Monday, March 17, 2008
New Hampshire Supreme Court Upholds Charitable Status for Artist Colony in Face of Private Benefit Challenge
In an interesting state law opinion relating to the federal "public benefit" doctrine, the New Hampshire Supreme Court concluded in Peterborough v. MacDowell Colony, Inc. (Download Peterborough.pdf) that an organization that operated an Artist Colony in Peterborough was entitled to state tax exemption as a charitable organization. The interesting thing about the case is that it involves a statute that apparently defines "public benefit" by reference to whether the organization serves a sufficiently large "indefinite segment of the general public:"
In turn, RSA 72:23-l defines charitable as follows:
The term "charitable" as used to describe a corporation, society or other organization within the scope of this chapter, including RSA 72:23 . . . , shall mean a corporation, society or organization established and administered for the purpose of performing, and obligated, by its charter or otherwise, to perform some service of public good or welfare advancing the spiritual, physical, intellectual, social or economic well-being of the general public or a substantial and indefinite segment of the general public that includes residents of the state of New Hampshire, with no pecuniary profit or benefit to its officers or members, or any restrictions which confine its benefits or services to such officers or members, or those of any related organization. The fact that an organization’s activities are not conducted for profit shall not in itself be sufficient to render the organization "charitable" for purposes of this chapter . . .
The issue in the case was whether the artist colony served an indefinite segment of the public even though it limited residence in the colony during its 3 separate four month sessions to a limited number of artists who are provided free room and board, along with supplies, to create their artistic creations (literature, music composition, visual art, film and video, architectural design, and "interdisciplinary art." Organizations designed to assist "starving artists" always raise "private benefit" issues at the federal level, though usually for different reasons that those stated in the New Hampshire opinion. At the federal level, the private benefit doctrine is implicated because the organization actually promotes individual artist's financial interests by working to generate a market for his or her work. See, e.g., Aid to Artisans v. Commissioner, 71 T.C. 202 (1978). In the New Hampshire case, the New Hampshire Supreme Court made the subtle distinction not often made at the federal level, to wit: private benefit is sometimes an inevitably exclusive means by which to achieve a public good. The failure to recognize this Adam Smith type of sentiment in the private sector, for example, is one of the reasons why joint ventures are subject to such withering scrutiny. In the New Hampshire case, though, the New Hampshire Supreme Court stated:
The town first contends that "MacDowell is not a public charity because the creative artists who gained access to the Peterborough property in 2005 were not a substantial and indefinite segment of the general public." The town’s argument assumes that the artists admitted to the artist-in-residence program are its sole beneficiaries. In its tax-exempt survey, however, MacDowell asserted that its mission advances "the intellectual well being of the general public." (Emphasis added.) The trial court concurred, at least in part, with MacDowell’s assertion, concluding that by "supporting the artistic process," MacDowell benefits "at the very least, artists across the world, and, in a broader sense, the general public." The court further concluded that MacDowell’s artist-in–residence "program primarily benefits society as a whole." We agree. Therefore, performance of MacDowell’s mission satisfies RSA 72:23-l without inquiry into whether Colony Fellows constitute "a substantial and indefinite segment of the general public," RSA 72:23-l.
The town nevertheless urges us to reject the proposition that "the beneficiary of the Peterborough property is the general public based upon what [the admitted artists] may or may not do at the Peterborough property." The town’s argument, however, conflates the second and third ElderTrust factors – the requirements of public service and of use and occupancy. The relevant inquiry is not whether the public, or a substantial and indefinite segment of it, benefits from the organization’s property, but whether the public, or a substantial and indefinite segment thereof, benefits from the organization’s performance of its stated purpose. See ElderTrust, 154 N.H. at 697-98. Thus, the town’s argument that "MacDowell’s service is room, board, and a studio, which is entirely consumed by the creative artists invited to the Peterborough property," misses the mark. While MacDowell does provide those services to the Colony Fellows, its charitable purpose is, as the trial court determined, "promotion of the arts." The provision of that service benefits a far greater segment of society than the artists who actually use MacDowell’s property and, in so doing, serves the "general public" as that term is used in RSA 72:23-l.
Suspicion rightly arises whenever a charitable group must conspicuously benefit a defined and apparently noncharitable group of people in order to achieve a greater public good, but suspicion ought not to lead to categorical proibitions, as is practically the case with joint ventures. The separate concurring opinion, by the way, is particularly insightful in relating the private benefit to the law of charitable trusts.