A local Ohio State Senator plans to introduce a bill into the Ohio General Assembly that clarifies Ohio tax law regarding real property owned by a tax-exempt organization and used for non-exempt activity, and Barnes Dennig has proposed language to be incorporated into the bill. Specifically, the proposed bill refers to “solar arrays” which are designed to generate electricity on-site and make that electricity available to the host organization for a charge.

Currently, Ohio law is unclear as to whether an array owned by a for-profit enterprise and hosted by a non-profit organization would threaten the host’s real property exemption, and the lack of clarity could slow Ohio’s growing alternative energy industry.

The solar arrays are installed on existing rooftops, above parking lots or on idle land, and the non-profit host imposes a modest charge on the for-profit entity. The non-profit also receives reduced energy costs. Because it controls the host’s operational costs, the arrangement is often viewed as supporting the mission of the non-profit, and thus the non-profit maintains its exemption from real property taxation.

This arrangement is used by social service organizations; non-profit medical organizations; organizations that provide housing for the poor, the elderly or children; public and private schools; government agencies and tax-exempt religious organizations. The uncertainty in current Ohio law could potentially stop similar alternative energy projects from moving forward.

It is an even more sensitive consideration considering the recent successful legal challenges in Ohio to the real property tax exemptions enjoyed by municipally owned golf courses and convention centers operated by for-profit organizations.  The issue was not cut-and-dry before those challenges, and it is much less certain today.

Clearly, conventional practices in the past have not been considered detrimental to the real estate tax exemption enjoyed by many organizations.  Such uses include assets owned by public utilities or commercial amenities such as ATMs, shoe shine stands and vending machines that are situated on exempted real estate, whether or not the for-profit is assessed a charge by the host.  The “host” still requires a roof and parking to accommodate its operations – the roof and parking lot weren’t installed for the purpose of hosting a third party’s assets.

In the case of a non-profit that hosts assets on excess land, it might not be as easy to defend the tax exemption. In such cases, it might be wise to consider re-parceling the land, so as not to jeopardize the entire exemption.

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