Tissue Bank Owned By For-Profit And Leased To Related Non-Profit Exempt From Indiana Property Tax


The Indiana Tax Court affirmed the property tax exemption for a building used as a tissue bank.

The Indiana Tax Court affirmed the property tax exemption for a building used as a tissue bank.

In Hamilton County Assessor v. SPD Realty, LLC, Cause No. 49T10-1104-TA-28 (May 27, 2014) (March 1, 2009 assessment date), the Indiana Tax Court affirmed the grant of a charitable purpose exemption where the office building was owned by SPD Realty, a for-profit limited liability company, and leased to New Life, a non-profit corporation organized for the purpose of procuring tissue donors, performing tissue donor recoveries, and providing related donor services.  The same people who formed New Life formed SPD Realty after they had difficulties renting suitable space for their operations.  (No landlord wanted a tenant to handle bio-hazardous materials on the premises.)  Under the lease, New Life agreed to use the property for the exclusive purpose of operating a tissue bank and providing related services.  New Life agreed to pay a rent equal to SPD Realty’s entire mortgage, all real and personal property taxes, and all build-out and operating expenses.  SPD Realty agreed to cover the costs for maintenance and repair of the building’s exterior, parking lot and landscaping.

Indiana’s exemption test.  A three-prong test exists for determining application of Indiana’s chartable purpose exemption.  To qualify for exemption, the property must be (1) owned, (2) occupied and (3) predominantly used for a charitable purpose.  Ind. Code § 6-1.1-10-16.  The same entity does not have to meet each prong, but “all entities that own, occupy, and use the property must have their own charitable purpose.”  Slip op. at 4 (citations omitted).   The exemption statute “requires the showing of a charitable purpose to ensure that the benefit conferred by the exemption both relieves the government of a cost that it would otherwise bear and does not primarily serve a commercial profit motive.”  Id. (citations omitted).

Assessor’s opening statement was not evidence creating issue as to property’s charitable use.  The Indiana Board had found that New Life occupied and used the property for a charitable purpose because the parties did not dispute the issue.  When parties agree to one or more prongs of the test, “the taxpayer’s burden to offer probative evidence as to each agreed upon element is obviated.”  Slip op. at 5. (citations omitted).  At the administrative hearing, to support its request New Life presented evidence showing that it recovers and distributes human tissue for medical purposes, relieving human suffering and want of patients who need skin grafts and other services.  New Life is reimbursed only for its skin acquisition costs.  Before New Life’s creation, Indiana did not have enough tissue banks to meet demands.

In her opening statement, the Assessor asserted, “[w]e are not in any way, shape, or form conceding that New Life uses or occupies th[e] property for an exempt purpose.”  Slip op. at 6.  That statement, however, failed to “put the issue in dispute.”  Id.  An opening statement, the Court observed, “generally is not substantive evidence” because “it is designed to acquaint the fact-finder with the facts that a party intends to prove.”  Slip op. at 7.

“Totality of the evidence” showed owner lacked a profit motiveEvidence showed that the “close relationship between these two entities does support the Indiana Board’s finding that each has a similar charitable purpose.”  Id.  The evidence further demonstrated that SPD Realty owned no other property (unlike other commercial landlords) and never enforced a provision in the lease calling for annual rental increases.  Rent was designed to cover only the mortgage and operational expenses, not to generate profits.  And SPD Realty’s owners paid the prior property tax installment from their personal accounts, because neither SPD Realty nor New Life had adequate funds to cover the bill.  The evidence proved that SPD Realty and New Life did not possess “a typical landlord-tenant relationship and that SPD did not have a profit motive.”  Slip op. at 8.

When used, property was used for an exempt purposeFinally, the Assessor argued that the property was disqualified for the exemption because New Life used it only for four months of the 2009 tax year.  The language of Indiana Code § 6-1.1-10-36.3(a) “clearly requires that a property be use or occupied for charitable purposes for more than 50% of the time that it is actually used or occupied during the tax year at issue.”  Slip op. at 10 (emphasis in original).  In the four months it was used and occupied, the property was used 100% of the time for an exempt charitable purpose.  Id.

The Court affirmed the Indiana Board’s final determination applying the exemption.  Slip op. at 10.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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