax years 1996 through 1999." According to the Tax Commissioner, VC Ice used the ice rink "for its own business purposes" rather than a public purpose. VC Ice "used the property to generate approximately $439,523.00 in gross revenue," the Tax Commissioner explained, and he noted that the property "was to be run as other for-profit recreational facilities, such as private health clubs."

{¶ 7} The city then appealed under R.C. 5717.02 to the Board of Tax Appeals. The BTA in turn affirmed the Tax Commissioner's decision, finding that VC Ice had "leased the premises from the city with a view to profit." Users of the ice rink were charged market rates to skate there when VC Ice operated the rink, according to the BTA, and the "entire reason for the lease was to cut costs and make the facility more profitable." Explaining that "[r]eal property used in carrying on a private or proprietary function in competition with other enterprises engaged privately in similar activities is not entitled to exemption," the BTA affirmed the Tax Commissioner's decision for all four years in question.

{¶ 8} The city has now appealed to this court. For the reasons that follow, we affirm the BTA's decision.

{¶ 9} "In reviewing decisions of the BTA, we determine whether the BTA's decision is reasonable and lawful." Standards Testing Laboratories v. Zaino, 100 Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, ¶ 10. "It is not the function of this court to substitute its judgment for that of the BTA on factual issues," although any facts determined by the BTA "must be supported by sufficient probative evidence." Bethesda Healthcare, Inc. v. Wilkins, 101 Ohio St.3d 420, 2004-Ohio-1749, 806 N.E.2d 142, ¶ 18.

{¶ 10} Any statutes exempting property from taxation "must be strictly construed." Id. at ¶ 19. "[T]he burden rests on the one claiming an exemption to demonstrate that the property qualifies." True Christianity Evangelism v. Zaino (2001), 91 Ohio St.3d 117, 742 N.E.2d 638. That burden falls on the party seeking an exemption because "tax exemption is in derogation of the rights of all taxpayers and necessarily shifts a heavier tax burden upon the non-exempt." Joint Hosp. Serv., Inc. v. Lindley (1977), 52 Ohio St.2d 153, 155, 6 O.O.3d 371, 370 N.E.2d 474.

{¶ 11} The city argues first that it is entitled to a tax exemption under R.C. 5709.08, which exempts from taxation any "public property used exclusively for a public purpose." To qualify for a tax exemption under the statute, (1) the property "must be public property, (2) it must be used for a public purpose, and (3) the use must be exclusively for a public purpose." Columbus City School Dist. Bd. of Edn. v. Zaino (2001), 90 Ohio St.3d 496, 497, 739 N.E.2d 783.

{¶ 12} We have said in past cases that "whenever public property is used by a private citizen for a private purpose, that use generally prevents exemption." Whitehouse v. Tracy (1995), 72 Ohio St.3d 178, 181, 648 N.E.2d 503. The rule explained more than 30 years ago remains true today: "When * * * private enterprise is given the opportunity to occupy public property in part and make a profit, even though in so doing it serves not only the public, but the public interest and a public purpose," the property no longer meets the R.C. 5709.08 requirement that the property be "used exclusively for a public purpose." Cleveland v. Perk (1972), 29 Ohio St.2d 161, 166, 58 O.O.2d 354, 280 N.E.2d 653 (holding that areas of a city-owned airport that were leased to private entities for commercial enterprises were not exempt from real property taxes). And we have also noted that "one who is in the possession and control of property and is occupying, managing and operating the same as lessee is often to be treated as the owner thereof." Carney v. Cleveland (1962), 173 Ohio St. 56, 58, 18 O.O.2d 256, 180 N.E.2d 14 (holding that aircraft hangars built by private persons on public land were not exempt from taxes).

{¶ 13} The record before us supports the BTA's findings that (1) the city-owned ice rink in Parma Heights was leased to VC Ice during the years in question and (2) VC Ice hoped to profit from its operation of that ice rink. Tellingly, VC Ice said in its 1995 proposal to the city, "[W]e sincerely plan to make a profit," and that same proposal touted VC Ice's intent to increase revenue at the rink, keep prices at a competitive level, and expand the customer base. Also, that marketing proposal suggested that VC Ice intended to rent the ice rink "for birthday parties, corporate functions, tournaments and fund-raisers," and VC Ice's financial documents in the record before the BTA show that at one point during the years in question, more than 57 percent of the company's income from the operation of the ice rink was generated by the private rental of the rink. Other factors also undercut the city's claim that the property was devoted to a public purpose during the years in question, including the lease terms entitling VC Ice to "use and occupy" the rink, the language in the lease giving the responsibility for the "operation and management" of the rink to VC Ice, and the city's agreement that employees at the ice rink would not be treated as public employees while the lease was in effect.

{¶ 14} And though the city is before us seeking a tax exemption, it was VC Ice that agreed in the lease to pay all taxes on the property. "The obvious purpose of the grant of tax exemption to governmental bodies [in R.C. 5709.08] is to confer a benefit upon them." Cleveland v. Perk, 29 Ohio St.2d at 168, 58 O.O.2d 354, 280 N.E.2d 653, fn. 3. Yet under the terms of the lease signed by the city and VC Ice, any rebates of taxes paid by VC Ice "shall belong to Lessee [VC Ice]." That arrangement —like various other provisions in the lease—suggests that VC Ice's use of the ice rink was not consistent with the text of or purposes underlying R.C. 5709.08, which is designed to help governmental bodies rather than private commercial interests.

{¶ 15} In response to all of this, the city contends here that VC Ice never intended to profit from its operation of the ice rink. Instead, VC Ice's sole objective was the public-spirited one of providing a better ice-skating facility for the benefit of area residents, the city argues. The BTA found otherwise, however, explaining that "VC Ice leased the premises from the city with a view to profit." Probative evidence in the record supports that finding, and of course we always give wide discretion to the BTA in evaluating the credibility of witnesses and the weight that should be given to any evidence presented to it. As a result, we conclude...