1. Tax Exemptions of
Charities Face
New Challenges
By STEPHANIE STROM
The New York Times
May 26, 2008
Peter Zehren
March 23, 2013

2. What Constitutes a Charity?

3. Rainbow Child Care Ruling
 Pay property taxes…gave nothing away
 Same price per child
 Regardless of ability to pay
 Regardless of government support
 95% income from fee for-services
(families, county and
tribal government)
 What ramifications
for other nonprofits?
Minnesota State Supreme Court

4. Questioning Tax-Exempt Status
 What constitutes a “charity?”
 Run more like a business
 Charging fees for services
 Selling products
 Investment/endowment income
 Does it give anything away?
 Costs local government $8-13 billion

5. Are Nonprofits Tax Evaders?

6. “Privileged” Status for Whom?
 Congress exploring endowment
payouts, MA exploring imposing a 2.5%
assessment
 How different are hospitals and universities
from for profits? (tax-paying competitors)
 Accumulating of wealth when a “charity
should be giving it away? (% not shown)
 Senate Finance Committee asks six
evangelical ministries to justify status

7. What
constitutes a
charity?
“From soup
kitchens, daycare
centers, environmental, ad
vocacy, and civil rights
groups;
to hospitals, educational
institutions, theatres, and
faith based organizations,
charitable organizations
exist to serve and promote
the common good.”
Audrey R. Alvarado
ED of National Center for Charitable Statistics

8. What does “tax-exempt” mean?
 Provide a public service
 Substantially reduce government burdens
 Supposed to “give things away for free”…
 Tuition assistance
 Sliding scale pay
for services
 Earned Income does
not comprise majority
of revenue

9. Tax Exemption Authority
State
Exemptions
– Property Taxes
Federal
Exemptions
– Income Taxes

10. The property
exemption
challenge.
“Local governments are
finding their property-tax
base shrinking (due to
electronic commerce and
the digital delivery of
information) and
large, revenue-generati
ng nonprofits like
hospitals and universities
can't hide.”Evelyn Brody
Professor Chicago-Kent College of Law

11. A. Charitable Objective:
charity primary, if not
sole, object.
B. Performance of its
Charitable Objective:
activities further its
charitable objective.
C. Gift or Giving: focus is on
performance involving a gift
or giving.
Ruling:
Hazelden “was founded to
provide addicted professionals
a high quality, effective recovery
experience addressing their
unique needs.”
Hazelden Springbrook
property tax denied
Oregon Tax Court: May 2004

12. North Star Research Institute vs.
County of Hennepin (1975)
1. Seeks to help others without immediate expectation
of material reward.
2. Is supported partly or entirely by donations and gifts.
3. Requires recipients of the charity to pay for the
aid, in whole or in part.
4. Earns a profit from the income from
gifts, donations, or fees.
5. Restricts who benefits from the charity.
6. Makes dividends or assets available to private
interests if the organization dissolves.
Minnesota State Supreme Court
Criteria defining a charity

13. Tax assessor Thomas May
 Under the Rainbow ruling didn’t change
anything
 Mall of America seeks exemption arguing it
“aids the state economy”
 Hard to define what
constitutes a charity,
many doing same
things for-profits do

14. Ruling could
impact 3-500
nonprofits
Jon Pratt ED MN Council of Nonprofits
1. Extent to which
recipients pay for
services…whether the
organization gives
anything away
2. Government payments
are not evidence of a
charity, the payments
where not a gift
Two Key Elements
Russell A. Anderson
Minnesota Supreme Court Chief Justice

15. Nonprofit Sector Pressure (MN)
 To fill services nonprofits do better than
the state (Homes for mentally disabled children)
 Be more like a business, find ways to fill
gap between government funds and
program costs
 Paying property taxes could force cutting
programs and services (The Courage Center)

16. One year ban on reversing
property tax exemptions
 Set criteria to determine what is “purely
public charity”
 Used in many statutes impacting property
tax exemption
 Era when many nonprofits charge for
services and receive negligible donations
Minnesota Legislature

17. What Constitutes
a “Purely Public
Charity?”
“Local government
assistance is the great
equalizer,” to provide
communities with less
ability to raise property
taxes enough to
adequately serve their
residents.
Can’t afford to loose
nonprofit services
Rep. (MN) Paul Marquart
Chair House property tax subcommittee

18. State and Federal Tax
exempt challenges.
What constitutes a charity?
Who else will provide public
services?
Property tax base
shrinking, but is taxing
nonprofits
the answer?
Summary Points

19. Tax Exemptions of
Charities Face
New Challenges
By STEPHANIE STROM
The New York Times
May 26, 2008
Peter Zehren
March 23, 2013
Questions?