Kinnear Rd. Redevelopment, L.L.C. v. Testa (Slip Opinion)

Citation: 2017 Ohio 8816Docket: 2015-0976

Court: Ohio Supreme Court; December 5, 2017; Ohio; State Supreme Court

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Until published in the Ohio Official Reports advance sheets, the case is cited as Kinnear Rd. Redevelopment, L.L.C. v. Testa, Slip Opinion No. 2017-Ohio-8816. The slip opinion is subject to formal revision, and readers should report any errors to the Reporter of Decisions, Supreme Court of Ohio.

The case involves a partial tax exemption under R.C. 5709.87 for real property undergoing environmental cleanup, known as the “brownfield exemption,” which offers a ten-year exemption for increased property value due to cleanup efforts. Kinnear Road Redevelopment, L.L.C. owned a contaminated property valued at $478,000 as of January 1, 2012. Following remediation and the construction of apartment buildings in 2012, the assessed value rose to $874,000 for the land and $4,076,000 for the improvements by January 1, 2013. 

The tax commissioner granted an exemption of $396,000 for the land’s increased value but denied an exemption for the apartment buildings. Kinnear appealed this decision to the Board of Tax Appeals (BTA), which reversed the tax commissioner's ruling, granting an exemption for the apartment buildings as well. The tax commissioner appealed, but certain arguments were waived due to lack of prior presentation at the BTA, and the remaining arguments were deemed without merit, leading to an affirmation of the BTA's order.

The property, a 2.39-acre site in Franklin County, was contaminated from 1965 to 2007 due to industrial activities. Kinnear remediated the site and completed apartment construction in 2012. The Ohio EPA issued a covenant not to sue on February 26, 2013, confirming the remediation met environmental standards and certifying it to the tax commissioner, as required for the exemption under R.C. 5709.87.

The auditor assessed an increase in property value from January 1, 2012, to January 1, 2013, showing land valued at $478,000 in 2012 and $874,000 in 2013, with improvements valued at $4,076,000, totaling $4,950,000. Under R.C. 5709.87(C)(1)(a), a tax exemption is granted for increases in assessed value of remediated land and improvements. The tax commissioner approved a ten-year tax exemption for the land with an amount of $396,000 for the 2013 tax year but denied an exemption for new apartment buildings valued at $4,076,000, arguing that the exemption did not cover improvements made after January 1, 2012. Kinnear appealed this decision to the Board of Tax Appeals (BTA), which found that the apartment buildings qualified for the exemption as they were situated on the land when the tax commissioner issued the order on March 25, 2013, and were listed on the current tax list. The tax commissioner appealed the BTA's decision to the court. The court must affirm the BTA’s decision if it is reasonable and lawful, deferring to the BTA’s factual findings supported by the record. The tax commissioner did not demonstrate reversible error in the appeal, leading the court to affirm the BTA's ruling. The primary legal issue centers on whether the tax exemption under R.C. 5709.87 is confined to land and improvements subject to voluntary cleanup under R.C. Chapter 3746.

The tax commissioner contends that the statutes governing tax exemptions limit the scope of Kinnear’s exemption claim and that any ambiguities should be interpreted against the taxpayer. Specifically, the tax commissioner asserts that R.C. 5709.87 should be strictly construed against Kinnear because the taxpayer bears the burden of proving eligibility for the exemption. The commissioner argues that R.C. 5709.88, which pertains to newly constructed property improvements, creates doubt about the applicability of R.C. 5709.87 to Kinnear’s claim, suggesting that Kinnear cannot qualify for an exemption under R.C. 5709.87 due to the existence of R.C. 5709.88.

However, this argument is undermined by two key points. First, the tax commissioner fails to provide any supporting language from R.C. 5709.88 or relevant legal authority, which weakens his position. Second, the language of former R.C. 5709.87(C)(1)(a) explicitly delineates two categories for tax exemption: increases in the assessed value of land and increases for improvements, buildings, fixtures, and structures situated on that land. This indicates that improvements can qualify for exemption regardless of whether they existed during environmental remediation.

The court finds R.C. 5709.87 to be clear and unambiguous, affirming that there is no need to interpret the statute against Kinnear’s claim. The decision of the Board of Tax Appeals (BTA) is supported by the plain language of the statute, leading to the rejection of the tax commissioner's argument regarding strict construction against the exemption claim.

The tax commissioner contends that the BTA's ruling contradicts the definition of "increase in the assessed value of improvements" as outlined in R.C. 5709.87(C)(1)(a). He asserts that the apartment buildings lacked any "increase" in "assessed value" prior to the 2013 tax year since the buildings were constructed after January 1, 2012, making them non-existent and without assessable value as of that date. Under R.C. 5709.87(C)(1)(a), the tax exemption is based on the increase in assessed value of both land and improvements. The BTA evaluated the exemption by comparing the assessed value of the improvements on January 1, 2012, against their value on March 25, 2013, as mandated by the statute.

The tax commissioner’s claim that the apartment buildings had no assessed value on January 1, 2012, is incorrect. His counsel previously stipulated that the Franklin County auditor certified the assessed value for improvements at zero dollars for that date, which is a numeric value that can indeed increase. Therefore, the tax commissioner cannot argue that the apartment buildings had no assessed value for the 2012 tax year.

Regarding the case of Columbus City School Dist. Bd. of Edn. v. Wilkins, the tax commissioner argues that it supports his position by stating that only existing real-property improvements during environmental cleanup qualify for tax exemptions under R.C. 5709.87. He asserts that because Kinnear’s apartments were built after the remediation, they should not receive an exemption. However, this argument is deemed without merit, as the specific issue of whether newly constructed buildings post-remediation qualify for the exemption was not addressed in the Columbus City School Dist. case.

Kinnear's case is supported by the precedent set in *Columbus City School Dist.*, where it was determined that the tax exemption under R.C. 5709.87 encompasses increases in property value from both environmental remediation and non-remedial improvements. The board of education's argument that the exemption should be limited to value increases directly linked to environmental remediation was explicitly rejected by the court. Furthermore, the tax commissioner’s claim that the exemption does not apply to improvements made after January 1 of the tax year is irrelevant in Kinnear's situation, as the apartment buildings were added before this date.

Regarding the tax commissioner’s assertion that Kinnear’s apartments do not meet the definition of "property" under R.C. 3746.01(M), this argument has been waived since it was not presented to the Board of Tax Appeals (BTA). Kinnear's stance is supported by case law indicating that failure to raise an argument at the BTA results in a waiver of that argument. The tax commissioner’s counterarguments claiming he was not obligated to address this issue at the BTA lack persuasiveness. He cites *Toledo Business* for the notion that statutory exemption criteria cannot be waived, but this does not support his position that he can forgo presenting specific arguments against an exemption. Ultimately, the argument regarding the definition of "property" has been effectively waived by the tax commissioner.

The tax commissioner asserts that Kinnear is presumed to understand the statutory requirements for exemptions, regardless of whether the commissioner explicitly communicated these to Kinnear. Consequently, the commissioner argues that Kinnear cannot claim detrimental reliance on a lack of notification regarding the need to qualify its apartment buildings under specific statutes. However, the court counters that while taxpayers must generally know the law, they are not obligated to know the specific liability theories the commissioner intends to use unless informed by the commissioner. Thus, the commissioner is bound by waiver due to his omission.

Additionally, the commissioner claims that Kinnear should have developed a factual record at the Board of Tax Appeals (BTA) to counter his final determination. The court clarifies that the issue regarding the statutory definition of "property" is a legal question, not a factual one, making Kinnear's efforts to develop a factual record irrelevant. The commissioner failed to raise this legal issue at the BTA, thereby waiving his argument.

Regarding whether R.C. 5709.87(C)(1)(a) exempts only property described in the EPA’s certification, the commissioner similarly waived this argument by not presenting it before the BTA. Consequently, he cannot demonstrate any error in the BTA's decision. The court concludes by affirming the BTA's decision and rejecting the tax commissioner’s arguments on appeal.