Carving Out a "Vicarious Charitable Exemption" by State Statute: How OCLC Acquired Tax-Exempt Status Under Ohio State Law

Following up on Vicki Szymczaki's Is OCLC Wexish? (Mar. 15, 2010) and our SkyRiver Tech and Innovative Interfaces Seeks Access to "OCLC's Unlawfully Acquired Database" in Unfair Competition Complaint (Aug. 10, 2010) posts, many may find Disruptive Library Technology Jester's A History of the OCLC Tax-Exemption Status (Oct. 5, 2010) an interest read. The post starts with the Ohio Tax Commissioner's denial of tax-exemption status in 1980. That ruling was affirmed at the appellate court level and by the Ohio Supreme Court in a June 1984 decision. 11 Ohio St. 3d 198. Snips for the Court's opinion:

OCLC submits that because it serves libraries, which in turn benefit the general public through the dissemination of knowledge for the edification and improvement of mankind, it qualifies as an institution furthering human knowledge and, therefore, is a charitable institution. This argument, however, simply constitutes an attempt by OCLC to obtain a vicarious charitable exemption by virtue of the activities of its customers [which has been rejected by the Court].

... the record demonstrates that OCLC’s activities more closely resemble those of a publisher of library materials or a data base firm specializing in information retrieval, such as Lexis or the New York Times Information Bank, rather than that of a library. Although OCLC’s service may greatly enhance the ability of libraries to better serve the public, OCLC essentially offers a product to charitable institutions, for a fee exceeding its cost, and, as the board concluded, is not itself a charitable organization.

... although OCLC may have originated as a charitable organization upon its creation in 1967, the organization, which now operates throughout North America for any library willing to pay its fee, and which engages in fee paying research projects for the private gain of commercial industries, has since transcended the realm of a charitable institution.

The post proceeds with a discussion of how the Ohio General Assembly enacted an exemption for OCLC effective September 11, 1985. The author writes

Now we get to the part where the state legislature essentially negated the Ohio Tax Commissioner’s argument by carving out an exemption for OCLC. One might think that “carving out” is a pejorative phrase, but I know of only one organization that meets the definition [found in Ohio Revised Code Section 5709.72].

Yup, in 1985, the library technology development exemption would have fit one and only one organization, OCLC. Unfortunately the post does not address OCLC’s 501(c)(3) exemption. 

Why does this bit of Ohio legal history matter? Because OCLC is trying to get the SkyRiver/Innovative Interfaces lawsuit transferred from California to Ohio and SkyRiver is objecting. Check out A History of the OCLC Tax-Exemption Status for details -- a bit of mudslinging going on in what likely will be increasingly hostile litigation irregardless of whether it takes place in California or Ohio. [JH]