Ohio provides for property tax exemptions for real property held by 501(c)(3) non-profit organizations. However, the exemption is not automatic. The exemption generally applies to real property owned by a qualifying 501(c)(3) non-profit business, provided that there is a charitable use of the real property.
Ohio law provides that real property owned by non-profit institutions which is used exclusively for charitable, public or educational purposes is exempt from taxation. Upon the proper submission of an Application for Real Property Tax Exemption and Remission from a non-profit, the Ohio Tax Commissioner determines whether an organization qualifies for this exemption. The Tax Commissioner considers two key factors: the use of the property and purpose of the organization, in determining whether a property is eligible for exemption.
Considering the “Use” of the Property
The first consideration, the “use” of the property, must be an exclusive charitable use of the property. Generally speaking, a charitable use has been characterized as services provided on a nonprofit basis to those in need, without regard to race, creed or ability to pay. R.C. 5709 further provides criteria for generally qualifying uses such as, for example:
- “Community or area center for music, drama, the arts and related fields to foster public and educational interest;
- Museum for the arts, sciences, history or children open to the general public;
- Property open to the public for a charitable, educational, or public interest without a “view to profit” such as property donated to become a public park.”
Ohio law provides exemptions for numerous uses by eligible non-profits. To illustrate, a non-exhaustive list of eligible property tax exempt non-profit uses is listed below:
Eligible Property Tax Exempt Non-Profit Use
Ohio Revised Code Section
|Charitable independent living facilities||5709.12|
|Charitable or educational science-related facilities||5709.12|
|Dedicated prehistoric earthworks and historic grounds||5709.18|
|Federal microloan intermediary uses for small business lending, economic development, job training, entrepreneur education||5709.12|
|Housing for individuals with developmental disabilities||5709.121|
|Housing for individuals with mental health illness or substance use disorder and their families||5709.121|
|Human body material receiving, processing, distribution for research and development||5709.12|
|Memorial or cemetery associations or veterans organizations||5709.17|
|Nature preserves and environmental projects||5709.09|
|Qualified low income housing for construction and lease or sale||5709.12|
|Schools, churches and colleges||5709.07|
|Veterans funds and monuments||5709.15|
Considering the “Purpose” of the Organization
The second consideration for eligibility for non-profit property tax exemption contemplates the “purpose” of the organization. Ohio law specifically states that a qualifying institution or organization is a charitable, educational or state or political subdivision making a charitable use of its property, as determined in Chagrin Realty, Inc. v. Testa, 154 Ohio St. 3d, 352, 355 (2018). However, courts apply the law such that the exempt property must be owned by an institution, which may be a charitable or non-charitable organization maintaining property exclusively for charitable purposes. Put simply, the focus is on the core activity of the institution. For example, if there is a landlord leasing to a tenant with a charitable purpose, the activities of the landlord will determine whether the organization qualifies, not the activities of the tenant with a charitable purpose and use of the property.
Qualification for Property Tax Exemption is Not Automatic
Non-profit organizations do not automatically qualify for Ohio property tax exemption. Non-profit organizations with 501(c)(3) status are:
“Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
While it is important to determine whether an organization is a 501(c)(3) non-profit, Ohio law controls for the purposes of the property tax exemption.
Criteria for Exemption Could Vary
Criteria provided by R.C. 5709 provides guidance on whether a 501(c)(3) would be determined to be a charitable institution eligible for exemption. It is important to understand that the criteria can vary slightly by use. While the precise definition of an eligible institution may vary by the exemption program pertinent to each use, R.C. 5709.121(C) describes what institutions are conclusively presumed to be charitable institutions:
- “The institution is a nonprofit corporation or association, no part of the net earnings of which inures to the benefit of any private shareholder or individual;
- The institution is exempt from federal income taxation under section 501(a) of the Internal Revenue Code;
- The majority of the institution’s board of directors are appointed by the mayor or legislative authority of a municipal corporation or a board of county commissioners, or a combination thereof;
- The primary purpose of the institution is to assist in the development and revitalization of downtown urban areas.”
Details regarding the use of the property by a charitable institution are essential for determining whether an institution qualifies for Ohio’s non-profit tax exemption. KJK offers guidance and services to assist you through the tax season. If you have any questions, please contact KJK Partner Richard Morehouse (RAM@kjk.com; 216.736.7292) or Hannah Albion (HRA@kjk.com; 216.736.7268) or another member of KJK’s Tax & Tax Exemption practice group.