Non-profits may lose property tax exemptionby Toni Randolph, Minnesota Public Radio
Leaders in Minnesota's non-profit community are strategizing over how to respond to a decision by the state's top court. The Minnesota Supreme Court recently issued a ruling that could jeopardize the property tax exemption for non-profits in the state.
St. Paul, Minn. — Up until two weeks ago, the folks that run the Nexus juvenile sex offender treatment center in Mille Lacs County were not worried about paying property taxes on the new $14 million residential facility they are building.
The new campus will feature a school and gymnasium, along with residential units for roughly 90 young, male sex offenders.
The Mille Lacs County tax assessor had ruled that Nexus should pay property taxes. Nexus decided to challenge that determination in Tax Court. Nexus CEO Jim D'Angelo says his attorney told him he had a good case -- a better case than a non-profit day care center, which had already won in Tax Court.
"That gave us a great amount of comfort, until we read the decision," explains D'Angelo.
The Minnesota Supreme Court ruled two weeks ago that the daycare center was not eligible for a property tax exemption, in part because it does not provide services for free or at a discounted rate. The ruling means the daycare is responsible for about $15,000 per year in property taxes.
D'Angelo says the Supreme Court decision makes him wonder if he will have to find $100,000 per year to pay property taxes he thought his new facility would escape.
"Where we thought this was going to be a fairly simple and straight-forward process of appealing and we were quite optimistic about the outcome, we're now at a point where we're questioning whether or not going into tax court will end up with us being relieved of our property tax obligation or not," says D'Angelo
Since the Supreme Court ruling earlier this December, non-profits in Minnesota have been scrambling. Frank Forsberg is a senior vice president with United Way, which has relationships with more than 200 non-profit organizations. Forsberg says the ruling, although unexpected, is significant and non-profits are now trying to determine the impact.
"We're moving from a position of surprise -- because we did not know this was coming -- to one of concern. We don't know how future courts will use this information, how they'll interpret this new ruling and how they're going to apply it," says Forsberg.
There are hundreds of non-profit organizations across the state and Forsberg says there could be severe consequences if they have to pay property taxes. The services they provide will be more expensive and funders and clients will have to pay more.
"A worse-case scenario, it's the tipping point for some non-profits and they may have to discontinue that service...or if it's their whole service they may cause boards to consider whether or not they can viably provide the service."
Most Minnesota hospitals, burial grounds, houses of worship and universities are exempt from property taxes because they are considered charities. But other non-profits, like daycare centers and social service organizations, relied upon the North Star Test, a list of six factors which determine if they are a "purely public charity."
Jon Pratt is the executive director of the Minnesota Council of Non-Profits. He says, those charities believe their exemptions could be at risk because the ruling creates uncertainty of how the six-factor test will now be applied.
In an effort to preserve the exemption, the non-profit community has been sponsoring briefings, researching the implications of the opinion and scheduling Non-profit Day at the Capitol in February. Pratt says non-profits have geared up for a lobbying effort with a specific legislative goal in mind:
"Greater clarity and reliability so that organizations going forward, and also foundations considering making contributions, can be confident their contributions will be for the program purpose and not defraying tax costs or other things for the organization."
The legislative session begins in February.
That may not be soon enough for Nexus, the juvenile sex offender treatment program in Mille Lacs County. Nexus has its day in Tax Court in January.
- Morning Edition, 12/20/2007, 7:20 a.m.