You asked for background information on the law relating to property tax exemptions for houses owned by private schools and used for faculty and staff housing. You also asked:

1. whether there are any limits on what a nonprofit school can own and still be tax-exempt;

2. if the houses are rented to school staff or used as part of staff compensation, whether they can be fairly considered part of the school's educational mission;

3. whether all the property has to be educationally related to be tax-exempt; and

4. whether the school could rent the houses to non-faculty and still have them be tax-exempt.

The Office of Legislative Research is not authorized to give legal opinions and this report should not be considered one.

SUMMARY

Connecticut law exempts from local property taxes real property owned by scientific, educational, literary, historical, charitable, or open space land preservation organizations and used exclusively for one or more of those purposes. The exemption is subject to several conditions and limitations. Therefore, the answers to your specific questions depend on the facts of the particular situation.

The property tax exemption for scientific, educational, literary, historical, charitable, or open space land preservation organizations has been the subject of many lawsuits. The specific question of whether faculty houses owned by private schools are exempt and under what circumstances has been litigated several times. This report summarizes three of these cases. In two, the court found that the houses were exempt because they served the school's educational mission. In the third, the court ruled the houses were taxable because they were owned for the exclusive purpose of relieving a housing shortage for the school's teachers.

Additional information on how the statutory exemption for educational, charitable, and other property has been applied may be found in OLR reports 2001-R-0619 (church steeples used for cell phone antennas), 2002-R-0097 (town taxation of charitable property and college dormitories), 2004-R-0769 (exemption for property partly used as a college dormitory), and 2008-R-0222 (charitable exemption for open space property). OLR report 2001-R-0524 also provides a brief legislative history of the property tax exemption for private schools.

CONNECTICUT STATUTE

State law exempts an entity organized exclusively for educational purposes from paying property taxes on its real and personal property. But the exemption is subject to several statutory conditions. To qualify for the exemption, the property must:

Another statute specifies that educational institution property that is not used exclusively for educational purposes but instead is rented, leased, or otherwise used for other purposes, is taxable. And if part of the property is used exclusively for educational purposes and part is not, then the part that is not used for the exempt purpose may be taxed on a pro rata basis (CGS § 12-88). If, for example, an educational institution leases 20% of a building it owns to Starbuck's while using the rest for a dormitory, the 20% rented to Starbuck's would taxable and the 80% used for educational purposes would be exempt.

COURT DECISIONS

General Rules

Connecticut courts have long followed the general rule that tax exemption statutes must be construed strictly against the taxpayer and that the party claiming the exemption bears the burden of proving its entitlement to it. (Fanny J. Crosby Memorial, Inc. v. Bridgeport, 262 Conn. 220 (2001)).

But in a 1995 ruling on whether Loomis Chaffee School could claim a property tax exemption for several faculty houses it owned, the Connecticut Supreme Court stated that the property tax exemption statute as applied to educational institutions does not fall within this general rule. In addition, in that case, the court restated its consistent position that the requirement that the exempt property be used exclusively for carrying out an educational purpose must be broadly interpreted.

It is well-established that the exemption granted is not limited to the buildings used for educational purposes in the limited and restricted sense. It extends to all of the property the use of which is incidental to education, including campuses and playing fields. . . .The real test is whether the property is sequestered for educational purposes and whether the corporation, or any person, can secure a profit from its operations. (The Loomis Institute v. Town of Windsor, 234 Conn. 169, 177 (1995)).

In the same decision, the court also noted that “the determination of whether property is used exclusively for carrying out an educational purpose is necessarily governed by the specific facts in the individual case.”

Specific Cases

The following cases dealt with the question of whether houses owned by private schools and used as faculty residences were exempt from property taxes in the town where the houses were located. In two of them, the court ruled that the property was exempt and in the third, that it was not. In each case, it was undisputed that the school (1) owned the houses in question and (2) was entitled to a tax exemption for its property used exclusively for carrying out its educational mission.

Loomis Chaffee School. In 1995, the Connecticut Supreme Court ruled that Loomis Chaffee School was entitled to claim a property tax exemption from the town of Windsor for 25 free standing houses it used and maintained as residences for faculty and their families. The court based its decision that the houses were used to carry out the school's educational mission on the following facts:

1. the houses are located within walking distance of the school's main campus;

2. in addition to their use as faculty residences, the school also uses the houses for counseling and entertaining students, and for housing students' parents, school trustees, and other school visitors;

3. in exchange for living in the houses, faculty must perform certain duties for the school including supervising study halls and dormitories, eating with students, and attending campus events;

4. faculty living in the residences, unlike faculty living off-campus, must be available on a 24-hour basis to deal with school emergencies and act in loco parentis to boarding students; and

5. faculty who perform similar duties while living off campus receive $10,000 per year in additional compensation. (The Loomis Institute v. Town of Windsor, 234 Conn. 169; 1995 Conn. LEXIS 209).

Woodhall School. This Superior Court case involved a house and land used as the residence for The Woodhall School's Head of School. The school provides individualized instruction for boys aged 14 to 19 who have been unsuccessful in traditional educational settings. The property was conveyed to the school by Sally Campbell Woodhall, the head of

school. Before that conveyance, she owned it, lived in it as her residence, and paid property taxes on it. Once she conveyed ownership to the school, the school claimed a property tax exemption. The town rejected the claim and the school sued.

In ruling that the school was entitled to an exemption for the property, the judge found the facts of the case to be similar to those in the Loomis case above, namely that:

1. the property is located within close walking distance of the school;

2. in exchange for living in the house, the head of school must be officially at the school from 8 a.m. to 7 p.m. and “always on call” to serve in loco parentis to students; and

3. the house is used for many other independent, school-related purposes.

The judge also stated that the statutory requirement that the property be used exclusively for educational purposes does not require that actual instruction take place there. He relied on the Loomis ruling to find that the property tax exemption applied to the house and property. (The Woodhall School, Inc. v. Town of Bethlehem, 2000 Conn. Super. LEXIS 71).

New Canaan Country School. This 1951 Connecticut Supreme Court case involved two houses owned by the New Canaan Country School and used solely as living quarters for some of its teachers. The New Canaan Country School was a day school located in New Canaan. It had no students boarding at the school. It employed 45 teachers.

In 1946, because the housing shortage made it difficult to hire teachers, the school bought a house three miles from the school and also built a house 200 yards from the campus. The first was used as a residence for three teachers and their families and the other as a residence for one teacher and his family. The school furnished utilities and trash removal and paid for repairs, maintenance, and other ongoing expenses. The salaries of the faculty living in the houses were reduced by roughly $80 per month to take account of the fact that the school provided their living quarters. Their occupancy of the houses depended on their continued employment at the school.

In this case, the court found that the houses were not used exclusively for educational purposes as required by the statute. Instead, it found that the school acquired and maintained the houses for the sole purpose of securing and retaining teachers in a housing shortage. Thus, it ruled that the houses were subject to local property taxes (The New Canaan Country School, Inc. v. Town of New Canaan, 138 Conn, 347; 1951 Conn. LEXIS 226).

JL:ts