Marcia Avner, the Minnesota Council of Nonprofit‘s (MCN’s) public policy director, already has her top three priorities for the Feb. 5 Day on the Hill: “Pass the tax exemption. Pass the tax exemption. Pass the tax exemption.”
She is referring to MCN-backed legislation to clarify when a nonprofit qualifies for a property-tax exemption. The issue went on the front burner late last year after the Minnesota Supreme Court’s decision in Under the Rainbow vs. Goodhue County. (PDF)
That ruling rejected a property-tax exemption for a Red Wing-based nonprofit child-care center that had built its own building. The decision set off alarms among the state’s nonprofits, worried that it created a new precedent. MCN tried unsuccessfully last session to negotiate a legislative fix. It settled instead for a short-term moratorium to protect existing exemptions. Since then, it has worked with the Minnesota Department of Revenue on compromise language. MCN is now moving forward with a bill.
“People think it is incredibly important, especially as nonprofits are experiencing the kinds of cuts that they are,” Avner said.
Disagreements exist whether the Supreme Court’s decision significantly changed the rules of the game or simply reinforced prior court decisions, but legislative action is long overdue. The Minnesota Legislature has never passed a law that makes explicit when nonprofit organizations qualify for property-tax exemptions. County assessors rely on court decisions for guidance, notably a six-part test known as the North Star factors (named for the case North Star Research Institute vs. Hennepin County).
MCN has drafted a two-page bill to put the North Star factors into statute, with some language changes. Its stated purpose is to provide clear standards for making the decision, not to expand or contract the number of nonprofit organizations that get a property tax break.
Avner said Rep. Paul Marquart, DFL-Dilworth, and Sen. Tarryl Clark, DFL-St. Cloud, agreed to be chief authors. That’s a good start. Last biennium, Marquart chaired the Property Tax Relief and Local Sales Tax Division and Clark was assistant majority leader. The draft is going to the revisor’s office.
In a written statement, the Department of Revenue said the MCN proposal provides an excellent starting point to codify and clarify the North Star tests. While sticking points exist, “we remain optimistic that we will be able to resolve the language differences.”
I wrote about the Under the Rainbow case earlier this year. For a longer explanation, go here.
Here’s the short version:
Nonprofits get a property-tax break if they meet the North Star tests for a “purely public charity.” The Minnesota Supreme Court said Under the Rainbow wasn’t a charity.
Those supporting Under the Rainbow’s request for a tax exemption argued it used government child-care subsidies to provide a needed public service to low-income families, and the center operated as a nonprofit. The Supreme Court rejected that argument, saying child-care subsidies did “not transform Under the Rainbow’s fee-for-services operation into a charity.”
Further, “the organization must provide a substantial proportion of its goods or services free or at considerably reduced rates” to qualify for the tax exemption, the court said. “… It is not sufficient that an organization serves a worthwhile purpose, or even that it does so on a nonprofit basis.”
MCN’s proposed legislation says in addition to looking at whether the nonprofit organization provides no- or low-cost services, county tax assessors need to consider “whether the organization provides services to the public that alleviate burdens or responsibilities that would otherwise be borne by the government.”
The proposed bill also says assessors may find that a nonprofit qualifies for the property-tax break without meeting all six factors, if the nonprofit provides “reasonable justification.” (Reasonable justification is not defined.)
Avner said MCN has invited people in each of the state’s 67 Senate districts to serve as “captains” to build support for the measure. They will be mobilized to make phone calls, write letters and ask for meetings with legislators. “The organizing component of this is quite advanced,” she said.