Tax Type
Local Taxes
Property Tax
Description
Charitable Organization; Legal title alone is not controlling in determining ownership of property for tax purposes
Topic
Exemptions
Local Power to Tax
Local Taxes Discussion
Property Subject to Tax
Date Issued
08-29-1990
[Opinion - Virginia Attorney General: 1990 at 265]
REQUEST BY: The Honorable Alma Leitch Commissioner of the Revenue for the City of Fredericksburg P.O. Box 644 Fredericksburg, Virginia 22404-0644
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask whether the Tidewater Chapter of the American Red Cross (the "Tidewater Chapter") may take advantage of its status as a charitable organization with respect to real property taxes payable on several office condominiums currently being offered for lease to the Tidewater Chapter by Snowden Office Partnership ("Snowden"). The Tidewater Chapter is considering a transaction whereby it would acquire legal title to the condominiums from Snowden for a substantial fee payable in monthly installments over a five-year period. At the end of this five-year period, the Tidewater Chapter would sell the units back to Snowden for a nominal sum.
I. Applicable Constitutional and Statutory Provisions
Section 58.1-3201 of the Code of Virginia provides that "[a]ll real estate, except that exempted by law, shall be subject to such annual taxation as may be prescribed by law." Real property is taxed to the owner of the property. See § 58.1-3015.
Article X, § 6(a)(6) of the Constitution of Virginia (1971) exempts from taxation "property used by its owner for religious, charitable, patriotic, historical, benevolent, cultural, or public park and playground purposes, as may be provided by classification or designation by a three-fourths vote of the members elected to each house of the General Assembly and subject to such restrictions and conditions as may be prescribed." (Emphasis added.) Pursuant to Article X, § 6(a)(6), § 58.1-3609(A) exempts from local real property taxation
[t]he real . . . property of an organization classified in Secs. 58.1-3610 through 58.1-3621 and used by such organization for a . . . charitable . . . purpose as set forth in Article X, §6(a)(6) of the Constitution of Virginia . . . so long as such organization is operated not for profit and the property so exempt is used in accordance with the purpose for which the organization is classified.
Local chapters of the American National Red Cross, including the Tidewater Chapter, are classified as charitable organizations. See § 58.1-3616. In accordance with Article X, § 6(f), § 58.1-3609(B) provides a rule of strict construction for exemptions from local property taxation.
II. Transaction in Facts Presented Does Not Transfer Ownership for Purposes of Tax Exemption
A principal requirement for exemption from taxation pursuant to Article X, § 6(a)(6) and § 58.1-3609(A) is ownership of the property by an organization classified as exempt. See 1984-1985 Att'y Gen. Ann. Rep. 372. Unless the property will be owned by the Tidewater Chapter, therefore, the exemption under § 58.1-3609(A) is not available.
Based on the information you provide, the agreement under consideration, although structured in the form of a purchase, is in substance a lease under which Snowden must be considered the owner of the property for tax purposes. Even though Snowden will not hold actual legal title to the property, it will have the right to receive monthly payments throughout the agreed five-year term and to reacquire legal title for a nominal sum upon completion of that term. Under these circumstances, the Tidewater Chapter cannot be said to have acquired "ownership" of the property. The mere fact that the Tidewater Chapter will hold legal title to the property does not justify shifting the incidence of taxation in order effectively to grant Snowden an exemption from real estate taxation. See 1977-1978 Att'y Gen. Ann. Rep. 433, 434 (legal title alone is not controlling in determining ownership of property for tax purposes).
Based on the facts you present and applying the rule of strict construction required by § 58.1-3609(B), it is my opinion that the condominium units that are the subject of your inquiry would remain fully assessable to Snowden for local real property taxation during the five-year term of the agreement.
Attorney General's Opinion