Thursday, March 11, 2021
Distinguishing between the activities of for-profit and nonprofit organizations that have business dealings with one another can be challenging for tax authorities when determining tax liability. The Michigan court of appeals recently fought its way through such a thicket in determining whether Dexter Wellness Center, a nonprofit organization in the state, fell afoul of a state statute imposing a lessee-user tax on nonprofits that lease their premises to for-profit organizations. The City of Dexter, where the DWC is located, sought to tax the organization under this law on the grounds that a for-profit management company was given control of the Wellness Center’s operations, thereby nullifying the charitable purpose behind the Center. The state’s court of appeals has affirmed the decision by the Michigan tax tribunal that, in truth, the for-profit’s role is more akin to that of a paid agent: since the nonprofit entity retained ultimate control over what went on at the wellness center, it retains its tax-exempt status.
For more information, see the Law360 article written on the matter by Asha Glover at https://www.law360.com/tax-authority/articles/1361863
David Brennen, Professor of Law at the University of Kentucky