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Hock RH, LLC v. South Carolina Department of Revenue

Court of Appeals of South Carolina

March 28, 2018

Hock RH, LLC, and York Preparatory Academy, Appellants,
v.
South Carolina Department of Revenue, Respondent. Appellate Case No. 2015-002087

          Heard June 8, 2017

          Appeal From The Administrative Law Court Deborah Brooks Durden, Administrative Law Judge

          Stephen M. Cox, of Robinson Bradshaw & Hinson, PA, of Rock Hill, for Appellants.

          Sean G. Ryan and Jason Phillip Luther, both of the South Carolina Department of Revenue, of Columbia, for Respondent.

          MCDONALD, J.

         York Preparatory Academy (YPA) and Hock RH, LLC (Hock) appeal an order of the administrative law court (ALC) affirming the South Carolina Department of Revenue's (DOR's) denial of Appellants' tax protest and request for a refund of 2013 property taxes paid on property leased by YPA, a public charter school. Appellants argue they are entitled to the refund because, in 2014, the General Assembly amended section 59-40-140(K) of the South Carolina Code to clarify that real property leased by public charter schools is exempt from ad valorem taxation. We reverse.

         Facts and Procedural History

         In 2009, the South Carolina Public Charter School District issued YPA a charter to establish and operate a public charter school under the South Carolina Charter Schools Act.[1] YPA subsequently organized as a nonprofit corporation and is exempt from Federal income tax.[2]

         On April 7, 2011, YPA entered a twenty-five year lease agreement with Hock, with the lease to begin on November 1, 2012. In late 2012, YPA moved to Hock's forty-five acre campus on Golden Gate Court in Rock Hill (the Campus). Since that time, YPA has used the Campus exclusively to educate students from kindergarten through twelfth grade. Under the terms of the lease agreement, YPA is responsible for all maintenance and upkeep of the Campus and its facilities and any property taxes. On September 27, 2013, Appellants executed a lease memorandum granting YPA the option to purchase the Campus. Appellants recorded the lease memorandum in York County on October 8, 2013.

         On November 4, 2013, YPA sought a property tax exemption for the Campus from DOR pursuant to S.C. Code Ann. § 12-37-220(A)(2) (Supp. 2012). DOR denied YPA's application by determination letter dated January 31, 2014, concluding that "§ 12-37-220(A)(2) makes no provision for leased property. Because [YPA] does not own [the Campus], an exemption through § 12-37-220(A)(2) does not exist."[3]Using funds tendered by YPA, Hock paid the 2013 property taxes of $271, 801.51 on February 20, 2014.

         Hock conveyed the Campus to YPA in February 2014. On March 26, 2014, DOR notified YPA that it had granted a § 12-37-220(A)(2) exemption for the Campus for the 2014 tax year.

         On May 29, 2014, the South Carolina General Assembly passed Act 208 to amend legislation "exempting all earnings or property of charter schools from state or local taxation, except for the sales tax, so as to clarify that property of charter schools exempt from such taxation includes owned or leased property." 2014 S.C Act No. 208. The amendment was subsequently codified with an effective date of June 2, 2014. S.C. Code Ann. § 59-40-140(K) (Supp. 2014).

         Citing the 2014 amendment, on October 6, 2014, Appellants filed for a refund of the 2013 property taxes. DOR denied the refund request on February 3, 2015, determining Appellants were not entitled to an exemption under § 59-40-140(K) for the 2013 tax year because the 2014 amendment did not apply retroactively.

         On March 3, 2015, Appellants appealed DOR's determination to the ALC, where the parties filed cross-motions for summary judgment. The ALC granted DOR's motion for summary judgment on September 2, 2015, finding Appellants were not entitled to a refund because ...


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