Divided Appellate Court Denies Tax Exemption for Sale-Leaseback Property


The Fourth District Appellate Court recently found that the Department of Revenue correctly denied a property tax exemption where a charitable organization sold a property to a limited liability company formed by a concerned donor and then leased the property back under terms intended to have given the charity sufficient control over the property to qualify for an exemption. While the decision in OKO, LLC v. Department of Revenue involves a charitable organization, it may have several applications to school districts. First, charitable property tax exemptions are very similar to school property tax exemptions. Both types of property must be owned and used by the exempt organization. And, both types of property may not be leased or otherwise used with a view to a profit. Second, the decision instructs potential applicants on who should apply for an exemption in a lease situation. Finally, although the majority in OKO finds against granting an exemption, the dissent puts forward a strong argument for the exemption, which may be useful to school districts that find themselves in a similar situation in the future.

In 2007, the mortgage on the Old Kings Orchard Community Center (the “Center”) in Decatur was going to be foreclosed. A local businessman who wanted to help the Center agreed to purchase the property through a for-profit, limited liability company and then lease the property back to the Center under terms intended to result in a continued tax exemption. OKO, LLC, the new owner of the property, applied for the exemption. The exemption was denied, however, because the property was not owned by a charitable organization.

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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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