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Court of Appeals Holds Industrial Development Corporation’s Real Property Exempt from Ad Valorem Property Tax as Held by Charitable Organization

08.19.2010

In Hancock v. Prestonburg Industrial Corp., No. 2009-CA-001144-MR (Ky. App. May 7, 2010), Motion for Discretionary Review pending, No. 2010-SC-000376 (Ky.), the Kentucky Court of Appeals held that Prestonburg Industrial Corporation (“PIC”) was exempt from ad valorem property tax on a 100-acre tract of land because PIC was a purely charitable organization, although it was not a public entity.

 PIC was formed as a nonprofit corporation in 1968 by a group of local businesspeople “to assist in the development of the City of Prestonburg (“Prestonburg”) as a means to attract business and industry into the area.”  PIC purchased a 100-acre tract of land from Prestonburg in exchange for $1.00 and a portion of the proceeds to be realized from the sale of the property by PIC.

The Floyd County Property Valuation Administrator (“PVA”) placed the 100-acre tract of land owned by PIC on the County’s property tax rolls.  PIC requested tax-exempt status from the Kentucky Department of Revenue (“Department”) pursuant to Section 170 of the Kentucky Constitution, which provides for an exemption from as valorem property tax for: (1) property belonging to a purely charitable organization; or (2) public property used for public purposes.  Such request was denied and PIC appealed to the Kentucky Board of Tax Appeals (“KBTA”).

The KBTA determined that PIC was not entitled to tax-exempt status under Section 170 of the Kentucky Constitution because it was not a public entity.  PIC appealed the KBTA’s decision to the Floyd Circuit Court, which held that PIC was entitled to an exemption from property tax because “PIC’s property is public property used for public purposes.” 

The PVA appealed to the Kentucky Court of Appeals (“Court”), which held that the 100-acre tract of land owned by PIC was exempt from ad valorem property tax, not because it was public property used for public purposes, but because PIC was a purely charitable organization.  The Court determined that the involved property was not owned by the public, but rather, it was owned in fee simple by PIC and that PIC was a private corporation.  The Court, however, distinguished ownership from purpose and held that while the involved property “did not constitute public property for a public purpose within the meaning of Section 170 of the Kentucky Constitution,” it nonetheless belonged to a purely charitable organization.  The Court determined that PIC was a purely charitable organization because it was created to serve the public interest and economic development is a fundamental need which is directly linked to the general welfare of each member of society.  The PVA filed a Motion for Discretionary Review with the Supreme Court of Kentucky on June 4, 2010.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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