Were university-owned land and fraternity-owned housing built on that leased land exempt from South Carolina property tax under PLR 97-3?

Plain-English summary

South Carolina Private Letter Ruling 97-3 found separate property-tax exemptions for public-university land and fraternity housing built on that land under a long-term lease.

The university retained title to the land and was exempt under the rule for schools, colleges, and other institutions of learning because its profits were not applied to private use. If the housing improvements had belonged to the university, they would have shared that exemption. Under the actual lease, however, each Greek housing corporation owned its building during the 40-year lease, with title transferring to the university when the lease ended.

Because the lessee owned the improvements, the Department analyzed those buildings separately. It concluded that each qualifying Greek housing corporation was a fraternal organization and that housing used daily for members to meet, socialize, eat, sleep, and conduct fraternity activities was used primarily for the organization's meetings and business.

The ruling also found that ordinary social and residential benefits shared by fraternity members were not the prohibited private profit or commercial benefit. Students paid room and board, but no profit or benefit from the corporation's business inured to an individual member under the stated facts. The fraternity-owned improvements therefore qualified for the fraternal-organization exemption.

Common questions

Q: Did university ownership of the land automatically exempt the fraternity's building? No. Because the fraternity corporation owned the improvements during the lease, its exemption had to be tested separately.

Q: Did providing housing and social space create a prohibited private benefit? Not under the stated facts. The ruling distinguished customary group benefits of fraternity membership from direct or indirect commercial benefits to individual members.

Q: What could cause the exemptions to be lost? Applying university profits to private use could end the land exemption. Private profit or benefit to fraternity members, or failure to use the building primarily for fraternal meetings and business, could end the improvement exemption.

Q: Can another university or fraternity rely on PLR 97-3? No. The ruling expressly limits reliance to its recipient and facts and says it has no precedential value.

Citations and references

• S.C. Code Ann. § 12-37-220(A)(2) (property of institutions of learning)
• S.C. Code Ann. § 12-37-220(B)(12) (property of qualifying fraternal organizations)
• S.C. Code Ann. §§ 12-37-10 and 12-37-610 (real-property definition and owner's tax liability)
• S.C. Code Ann. §§ 12-43-220(e) and 12-43-230(b) (six-percent classification and lessee improvements)
• Hibernian Society v. Thomas, 319 S.E.2d 339 (S.C. Ct. App. 1984) (primary use and member-benefit analysis cited)
• In re Mason Tire & Rubber Co., 11 F.2d 556 (D.C. Cir. 1926), and First Bank in Dallas v. Commissioner, 45 F.2d 509 (5th Cir. 1930) (fraternal-organization descriptions cited)

Subject

Taxation of land owned by a public university but leased to a greek fraternity corporation for construction of greek letter housing and the taxation of any fraternity housing constructed thereon

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR97-3.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC PRIVATE LETTER RULING #97-3

TO:

XYZ University

SUBJECT:

Taxation of land owned by a public university but leased to a greek
fraternity corporation for construction of greek letter housing and the
taxation of any fraternity housing constructed thereon

REFERENCE:

S. C. Code Ann. Section 12-37-10 (1976)
S. C. Code Ann. Section 12-37-220(A)(2)(1996 Supp.)
S. C. Code Ann. Section 12-37-220(B)(12)(1996 Supp.)
S. C. Code Ann. Section 12-37-610 (1996 Supp.)
S. C. Code Ann. Section 12-43-220(e)(1996 Supp.)
S. C. Code Ann. Section 12-43-230(b)(1996 Supp.)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1996)
SC Revenue Procedure #94-1

SCOPE:

A Private Letter Ruling is an official advisory opinion issued by the
Department of Revenue to a specific person.

NOTE:

A Private Letter Ruling may only be relied upon by the person to
whom it is issued and only for the transaction or transactions to
which it relates. A Private Letter Ruling has no precedential value.

Question(s):
Are XYZ University and a Greek Housing Corporation both exempt from ad valorem
property taxes on land and the improvements constructed thereon when the land is owned
by XYZ University but leased to the Greek Housing Corporation for construction of
fraternity housing?
Conclusion(s):
S.C. Code Ann., Section 12-37-220(A)(2), provides that “all property of all schools,
colleges, and other institutions of learning . . . [is exempt from ad valorem taxation],
except where the profits of such institutions are applied to private use.” Because XYZ
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University meets the parameters of this statute, as discussed below, XYZ University is
exempt from ad valorem taxes on the land leased to the Greek Housing Corporation
[hereinafter GHC].
If the improvements to the land constructed by GHC belong to XYZ as an improvement
to XYZ’s land, such improvements are also exempt from ad valorem property taxes under
Section 12-37-220(A)(2). However, pursuant to the lease agreement between XYZ and
GHC, such improvements are owned by GHC during the period of the lease.
S.C. Code Ann., Section 12-37-220(B)(12), provides that the “property of any fraternal
society, corporation, or association, when the property is used primarily for the holding of
its meetings and the conduct of its business and no profit or benefit therefrom . . . inure[s]
to the benefit of any private stockholders or individuals,” is exempt from ad valorem
property taxes. Because GHC is a fraternal organization and meets the other requirements
of Section 12-37-220(B)(12), GHC is exempt from ad valorem property taxes on the
improvements made by GHC to the property leased from XYZ University.
Facts:
XYZ University is a state-supported school, the profits of which are not applied to any
private use. The Board of Trustees of XYZ University will provide on-campus land for
the construction of Greek Letter Housing to be used by XYZ University students. The
University will either utilize existing land, which it owns, or will purchase land to be used
for this purpose.
The University will hold title to the land and will lease lots on a long term basis to
individual GHC’s. Each GHC will be a non-profit tax exempt organization for federal
income tax purposes. No profit or benefit from membership in a GHC will inure to the
benefit of any individual member. Students residing in Greek Letter Housing will pay for
room and board.
The initial lease on each lot will be for 40 years, renewable upon the joint agreement of
XYZ and the GHC’s. Structures on the land will be built by the GHC using GHC funds
and owned by the GHC during the period of the lease with XYZ. Title to the
improvements to the land including the housing constructed thereon will transfer to XYZ
upon termination of the lease.
Discussion:
S.C. Code Ann., Section 12-37-220(A)(2) provides that “all property of all schools,
colleges, and other institutions of learning . . . [are exempt from ad valorem property
taxes], except where the profits of such institutions are applied to private use.” Under
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Section 12-37-220(A)(2), XYZ University is exempt from ad valorem property taxes on
the land it proposes to lease to GHC under Section 12-37-220(A)(2). If any profits of
XYZ University are applied to private use, XYZ will lose this exemption and be taxed
on an assessment equal to six percent of the fair market value of the property. See S.C.
Code Ann., Section 12-43-220(e).
The housing to be built on the leased land by each GHC requires further discussion since
such housing will be owned by the GHC rather than XYZ University.
S.C. Code Ann., Section 12-43-230(b) provides “all improvements to leased real
property made by the lessee shall be considered real property and shall be classified
and assessed for ad valorem taxation in accordance with the provisions of Section 1243-220.” 1 “Personal property” means all things, “other than real estate . . . .” S.C. Code
Ann., Section 12-37-10(2). Real property means not only land but also “all structures
and other things therein contained or annexed or attached thereto . . . .” S.C. Code
Ann., Section 12-37-10(1).
S.C. Code Ann., Section 12-37-610 provides that “[e]very person is liable to pay taxes
and assessments on the real estate which he owns or may have the care of as guardian,
executor, trustee, or committee.”
As a result of the above cited sections, if the improvements to the land made by GHC
[i.e., the fraternity housing] are taxable, they are taxable to GHC since GHC “owns”
the improvements.
However, S.C. Code Ann., Section 12-37-220(B)(12) provides an exemption from ad
valorem property taxes for certain fraternal organizations. That section reads, in part:
The property of any fraternal society, corporation or association, when the property
is used primarily for the holding of its meetings and the conduct of its business and
no profit or benefit therefrom [inures] to the benefit of any private stockholders or
individuals, [is exempt from ad valorem property taxes].
For any fraternity to fall within the tax exempt status afforded by Section 12-37220(B)(12), each GHC must satisfy the conditions enumerated therein as follows:
(1) That it is a fraternal organization.
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Previously, S.C. Code Ann., Section 12-37-630, provided that “[w]hen the fee of the soil in any tract or
lot of land is in one person and the right to any . . . structures thereon in another, . . . such structures shall
be valued and taxed as personal property to the owners thereof, respectively.” Section 12-37-630 was
repealed effective June 14, 1993.

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(2) That the improvements to the land leased from XYZ University are used
primarily for the holding of fraternity meetings and the conduct of its business.
(3) That no profit or benefit from such business shall inure to the benefit of any
individual member.
A fraternal organization in the popular acceptance of the term is “[a]ny society organized
for the accomplishment of some worthy object through the efforts of its members working
together in brotherly union, especially if it be organized not for selfish gain, but for the
benefit of the membership or for the benefit of the membership and men in general.” In
Re Mason Tire & Rubber Co, 11 F.2d 556, 557 (C.A.D.C. 1926). In First Bank in Dallas
v. C.I.R., 45 F.2d 509 (5th Cir. 1930), the court stated that fraternal organizations may be
described generally as social in their nature, and designed not exclusively for charitable
purposes but also for the enjoyment of the members.
In American colleges, a fraternity is a student organization, either a nationally chartered
society comprising many affiliated chapters or a single chapter in one institution, formed
chiefly to promote friendship and welfare among the members, and usually having a
name consisting of Greek letters. Webster’s New International Dictionary, “fraternity,”
2d Edition, Unabridged.
From the nature of the lease between XYZ and GHC, it is clear the housing, once
completed by GHC, will be owned and occupied by XYZ University fraternities and will
provide a place for fraternity member students to meet, to socialize, to eat, to sleep, and to
generally promote “friendship and welfare among the members.” As such, we conclude
that each GHC is a fraternal organization within the meaning of Section 12-37220(B)(12) of the S.C. Code Ann.
The next condition that must be satisfied is that the housing constructed by GHC must be
used primarily for the holding of the fraternity’s meetings and the conduct of its business.
“The word ‘primarily’ means ‘of first importance’ or ‘principally’.” Hibernian Soc. v.
Thomas, 319 S.E.2d 339, 342-343 (S.C. App.)(1984). In holding the Hibernian Society’s
building to fall within the ambit of ' 12-43-220(B)(12), the S.C. Appellate Court noted:
[T]he Hall is used to hold the Society’s meetings and to conduct the business of
being a fraternal organization....The Hall is used 364 days a year for the fraternal
and social purposes of the Society.

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As in Hibernian, GHC would be used every day of the year for the fraternal and social
purposes of the fraternity, to include providing a meeting area and eating and sleeping
facilities for its members. As such, we conclude its facilities are used primarily for the
holding of fraternity meetings and the conduct of its business.
The last requirement is that no profit or benefit from the [fraternity’s] business
can inure to the benefit of any individual member. Obviously, no member
receives any direct financial benefit from belonging to the fraternity such as a
salary or dividends. We recognize that “profit or benefit” may inure to an
individual other than through the distribution of dividends. [Some argue] that
having a place to socialize to the exclusion of the general public is sufficient
“profit or benefit” to deny the exemption. We disagree.
There is bound to be some incidental, non-financial benefit resulting from
membership in any type organization. In enacting this particular condition, the
legislature intended . . . to stop the flow of any direct or indirect commercial
benefits to the individual members of the Society . . . as opposed to the benefits
which inherently and customarily flow to the members of a fraternal
organization as a group.
Hibernian SOC. v. Thomas at 343.
Students residing in fraternity housing will pay for room and board. Based on the facts
presented, no profit or benefit from membership in a GHC fraternity inures to the benefit
of any individual member. Since GHC meets the requirements of Section 12-37220(b)(12), it is exempt from ad valorem property taxes on the improvements made to the
land leased from XYZ University.
If a profit or benefit from membership in GHC does inure to the benefit of any individual
member, GHC will lose its exemption under Section 12-37-220(B)(12) and be taxed on
an assessment equal to 6% of the fair market value of the improvements to the land. S.C.
Code Ann., Section 12-43-220(e).

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