January 28, 2013
Nonprofit Hospital Purchasers: Let This Be a Lesson to You!
From The Chronicle of Philanthropy, citing The Kansas City Star and The New York Times, comes this report on a lawsuit brought by a foundation that received most of the proceeds from the 2003 sale of the nonprofit hospitals previously owned by Health Midwest to Hospital Corporation of America (HCA), the larger operator of for-profit hospitals in the country.
In the sales agreement, Health Midwest required HCA to undertake certain activities, including providing an estimated $500,000,000 in charity care and to spend approximately $450,000,000 to improve existing health care facilities. The Health Care Foundation of Greater Kansas City filed suit against HCA in 2009, allegeing that HCA had not complied with these provisions in the the original sales agreement. The case went to trial in late 2011.
In its Final Order (warning: 142 pages!) issued on January 24, 1013, the trial court found that HCA failed to comply with the requirement to spend the allotted funds on existing health care facilities. In addition, the court was concerned about HCA's compliance with its charity care requirements, but found that the level of detail provided by HCA was insufficient to make a final determination on the matter.
From my brief review of the Order (I emphasize brief - did I mention 142 pages?), it appears that the capital improvements issue hinged primarily on the language of the sales agreement, which required the capital improvement spending to occur in "existing" facilities, and not in new or replacement facilities. (My personal highlight of the Order in this regard - paragraphs 140 and 141, wherein the Court states that the then Chair and CEO of HCA admitted to not reading the full agreement before signing it and to understanding the operative language to be "legalese".) The court found a minimal short fall in capital improvements of approximately $162,000,000, to be paid immediately to the Foundation, with more possibly to follow based on a court-supervised accounting.
With regard to the issue of charity care, the sales agreement specifically divided the world between charity care and care for indigents (based on gross charges foregone), and uncompensated care (based on bad debt). See Paragraph 208. A separate part of the agreement required HCA to continue to participate in Medicare and Medicaid for ten years. See Paragraph 210. Apparently, the Attorneys General of both Kansas and Missouri had requested information breaking down HCA's expenditures between charity care and uncompensated care, to no avail. See Paragraph 456, et. seq. Some of the compliance reports issued by HCA with regard to charity care compliance appeared incomplete and inconsistent. As a result, the order requires the court-supervised accounting to look specifically at the provision of charity and uncompensated care as mandated by the sales agreement.
According to The Kansas City Star article, "HCA representatives have consistently said the company met or surpassed its obligations, and ... said the company would appeal the decision."
January 22, 2013
Local Property Tax Exemption Fights Still Going Strong
A modestly-improving economy does not seem to have halted the trend of local property tax exemption fights. Here's a roundup of recent ones, to give a flavor of the scope of what's going on.
Vanderbilt University is seeking full property tax exemption for 11 fraternity/sorority houses. According to Vanderbilt, an agreement with the Greek organizations transferred full control over the property to Vanderbilt, and therefore the houses should be exempt like any other student housing. The move would save Vanderbilt (whose 2013 operating budget was $3.7 billion) $74,000 in annual property taxes. To paraphrase the late Senator Everett Dirksen, "$74,000 here and $74,000 there, and pretty soon you're talking about real money."
Meanwhile, the town of Hebron, Indiana, is fighting property tax exemption granted by the state to a set of apartment buildings. "Town Clerk-Treasurer Terri Waywood said the exemption was granted because the complex provides its tenants with classes in managing money and other services they can't get anywhere else in town." Sounds like a tax-exemption blueprint for all the apartment complexes in Indiana; heck, who doesn't need help managing their money? Even the folks on Downton Abbey could use some instruction on this front . . .
In Knoxville, Tennessee, a pair of golf courses are fighting to re-establish exempt status, and Texas State University's exempt status apparently is causing some budgetary headaches (heartache?) in San Marcos, Texas.
Some days I wonder whether the solution is just to get rid of all tax exemptions . . .
December 14, 2012
Maine: Limit to Incidental Commercial Use for Property Tax Exemption?
As reported by the Nonprofit Quarterly, a Maine court is set hear a case where the town of Hebron is arguing that the nonprofit boarding school, Hebron Academy, owes property taxes on income-generating uses of its facilities (i.e., rentals to outside groups for events). The argument ultimately comes down to an extent issue, with the town arguing that there is too much non-school use of the Academy's ice rink and other facilities, resulting in them becoming "taxable venues." Interestingly, Maine's incoming Attorney General has filed a brief supporting the Academy.
The case could provide a persuasive bright-line threshold for when commercial use of nonprofit property rises to a level exceeding "incidental," and thus becomes taxable.
[See a more extensive article in the Portland Press Herald]
October 15, 2012
A Lesson in State Property Tax Exemption Law
The dispute between the town of Vestal, NY and United Health Services over a property tax exemption for a new clinic owned by UHS offers a good lesson in the requirements for state property tax exemption. UHS built the clinic on land leased from a for-profit corporation. There is no dispute that the building is tax-exempt; the dispute regards an exemption on the underlying land.
While property tax exemption laws vary considerably from state to state, in most states property tax exemption requires that the exempt property meet two requirements: (1) it must be owned by an exempt charity and (2) it must actually be used "exclusively" (which usually really means "primarily") for exempt purposes. In New York, the relevant statutory language comes from Section 420-a of the New York Real Property Tax Law, which states:
Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association or by another such corporation or association as hereinafter provided shall be exempt from taxation as provided in this section.
The New York law seems pretty clear in requiring "ownership" by an exempt entity, which is pretty clearly not the case in the Vestal-UHS dispute. It may be, however, that UHS is claiming that the terms of its lease are the equivalent of "ownership" for New York property tax rules. The IRS sometimes treats very long-term leasing arrangements as the equivalent of fee ownership. In its regulations regarding tax-deferred exchanges under Code Section 1031, for example, the IRS treats a leasehold of 30 years or more as "like kind" to a fee interest. Treas. Reg. 1.1031(a)-1(c).
Since UHS has declined to reveal the specific provisions of its lease, I don't know what it's argument is on the ownership question (there is a suggestion in the cited story that UHS is claiming that it is responsible for paying the property taxes, which is enough to meet NY law). I'm also not sure whether New York would recognize certain leasehold interests (or obligations to pay the taxes) as the equivalent of "ownership" for property tax purposes - perhaps some reader from New York could enlighten us on that point.
But the story is a good illustration of how state property tax exemption differs from federal (or even state) income tax exemption. Federal income tax exemption is focused solely on the "charitable-ness" of the entity seeking exemption. Property tax exemption, on the other hand, generally requires meeting a two-pronged "ownership and use" test. The latter can produce different results - for example, property that is owned by a charity but not used for charitable purposes (e.g., leased to for-profit entities, or not used at all - that is, fallow property) generally will not qualify for exemption, just as property used for exempt purposes but owned by a for-profit entity and leased to a charity will not qualify.
July 16, 2012
Yet another restricted gift case....
The NonProfit Times reports that another restricted gift case is winding its way through the courts - now, a trial date has been set in a dispute over land transferred to Johns Hopkins University in a part sale/part gift transaction by Elizabeth Beall Banks (John Timothy Newell, et. al v. Johns Hopkins University). Miss Banks, who died in 2005, was a land advocate who was concerned about the potential development of her property, known as the Belwar Farm, a 108 acre tract along Interstate 270. In 1989, she sold the property at a deeply discounted price to Johns Hopkins, subject to the condition that only 30 acres of the land could be developed for “. . . agricultural, academic, research and development, delivery of health and medical care and services or related purposes only.” According to The Washington Post, this language was contained in the two page deed that conveyed the property - it does not appear that there was another gift instrument. The family contends that the planned science center development is much denser and more commercial than what Miss Banks intended, and is suing have these wishes enforced.
Is it just me, or are there more of these cases around these days, where a donor's full wishes are not incorporated into the gift instrument but are later asserted as conditions to be respected? (Garth Brooks, I'm looking at you!) It would certainly have been possible to draft something that incorporated a current development plan for Belwar Farm or something similar into the terms of the gift instrument - it would seem to me that donors would want the certainty, and that charities would like to stay out of court. Is it just that UPMIFA's definition of a record - which doesn't include oral representations but does include ancillary marketing material and correspondence - hasn't caught up with these cases or otherwise doesn't apply? Do we think UPMIFA will help or is this trend (if indeed it is a trend) a side effect of institutions and people scrambling for dollars wherever then can find them in a down economy? Or is it just bad drafting coupled with charities wanting to maintain as much vagueness as possible?
July 12, 2012
Has the Tax-exemption Rumble Started in Pennsylvania?
A while ago I posted about a recent Pennsylvania Supreme Court decision on tax exemption that I speculated might reopen the door to property exemption challenges. The President of the Pittsburgh City Council might have kicked that door open a bit recently. A story posted on Pittsburgh's public radio station web site notes that city council president Darlene Harris is "investigating whether the city could legally challenge the tax-exempt status of large nonprofits in Pittsburgh." Harris apparently specifically referred to the recent Pennsylvania Supreme Court decision as grounds for her investigation.
“What some call ‘nonprofit’ is not necessarily all nonprofit,” said Harris. “If you can pay for having commercials during Super Bowls, if you can pay for your name to be on the top of the highest buildings in the City of Pittsburgh… There are doctors that will not see poor people.”
It appears that the City Council is not exactly happy with the PILOT deal struck with a consortium of Pittsburgh nonprofits that we blogged about last week. The story quotes council budget director Bill Urbanic, who stated “If these were ‘taxable organizations,’ the amount of payroll tax we would receive would be somewhere around $22 million… Also, the real estate, with the new assessment, is probably somewhere between $35 to $50 million. So, you’re looking at somewhere around $60 to $70 million that we’re forgoing, and what we’re getting instead is $2.6 million annually.”
Has the rumble over property tax exemption started in Pennsylvania?
May 19, 2012
Alleged Conspiracy in the Rosa Parks Estate
This makes me sad. It's really hard to imagine more of an heroine than Rosa Parks, so it is upsetting that the footnote to her legacy is this ridiculousness. This conspiracy suit was apparently filed by the attorney that represented the Parks Foundation and one of its executives in prior probate proceedings, although it is never quite clear from the article as to whether he is filing on their behalf or on his own (I'm assuming this is just technically incorrect writing on legal matters but I could be wrong).
The petition alleges that the Court and the estate's appointed attorneys conspired to drain the estate of funds through attorney's fees and through the failure to enforce certain orders of the Michigan Supreme Court - a fairly serious (and difficult if not impossible to prove) charge. This article contains more background on the fight between the Parks heirs and the Parks Foundation and its co-founder.
I have to say that my first reaction was that I was stunned that the Foundation (if the Foundation is in fact the filer of the motion) would allege such a thing and whether that would serve to tarnish its repution. I suppose some of it will depend on the outcome.
Can anyone help me with access to the original petition? I'm not finding it right off, but will post a link if I can. Update: Here's a link to the petition.
May 04, 2012
Pennsylvania Supreme Court Case May Open Door to Tax Exemption Challenges
In a "deja vu all over again" case, the Pennsylvania Supreme Court just decided Mesivtah Eitz Chaim of Bobov, Inc v. Pike County Board of Assessment Appeals, that may open (or more appropriately, reopen) challenges by local taxing authorities to property tax exemptions for Pennsylvania charities.
There is a long history here that will provide some context. Back in 1985, the Pennsylvania Supreme Court's Hospital Untilization Project case (507 Pa. 1, 487 A.2d 1306) opened the door to a massive number of challenges to property tax exemption for nonprofit hospitals by holding that an exempt organization must meet a five-factor test, one of which was that the organization "must donate or render gratuitously a substantial portion of its services." Some commentators indicated that as a result of the HUP case, by 1996, local taxing authorities had challenged exemption for 175 of Pennsylvania's then-existing 220 nonprofit hospitals. See Alice A. Noble, Andrew L. Hymans and Nancy M. Kane, Charitable Hospital Accountability: A Review and Analysis of Legal and Policy Initiatives, 26 J. L. Med. & Ethics 116, 121 (1998) (this article is an excellent overall discussion of the HUP case and its impact on nonprofit hospitals in Pennsylvania).
As a result, the Pennsylvania legislature stepped in in 1997 and passed the Institutions of Purely Public Charity Act to "clarify" Pennsylvania state law with respect to tax exemptions, particularly in the case of nonprofit hospitals. Act 55, as it is officially known, essentially overturned the interpretation that substantial charity care was necessary for hospitals to be an "institution of purely public charity" eligible for property tax exemption.
And there things stood until the Pike County case noted above. In this case, the Pennsylvania Supreme Court said that Act 55 could not alter the underlying constitutional principles of tax exemption as set forth in the 1985 HUP case. Organizations claiming exemption must meet the baseline constitutional standards of HUP, regardless what Act 55 might say (this is not much different that the law in Illinois, where the Illinois Supreme Court has similarly held that the legislature cannot override constitutional doctrine regarding property tax exemptions).
Now the question will be whether this decision reopens the door to tax exemption challenges to nonprofit hospitals (and universities? I note that unlike many state constitutions, Pennsylvania's does not automatically grant exemption to "educational" institutions). I suspect there are a lot of very nervous hospital CEO's and university presidents in Pennsylvania these days . . .
January 04, 2012
Montana Supreme Court Upholds Century-Old Law Banning Political Spending by Corporations
In a decision certain to intrigue nonprofit practitioners and scholars alike, the Montana Supreme Court upheld its century-old ban on corporate political expenditures (the state's 1912 Corrupt Practices Act), applying, yet ultimately ruling contrary to, the United States Supreme Court's decision in Citizens United v. F.E.C. (see prior blog postings on this seminal case here and here). Plaintiffs sought to overturn the ban. One of the plaintiffs, Western Tradition Partnership, now named American Tradition Partnership, is a "501(c)(4) grassroots lobbying organization dedicated to fighting environmental extremism and promoting responsible development and management of land, water, and natural resources in the Rocky Mountain West and across the United States." In its decision, the Montana Supreme Court, via a 5-justice majority opinion, concluded that the State has always had and continues to have a compelling interest in regulating corporate spending on political campaigns because of the state's history of past political corruption (the famed "Copper Kings"). In the conclusion of its opinion, the majority stated:
Citizens United does not compel a conclusion that Montana's law prohibiting independent political expenditures by a corporation related to a candidate is unconstitutional. Rather, applying the principles enunicated in Citizens United, it is clear that Montana has a compelling interest to impose the challenged rationally-tailored statutory restrictions.
The majority clearly stated that corporations can speak through their own political action committees, which are both easy to form and to whom contributions are easy to make under Montana law, unlike the federal law PACs at issue in Citizens United.
The two dissenting justices both wrote that Montana's outright ban on corporate political expenditures violates the First Amendment, as enunciated in Citizens United.
(Hat Tip: The Nonprofit Quarterly)
December 31, 2011
Michigan SCt Gives Rosa Parks Memorabilia Back to Nonprofit
When civil rights icon Rosa Parks died in 2005, she left most of her estate to the Rosa and Raymond Parks Institute for Self-Development, a nonprofit she had founded in 1987 with her friend, Elaine Steele. The nonprofit's purpose is to teach young people leadership and character development. Her heirs, nieces and nephews, challenged her will and trust and in 2007 entered into a Settlement Agreement with the institute. Last April the Michigan Appeals Court held that statements by counsel regarding fees in the appellate case had breached a confidentiality provision of the Settlement Agreement between the institute and Rosa Parks' heirs. The Appeals Court had ordered the institute to transfer property to the heirs in compensation for the breach. The Supreme Court reversed that decision and remanded the case to the Probate Court with instructions to implement the Settlement Agreement. The decision "will allow the institute the financial solvency and ability to carry on Rosa Parks' legacy," said institute lawyer Steven G. Cohen. Parks' estate included memorabilia that may be worth millions. A New York auction house, Guernsey's Auctioneers, will try to find buyers for some of the memorabilia. See stories in the Detroit Free Press and the Detroit News.
December 10, 2011
Appeals Court Keeps Fisk University Sale of O'Keeffe Collection on Track
The Wall Street Journal reports that a state appeals court has affirmed a lower state court's decision to permit the partial sale by Fisk University of the art colleciton donated to it by Georgia O'Keefe and also concluded that the lower court lacked authority to require Fisk to set aside two-thirds of the sales proceeds, or $20 million, as an endowment to maintain the collection. As we previously blogged, the planned sale is of a 50 percent interest in the collection to Crystal Bridges Museum in Bentonville, Arkansas. The Tennessee Attorney General challenged the sale in an attempt to keep the collection in Nashville. The appeals court's decision, with one judge dissenting, does not fully resolve the terms of the sale, however, as the court left the door open for the lower court to require some type of dedicated source of support for the collection and also requires Fisk to explain how it will use the sale proceeds. Fisk received the collection subject to the condition it not be sold or broken up, but Fisk is now asserting that its financial situation is so dire it cannot afford to display or maintain the collection without some type of sale. A summary of the trial court's decision and its conclusion are reproduced below.
Summary of Previous Proceedings
After finding that cy pres relief was available to modify conditions imposed by donor of artwork which had been gifted to Fisk University, the trial court approved agreements whereby the Crystal Bridges Museum would purchase a fifty percent interest in the art for $30 million and would thereafter share in the display and maintenance of the artwork. The court conditioned approval of the agreements on the requirement that Fisk establish an endowment of $20 million from the proceeds of sale in furtherance of the donor’s intent to make the art available for the citizens of Nashville. The Attorney General of Tennessee appeals, contending that the trial court exceeded the scope of remand and that the court erred in determining that the agreement with the Crystal Bridges Museum most closely reflects the donor’s intent. Fisk seeks review of trial court’s requirement that it establish the endowment.
State Appeals Court Conclusion
For the foregoing reasons, we affirm the trial court’s approval of the Revised Sharing Agreement. We reverse the order requiring Fisk to establish an endowment of $20 million from the proceeds of sale and limiting the funds available to Fisk from the proceeds to $10 million. The case is remanded for further proceedings in accordance with this opinion.
October 17, 2011
Illinois - The Fight Over Tax Exemption for Hospitals Continues
The Chicago Tribune reports on the continually evolving issue of a charity care prerequisite for hospitals' state property tax exemption. As previously blogged by John Colombo (see posts here and here), the Illinois Supreme Court determined in March 2010 that Provena Covenant Medical Center in Urbana did not meet the state law's definition of "charitable" necessary for real property tax exemption; specifically, that a hospital must provide some substantial amount of charity care in order to be granted an exemption. Relying on that Provena decision, in August 2011, the Illinois Department of Revenue revoked the property tax exemptions for three Illinois hospitals on the basis of too minimal amounts of charity care (see John's post on this development here). After these revocations, the Illinois Governor declared a moratorium until March 1, 2012 with respect to hospitals' tax exemption determinations. In the interim, the State and other stakeholders are supposed to reach a resolution.
Although the Provena decision adopted a charity care standard for hospital tax exemption, there are no bright-line rules on what constitutes charity care and how much should be conferred by a hospital to maintain its tax-exempt status. Hospitals are arguing that a definite charity care standard (say, 5% of the hospital's revenues) would be more burdensome on some hospitals than others. Hospitals are seeking legislation that would set clear and definable standards for tax exemption.
In light of these recent developments, local assessors are addressing the taxability of hospitals with varying approaches. Some are are assessing taxes on hospitals thereby leaving it to the State's Department of Revenue to determine if each hospital qualifies for tax exemption under standards hopefully reached prior to the lift of the moratorium next March. Other assessors are forgoing assessments of hospitals, but requesting that such hospitals file new applications for exemptions. Regardless of the approach adopted, the issue of whether to tax or not tax a hospital is certain to create an "administrative nightmare" for Illinois and its local governments. And, perhaps more importantly, will the feds use the eventual Illinois resolution as a basis for reexamining the federal income tax treatment of nonprofit hospitals?
September 26, 2011
Illinois Governor Puts Moratorium on Tax Exemption Rulings for Nonprofit Hospitals
In an earlier post I noted that the Illinois Department of Revenue had denied tax exemption to three other nonprofit hospitals in Illinois in the wake of the Provena Covenant litigation. The Chicago Tribune recently reported that Governor Quinn has imposed a moratorium on any further action by the Department on nonprofit hospital tax exemptions pending discussions with the Illinois Hospital Association regarding a legislative solution to this issue. The governor has targeted March 1, 2012, as a date for recommendations regarding legislation. It appears, however, that litigation proceeds in the meantime. The story noted that while each of the three denied hospitals welcomed the moratorium, "they would pursue appeals."
August 26, 2011
NJ Supreme Court Rules Extensive Gov't Ties Renders Nonprofit a "Public Agency"
In a decision earlier this week, the Supreme Court of New Jersey ruled that the New Jersey State League of Municipalities, an unincorporated nonprofit association, is a a "public agency" for purposes of that state's open records laws because of its creation and control by municipal officials. Reversing two lower court decisions, the Supreme Court found that the New Jersey Open Public Records Act applied to the League's records because the definition of "public agency" under that Act includes an instrumentality created by a combination of political subdivisions, which the League is, and does not require the carrying out of a traditional government function. The court also concluded that the League's records qualified as government records. Critical facts included that the League was created pursuant by state statute to serve as an association of municipalities and was controlled by elected or appointed officials from New Jersey's municipalities, all 566 of which are represented by the League. The court carefully distinguished New Jersey's Open Public Meeting Act, which only applies to "public bodies," the definition of which requires either the performance of a governmental function or authorization to expend public funds.
Coverage: New Jersey Star-Ledger.
August 22, 2011
Chicago Tribune: "Catholic Charities Loses Ruling on Foster Care"
The Chicago Tribune reports that a state court has ruled that the state of Illinois can refuse to renew its contracts with Catholic Charities of the Diocese of Springfield-in-Illinois to provide publicly funded foster care and adoption services in that state based on the charity's turning away of openly gay parents. I previously blogged about this dispute, which was trigged by a new state law requiring recipients of state money to treat people in civil unions as they would treat married couples. The court concluded that despite a contractual relationship stretching over four decades, the charity did not have a legally recognized protected property interest in the renewal of the contracts at issue. The court therefore did not reach the question of whether the decision not to renew violated due process or, according to the article, the charity's argument based on free exercise of religion and a religious exemption in the new state law.
January 06, 2011
Missouri Baptist Convention Regains Control of Charitable Agencies
The St. Louis Post-Dispatch reports that a local judge has ruled in favor of the Missouri Baptist Convention, rejecting an attempt by the Missouri Baptist Foundation to prevent Convention leaders from controlling the Foundation's board (and through that board, the Foundation's $140 million in assets). The dispute apparently arose because of differences between the increasingly conservative Convention, which is the state arm of the Southern Baptist Convention, and Foundation leaders. The court found that the Convention had the right to approve or object to all amendments to the Foundation's Charter, including amendments relating to Convention authority over the Foundation's board. The Convention has not, however, been as successful with respect to similar disputes with other Baptist charities in Missouri. The Windermere Baptist Conference Center successfully amended its Bylaws to make its board self-perpetuating, without Convention approval required, as lower state courts upheld the amendment and the Missouri Supreme Court denied the Convention's appeal of that decision. The Convention also dropped a similar lawsuit agains the Word & Way newspaper. Litigation is still pending with respect to Missouri Baptist University and the Baptist Home, a network of senior residences and nursing homes. These cases may provide an interesting case study in how differences in governing documents can have a significant affect on future disputes between affiliated charities.
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.
November 08, 2010
Fisk University Wins Right to Sell Art Collection - Sort Of
We previously blogged this summer (and in 2009, and in 2008) about the ongoing state court dispute involving Fisk University and its attempts to sell a 101-piece art collection donated to the school by Georgia O'Keefe. The Tennessee Chancery Court has now issued an order clearing the way for the University to sell an undivided one-half interest in the collection for $30 million to the Crystal Bridges Museum of American Art. The University may, however, only use $10 million of the proceeds for its general purposes, with the remaining $20 million dedicated to establishing an endowment fund solely for covering the costs of displaying and maintaining the art. According to coverage in the Tennessean, the decision has the classic attribute of a compromise - neither the University nor the Tennessee Attorney General is happy with it. For the University's reaction, see its statement. For all of the filings and orders in this case, see the Tennessee Attorney General's Fisk University webpage.
(Hat Tip: Charity Governance Blog)
October 18, 2010
Another Property Tax Fight with a Hospital
The New Jersey Star-Ledger reports on another fight between a local community and a nonprofit hospital over property taxes. Morristown is seeking $1 million in back taxes from Morristown Memorial Hospital relating to property that the hospital leases to doctors for their offices. The hospital, which has already lost in state court, plans to appeal, but the city apparently isn't done, yet, either: the story quotes the mayor saying, "There is a lot more of the hospital that we believe that could be taxed."
While I'm not an expert on New Jersey property tax law, in most jurisdictions property is exempt from tax only if the property is both owned AND USED for charitable purposes, and many states tax property owned by charities that is leased to for-profit businesses or otherwise used for for-profit purposes. This appears to be the grounds on which the trial court held against the hospital.
More importantly, the court refused to dismiss issues raised by Morristown regarding the overall exemption of the hospital. The judge cited various disclosures on the hospital's form 990, particularly the levels of executive compensation and charity care, that according to the judge raised material issues regarding whether the hospital as a whole was operated for profit.
This is a case that may bear watching in the future.
August 31, 2010
Bankruptcy Receiver Suit Against School for Ponzi Scheme Proceeds Moves Forward
As detailed in an opinion by federal District Court Judge Paul S. Diamond, the Receiver supervising the recovery of assets on behalf of investors defrauded by Joseph S. Forte in a Ponzi scheme has stated viable claims for recovery of over $900,000 from the Malvern Preparatory School. The judge therefore denied the School's motion to dismiss the Receiver's Complaint. While the School argued that it had received the contributions in good faith, and the complaint does not appear to have asserted otherwise, the judge determined it still might be "unconscionable" (as required under Pennsylvania law for an unjust enrichment claim) to allow the School to retain the contributions. The judge also permitted two claims under the Pennsylvania Uniform Fraudulent Transfer Act to stand as well. For more information and analysis of the case, including the financial hole the school apparently dug for itself - including borrowing $3.3 million to complete the project that Forte was helping finance - as a result, see this post by Jack Siegel on his blog.