As many of you are aware, the Beachwood City School District has been involved in protracted litigation with the Cleveland Clinic Foundation regarding real estate taxes for its Cedar Road facility in Beachwood. This litigation began in 2005 after the Ohio Tax Commissioner rejected The Clinic's application seeking to exempt the Cedar Road facility from real estate taxation. The basis of The Clinic's application was that it was a charitable institution and therefore should not be subjected to real property tax. It is important to note that what constitutes a charitable institution for real estate taxation purposes is different than it is for federal income tax deductions and charitable giving. Prior to The Clinic's acquisition of the Cedar Road facility, the owners of the former Mt. Sinai Integrated Medical Campus paid real property taxes, which resulted in $275,000 per year for our schools. By the Tax Commissioner rejecting The Clinic's application, The Clinic remained subject to these taxes.

 

The Clinic appealed the decision to the Ohio Board of Tax Appeals in 2005. In doing so, the Beachwood City School District became a party to the litigation and essentially was required to defend the decision of the Ohio Tax Commissioner. Had the District failed to participate actively in the litigation, the taxable status of the Cedar Road facility would likely be lost for the indefinite future. Tax appeal litigation is similar to standard litigation in that parties take depositions, exchange documents, and present expert testimony. Accordingly, the process is time-intensive and costly. In our case, the litigation has taken about 10 years. The District was able to mitigate legal expenses, which were still costly, by sharing them with the Cleveland Municipal School District, which was litigating the identical issue with The Clinic. In the end, the scope of litigation relates to tax years 2002 - 2011*, and the total amount owed by The Clinic to the Beachwood City School District is approximately $8 million, which has not been paid.

 

The Ohio Tax Commissioner, by operation of law, is also a party to the litigation. The Ohio Tax Commissioner is represented by the Ohio Attorney General. Throughout the 10 years of the litigation of this matter, including and as late as the nine-day merit hearing that occurred in the summer of 2013, the Attorney General vigorously defended the Tax Commissioner's decision to reject The Clinic's application for real property tax exemption for the Cedar Road facility. However, when the Attorney General filed its post-

hearing brief, in December 2013, it suddenly and inexplicably reversed its position and has now urged that the Cedar Road facility be designated as exempt from real property taxation. One can only speculate as to the political reasons for this reversal, but no one can deny the frustration for our District given the valuable time and resources expended defending this matter.

 

We expect that the Ohio Board of Tax Appeals will decide the case as early as this spring or summer. If any of the parties are dissatisfied with the decision of the Ohio Board of Tax Appeals, it may file an appeal to the Ohio Supreme Court.

We will keep you apprised of future developments in this matter.