Monday, May 26, 2008

What is a Charity and When Is It Entitled to Tax Exemption?

An article by Stephanie Strom in today's New York Times describes challenges to the tax exempt status of charities.  From local assessors concerned about property taxes to Congress itself, issues about what constitutes a "charity" continue to surface.  The article comments on a number of cases, and notes that Evelyn Brody, nonprofit law prof at Chicago-Kent, has said that "in studying the issue in 2002 and revisiting it last year, she had seen an explosion of cases across the country in which charities were challenged to say why they deserve their property tax exemptions."

The article focuses on a recent Minnesota Supreme Court case that ruled last December that a day care agency was not entitled to a property tax exemption because it charged the same amount for each child and "gave nothing away."  The cost of care for some children is covered by payments from county and tribal governments, but the case determined that government support was not the same thing as providing charity care. 

Thomas May, spokesperson for county tax assessors in Minnesota describes the problem:  "From our perspective in the assessment field, it's harder to define what's a nonprofit these days because there are so many different types, and many of them are doing the same thing for-profit groups that aren't exempt are doing."

In the wake of the Minnesota court ruling, the Minnesota legislature passed a bill last month placing a one-year ban on reversing existing property tax exemptions.  The bill requires legislators to determine what constitutes "purely public charity," not an easy task.

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