Stanford University is seeking to reduce its tax burden on two faculty houses by claiming they are used for educational purposes.
If successful, additional exemptions the university may seek could result in millions of dollars in lost revenue for schools and local governments, particularly the Palo Alto Unified School District, Santa Clara County administrators say. .
Stanford filed for a tax refund on the two properties, whose addresses have been removed from the records, in 2021. The university claimed the educational use exemption under the provisions of the California Constitution and the Code of income and taxes. The total property tax exemption claim is $20,657 in the first year for both properties and would apply each year thereafter, the county said in an email to the Palo Alto Weekly.
If the university seeks additional refunds based on the same claims, the county and local jurisdictions could potentially lose nearly $5 million per year, including $2.3 million per year for the Palo Alto Unified School District. . Those losses would hurt K-12 students, teachers and the local economy, said Santa Clara County Attorney James Williams.
Properties are currently taxed based on their current market value, as is the case with all properties in California. Stanford wants a 25% tax cut on the value of land under properties, which it owns and leases to faculty members. The university says it has an “interest” in the properties and that they are tax-exempt for use for educational purposes. Stanford does not claim an exemption for taxes paid by faculty members who own homes on the leased land.
But the county flatly rejected the claims. An Assessment and Appeals Board advised the university in October 2021 that it had no jurisdiction to grant or deny exemptions, or to consider claims that claims for property tax exemptions had improperly denied, according to a letter to the university.
The university then filed a claim with the Santa Clara County Board of Supervisors in February 2022 for reimbursement, and Stanford has now appointed attorneys hired as power of attorney to pursue the matter further, according to Stanford’s claim letter. .
Williams said the county denied the request. He noted that the county does not deny the educational status of on-campus properties such as student dormitories. The two residential properties, which are long-term leases for faculty members, are not the same as the libraries, academic buildings, and other facilities used daily for teaching on campus. They’re also not located on the main university campus with those other educational buildings, Williams said, challenging Stanford’s definition of “on campus.”
Stanford owns 8,180 acres of land in Santa Clara and San Mateo County. The university was not required to pay taxes on more than $15.9 billion of its holdings in fiscal year 2021, Santa Clara County’s largest tax exemption, according to the assessor’s office. of Santa Clara County, Williams noted.
More than 1,200 single-family residences are part of its heritage. Those homes are worth nearly $1.1 billion, according to the county.
Increasingly, the university is also purchasing single-family homes in the towns of Menlo Park, Palo Alto, and surrounding communities to meet the needs of faculty the university has said it wants to attract.
Stanford holds the ground lease of its properties. Faculty members lease the land, often for decades, until they are no longer affiliated with the university. The faculty member buys the house that is on the lot. The faculty member agrees to a value cap of 2% per year, which keeps the home’s value low for the next buyer who takes possession, according to the university’s residential ground lease.
Assets may also be transferred to the surviving spouse of a deceased active faculty member, even if the spouse has no educational connection to the university. Williams noted that this would appear to disprove educational use.
The issue arose after the Santa Clara County Tax Assessor’s Office began reassessing property values in 2018 for home purchases that occurred in 2017 and beyond.
In 2019, about 50 Stanford University faculty members who purchased their homes through land leases in the previous three years had their properties reassessed by the county. Using a little-known rule for homes held under land leases, the county rated some single-family homes 12% to 48% higher. The new valuations were based on the open market purchase prices of neighboring homes.
Stanford’s reason for requesting the exemption is to alleviate difficulties related to the cost of housing for professors.
In a written statement, Stanford said: “Homes in the faculty subdivision on the Stanford campus have traditionally been appraised based on the purchase price of the property by the faculty, like other residential properties in the county of Santa Clara In recent years, the county assessor has increased the assessed value of some newly purchased faculty homes on the Stanford campus to levels above faculty purchase prices.
“The appraiser’s revaluation of properties at levels above faculty purchase prices has created unexpected and substantial financial hardship for some faculty owners and does not reflect Stanford’s restrictions on sales, ownership and use of these properties by faculty. It is important to note that faculty homes are on land leases, so landlords do not own the entire property interest in these homes. Stanford is seeking a partial exemption property tax for some of the affected homes based on the value of the interest in the property retained by Stanford as the underlying owner.”
The university stressed that providing affordable housing for faculty is essential to Stanford’s educational mission.
“Stanford’s retained interests and restrictions in the houses are designed to achieve this goal of affordable faculty housing,” the university said.
Williams said the faculty houses “are functionally indistinguishable from private residences. No one would mistake them for a student dorm. The houses are the same as any other private family homes. The difference is that Stanford subsidizes purchases .”
Stanford’s claim to the Board of Supervisors said high Bay Area housing prices prevent many faculty members from affording homes in surrounding off-campus neighborhoods.
Similar concerns and claims were raised in a lawsuit against Orange County over land leases and faculty housing at the University of California, Irvine. University administrators also argued that he needed the exemption to attract quality professors.
A lower court sided with plaintiffs against the county, ruling that a provision of the state constitution that excludes from taxation property “used exclusively for public schools, community colleges, colleges of ‘State (or) State Universities’, applied in the Orange Departmental Affair. The State Court of Appeals and the California Supreme Court, however, overturned that decision.
In 1992, the state Supreme Court unanimously ruled that faculty and staff who rent campus houses must continue to pay property taxes. About 200 UC Irvine faculty and staff had requested exemptions.
The Supreme Court found that rented accommodation on land owned by a tax-exempt institution can only be tax-exempt if the accommodation is essential to the purpose of the institution.
“If their leasehold interest in the property on which the houses are situated qualifies for an exemption because the property is used for faculty accommodation, then it is difficult to understand on what basis an exemption could be denied to the interest ownership of faculty members in the houses themselves,” the Supreme Court said.
If the use of a property for the housing of a faculty member is an exclusive use of a property for academic purposes under state provisions, then a faculty member who has purchased a home on a property private property and used it as a family residence could also claim an exemption because that property would also be property used for faculty accommodation, the court noted.
“As these examples demonstrate, the interpretation offered by the plaintiffs … proves too much,” the court said.
“The (UC Irvine) Leasehold Interests, which are private interests used for private landlord residences, are not property used exclusively for academic purposes within the meaning of Section 3(d). Plaintiffs do not are not entitled to the exemption they seek,” the court reasoned.
The Palo Alto Unified School District, in an amicus brief supporting Orange County, said the harm a tax exemption would cause. Citing the tax revenue it receives from Stanford, the school district noted that a significant portion of its funding comes from taxes from Stanford University employees who rent their land from the university.
The Stanford Campus Residential Tenants Association in 1991 had filed an exemption request for its individual tenants, but it was not part of the lawsuit in Orange County. The request was subject to the decision of the Orange County Supreme Court and it was not pursued, the university noted in a public statement after the High Court decision.
In its current claims, Stanford cited some of the same sections of the state’s tax code and constitution used by the plaintiffs in the Orange County case. It is unclear what new arguments Stanford would bring that have not already been decided by the High Court in the Orange County case.
However, Williams was not surprised by the university’s efforts.
“What’s not new is that Stanford is pushing the envelope” on its attempts to obtain tax exemptions, he said.
He noted the university’s successful victory in 1978 of a tax exemption for Stanford’s 166-acre golf course.
The county asserted in a lawsuit that the golf course did not qualify for the exemption because it was not used exclusively for educational purposes within the meaning of the state constitution.
However, the Santa Clara County Superior Court and the State Court of Appeals ruled in favor of Stanford, since the university used the golf course for teaching golf lessons to students, varsity competition intercollegiate and intramural by the students and the varsity team’s long-distance race. Stanford students, faculty, and staff also use the course to play golf recreationally. The court said that even though the majority of usage is for paid members, they are still alumni.