[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Kohl’s Illinois, Inc. v. Marion Cty. Bd. of Revision, Slip Opinion No. 2014-Ohio-4353.]




                                        NOTICE
     This slip opinion is subject to formal revision before it is published in
     an advance sheet of the Ohio Official Reports. Readers are requested
     to promptly notify the Reporter of Decisions, Supreme Court of Ohio,
     65 South Front Street, Columbus, Ohio 43215, of any typographical or
     other formal errors in the opinion, in order that corrections may be
     made before the opinion is published.


                         SLIP OPINION NO. 2014-OHIO-4353
      KOHL’S ILLINOIS, INC., APPELLANT, v. MARION COUNTY BOARD OF
                            REVISION ET AL., APPELLEES.
   [Until this opinion appears in the Ohio Official Reports advance sheets,
     it may be cited as Kohl’s Illinois, Inc. v. Marion Cty. Bd. of Revision,
                         Slip Opinion No. 2014-Ohio-4353.]
Real property taxation—Tax-increment financing—Covenant not to contest
        valuation—dismissal of valuation complaint reversed.
     (No. 2013-1006—Submitted June 10, 2014—Decided October 8, 2014.)
            APPEAL from the Board of Tax Appeals, No. 2011-A-2747.
                               ____________________
        Per Curiam.
        {¶ 1} In this appeal, we review the holding of the Marion County Board
of Revision (“BOR”) and the Board of Tax Appeals (“BTA”) that the complaint
filed by the property owner (Kohl’s Illinois, Inc. or Kohl’s Department Stores,
Inc., referred to as “Kohl’s”) was “void” because the property at issue was subject
to a tax-increment-financing (“TIF”) agreement that contained a covenant
prohibiting the filing of a complaint. We conclude that any bar to the complaint
                              SUPREME COURT OF OHIO




that arises from the TIF agreement is not a jurisdictional restriction and that, as a
result, the beneficiaries of the covenant had the burden to come forward and prove
their entitlement to a dismissal of the complaint. Those persons are the county
commissioners, a party to the TIF agreement, and River Valley Local Schools
Board of Education (“BOE”), which received a financial accommodation through
the TIF agreement.
        {¶ 2} Because the beneficiaries did not step forward and shoulder the
burden to prove their entitlement to a dismissal of Kohl’s complaint, we vacate
the BTA’s decision and remand for further proceedings at the BTA.
                               FACTUAL BACKGROUND
                                1. The TIF Agreement
        {¶ 3} TIF is a method of promoting and financing the development of
real property by directing “ ‘all or a portion of the increased property tax revenue
that may result’ ” from the development to defraying the cost of improvements
that are part of the development. Princeton City School Dist. Bd. of Edn. v.
Zaino, 94 Ohio St.3d 66, 68, 760 N.E.2d 375 (2002), quoting Meck & Pearlman,
Ohio Planning and Zoning Law 704, Section T 15.29 (2000); see also Sugarcreek
Twp. v. Centerville, 133 Ohio St.3d 467, 2012-Ohio-4649, 979 N.E.2d 261, ¶ 6
(“One such law for spurring economic growth is TIF, by which improvements
made to real property are exempted from taxation, and the funds that would have
been applied toward taxes are instead applied toward public improvements that
benefit the property within the area subject to the TIF”).
        {¶ 4} R.C. 5709.77 through 5709.81 authorize counties to enter into TIF
arrangements to finance improvements to real property.               Pursuant to those
statutes, the Marion County commissioners adopted the TIF resolution in this case
on December 20, 2005.1 In accordance with the statutes, that resolution (1)

1
  The evidence concerning the TIF agreement was presented by Kohl’s at the BTA, and is not
otherwise in the record.




                                            2
                                 January Term, 2014




declares “improvements” to specified parcels to be a public purpose, (2) specifies
public infrastructure improvements to be made that benefit those parcels, (3)
authorizes 100 percent tax exemption of the increased property value and requires
the owners of the parcels to make “service payments” in lieu of those taxes
(instead of adding to the public fisc, the payments go into a TIF fund [the
“redevelopment tax increment equivalent fund”] that finances the improvements),
and (4) approves a TIF agreement along with a compensation agreement with the
BOE.
        {¶ 5} The resolution outlines the plan for exempting increased value and
substituting service payments into the TIF fund for tax payments.             The TIF
agreement is contemplated by the resolution to be in force for 30 years, starting at
the earlier of the first tax year in which increased value is reflected on the tax list,
or tax year 2010.
        {¶ 6} The method for recapturing the “tax increment,” i.e., the taxes
attributable to the increased value of the property, is to require the property
owners to pay “service payments” into a TIF fund in lieu of paying property taxes
into the usual public-revenue funds. The TIF fund then finances the public
improvements while making the board of education whole. This redirection of
revenue involves only that amount that would be payable as tax with respect to
the increased value—and the increased value is referred to as the Improvement,
with a capital “I.”
        {¶ 7} The parties to the TIF agreement were the county commissioners,
the developer Max A. Findlay, Inc., and other then-current property owners.
Kohl’s also presented a deed showing transfer of the property at issue from the
developer to Kohl’s on February 27, 2006. The TIF agreement was executed
December 21, 2005, one day after the county commissioners passed the TIF
resolution.




                                           3
                              SUPREME COURT OF OHIO




                             2. The no-contest covenant
          {¶ 8} At the heart of this appeal lies the provision in Section 3.1 of the
TIF agreement that “no Owner shall contest the assessed valuations of any
Improvement for real property tax purposes.” Section 3.2, referring to taxes other
than the real property tax, does expressly permit tax contests with respect to those
other taxes.
          {¶ 9} The TIF agreement expressly calls for owner covenants to run with
the land, Section 3.4, and to effectuate that provision the Declaration of
Covenants was filed in the public records of the chain of title of the properties
subject to the TIF. The no-contest covenant was thereby expressly intended to
run with the land and bind those, such as Kohl’s, who purchased from the original
owners who signed the TIF agreement.
          {¶ 10} Also potentially pertinent is Section 7.3, “Binding Effect,” which
states:


                 This Agreement shall inure to the benefit of and shall be
          binding upon the County, all Owners and the Developer, and their
          respective successors and assigns, provided, however, only the
          covenants running with the land described in Section 3.4 shall be
          binding on Owners subsequent to the Current Owners unless that
          subsequent Owner is the Developer, the successor of a Current
          Owner of the Developer, or an assignee of this Agreement.


          {¶ 11} This provision purports to bind a successor owner to the entire TIF
agreement, based not on the covenant running with the land, but on Kohl’s status
as immediate successor to the developer, which itself was a signatory to the TIF
agreement.




                                          4
                                 January Term, 2014




       {¶ 12} Previously mentioned, the “Declaration of Covenants” deserves
further discussion. It contained a précis of the TIF resolution and agreement.
Filed in the county recorder’s office in the chain of title of the TIF properties, the
declaration put purchasers on notice of their provisions—in particular, those
intended to run with the land, such as the no-contest covenant at issue in this case.
       {¶ 13} Section 4(c) of the declaration reiterates the no-contest covenant,
and Section 5, headed “Covenants to Run With the Land,” expresses in no
uncertain terms the mutual intent and agreement of the parties to the TIF
agreement that the specified covenants should run with the land and that they
should “be binding to the fullest extent permitted by law and equity, for the
benefit and in favor of, and enforceable by, the County and the School District
against the Property, the Improvements and the Owners.” Also declared is the
intent that the covenants “shall remain in effect for the full period of exemption
provided in accordance with the requirements of the Act [previously defined as
R.C. 5709.77 through 5709.81], the Resolution enacted pursuant thereto and the
Agreement [i.e., 30 years].” Finally, the covenants are to be enforceable by “the
County and the School District” against the “Owner’s successors and assigns”
even if the covenant is not set forth in the deeds to those later grantees.
       {¶ 14} The declaration also elaborates as follows:


       [T]he County and the School District, and their respective
       successors and assigns shall each be deemed a beneficiary of the
       covenants provided herein. Such covenants shall run in favor of
       the County and the School District * * * without regard to whether
       either the County or the School District, has at any time been,
       remains or is an owner of any land or interest therein to, or in
       favor of, which such covenants relate.




                                           5
                             SUPREME COURT OF OHIO




(Emphasis added.) In other words, the county commissioners and the BOE are
declared to be entitled to enforce the covenant without regard to the usual real-
covenant requirement that a restriction be appurtenant to land held by those
entities.
                            COURSE OF PROCEEDINGS
        {¶ 15} On March 25, 2011, Kohl’s Illinois, Inc. filed a valuation
complaint that challenged the tax year 2010 valuation of a Kohl’s store in Marion
County. The complaint sought a true-value reduction of about $1,590,000, and
the BOE filed a countercomplaint seeking to retain the auditor’s higher valuation.
As grounds for doing so, the BOE’s complaint asserted: “Owner prohibited from
contesting value by TIF agreement.”
        {¶ 16} By order dated August 24, 2011, the BOR “dismissed this case due
to the fact that this parcel of property is part of the Legacy Crossing TIF with
Marion County,” and “[a]s part of the TIF agreement complaints against the value
are void until witch [sic] time the TIF agreement has been met.” Kohl’s appealed
to the BTA.
        {¶ 17} At the BTA, Kohl’s waived hearing and filed a brief. No other
party appeared.
        {¶ 18} As exhibits to its brief, Kohl’s submitted (1) its complaint, (2) the
BOR’s dismissal order, (3) the TIF resolution passed by the Marion County
commissioners, (4) the TIF agreement entered into between the county
commissioners and the original developer/owners, (5) the declaration of
covenants from the TIF agreement that was recorded in the chain of title, and (6)
the deed by which Kohl’s acquired the property from the owners that, along with
the developer, had entered into the TIF agreement with the county commissioners.
        {¶ 19} In its brief, Kohl’s advanced the following arguments: (1) the TIF
agreement and declaration of covenants prohibited a tax-valuation challenge “for
the first year that the increase in the assessed value of real property appeared on




                                         6
                                   January Term, 2014




the tax list, which was the tax year 2007” (emphasis sic), along with variations on
that contract-construction theme, (2) the TIF agreement contains conflicting
provisions regarding permissibility of tax-valuation challenges, one in Section 3.1
and one in Section 3.2, thereby creating an ambiguity that should be construed in
Kohl’s favor, (3) the no-contest covenant, if otherwise enforceable, should be
declared void as against public policy, and (4) if the no-contest covenant is
otherwise enforceable, its prohibition violates due-process and property-tax
uniformity.
        {¶ 20} In its decision, the BTA rejected Kohl’s primary argument that the
no-contest covenant applied only to 2007, holding that the statutory definition of
“Improvement” was “included to identify the real property that would be subject
to the TIF agreement and does not speak to any limitation on restrictions on filing
real property tax complaints.” BTA No. 2011-A-2747, 2013 WL 2395803, *3
(May 24, 2013). With respect to the allegation of conflict between Sections 3.1
and 3.2, the BTA found that “the provisions that clearly specify prohibitions
against real property tax valuation contests should control over the more general
provision relating to ‘all taxes.’ ” Id. In a footnote, the BTA declined to address
Kohl’s constitutional arguments based on its lack of authority to do so under case
law. Id., fn. 2. Kohl’s public-policy argument was left unaddressed. The BTA
then affirmed the decision of the BOR to dismiss the complaint.
        {¶ 21} Kohl’s has appealed. As appellant, Kohl’s is the only party to have
filed a brief before this court.
              THE NO-CONTEST COVENANT HAS NOT BEEN SHOWN
                          TO RAISE A JURISDICTIONAL BAR

        {¶ 22} Kohl’s fourth proposition of law points to a fundamental flaw in
the decisions below. Although R.C. 5715.19 authorized a property owner like
Kohl’s to file a valuation complaint, the BOR found that the complaint was
“void” on account of the TIF agreement, and the BTA affirmed. Yet no statute



                                           7
                               SUPREME COURT OF OHIO




was cited, either in R.C. Chapter 5715 or in the TIF legislation, that contravenes
the grant of the right to file a complaint on the grounds of a contractual covenant
in a TIF agreement. To be sure, the TIF statutes directly mandate that a TIF
resolution require owners to pay service payments, but they do not appear to
authorize any impairment of the right to file a complaint.
           {¶ 23} The BOR is a creature of statute whose powers are defined by and
dependent upon the pertinent sections of the Revised Code.            See Kalmbach
Wagner Swine Research Farm v. Wyandot Cty. Bd. of Revision, 81 Ohio St.3d
319, 322, 691 N.E.2d 270 (1998). It follows that the BOR’s jurisdiction is
controlled by statute, and a complaint that the statutes authorize an owner to file is
not void by virtue of a covenant nowhere prescribed or specifically endorsed by
statute.
           {¶ 24} In Kalmbach Wagner, the board of revision had dismissed the
complaint on the grounds that the owner/complainant had declined the board’s
request to produce income and expense statements for the swine-breeding
operation conducted on its real property. The BTA reversed and remanded, and
on appeal we affirmed.
           {¶ 25} In doing so, we noted that the enabling statutes for the boards of
revision, R.C. 5715.10 and 5715.11, authorize the hearing of complaints and the
ordering of an increase or decrease in value, but do not generally authorize
dismissals. The court noted that it had affirmed only those dismissals by the
boards of revision that were based on noncompliance with statutory requirements
and that no statute required production of the documents that the board had
requested.      Accordingly, the board of revision’s statutory duty had been to
determine value in light of the evidence before it, and the court affirmed the
BTA’s reversal of the dismissal.
           {¶ 26} Our decision in Kalmbach Wagner raises two points pertinent to
the present case. First, the case acknowledges that a board of revision is justified




                                           8
                               January Term, 2014




in dismissing a complaint when a violation of statutory requirements deprives the
board of jurisdiction. See, e.g., Gammarino v. Hamilton Cty. Bd. of Revision, 71
Ohio St.3d 388, 643 N.E.2d 1143 (1994) (dismissal of second-filed complaint
within the triennium, filed in violation of R.C. 5715.19(A)(2)). But jurisdictional
limitations typically relate to the violation of statutory requirements, such as the
March 31 deadline for filing complaints or the prohibition of a second filing
within the triennium. Unless the defect involves violation of a statute, it is
typically not jurisdictional. See Groveport Madison Local Schools Bd. of Edn. v.
Franklin Cty. Bd. of Revision, 137 Ohio St.3d 266, 2013-Ohio-4627, 998 N.E.2d
1132, ¶ 23.
       {¶ 27} Here, the BOR statutes make no mention of TIF restrictions, and
the TIF statutes do not acknowledge prohibitions against challenging valuation. It
follows that even if the no-contest covenant is valid and binding on Kohl’s, the
source of its legal force is not statutory, and accordingly, it does not impose a
jurisdictional limitation on the BOR. Therefore, the complaint was not “void” as
found by the BOR and affirmed by the BTA.
       {¶ 28} Second, Kalmbach Wagner recognizes that the grounds for a BOR
to dismiss are, apart from jurisdictional defects, very limited.         The court
recognized that failure to prosecute can be a ground for dismissal. Kalmbach
Wagner, 81 Ohio St.3d at 322, 691 N.E.2d 270, citing LCL Income Properties v.
Rhodes, 71 Ohio St.3d 652, 646 N.E.2d 1108 (1995). But dismissing for failure
to produce requested documents in Kalmbach Wagner itself was not a valid
ground for dismissal. See also Snavely v. Erie Cty. Bd. of Revision, 78 Ohio St.3d
500, 678 N.E.2d 1373 (1997) (affirming a BTA decision that reversed an
unexplained dismissal by the board of revision).




                                         9
                             SUPREME COURT OF OHIO




          THE BURDEN LAY ON THE BENEFICIARIES OF THE COVENANT
           TO ASSERT IT AS A DEFENSE AGAINST KOHL’S COMPLAINT

       {¶ 29} If the no-contest covenant is valid and binding under contract law
or real-covenant law, it may constitute grounds for dismissal.                But the
beneficiaries of the covenant—the county commissioners and the BOE—had the
obligation to come forward and shoulder the burden of advancing the covenant as
a defense against the complaint. Kohl’s was the appellant at the BTA, and neither
the statutes nor the case law places on Kohl’s the burden of establishing that the
covenant did not bar its complaint.
       {¶ 30} Indeed, the declaration of covenants makes clear that the county
commissioners and the BOE are the beneficiaries of the covenant and should bear
the burden of proving that it was enforceable against Kohl’s. The allocation of
burden here is analogous to the situation in which one party relies on a settlement
agreement and seeks to enforce it against the other parties: the proponent of the
contract has the burden to show that it is entitled to relief based on the contract.
       {¶ 31} It is notable that the county commissioners and the BOE both have
standing to participate in BOR proceedings.            R.C. 5715.19(A)(1) (county
commissioners and boards of education are among those entities that may file
valuation complaints) and 5717.01 (entities that may file valuation complaints
may appeal to the BTA). The failure of either to appear at the BTA and defend
the BOR’s application of the no-contest covenant might be construed as a waiver
of the opportunity to do so, but under these circumstances, Kohl’s itself cannot
claim the waiver, because it failed to assert the need for the proponents of the no-
contest covenant to appear. Kohl’s thereby waived any reliance on the claim that
its opponents had waived their opportunity to be heard.
       {¶ 32} Moreover, unlike the straightforward waiver of an affirmative
defense in a civil case, the very premise of the BTA’s review lay in the BOR’s act
of applying the no-contest covenant, with the result that the BTA necessarily had




                                          10
                                January Term, 2014




to decide the issue of the covenant’s validity. Accordingly, the proper course of
action here is to remand to the BTA with the instruction that the county
commissioners and the BOE be afforded the opportunity to argue in support of the
covenant.
              KOHL’S ASSERTED GROUND FOR DISREGARDING THE
                     NO-CONTEST COVENANT LACKS MERIT
       {¶ 33} In plain and unambiguous terms, the TIF agreement at Section 3.1
states that “no owner shall contest the assessed valuations of any Improvement for
real property for tax purposes,” expresses the intent that the covenant run with the
land against a successor such as Kohl’s, and asserts that the covenant is
enforceable by the county and the board of education. We conclude that Kohl’s
attempt to find an ambiguity in these terms fails.
       {¶ 34} According to Kohl’s, ambiguity arises by virtue of Section 3.2,
which states as follows:


       Any Owner may in good faith contest any such tax, assessment or
       governmental charge, and in such event may permit such tax,
       assessment or governmental charge to remain unsatisfied during
       the period of such contest and any appeal therefrom unless in the
       reasonable opinion of counsel satisfactory to the Board, by such
       action any right or interest of the Board with respect to the
       Property, shall be materially endangered, or the Property, or any
       material part thereof, shall become subject to imminent loss of
       forfeiture, in which event such tax or governmental charge shall be
       paid prior to any such loss or forfeiture.


Kohl’s contends that this provision contradicts the categorical requirement that
there be no contest of “the assessed valuation of any Improvement for real



                                         11
                              SUPREME COURT OF OHIO




property tax purposes.” But this argument is devoid of merit, and the BTA
correctly rejected it.
          {¶ 35} The no-contest covenant in Section 3.1 by its plain terms addresses
only valuation for property-tax purposes to the extent that it determines the
amount of service payments by setting the value of the Improvement. By stark
contrast, Section 3.2 addresses other taxes and charges that might become a lien
on the property—it is those other taxes and charges that may be contested.
                KOHL’S CONSTITUTIONAL CLAIMS ARE PREMATURE
          {¶ 36} Kohl’s second and third propositions of law raise constitutional
arguments as a backstop to the contractual and statutory arguments set forth in
propositions one and four. If the no-contest covenant were enforced, says Kohl’s,
that would deprive Kohl’s of its due-process right to challenge the property-value
basis for determining the service payments that it must pay. Moreover, Kohl’s
asserts that permitting the auditor to determine value without the possibility of
challenge would violate the requirement of Article XII, Section 2 of the Ohio
Constitution that property be “taxed by uniform rule according to value.”
          {¶ 37} These contentions are premature. “Constitutional questions will
not be decided until the necessity for a decision arises on the record before the
court.”     State ex rel. Herbert v. Ferguson, 142 Ohio St. 496, 52 N.E.2d 980
(1944), paragraph two of the syllabus. Quite simply, the enforceability of the no-
contest covenant depends on factors not raised and considered at the BTA. First,
the proponents of applying the covenant did not appear and demonstrate any
statutory basis for applying the covenant to Kohl’s. Second, no argument has
been advanced that the no-contest covenant qualifies as a covenant that runs with
the land under the pertinent case law. Only if the covenant were shown to apply
to Kohl’s under the relevant law would the constitutional questions become ripe
for our consideration.




                                          12
                               January Term, 2014




                                   CONCLUSION
       {¶ 38} For the foregoing reasons, we hold that the no-contest covenant
has not been shown to impose a jurisdictional bar. As a result, the beneficiaries of
the covenant—the county commissioners and the BOE—had the obligation to
come forward and shoulder the burden of advancing the covenant as a defense
against the complaint. They have not done so.
       {¶ 39} We therefore vacate the decision of the BTA and remand to the
BTA to conduct further proceedings consistent with this opinion
                                                            Judgment accordingly.
       O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, KENNEDY,
FRENCH, and O’NEILL, JJ., concur.
                             ____________________
       Karen H. Bauernschmidt Co., L.P.A., Karen H. Bauernschmidt, and
Stephen M. Nowak, for appellant.
                          _________________________




                                        13
