TAX NEWS - JUNE 2010

Virginia Tax: "Student housing" and tax exemptions

We ran a story over the weekend about a request you'll see before the City Council tomorrow night: Whether various properties owned by the UMW Foundation and its Eagle Housing LLC should be given tax exemptions.

This specific question is probably more of a technicality than a town-gown showdown over taxes, since the properties can easily be made tax-exempt by simply transferring ownership to the university itself.

However, I thought it was an interesting entry point for discussion on the issue of who is tax-exempt in Virginia localities, which I've always found interesting. Some of the commissioners of the revenue I called for comparison numbers that ran with the story told me no one had ever asked them before what percentage of their locality's land value was exempt from real estate taxes. I just think that's one of those little figures that is helpful to have in the back of your head when you're trying to understand the development of your locality.

In the comments below Sunday's story, a few people asked whether, if the city adds "student housing" to the list of uses eligible for tax exemption, it would open up the possibility of private property owners who rent to students getting a tax break.

In considering that question, I'd point you to a couple of things.

First is the Virginia law that lays out the general rules for localities granting tax exemptions. Check out the questions localities are to consider when granting tax exemptions. It's not just the use of a property, but it's ownership status, that makes it eligible for exemption. And when it comes to the owner, the state asks localities to consider "Whether the organization is exempt from taxation pursuant to § 501(c) of the Internal Revenue Code of 1954″ and "Whether the organization provides services for the common good of the public," among other things. Can Joe Landlord meet these standards?

Second is City Attorney Kathleen Dooley's memo to the council on the ordinance change. Dooley points out that all this change does is make it possible for the council to consider these questions on a case-by-case basis. In this case, the city is looking at this housing as part of an "educational" property use. There are several ways in which Eagle Landing and the University Apartments differ from your typical student rental in College Heights that she notes:

- The owner–the UMW Foundation through its Eagle Housing LLC – exists "for the exclusive purpose of supporting the educational mission of the University of Mary Washington"
- These facilities are operated and assigned to students by UMW, through its housing office. Students who live here are considered on-campus students. They must have university meal plans, and their halls are staffed by RAs.