The Virginia Court of Appeals recently ruled in a case involving Roanoke County and Friendship RL, LLC, concerning the tax exemption status of a property previously owned by Richfield Retirement Community. The court decided that Friendship, a nonprofit organization, does not qualify for the same property tax exemption that was granted to Richfield. This ruling impacts how local governments assess property taxes for nonprofit organizations.

The case, Roanoke County, Virginia v. Friendship RL, LLC (Record No. 0163-26-3), centered around a property that Friendship purchased from Richfield Retirement Community, which had been exempt from local taxation. Friendship argued that as a tax-exempt organization under federal law, it should inherit the same tax-exempt status for the property. However, the court found that the specific language of the law did not extend the exemption to Friendship.

Background

Friendship RL, LLC and its parent organization, Friendship Foundation, are both classified as 501(c)(3) nonprofit organizations that provide housing and healthcare services for seniors in the Roanoke Valley. The property in question was designated as tax-exempt by the Virginia General Assembly in 1987, specifically for Richfield Retirement Community, which used it for charitable purposes.

In 2023, Friendship Foundation acquired the property from Richfield and subsequently transferred it to Friendship RL. Initially, Roanoke County treated the property as tax-exempt. However, the County later reassessed the property and determined it was no longer eligible for the exemption, leading Friendship to file a lawsuit seeking a declaratory judgment that the property should remain tax-exempt.

The Ruling

The Virginia Court of Appeals, led by Judge Lisa M. Lorish, ruled against Friendship. The court stated, "On its face, Code § 58.1-3650.248 does not apply to Friendship. And, strictly construed, Code § 58.1-3601 does not create a new tax-exemption for Friendship or any other organization solely because it is exempt from federal income tax." This ruling reversed the trial court's decision that had initially favored Friendship.

The court emphasized that the original tax exemption was specifically designated for Richfield Retirement Community and did not extend to any subsequent owners of the property, including Friendship. The judges noted that the law must be interpreted strictly against the taxpayer, meaning any exemptions from taxation must be clearly established in the law.

Impact

This ruling has significant implications for nonprofit organizations in Virginia. It clarifies that property tax exemptions granted to specific organizations do not automatically transfer to new owners, even if those owners are also nonprofit entities. This decision reinforces the idea that local governments have the authority to assess property taxes based on the specific language of tax exemption laws.

Moreover, the ruling highlights the importance of understanding the distinction between federal and state tax exemptions. While an organization may be exempt from federal income tax under IRS rules, this does not guarantee similar treatment at the state or local level. The court's decision could influence future cases involving property tax exemptions for nonprofits.

What's Next

Friendship may consider appealing the decision, but details were not available in the court filing regarding any potential next steps. The ruling sets a precedent for how tax exemptions are interpreted in Virginia, potentially affecting other nonprofit organizations seeking similar exemptions.