Thursday, February 14, 2008

Noted Tax Prof and Nonprofit Law Prof Blog Editor Critical to Virginia Supreme Court Tax Exemption Case

According to the Roanoke Times, the Virginia Supreme Court yesterday heard argument regarding whether what is described by county tax officials as an "upscale retirement community" operated by the nonprofit organization, Virginia Baptist Homes, should retain its state tax exemption as a religous and benevolent organization:

Lawyers representing Virginia Baptist Homes, The Glebe's parent company, are scheduled to make oral arguments at 2 p.m. today in Richmond before a panel of three Supreme Court justices. The panel could rule today or make its ruling known at a later date on whether the case will be heard by the full court.  The crux of the argument is this: Botetourt County says The Glebe is a resort for wealthy retirees that doesn't provide charitable or religious services to its residents. Virginia Baptist Homes says a religious and benevolent tax exemption it has held for more than 30 years applies to all of its properties, including startups such as The Glebe that someday will offer reduced rates.

A lower court ruled that the retirement community, known as The Glebe, was not entitled to tax exemption.  Various news reports indicate that residents pay 100% of the retirement home's fees, but that the retirement home (only just established in 2005) is working towards creating a financial aid program.  In the meantime, the crux of the issue in the court below apparently was whether the religiously operated retirement community should be viewed as charitable even if it does not presently provide free or reduced cost services.  An earlier Roanoke Times article reports:

In dueling testimony Wednesday, a tax law professor called by attorneys for Virginia Baptist Homes testified that he believes The Glebe meets the federal guidelines for a nonprofit organization and operates in a benevolent manner." The care it provides is considered benevolent," said University of Georgia law professor David Brennen of the housing, assisted living and nursing care that The Glebe provides its residents. But an accountant called by the county later in the day testified that from a financial standpoint, The Glebe provides no services to its residents that aren't paid for by them through entrance fees or monthly fees.

Officials with Virginia Baptist Homes testified that The Glebe initially could only accept residents who had the ability to pay for their entire stay at the facility in order to satisfy the terms of $55.5 million in bonds received from the Roanoke County Industrial Development Authority to build the facility. By those terms, reservations for at least 70 percent of The Glebe's beds had to be purchased by current and future residents who can afford to live there before the facility can accept residents who may need financial assistance.  With that condition met, The Glebe began to accept residents last fall whose life expectancy may exceed their ability to pay.

I think it was Judge Posner in United Cancer Council who expressed sympathy for nonprofit start-ups that must rely almost exclusively on fees before arriving at a point that they can actually offer free or reduced cost services.  The catch-22, of course, is that if free or below cost services are required from the start as a condition for tax exempt status, very few nonprofits will get tax exempt status.  More globally once again, the question of what is "charity" seems like a relative who just won't go home.  No doubt, health care is very nearly "charitable, per se" under federal law -- see Revenue Ruling 69-545 -- but on the other hand, there is a palpable trend towards restricting the term "charitable" to those activities that are offered for free or below cost.  The "commerciality" doctrine seems geared towards requiring some form of subsidy for people unable to pay the cost of certain goods or services.  See, e.g., Federation Pharmacy Services v. Commissioner, 625 F.2d 804 (1980) (An organization which does not extend some of its benefits to indivduals financially unable to make the required payments reflects a commercial activity rather than a charitable one).  For more on the commerciality doctrine as it relates to old folks homes see, David A. Brennen, The Commerciality Doctrine as Applied to the Charitable Tax Exemption for Homes for the Aged -- State and Local Perspectives.

We will be looking for the opinion.  In the meantime . . . make it do what it do, David!


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