As hundreds of cyclists poured through the Summit City, there was hope that the event would not only bring some exercise and entertainment to the participants but hopefully a changed view of the community in general.The first statewide challenge to the tax-exempt status of a charter school ended with a landmark denial for a Fort Wayne school, a decision that could be detrimental to Allen County taxpayers.
The property tax exemption for JERIT CS Fund LLC, property owners of the Imagine MASTer Academy’s 26-acre campus on North Wells Street, was rejected June 14 by the Allen County Property Tax Assessment Board of Appeals.
Indiana taxpayers will ante up rent and operating costs of $4.3 million this year for four Indiana Imagine charter schools – two located in Fort Wayne. The bulk of those dollars will not go back into the classroom; they will go to an out-of-state investment company that is in the charter school leasing business – the publicly traded Entertainment Properties Trust, which reported $84.7 million in profits last year.
The complicated investment strategy maze begins with JERIT, which is owned by Entertainment Properties Trust in Kansas City, Mo., a for-profit company that deals not only in real estate investments but also in multiplex theaters, water parks, ski resorts and vineyards, according to its website.
JERIT purchased the Wells Street campus in 2008 from School House Finance Inc. for $6.21 million. School House Finance is owned by Imagine Schools, in Arlington, Va., which operates 72 charter schools across the United States.
JERIT’s master lease calls for Imagine MASTer Academy to pay rent to JERIT in the amount $639,616 annually for the Wells Street campus. The 25-year lease has a 3 percent escalator clause, a provision in which rent increases as the cost-of-living index goes up, and requires the schools to pay the related ongoing expenses of the property – maintenance, taxes and insurance – in what is commonly called a “triple net lease.”
This year, the Wells Street Imagine board of directors budgeted $790,700 for rent. The property taxes are $124,278, with a circuit breaker credit of $6,586. Imagine MASTer Academy spends nearly $1 of every $5 of its taxpayer-funded budget on rent to JERIT.
The denial by the county tax assessment board holds that a property owner (JERIT), not just the tenant (Imagine Schools), must demonstrate the property is owned for a tax-exempt purpose for religious, educational, scientific or charitable reasons.
The board of appeals’ denial cited a Supreme Court case from December 2010, known as the “Oaken Bucket case,” in which justices reversed a decision by the Indiana Tax Court and ruled that a property owner doesn’t automatically qualify for a tax exemption even if property is used for a charitable or exempt purpose.
After that ruling, and a memo received from the Indiana Department of Local Government Finance in January, Allen County officials asked JERIT to defend its property tax exemption.
The board of appeals’ June 14 ruling stated that evidence was not presented which showed JERIT CS Fund owned the property for an exempt purpose independent of the educational purpose for which the property is being “occupied and used” by the charter school.
“There was no evidence that JERIT participated in meeting any of the operational expenses incurred by the school in occupying and using the premises for educational purposes,” the board of appeals wrote in its ruling.
Jason Bryant, regional vice president for Imagine schools, said in an email that JERIT has the right, according to the lease, to ask for reimbursement for property taxes paid.
JERIT does not intend to charge the school for any retroactive property taxes that could be owed, Bryant added, and will not charge any property taxes while the appeal is still outstanding.
JERIT will challenge the decision, said Stephen Fink, the Fort Wayne attorney representing JERIT. An appeal will be filed with the Indiana Board of Tax Review within the next 45 days, he said.
At the March 3 hearing, Fink said the Oaken Bucket case states the property must be used (for a charitable purpose), and “the fact that the owner might make money off of it makes no difference.”
F. John Rogers, the attorney representing the Allen County Property Tax Assessment Board of Appeals, said he felt the board of appeals’ five voting members made the right decision.
Rogers hopes the case raises awareness of how charter schools are managed, especially in light of a new law year that takes effect Friday which will make it easier to form charter schools in Indiana. Lawmakers rushed the bill through, and there are no safeguards that would scrutinize management and real estate agreements to ensure Indiana tax dollars stay in Indiana schools
“This, I hope, sends a message to people to look more closely at how the charter schools within their communities” are operating and who is behind the property management, Rogers said.
The case could take months or even years to go through the appeal process, proceeding from the Indiana Board of Tax Review to the Indiana Tax Court, possibly to the Indiana Supreme Court.
In the meantime, who pays the property taxes?
“Interestingly enough, the (JERIT/Imagine) master lease calls for the tenant (Imagine Schools) to pay all expenses and operational funds locally,” Rogers said, meaning taxpayers could foot the bill.
