Opinion
No. 73-808
Decided April 10, 1974.
Taxation — Sales tax — Exceptions — R.C. 5739.02(B)(12) — Materials used in construction of apartment building — Not excepted — Building owned by nonprofit corporation — Apartments rented to low income tenants — Not used exclusively for charitable purposes, when.
The operation on a nonprofit basis of an apartment building for low income tenants, for whom supplemental rent payments are made by an agency of the federal government, is not exclusively for charitable purposes within the meaning of R.C. 5739.02(B)(12), where all tenants must pay at least a part of their rent, nonpayment of rent will result in eviction, and no services other than those common to apartment buildings generally are provided for the tenants.
APPEAL from the Board of Tax Appeals.
The appellant, Quaker Apartments of Wilmington, Inc., is a nonprofit Ohio corporation organized in 1969. In March 1970, the corporation purchased land on which it constructed a two and one-half story, 80-unit apartment building, the Quaker Apartments. The operation and management of the building is the sole activity of the corporation.
The construction of the building was financed with a mortgage, originally held by the First National Bank of Cincinnati and currently held by the Federal National Mortgage Association. The mortgage was in the amount of $914,500, and was insured by the Department of Housing and Urban Development (HUD). Legal title to the building is in the appellant corporation.
The building is divided into 41 efficiency units, 38 one-bedroom units, and one two-bedroom unit, all of which rent for the full market rate of comparable apartments in the area. Rental figures are established and controlled by the Federal Housing Commissioner in accordance with a regulatory agreement with the appellant. Tenants who qualify under the applicable federal program have a percentage of their rent offset by rent supplements from HUD, pursuant to a rent-supplement contract. The supplement is based on that portion of a tenant's rental which exceeds one-fourth of his income; in no event, however, does the supplement exceed 70 percent of the full rental. Approximately 95 percent of the apartment units are covered by such federal rent supplements, and the tenants of the remaining units are responsible for the full amount of their rent. None of the units have at any time been made available rent-free. In accordance with a contract with HUD, the appellant receives an annual maximum of $98,310 in rent supplements. This HUD money, together with the income from payments by the tenants, is deposited in the corporation's operating account.
The efficiencies rent for $135 per month, the one-bedroom units for $164 per month, and the two-bedroom unit for $187.25 per month.
To qualify for rent supplement a tenant must be at least 62 years of age, or handicapped in some way. Annual income may not exceed $3,000, and total assets may not exceed $5,000 for persons 62 or older, or $2,000 for persons less than 62. Increases over those levels must be reported when they occur, and the corporation is liable for any resulting excess payments of rent supplements.
There is no provision for special services to tenants, such as medical care, therapy, dining facilities, special meals, or the like. Appellant testified that eviction proceedings would be instituted against tenants for nonpayment of rent, although such a situation has yet to arise.
On December 15, 1972, the Tax Commissioner entered a final order, affirming an earlier sales and use tax assessment of $11,708.74 on the cost of materials used in the construction of the building. That order was affirmed by the Board of Tax Appeals, and the cause is now before this court upon appeal from the decision of the board.
Mr. Walter E. Schutt, for appellant.
Mr. William J. Brown, attorney general, and Mrs. Maryann B. Gall, for appellee.
The sole question presented in this case is whether the sale of building materials to appellant for incorporation into its apartment building falls under the tax exception granted by R.C. 5739.02(B)(12) for sales made to organizations operated exclusively for charitable purposes. The Board of Tax Appeals concluded that it did not. We find the decision of the board to be reasonable and lawful, and affirm.
R.C. 5739.02(B)(12), in relevant part, excepts from taxation:
"Sales of tangible personal property to churches and to organizations not for profit operated exclusively for charitable purposes in this state, no part of the net income of which inures to the benefit of any private shareholder or individual and no substantial part of the activities of which consists of carrying on propaganda or otherwise attempting to influence legislation.
"Charitable purposes means the relief of poverty * * *."
Appellant contends that its raison d'etre is the relief of poverty, manifested in making available to persons with limited financial resources the kind of decent housing which would otherwise be beyond their means. It argues that by operating solely as the instrumentality of a federal effort to provide such housing and thus relieve poverty, while accruing no financial benefit for itself, it falls within that class of organizations contemplated by R.C. 5739.02(B)(12).
We do not agree with appellant. Previous cases decided by this court have held that an organization providing private housing, even at reduced rentals, does not operate "exclusively for charitable purposes" where, as in this case, all residents pay a part, and in some cases all, of their monthly rental (see Cleveland Branch of the Guild of St. Barnabas v. Board of Tax Appeals, 150 Ohio St. 484; Beerman Foundation v. Board of Tax Appeals, 152 Ohio St. 179), and where no services are provided for residents other than those which are common to apartment buildings generally (see Philada Home Fund v. Board of Tax Appeals, 5 Ohio St.2d 135, distinguished in Carmelite Sisters, St. Rita's Home, v. Bd. of Review, 18 Ohio St.2d 41).
It is axiomatic that statutes granting exception from a tax are to be construed strictly against the party claiming exception. The clear import of the cases cited above, which we reaffirm here, is that the offering of rental housing to paying tenants, without more, is not exclusively for a charitable purpose within the meaning of R.C. 5739.02(B)(12).
Decision affirmed.
HERBERT, CORRIGAN, STERN, CELEBREZZE and W. BROWN, JJ., concur.
O'NEILL, C.J., dissents.
Appellant concedes that in order for it to prevail, the record must establish that the instant facility is operated exclusively for the relief of poverty. This is a test which has been legislatively prescribed and one which is not easily satisfied. See Good Samaritan Hospital v. Porterfield (1972), 29 Ohio St.2d 25, 278 N.E.2d 26, dissenting opinion at page 32.