Background
RiverSouth Authority, a “new community authority” and body corporate and politic under Ohio law, owns a roughly 600-space underground parking garage on the Scioto Peninsula in Columbus, near COSI. The city of Columbus holds the underlying land and leased a portion of it to RiverSouth under a 40-year ground lease; RiverSouth in turn leased the garage back to the city under a master lease and financed its construction through community authority bonds. Under a 2017 management agreement, the city engaged Capitol South Community Urban Redevelopment Corporation—a private nonprofit—to manage and operate the garage. Capitol South then sub-contracted day-to-day operations to LAZ Parking Midwest, LLC, a private for-profit company, whose own agreement expressly acknowledged that the garage was “controlled by the City of Columbus.”
In January 2019, RiverSouth applied for a real-property-tax exemption under R.C. 5709.08(A)(1), which exempts public property used exclusively for a public purpose, and R.C. 5709.121(A)(2), which deems political-subdivision property to meet that standard when made available under the subdivision’s direction or control in furtherance of public purposes and not for profit. The Tax Commissioner denied the exemption, concluding that LAZ’s for-profit involvement caused the garage to lose its identity as public property. The Columbus City School District, notified of the application under statute, objected.
RiverSouth appealed to the Board of Tax Appeals (BTA). The BTA agreed that LAZ’s involvement was not disqualifying—rejecting the commissioner’s rationale—but sua sponte raised a new ground: that Capitol South’s involvement independently defeated the exemption. Without giving RiverSouth notice or an opportunity to brief that issue, the BTA affirmed the denial based on Capitol South’s control over operations, maintenance, rate-setting, budgeting, and accounting. RiverSouth then appealed to the Supreme Court of Ohio.
The Court’s Holding
The Supreme Court of Ohio unanimously vacated the BTA’s decision on two independent grounds. First, addressing RiverSouth’s first proposition of law, the court held that the BTA acted unreasonably and unlawfully by sua sponte affirming on a new ground—Capitol South’s involvement—that was never raised by the Tax Commissioner and was not communicated to RiverSouth. Under R.C. 5717.03(G), when the BTA finds that unraised issues are important to its determination, it must remand for an administrative determination rather than resolving those issues itself. The BTA’s failure to follow that procedure was procedural error requiring reversal.
Second, addressing the substance under RiverSouth’s fourth proposition of law, the court held that the city retained “direction or control” of the garage within the meaning of R.C. 5709.121(A)(2) notwithstanding Capitol South’s managerial role. Conducting de novo review of the undisputed facts, the court methodically examined each factor the BTA had relied upon and found that in each instance the BTA had ignored contractual terms reserving meaningful authority to the city: Capitol South needed city approval for emergency repairs above a monetary threshold; parking rates were subject to the city’s financing requirements; the bank account holding gross receipts was established in Capitol South’s name as a fiduciary of the city; Capitol South had to submit annual budgets to city finance officials and remain available to discuss them; and the city retained audit and inspection rights over all financial records. The LAZ sub-agreement itself acknowledged city control. Applying its earlier precedent in Cincinnati v. Testa, 2015-Ohio-1775, the court concluded that hiring a management company to handle day-to-day operations does not divest a political subdivision of direction or control.
Because RiverSouth prevailed on both the first and fourth propositions of law, the court declined to reach the remaining two propositions. It vacated the BTA’s decision and remanded to the Tax Commissioner with instructions to issue the exemption order and calculate the refund owed to RiverSouth. Justice Brunner concurred in part and dissented in part, agreeing on the fourth proposition but preferring to remand to the Tax Commissioner rather than reaching the first proposition.
Key Takeaways
- A political subdivision does not lose “direction or control” of property under R.C. 5709.121(A)(2) merely by contracting with a nonprofit manager or a for-profit operator to handle day-to-day activities, so long as the governing agreements reserve meaningful oversight—rate approval, budget review, audit rights, and emergency-expenditure approval—to the subdivision.
- The BTA may not sua sponte affirm a Tax Commissioner’s final determination on a new ground never raised by the Commissioner or briefed by the parties; when unraised issues appear material, R.C. 5717.03(G) requires remand for a new administrative determination, not independent resolution by the board.
- Contractual language acknowledging city control (here, LAZ’s agreement stating the premises are “controlled by the City of Columbus”) can be significant evidence that the political subdivision retained direction or control even across multiple layers of management delegation.
- Daily physical inspections by a city, while evidence of control under Cincinnati v. Testa, are not a mandatory or exclusive indicia of “direction or control” for purposes of the public-use exemption.
Why It Matters
This decision provides important guidance for Ohio municipalities and public authorities that finance or own public infrastructure—parking garages, golf courses, recreation facilities—while delegating operational management to private partners. The ruling confirms that layered management structures (political subdivision → nonprofit manager → for-profit operator) do not automatically forfeit a public-use tax exemption, provided the underlying agreements preserve substantive governmental oversight over rates, budgets, finances, and maintenance standards. Counsel structuring public-private management arrangements should ensure those agreements contain explicit reservation-of-control provisions.
The procedural holding is equally significant for tax practitioners. By enforcing R.C. 5717.03(G)’s remand requirement, the court limits the BTA’s ability to affirm denials on grounds the Tax Commissioner never raised, protecting taxpayers’ due-process right to notice and an opportunity to be heard on each issue that could cost them an exemption. Together, the substantive and procedural holdings reinforce predictability for Ohio public entities navigating the intersection of municipal finance, public-private partnerships, and property-tax exemption law.