Peter Zehren: Should All Nonprofits Be Tax Exempt?Presentation Transcript
Tax Exemptions ofCharities FaceNew ChallengesBy STEPHANIE STROMThe New York TimesMay 26, 2008Peter ZehrenMarch 23, 2013
What Constitutes a Charity?
Rainbow Child Care Ruling Pay property taxes…gave nothing away Same price per child Regardless of ability to pay Regardless of government support 95% income from fee for-services(families, county andtribal government) What ramificationsfor other nonprofits?Minnesota State Supreme Court
Questioning Tax-Exempt Status What constitutes a “charity?” Run more like a business Charging fees for services Selling products Investment/endowment income Does it give anything away? Costs local government $8-13 billion
Are Nonprofits Tax Evaders?
“Privileged” Status for Whom? Congress exploring endowmentpayouts, MA exploring imposing a 2.5%assessment How different are hospitals and universitiesfrom for profits? (tax-paying competitors) Accumulating of wealth when a “charityshould be giving it away? (% not shown) Senate Finance Committee asks sixevangelical ministries to justify status
Whatconstitutes acharity?“From soupkitchens, daycarecenters, environmental, advocacy, and civil rightsgroups;to hospitals, educationalinstitutions, theatres, andfaith based organizations,charitable organizationsexist to serve and promotethe common good.”Audrey R. AlvaradoED of National Center for Charitable Statistics
What does “tax-exempt” mean? Provide a public service Substantially reduce government burdens Supposed to “give things away for free”… Tuition assistance Sliding scale payfor services Earned Income doesnot comprise majorityof revenue
Tax Exemption AuthorityStateExemptions– Property TaxesFederalExemptions– Income Taxes
The propertyexemptionchallenge.“Local governments arefinding their property-taxbase shrinking (due toelectronic commerce andthe digital delivery ofinformation) andlarge, revenue-generating nonprofits likehospitals and universitiescant hide.”Evelyn BrodyProfessor Chicago-Kent College of Law
A. Charitable Objective:charity primary, if notsole, object.B. Performance of itsCharitable Objective:activities further itscharitable objective.C. Gift or Giving: focus is onperformance involving a giftor giving.Ruling:Hazelden “was founded toprovide addicted professionalsa high quality, effective recoveryexperience addressing theirunique needs.”Hazelden Springbrookproperty tax deniedOregon Tax Court: May 2004
North Star Research Institute vs.County of Hennepin (1975)1. Seeks to help others without immediate expectationof material reward.2. Is supported partly or entirely by donations and gifts.3. Requires recipients of the charity to pay for theaid, in whole or in part.4. Earns a profit from the income fromgifts, donations, or fees.5. Restricts who benefits from the charity.6. Makes dividends or assets available to privateinterests if the organization dissolves.Minnesota State Supreme CourtCriteria defining a charity
Tax assessor Thomas May Under the Rainbow ruling didn’t changeanything Mall of America seeks exemption arguing it“aids the state economy” Hard to define whatconstitutes a charity,many doing samethings for-profits do
Ruling couldimpact 3-500nonprofitsJon Pratt ED MN Council of Nonprofits1. Extent to whichrecipients pay forservices…whether theorganization givesanything away2. Government paymentsare not evidence of acharity, the paymentswhere not a giftTwo Key ElementsRussell A. AndersonMinnesota Supreme Court Chief Justice
Nonprofit Sector Pressure (MN) To fill services nonprofits do better thanthe state (Homes for mentally disabled children) Be more like a business, find ways to fillgap between government funds andprogram costs Paying property taxes could force cuttingprograms and services (The Courage Center)
One year ban on reversingproperty tax exemptions Set criteria to determine what is “purelypublic charity” Used in many statutes impacting propertytax exemption Era when many nonprofits charge forservices and receive negligible donationsMinnesota Legislature
What Constitutesa “Purely PublicCharity?”“Local governmentassistance is the greatequalizer,” to providecommunities with lessability to raise propertytaxes enough toadequately serve theirresidents.Can’t afford to loosenonprofit servicesRep. (MN) Paul MarquartChair House property tax subcommittee
State and Federal Taxexempt challenges.What constitutes a charity?Who else will provide publicservices?Property tax baseshrinking, but is taxingnonprofitsthe answer?Summary Points
Tax Exemptions ofCharities FaceNew ChallengesBy STEPHANIE STROMThe New York TimesMay 26, 2008Peter ZehrenMarch 23, 2013Questions?