Tax Break Rejected on Housing Leased From UCI

Ruling on a case that originated at UC Irvine, the state Supreme Court on Thursday ruled that college professors who live in houses on university-owned land are not living on “educational” property and must pay property taxes on the land.

The high court unanimously rejected lower court rulings that had granted property tax exemptions to about 400 families living in UCI’s University Hills faculty and staff housing development. The university had contended that faculty should pay taxes on improvements to the houses, but not on the land itself.

“I’m sure the homeowners will be disappointed,” UCI spokeswoman Karen Newell-Young said. “We’re concerned that (the decision) might have a somewhat negative effect on recruitment during these difficult times.”

But William Parker, UCI’s assistant executive vice chancellor, said the faculty will not be hit for more payments because they have been paying taxes on both the land and the houses since the suit went to court in 1987.

The exemptions were based on a provision of the state Constitution that excludes from taxation property “used exclusively for public schools, community colleges, state colleges (or) state universities.”

The court said a similar provision exempts property used for “educational purposes” by a nonprofit college. For that reason, a ruling in favor of the Irvine teachers could have been used to bar property taxes on leases in 856 homes leased by Stanford University employees on land owned by the university.

The Palo Alto Unified School District urged the court to deny the exemption, saying much of its money comes from taxes on the Stanford leases. The UC Board of Regents and the Independent California Colleges and Universities group argued for the exemption, saying the tax break is essential to recruiting skilled teachers and allowing them to live nearby.

The court, in an opinion by Associate Justice Marvin R. Baxter, said leased housing on land owned by a tax-exempt institution may also be exempt if the housing is essential to the purpose of the institution. He cited the case of a private hospital’s housing for interns, resident doctors, student nurses and other essential personnel, which was granted an exemption.

But Baxter said a teacher’s leased home, “owned by a private person who will benefit personally from the proposed use, . . . does not fulfill the public purpose contemplated” by the law exempting educational property from taxation.

Times staff writer Kristina Lindgren contributed to this report from Orange County.