Monday, July 7, 2008

Another State Supreme Court, Massachusettes, tackles definition of "charitable" when an organization charges fees for service

In New Habitat, Inc. v. Tax Collector of Cambridge (Jul 3, 2008), the Massachusettes Supreme Court reversed a lower court's denial of tax exemption to an organizations whose services were made available solely to those who paid fees for services.  The interesting discussion essentially concludes that the closer an organization's purposes are to traditional charity (whatever that is), the less important it is that the organization offers no free or reduced costs goods or services:

To determine whether an organization is charitable, the court weighs a number of  determinative factors.  These factors include, but are not limited to, whether the organization provides low-cost or free services to those unable to pay, see New England Legal Found. v. Boston, supra at 610; whether it charges fees for its services and how much those fees are, see Assessors of Boston v. Garland Sch. of Home Making, 296 Mass. 378, 390 (1937); whether it offers its services to a large or "fluid" group of beneficiaries and how large and fluid that group is, see New England Legal Found. v. Boston, supra at 612; Cummington Sch. of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 601 (1977); whether the organization provides its services to those from all segments of society and from all walks of life, see Harvard Community Health Plan, Inc. v. Assessors of Cambridge, 384 Mass. 536, 544 (1981); and whether the organization limits its services to those who fulfil certain qualifications and how those limitations help advance the organization's charitable purposes, see Western Mass. Lifecare Corp. v. Assessors of Springfield, supra at 103-104; Boston Symphony Orchestra, Inc. v. Assessors of Boston, supra at 256.  The significance of these factors depends in no small part on the dominant purposes and methods of the organization.  The closer an organization's dominant purposes and methods are to traditionally charitable purposes and methods, the less significant these factors will be in our determination of the organization's charitable status under G. L. c. 59, § 5, Third.  See Boston Chamber of Commerce v. Assessors of Boston, supra at 718. 

The farther an organization's dominant purposes and methods are from traditionally charitable purposes and methods, the more significant these factors will be.  See id. ("the more remote the objects and methods become from the traditionally recognized objects and methods the more care must be taken to preserve sound principles and to avoid unwarranted exemptions from the burdens of government"); Institute of Gas Tech. v. Department of Revenue, 289 Ill. App. 3d 779, 787-788 (1997) (court considers "the remoteness of the nature of [organization's projects] from traditional notions of charities" in determining organization's tax exempt status).

Consistent with these principles, we consider the charging of fees to be more significant the farther the organization's dominant purposes and methods are from traditionally charitable ones.  See Western Mass. Lifecare Corp. v. Assessors of Springfield, supra at 104-106 (organization was not charitable where it charged fees and did not have traditionally charitable purposes and methods); Boston Symphony Orchestra, Inc. v. Assessors of Boston, supra at 256 (same).  On the other hand, we consider the charging of fees to be less significant the closer the organization's dominant purposes and methods are to traditionally charitable ones.

The opinion is most significant because it concerns a residential health care organization that provides long term assisted living goods and services to persons who have suffered serious brain injury.  That the case considers health care "traditionally charitable", even when provided exclusively to those able to pay, has implications for tax exempt hospitals, some of whom have huge endowments and provide relatively little free or reduced cost goods and services.  The court even went on to specifically disavow previous opinions that suggested that free or reduced cost goods and services is a significant factor in defining charitable.

Previous cases contain language suggesting that the charging of a substantial fee, in itself, might render an organization not charitable under G. L. c. 59, § 5, Third.  To the extent that those cases can be read to support such a proposition, we decline to follow them.  It should be noted, however, that the results in those cases are fully in line with the result reached here and with the principles articulated in this decision.

I suppose there are certain activities enjoyed exlcusively by those able to pay that can still be considered charitable (though I find it hard to imagine what those activities are); eventually, we are going to have to satisfactorily explain the logic of granting a tax subsidy to an activity involving the provision of goods and services exclusively at market rates.  Reliance on an alleged definition of those things "traditionally charitable" seems unsatisfactory and circular because "traditional charity" necessarily involves alms to the poor.

dkj

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