November 16, 2010
Current State & Local Developments Affecting Nonprofits
Georgia: The Savannah Morning News reports on a Georgia Supreme Court decision that favorably impacts Georgia nonprofits. The case involved the Nuci Phillips Memorial Foundation, Inc., a nonprofit organization whose mission is to provide mental health services to artists in the Athens area. The Foundation owns and operates a facility that offers a place for such artists to come and receive help for anxiety, depression, or other mental health issues. In addition, it rents out rehearsal space as well as space for parties and other receptions. The Foundation's initial application for property tax exemption was granted by the County Board of Equalization. the exemption was challenged by the local Board of Tax Assessors, affirmed the by trial court, and reversed by the Court of Appeals. The Court of Appeals found that the Foundation's rental activities prevented it from using its property "exclusively" in furtherance of its charitable activities as required by state statute. The Supreme Court provided clarity to "conflicting interpretations" of a confusing array of state tax exemption statutes addressing a nonprofit's rental activities. The Supreme Court ultimately concluded that "the primary purpose of the building is not to raise income but to provide services for those seeking mental health assistance." Accordingly, any income received from other rental activities is "incidental" to the property's primary charitable function as required by state law. If the Supreme Court had issued an unfavorable determination to Nuci, it would have likely resulted in a large amount of exemption revocations in the State.
Hawaii: As reported by the Star Advertiser and Nonprofit Quarterly, Honolulu City Council members are considering changing the current property taxation system applied to local nonprofits. Currently, regardless of the size of the nonprofit's land holdings, it pays a maximum of $300 in property tax to the City. As compared in the Star Advertiser article, Kamehameha Schools, a multibillion-dollar charitable trust, is currently the largest private landowner in Hawaii; it's property has an assessed value of more than $157 million. In comparison, a small nonprofit aikido organization owns less then a quarter-acre with an assessed value of approximately $800,000. Both nonprofits have an annual property tax of $300. Atlhough Honolulu is not the only municipality to employ a "one-size-fits-all approach," the cash-strapped city is considering revamping the current exemption program to better reflect the commensurate cost of city services provided to such disparately-sized properties. City leaders want to tred lightly on any tax changes to ensure that charities are still able to provide services to those in need.
Pennsylvania: As reported by the Philadelphia Inquirer, the state House of Representatives overrode Governor Rendell's veto of a school-code bill that would provide property tax exemptions to nonprofits that rent their properties to charter schools. Governor Rendell vetoed the bill because he believed that the tax break to nonprofit foundation landlords was unconstitutional in light of the state's "purely public charity" exemption standard as set forth in a statute enacted in 1997. In order for the House override to be effective, the state Senate would have to similarly vote.
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