United States: Tax Exemption And Charitable Purpose – Anything New?

Last Updated: October 24 2017
Article by Mark Lansing

The Ohio Supreme Court recently issued a trilolgy of decisions – Breeze, Inc. v. Testa, Slip Op No. 2017-Ohio-7801 (2017); 2350 Morse, LLC v. Testa, Slip Op No. 2017-7800 (2017); and 250 Shoup Mill, LLC v. Testa, 140 Ohio St.3d 98 (2016). All three cases dealt with a substantially similar business model and property arrangement; yet, each came to three different resolutions applying the same standard.1 Interestingly, all three decisions were arguably rendered moot for the type of educational institutions involved due to the 2011 amendment to R.C. 5709.07(A)(1).

All three cases involved a complex arrangement of community schools and related entities. At the head of the arrangement was a nonprofit corporation, New Plan Learning, Inc. ("New Plan"), which was the sole owner of all three Petitioners (as well as other similar entities) that held title to property used by community schools. The business model involved was as follows: after a community school received authorization to operate in an area, New Plan identified an available facility. It then facilitated the purchase of the facility through a subsidiary that held title (e.g., Breeze, Inc.), which then leased the property to the community school. The title-holding entity collected rent from the community school. The rental income was used to pay the mortgage for the property. Any surplus passed to New Plan for its use in support of all of its affiliated community schools.

In all three cases, the rental income exceeded expenses. For 2350 Morse, LLC, the undisputed testimony was that the lender required rental income to be 115% of the operating expenses. Based on this testimony, and the evidence in record, 230 Morse, LLC was determined to be entitled to the exemption. For 250 Shoup Mill, LLC, since operating expenses were only eighty percent (80%) of rental income; the BTA found that the operation was for a profit motive. The Ohio Supreme Court affirmed this finding as being reasonable. Finally, in Breeze, Inc., the matter was reversed and remanded for the BTA to determine whether Breeze, Inc. had a "view to profit."

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." 2 (Emphasis added.) Ohio cases stress that "with a view to profit" is in line with the plain meaning of that phrase: "If the lease is intended to generate profit for the lessor, the property does not qualify for exemption." (Emphasis added.) Anderson/Maltbie Partnership v. Levin, 127 Ohio St.3d 178, 2010-Ohio-4904, 937 N.E.2d 547, ¶ 33. According to the Ohio Supreme Court, the key inquiry is whether "with a view to profit" should focus on the aim or intention of the lessor.

In Breeze, Inc., the evidence was that it sought to minimize the rent so the school would "have more money to serve the kids." As a result, the rent payment was adjusted on occasion in light of the school's budgetary needs. Further, when the school was unable to pay, rent was deferred and sometimes written off completely. In explaining its three decisions, the Ohio Supreme Court centered on the statute's plain language that made, during the years in question, both the public schoolhouse and the charitable-or-public-use exemption hinge on the intent of the lease arrangement. It recognized that neither the tax commissioner nor the BTA paid much heed to that testimony. Instead, the tax commissioner concluded, without explanation, that Breeze had collected "substantial market-rate rent" and so had "clearly" entered the lease with a view to profit. The BTA's focus was found to be slightly different, as it concluded merely because there was an "excess of rental income over expenses" that was distributed not only to Horizon (the community school that leased from Breeze, Inc.), but also, to other community schools, the lease had been done with a view to profit.

In 250 Shoup Mill, L.L.C. v. Testa, 147 Ohio St.3d 98, 2016-Ohio-5012, 60 N.E.3d 1254, the Supreme Court noted the monthly mortgage-loan, debt-service-coverage, and rental-income amounts for the property, for the tax year at issue, were all examined. As the property-related expenses were no more than 80 percent of the rental income for the property during 2010, it concluded the BTA and the tax commissioner could reasonably have found a view to profit in the leasing arrangement as to tax year 2010. However, for both 250 Shoup Mill and Breeze, Inc., the Ohio Supreme Court found that the mere fact the rental income exceeded expenses had some relevance, but was not determinative of whether the property was leased with a view to profit. The overriding focus had to be on the intent of the lessor. Excess rental income over expenses was relevant only to the extent it shed light on the lessor's intention regarding the lease.

Accordingly, in Breeze, Inc., since the testimony about the purpose of Breeze's lease to the school was not disputed, and such testimony was bolstered by other evidence about Breeze's relationship with the school, including that it had adjusted rent to help the school's budget and sometimes deferred or wrote off rent that was due, the case was remanded to the BTA for further proceedings. The BTA had ignored this evidence of the lessor's intent. Thus, the BTA's decision was found to be "unreasonable or unlawful," as it had ignored Breeze's evidence of its intent regarding its lease, and erroneously focused on the mere fact that there was an excess of rental income over expenses.

Going forward these cases only have meaning for charitable or other exemption cases that must demonstrate any income collected was not "with a view for profit."


1 Breeze, Inc., supra, was remanded to the Board of Tax Appeals (BTA) for further review on the lessor's intent; 2350 Morse, LLC, supra, was determined to be exempt; and 250 Shoup Mill, LLC, supra, was affirmed as not being exempt.

2 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."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Mark Lansing
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions