812447.1
April 20, 2016
SALES AND USE TAX ISSUES FOR LA
NONPROFITS AND CHARITABLE
ORGANIZATIONS
Jaye A. Calhoun 601 Poydras Street, 12th Floor
New Orleans, LA 70130 (504) 596-2785
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I. Nonprofit Organizations, In General – Nonprofit organizations are fundamentally different from for-profit entities. Both nonprofit organizations and for-profit concerns may generate “profits,” if they are well run. The difference between nonprofit and commercial entities is in how they are organized (particularly as it relates to ownership) and in the purposes for which they are operated. Commercial (for-profit) entities are owned by private owners (ranging in number from a few owners in the case of a closely-held business to the many owners of a publicly held company), while nonprofits are not owned by any individual or for-profit business. Commercial entities are operated to maximize the return on the investment of the owners (shareholders). Nonprofit entities are operated for public purposes. There are many different types of nonprofit entities including:
• 501(c)(2)
•
- Title Holding Corporation For Exempt Organization (contributions not deductible)
501(c)(3)
•
- Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations (contributions deductible)
501(c)(4)
•
- Civic Leagues, Social Welfare Organizations, and Local Associations of Employees (contributions not generally deductible)
528
•
– Homeowners Associations (contributions not deductible)
501(c)(5)
•
- Labor, Agricultural, and Horticultural Organizations (contributions not generally deductible)
501(c)(6)
•
- Business Leagues, Chambers of Commerce, Real Estate Boards, etc. (contributions may be deductible as business expense)
501(c)(7)
•
- Social and Recreational Clubs (contributions not deductible)
501(c)(8)
•
- Fraternal Beneficiary Societies and Associations (contributions may be deductible)
501(c)(10)
See IRS publication 557 at irs.gov for a more complete list. Please note that state and local governmental entities and some quasi-governmental entities are exempted under IRC §115. The federal government itself, and instrumentalities chartered by Congress, are not subject to state and local tax.
- Domestic Fraternal Societies and Associations (contributions may be deductible)
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A. Differences Between Nonprofit and For-profit Entities for State and Local Tax Purposes - In addition to exemption from federal income taxes, qualifying nonprofit organizations may enjoy exemption from a broader range of taxes at the state and local level. The requirements for exemption from income/business activity taxes, sales and use taxes and property taxes differ from state to state. It is not generally safe to assume that a nonprofit organization is exempt from all types of taxation in every state solely as a result of having been recognized as exempt by the Internal Revenue Service for federal income tax purposes. In addition, organizations exempt under other provisions of the Internal Revenue Code, such as 501(c)(4) civic leagues, may qualify as exempt from federal income taxes but not under state law (ie, Michigan).
1. Louisiana – As discussed in more detail below, Louisiana follows the federal treatment of tax exempt organizations for income tax purposes. While both the state and most parishes impose sales and use taxes, there are no general exclusions or exemptions from sales and use tax for nonprofit entities at either the state or local levels. While property taxes benefit the parishes and are, for the most part, administered and collected by the parishes, exemption from property tax for certain (not all) exempt organizations is provided for in the State Constitution.
B. Characteristics of a Nonprofit Organization - Although state laws vary widely, the general rationale behind exemption for nonprofit organizations is that these organizations exist to provide public benefit in the form of charitable, educational, healthcare or similar activities and to relieve the burdens of government. Unlike commercial entities, these organizations are routinely restricted from being privately owned. Also unlike a privately owned entity, the net earnings of a nonprofit organization may not benefit private interests but must be devoted to public purposes. Although individuals certainly may benefit from the largesse of a nonprofit organization, charitable beneficiaries may not ordinarily be insiders with respect to the organization and the organization and an organization must be able to show that it provides sufficient public benefit. Private benefit is discouraged and must be minimal or incidental.
1. Sources of Income and Community Benefit - Many nonprofit organizations receive their income as a result of donations or membership fees and not as payment for goods and services. Organizations such as hospitals and healthcare providers as well as higher educational institutions, when organized as nonprofits, may receive a substantial part of their income from program services but, although they are allowed to charge for their services, they are not allowed to restrict their program services to those who can pay but must typically establish that they serve indigent individuals as well (a community benefit standard). As a result of a number of recent cases in which nonprofit healthcare organizations have had their exemptions challenged on the basis of the community benefit standard, both the federal government and the states are increasingly seeking to quantify the degree to which nonprofit organizations provide
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indigent care in order to establish guidelines for nonprofits and to justify exemption from tax.
C. Nonprofit Organizations with Commercial Characteristics - Organizations that serve public purposes that may be characterized as economic development (such as business incubators) have found their exemptions challenged more frequently than those that serve traditionally underserved populations such as the poor, the disadvantaged, the disabled and the elderly.
D. Organization under State Law – Organization under state nonprofit corporation laws does not, by itself, guarantee recognition as exempt. For federal tax purposes, a public charity seeking IRS recognition as an exempt organization under IRC §501(c)(3) must file a Form 1023 with the IRS. The approval process for new exempt organizations has been streamlined to comport with the Form 990 and its extensive disclosure requirements. TD 9423. The IRS has long abandoned the advance ruling process and now will make a definitive ruling that an organization is a public charity based on a new application for exempt status. The IRS has shifted from monitoring public support through the advance ruling process to monitoring public support through disclosures on the organization’s Form 990. Another change that has occurred from prior years is that, previously, a single member LLC, treated as a disregarded entity, could enjoy the exempt status of a nonprofit corporate parent but could not apply for its own determination of exemption. Now the instructions to Form 1023 make clear that an LLC may file a Form 1023. Not all states have laws that allow organization as a nonprofit entity other than as a corporation. Further, the ad valorem tax exemption provided in La. Const. art. VII, § 21 is reserved to property owned by or leased to a “nonprofit corporation or association” and not an “L3C” or low profit limited liability company organized under Louisiana law. See Gulf Coast Housing Partnership, Inc., et al, v. Bureau of the Treasury of the City of New Orleans, Docket No. 2013-CA-0556, (La. Ct. App. 4th Cir, Nov. 27, 2013).
1. State Regulation of Charitable Solicitations and Fundraising – Every state and the District of Columbia have laws regulating nonprofit organizations. Many states have laws that require licensing or registration of organizations engaged in charitable solicitation. Most of these state laws would seem to apply to internet solicitation through maintaining a website on which donors can contribute. Of the states that do require registration before charitable solicitation, many (but not all) expressly exempt organizations that have indicia of reliability such as educational institutions and religious organizations or exempt organizations whose solicitations do not result in contributions over a de minimus level. As a result of a project of the National Association of Attorneys General and the National Association of State Charities Officials, a Unified Registration Statement is available at http://www.multistatefiling.org/c_statement.htm.
E. Income or Business Activity Taxes -
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1. Federal Exemption Generally Recognized at State Level - Most states exempt from business activity taxes an organization listed in IRC §401(a) or IRC§ 501 to the extent that the organization is exempt from federal income tax. Many states exempt by specific reference to the Internal Revenue Code and others have constitutional or legislative provisions which exempt nonprofit or charitable organizations (for example, Mississippi, Montana, New Jersey, Rhode Island, Texas and Vermont) without explicit reference to the Internal Revenue Code.
a. Louisiana - Louisiana law exempts organizations described in IRC Sections 401(a) or 501, from Louisiana corporation tax to the extent any such organization qualifies as exempt under federal law. A corporation claiming total or partial exemption from state income tax must include a copy of the Internal Revenue Service determination letter ruling establishing its exempt status with its return, must report on a Louisiana corporation income tax return any federally taxable income, and must provide a statement claiming the state exemption for income not subject to federal tax. A corporation that contributes its net earnings (net of a “reasonable reserve” of no more than one thousand dollars) at least annually to organizations organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, is also exempt from income tax as long as it is not engaged in the active conduct of trade or business, no part of its net earnings inures to the benefit of any private shareholder or individual, and no substantial part of its activities is carrying on propaganda or otherwise attempting to influence legislation. Because the exemption from income tax for nonprofits is patterned on federal law, Louisiana courts may look to federal law in interpreting the comparable Louisiana provisions.
2. Special Taxes Imposed on Certain Charitable or Public Benefit Providers - Rhode Island applies a special surcharge on the service revenues of outpatient healthcare facilities including those operated by nonprofit or governmental entities and a special assessment certain residential facilities providing services to disabled individuals and nursing facilities.
3. UBTI – Income that is substantially related to an organization’s exempt function (or “exempt function income”) is not taxed at the federal level even if such income is derived from the conduct of a trade or business and even if the conduct of a trade or business is a substantial part of the organization’s activities. Most states tax nonprofit organizations on their UBTI or any other income that is not protected under IRC § 401(a) or IRC § 501. Some states (Delaware, Kentucky and New Jersey) do not tax UBTI or do not tax particular types of UBTI (Minnesota does not tax
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certain advertising revenue of (c)(4) organizations or certain charitable gaming revenues).
a. Louisiana – The Louisiana Department of Revenue is now enforcing the statutory requirement that taxes be collected on unrelated business taxable income for tax periods beginning on and after January 1, 2008. La. Admin. Code §61:I.1140(B); Louisiana Revenue Bulletin 09-009 (Feb. 25, 2009). Prior to these effective dates, the Department did not enforce the statutory requirement and no return was available on which nonprofits could report their Louisiana UBTI. As a result of the change in position, nonprofit organizations were required to register with the Department as an income only type filer and also were required to file on Louisiana Corporate Income Tax Return (Form CIFT-620) and attach a special schedule according to instructions for its completion by nonprofit organizations. An exempt organization with UBTI must include a Form 401-W with its return. As a result of the changes to the sales and use tax law discussed below, more organizations with UBTI will no longer be income only filers.
4. Tax Credits for Tax-Exempts – Although it seems counterintuitive, occasionally nonprofit organizations may benefit from tax incentive legislation. The Louisiana Department of Revenue previously issued PLR 09-010 in which the Department confirmed that a refundable credit may provide an additional, previously overlooked, source of funding for nonprofit organizations developing musical and theatrical production facilities in the State. The PLR confirms that, although the nonprofit organization requesting the ruling has no corporate tax liability, the organization is nonetheless entitled to a refund of 25% of its qualified expenditures in excess of its nonexistent tax liability. The reasoning of the PLR may apply to other refundable corporate income and franchise tax credits for nonprofits engaged in non-entertainment related activities.
F. Sales and Use Taxes, In General – All states that impose a sales/use type tax have some exemptions from tax for nonprofit organizations. These exemptions are liberally available in some states and limited in others. Most states that provide exemptions have statutes that exempt specific taxpayers or specific transactions. Typically, even where nonprofits are not exempt from tax on their own purchases, they may be able to engage in limited sales of tangible personal property or admissions to fundraising or cultural events or entertainment without being required to collect tax on these sales. Most states exempt sales of meals to patients and staff of hospitals as well as sales of certain medical supplies and equipment. Although many states have them, exemptions that are available only to churches and religious organizations may be vulnerable to constitutional challenges.
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1. Local Sales and Use Taxes - Many states, including Louisiana, which impose sales and use taxes, also allow local jurisdictions to impose sales and use taxes as well. See La. Rev. Stat. §§33:130.210, et seq.; La. Rev. Stat. §§33:2711, et seq.; La. Rev. Stat. §§33:4574.1, et seq. Louisiana is one of the very few states that permit local administration and collection of sales and use taxes and no other states permits local administration and collection to the degree that Louisiana does. This system has made the Louisiana tax system arguably the most complex and the least uniform sales and use tax regime in the nation and has created a reputation for Louisiana as having a less favorable tax climate than might otherwise be warranted based on relatively favorable effective tax rates.
G. Louisiana Sales and Use Taxes, In General – Louisiana imposes sales taxes on all sales of tangible personal property, unless exempted or excluded, and no sales of services, unless specifically identified as taxable. To put it very generally, use taxes are imposed on acquisitions of property brought into Louisiana or acquired in Louisiana in those instances in which no tax was paid by the acquirer on the acquisition. La. Rev. Stat. Ann. §47:301, et seq.; La. Admin. Code §61:I.4303.
1. Specifically, Louisiana imposes tax on the following taxes in the nature of sales and use taxes:
Sales tax on the retail sales of tangible personal property (and, effective April 1, at a lower rate on casual sales);
Use tax on the use, consumption, distribution or storage for use or consumption of tangible personal property;
Sales tax on leasing or renting tangible personal property;
Sales tax on buying or using certain services; and
An additional sales tax on auto rental.
See La. Rev. Stat. §47:302. Governmental entities are generally not required to pay sales/use tax however a private nonprofit corporation that leases hospital service district facilities, including hospital buildings, improvements, furnishings, equipment and supplies, was held to be not entitled to a Louisiana sales tax exemption as a governmental entity. See Louisiana Revenue Ruling No. 01-009 (October 8, 2001).
2. Taxation of Services – Unlike transactions involving the sale of tangible personal property, with respect to services, Louisiana only taxes those services that are statutorily defined as taxable “sales of services.” La. Rev. Stat. §§47:302(C); 47:321(C); 47:321.1, and 47:331(C); La. Admin. Code §61:I.4303(C). Louisiana taxes the following services if performed within the State:
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1. The furnishing of sleeping rooms, cottages or cabins by hotels;
2. The sale of admissions to amusement places, athletic entertainment (other than that of schools, colleges, and universities), and recreational events, and the furnishing, for dues, fees or other consideration, of the privilege of access to clubs or the privilege of having access to or use of amusement, entertainment, athletic or recreational facilities;
3. The furnishing of storage or parking privileges by auto hotels and parking lots;
4. The furnishing of printing or overprinting, lithographic, multilith, blue printing, photostating or similar services of reproducing written or graphic matter;
5. The furnishing of laundry, cleaning, pressing, and dyeing services, including the cleaning and renovation of clothing, furs, furniture, carpets, and rugs, and the furnishing of storage space for clothing, furs, and rugs;
6. The furnishing of cold storage space and the furnishing of the service of preparing tangible personal property for cold storage, if such service is incidental to the operation of storage facilities;
7. The furnishing of repairs to tangible personal property, which includes automobiles, machinery, appliances, equipment, furniture, fixtures and other TPP; and
8. The furnishing of telecommunication services for compensation, such as local and toll telephone and private communication services, mobile telecommunications services, and teletypewriter and computer exchange services.
See La. Rev. Stat. §47:301(14)(a) through (g)(ii), and (14)(i)(i) through (14)(i)(ii)(aa); La. Admin. Code §61:I.4301(C).
3. Collection by Dealer/Payment by Consumer – Sales and use taxes are collected by persons engaged in the business of making retail sales of tangible personal property to buyers for use or consumption or by service providers selling taxable services. A nonprofit organization could generally be viewed by the Department as a “dealer” in the business of making retail sales unless an exemption or exclusion applies. The “dealer” however is not the taxpayer. The taxpayer is the consumer buying the TPP or taxable service. That is, the taxes are paid by the consumer of the tangible personal property or the consumer of the taxable
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service and, with respect to dealers located in Louisiana, it is the dealer’s obligation under the law to collect and remit the tax.
a. Use Taxes - Louisiana is prohibited by the US Constitution from imposing sales taxes on transactions taking place outside of Louisiana. Nevertheless, Louisiana can and does require its citizens to pay use taxes on transactions which occur out of state and which result in the importation of tangible personal property. Consumers owe use tax on such transactions and are required under the law to self report and remit use taxes on purchases of tangible personal property, for example, over the internet where tax was not collected by the dealer. Louisiana may also constitutionally require some out of state vendors to collect and remit its use taxes on sales to Louisiana residents. Specifically, Louisiana may require remote vendors with some aspect of physical presence in the State (property or workers) to collect and remit the State’s use taxes. Recent legislation requiring remote vendors with contractual or affiliate relationships with in-state entities or individuals to collect the State’s use taxes are too recent to have been tested in the Louisiana courts.
b. An Organization that qualifies as a Dealer can become personally liable for the consumer’s tax under certain circumstances - If no exemption or exclusion applies and an organization is therefore required to collect either sales or use tax because the organization is located in the state or because the organization has property or workers in the State, and, if the organization fails to discharge this legal obligation, the organization can become personally liable for the tax. The State may determine the organization’s noncompliance on audit and will assess the organization with the tax that should have been collected, interest on the tax and sometimes penalties and audit costs. Further, although nonprofits have no true owners, nonprofits may have officers and directors. The State may, in some instances, personally pursue officers and directors for unpaid taxes.
4. Exemptions and Exclusions – As mentioned above, there is no general exemption or exclusion from sales tax for Louisiana nonprofits. This means that most nonprofits, other than those with specific exemptions for particular purchases, paid sales or use tax on transactions in which the nonprofit was the consumer of the good or taxable services being purchased. However, with respect to the types of activities that nonprofits engage in and with respect to which the nonprofits operated as “dealers,” Louisiana has historically provided generous exclusions or exemptions from the requirement that the organization collect tax on its sales of tangible personal property at fundraisers as well as on otherwise taxable admissions to events.
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a. After the 1st Extraordinary Session, In General - Effective for the period April 1, 2016 through June 30, 2018, the general Louisiana state sales and use tax rate is 5%. Effective on and after July 1, 2018 and before April 1, 2016, the general Louisiana state sales and use tax rate is 4%. The general state tax is a total amount consisting of the following components: a 2% basic rate, a 1% additional tax that replaced the Louisiana Recovery District Tax, another 0.97% additional tax and 0.03% tax imposed by the Louisiana Tourism Promotion District, and a temporary additional 1% tax (effective for the period April 1, 2016 through June 30, 2018).
b. Suspension of Exemptions/Exclusions and Varying Tax Rates- In general, only those exemptions and exclusions that were listed in Act 25 and 26 are still in effect. Unfortunately, Acts 25 and 26 did not contain identical lists of exemptions and exclusions. Lower tax rates may apply to transactions that retained a partial exemption. See the Department’s Publication R-1002A (revised 04/16) at http://revenue.louisiana.gov/Publications/R-1002A%203-29-16.pdf which helpfully contains the list of exemptions and exclusions and the Department’s position as to the applicable rates. Please note that this chart has been revised several times and so it is important to consult the latest version.
i. “Bells and Whistles” Exemptions and Exclusions also Suspended - Nevertheless, the suspension of exemptions/exclusions did not add items to the tax base in those instances where the provision of law was, at best, a clarification of existing law and, at worst, superfluous. That is, the fact that an exemption or exclusion existed in the law did not necessarily mean that the underlying transaction was taxable in the first place. For example, a number of nontaxable services enjoyed legislative exemptions or exclusions so that the suspension of the exemption or exclusion did not operate to make the underlying service taxable.
ii. Suspension of Exemptions for Sale of TPP at Fundraisers and Otherwise – In general, there were several exemptions/exclusions available to nonprofits with respect to the purchase and/or sale of tangible personal property. Exemptions and/or exclusions included those available to certain nonprofit organizations that constructed housing or retirement centers for the purchase of building materials; with respect to specialty items purchased by carnival and nonprofit organizations sponsoring a Mardi Gras parade or ball; purchases and sales made by nonprofit
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organizations dedicated exclusively to the conservation of migratory North American waterfowl and wetland habitat or the conservation of fish. Finally, if the organization obtained the necessary exemption certificate, an organization was not generally required to collect tax on the sales of tangible personal property at certain fund-raising events. Tax must now be collected on these transactions and others.
iii. Department Guidance Regarding Certain Food Sales/Uses – The Department has helpfully clarified that food donated to a food bank will be considered valueless for the purposes of reporting use tax on the donation. See Revenue Information Bulletin No. 16-026 (April 15, 2016). The Department has also issued guidance stating that public and private schools that participate in the National School Lunch and School Breakfast Programs will not be required to collect sales tax on the sale of meals in connection with this food service. However, food service provided to students by nonprofit private schools and residential child care institutions as a part of tuition is a part of the educational services provided by the school. An educational service is not one of the defined sales of services pursuant to La. R.S. 47:301(14); therefore, it is a non-taxable service. For those schools where food service is billed separately and the school does not participate in the National School Lunch and School Breakfast Programs, the meals would be taxable under Act 25 of the 2016 First Extraordinary Session and the school would be required to collect the four percent state sales tax on meals from April 1, 2016 through June 30, 2016 and the two percent state sales tax from July 1, 2016 through June 30, 2018. See Revenue Information Bulletin 16-024 (April 12, 2016).
iv. Suspension of Exemptions for Sale of Admissions (Taxable Service) for Entertainment and Recreational Events and Club Dues – Of particular concern for nonprofits has been the suspension of the exemptions/exclusions which referenced nonprofit organizations and expressly prevented nonprofits from having to charge tax on admissions to fundraisers and performances, including:
•Admissions to entertainment events by domestic nonprofit organizations;
•Fairs and festivals sponsored by nonprofit organizations;
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•Little Theater organization admission tickets;
•Mardi Gras activities;
•Nonprofit organizations for entertainment events; and,
•Performing arts tickets.
v. An OPEN ISSUE: Admission/Dues as a Taxable Service - La. Rev. Stat. §47:301(14) provides that “Sales of services” means and includes the following:
(b) (i) (aa) The sale of admissions to places of amusement, to athletic entertainment other than that of schools, colleges, and universities, and recreational events, and the furnishing, for dues, fees, or other consideration of the privilege of access to clubs or the privilege of having access to or the use of amusement, entertainment, athletic, or recreational facilities (bb) The term “sales of services” shall not include membership fees or dues of nonprofit, civic organizations, including by way of illustration and not of limitation the Young Men's Christian Association, the Catholic Youth Organization, and the Young Women's Christian Association. (ii) “Places of amusement” shall not include “museums,” which are hereby defined as public or private nonprofit institutions which are organized on a permanent basis for essentially educational or aesthetic purposes and which use professional staff to do all of the following: (aa) Own or use tangible objects, whether animate or inanimate. (bb) Care for those objects. (cc) Exhibit them to the public on a regular basis. (iii) Museums include but are not limited to the following institutions: (aa) Museums relating to art, history, including historic buildings, natural history, science, and technology. (bb) Aquariums and zoological parks. (cc) Botanical gardens and arboretums. (dd) Nature centers. (ee) Planetariums. (iv) For purposes of the sales and use taxes of all tax authorities in the state, the term “places of amusement” as used herein shall not include camp and retreat facilities owned and operated by nonprofit organizations exempt from federal income tax under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3) of the Internal Revenue Code provided that the net revenue derived from the
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organization's property is devoted wholly to the nonprofit organization's purposes. THE OPEN ISSUE: The Department has clearly taken the position that the definitions above such as they relate to the sports events of schools and universities and admission to Art, History, and Scientific Museums, Aquariums, Zoological Parks, Botanical Gardens, Arboretums, Nature Centers, Planetariums, etc., the sale of admissions to various arts performances, and the rental of camp and retreat facilities are exemptions or exclusions from an otherwise taxable service. See Revenue Information Bulletin No. 16-020 (April 7, 2016). Arguably, because services are not taxable under the law in the first place unless the service is specifically identified as taxable, the specific reference to these transactions could be easily characterized as a “bells and whistles” type of reference. That is, as the Department recognized with respect to the exemptions and exclusions that were suspended despite addressing only other nontaxable services (such as attorney work product), that the legislature’s repeal of a superfluous provision does not add an otherwise nontaxable service to the tax base.
(a) Educational Admissions are Not Subject to Tax - Further, admission to educational
(b)
events are not taxable under the law. Admission to a museum is more arguably an educational event than a recreational event.
Taxation of Services is in Derogation of the General Rule - Admission to sporting events at schools and universities are less clearly educational, however, again, because the statute taxing admissions is specifically imposing tax on transactions that would not otherwise be taxable (ie, service transactions), it is not entirely clear that the non-inclusion in the taxing statute of admission to school sporting events or the other provisions removing admission to arts events from the taxing statutes operate as true exclusions or exemptions in the same way that these provisions would if all services were taxable and this type of transaction was being removed from what would otherwise be the general application of the rule. Again, these references may simply be “bells and whistles” (intended to remove all doubt) types of provisions. Perhaps the Department should reconsider its position. But see Revenue Information Bulletin No. 16-027 (April 15, 2016) suggesting that School Boards must register to
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collect and remit tax on sale of admissions except on sales to students who are required to attend a recreational or sporting event.
vi. Dues – The Department appears to have taken the position
that tax is not required to be collected on dues paid to gain access to a club which does not have a physical facility. See Revenue Information Bulletin No. 16-014 (March 30, 2016).
H. Property Taxes –
1. Most States Exempt - Many states (39) exempt property from ad valorem taxation if it is both owned and operated for charitable purposes. Some states (11) allow exemption where the property is operated for charitable purposes. No states allow exemption solely on the basis of nonprofit ownership. Seventeen states exempt a nonprofit from property taxes when leasing property belonging to a commercial entity.
2. Exclusivity of Use and Bifurcation of Exemption - States differ as to whether a property must be used exclusively for exempt purposes in order to enjoy exemption from property taxation. Some states allow it (example, South Dakota) and some don’t (example, Louisiana). Thirty one states will separately assess the portion of a nonprofit’s property that is used for for-profit purposes (such as when property is leased for related commercial use such as a daycare center in a hospital or physicians’ offices).
3. State and Local Revenue Loss Resulting from Exemptions for Nonprofits – In these tough economic times, local governments (historically, the primary beneficiaries of property taxation) are increasingly scrutinizing nonprofit organizations and requiring such organizations to justify their entitlement to property tax exemption. In Orleans Parish, Louisiana, a 1996 study by the Bureau of Governmental Research estimated that the primary threat to the property tax base in Orleans Parish was that 65% of the exempt property on the rolls was owned by nonprofit and governmental entities resulting in the annual loss of $93 million in revenue. After factoring in the state homestead exemption, the bulk of the property tax burden was shown to be borne primarily by businesses and renters and small proportion of the remaining homeowners. A 2006 report by Harvey Lipman and published in the Chronicle of Philanthropy estimated that New York loses $605 million and Boston $258 million annually as a result of property tax exemptions afforded exempt entities.
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4. PILOT and SILOT Agreements – In an effort to recover some of these tax losses, exempt organizations may nonetheless be required to enter into agreements with the local taxing authority to make “payments in lieu of taxes” or PILOTs. In other states, SILOTs or “services in lieu of taxes” are required.
II. Both the IRS and the States Have Increased Scrutiny of Tax-Exempt Organizations
A. Increased Federal Scrutiny and Compliance Enforcement – All tax exempt organizations are required to be organized and operated for public (rather than private) benefit in order to maintain tax exemption under section 501(c)(3) of the Internal Revenue Code. Failure to comply could result in revocation of an organization’s tax-exempt status or imposition of sanctions with respect to specific transactions. State laws, although not uniform, generally grant tax exemption from income, property and/or sales/use taxes, to those organizations which are organized and operated for public benefit. In general, state “sanctions” for failure to operate for public purposes are more likely to be denial of exemption to the organization with respect to the type of tax at issue.
1. Compensation Issues - Unreasonable compensation for officers, directors, trustees or other insiders would constitute unacceptable private benefit under the Internal Revenue Code and related IRS rules and regulations. Excessive payment for goods or services in transactions involving related parties creates the same issues. Therefore, exempt organizations must be able to show that they pay compensation that is reasonable under the circumstances to “disqualified persons” or organization insiders who are persons in a position of substantial influence with respect to the organization. The Internal Revenue Code contains provisions allowing the IRS to impose “intermediate sanctions” or penalty excise taxes under IRC §4958 in situations in which “excess benefit” transactions are found to have occurred. Nevertheless, the IRS regulations also provide safe harbor procedures which an organization can follow to establish a rebuttable presumption that compensation is reasonable. Treas. Reg. §§53.4958-6, et seq.
2. UBIT Issues – An organization that (1) regularly carries on a (2) trade or business that is (3) not substantially related to its exempt purposes is taxable on the income from that activity. That is, If the nonexempt activity is substantial in relation to an organization’s total activities, the organization may lose its exemption altogether. Although there is no hard and fast ratio for use in determining when UBTI will be considered substantial in relation to an organization’s exempt function income, the presence of even one substantial nonexempt purpose is sufficient cause to deny or cause revocation of an organization’s exemption. Better Business Bureau v. United States, 326 U.S. 279 (1945).
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B. New and Enhanced Sources of Publicly Available Information about Nonprofits – Tax-exempt organizations are required to make public their application for exemption and their annual tax returns, including amended returns, and any schedules and attachments, under IRC §6104(d). The organization may make this information available strictly on request or by publishing it on a website. The tax returns of many nonprofit organizations are available on www.guidestar.org. The current version of the Form 990, as discussed below, requires an organization to report information much more extensively than in the past. In addition, as a result of the 2006 Pension Protection Act, Forms 990T (disclosing UBTI) are required to be made public. In addition, certain public accounting rules have created disclosure requirements for tax-exempt organizations.
1. Form 990 Disclosures – For most organizations that do not qualify to use the simplified “postcard” or EZ return, Form 990 requires a taxpayer to outline in exhaustive detail various aspects of its organization and operation. The IRS has designed the form to increase transparency and assist in monitoring compliance (for the benefit of the IRS, donors to the organization and for the public, in general). The form also has the potential to educate organizations on the requirements for maintaining tax-exempt status.
a. Changes to Information that Must be Disclosed Annually – The full Form 990 provides threshold amounts for reporting compensation on a calendar year basis. It also requires disclosure of disposition of assets and identifies key employees and other persons, the compensation of whom must be reported.
b. Donor Information Not Required – Although an organization is required to make its returns, including schedules and attachments, available to the public, exempt organizations other than private foundations are not required to disclose the names and addresses of contributors. Since this information is reported on Schedule B to the Form 990, most organizations will want to redact this information from the returns that must be provided to anyone requesting them.
c. Schedule H for Hospitals - The Schedule H on the long form 990 allows for a more accurate analysis of quantitative and qualitative community benefit information. The IRS uses this information to determine the correct set of expenditures that hospitals should report. The IRS also uses this information to determine the extent to which bad debt, Medicare shortfalls, and community building should be considered when determining whether the organization has satisfied the community benefit standard.
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2. Form 990T Disclosable – An exempt organization that receives gross income of $1,000 or more from all of its unrelated trades or businesses must report that income (all of its UBTI) and related expenses on one Form 990-T under IRC §512(b)(12). Prior to the Pension Protection Act of 2006, exempt organizations were not required to make their 990-T’s available for public inspection but, now, charitable organizations, but not other types of exempt organizations, are required to make their 990-T’s available to the public. IRC §6104(d)(1)(A)(ii).
3. FIN 48 (now ASC 740-10, in part) – Nonprofit organizations may be required to have audited financial statements in a number of situations including where the organization has issued tax-exempt bonds or if it receives federal funds or in those states in which organizations are required to register before making solicitations and must file audited financial statements as part of the registration process. In 2006, FASB released Interpretation No. 48 (“Accounting for Uncertainty in Income Taxes”) or “FIN 48.” This interpretation advanced the “More-Likely-Than-Not” recognition standard for identifying and reporting uncertain tax positions. FIN 48 applies to nonprofit organizations. While FIN 48 applies only to income tax liability and not property tax and sales tax exemptions or even employment taxes, FASB No. 5, Accounting for Contingencies, might apply. It also would not seem to apply to intermediate sanctions which are excise taxes and not imposed on the organization. Schedule D, Part X of Form 990 requires an organization to “Provide the text of the footnote to the organization’s financial statements that reports the organization’s liability for uncertain tax positions under FIN 48.” Since the Form 990 becomes a publicly available document, the disclosure of the tax risk, as required by FIN 48, becomes available to all.
4. Disclosure by the IRS to State Tax Agencies – The 2006 Pension Protection Act authorized the IRS to disclose to State taxing agencies certain proposed actions with respect to nonprofit organizations including when the IRS issues a notice of proposed deficiency with respect to certain taxes, a notice of proposed refusal to recognize exemption, a notice of proposed revocation of exemption and the names and identifying information of taxpayers who have applied for exemption as well as returns and return information for organizations to which any of the foregoing apply. IRC §6104(c)(2)(B).
III. Areas in which State and Local Governments Have Begun to Question the Availability of Exemption for Nonprofit Organizations - Although availability of any exemption might be in jeopardy, there appears to have been an increase in activity on the part of local governments questioning property tax exemptions afforded to nonprofit organizations. Organizations that, on the surface, appear to be competing with for-profit entities are particularly suspect. As a result, hospitals organized as nonprofits, affordable housing charities and (not surprisingly) business incubators have found themselves having to defend their right to exemption, particularly in the property tax area. As a
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related matter, nonprofit organizations including universities may receive assets by gift or bequest that are valuable but not directly related to their exempt function. Assessors have been challenging the ability of nonprofits to hold these assets for investment purposes as not sufficiently related to the organization’s exempt mission.
A. Healthcare Organizations – Promotion of health is a recognized charitable purpose but is not by itself enough. IHC Health Plans.
1. Nonprofit Hospitals - The availability of exemption to nonprofit hospitals is based on the hospital’s satisfaction of a facts and circumstances "community benefit" test. Under IRS Rev. Rul. 69-545 and subsequent rulings as fleshed out in the relevant jurisprudence, the IRS may look to the following factors when determining whether a nonprofit hospital meets the community benefit test:
i. presence of a full-time emergency room open to all regardless of ability to pay;
ii. providing hospital care for patients including those whose care is paid for by Medicare and Medicaid;
iii. operating surplus devoted to exempt purposes such as improvements to the facilities, improving patient care, training and research;
iv. providing educational programs to the public;
v. actual adherence to an adequate conflict of interest policy;
vi. having an open (privileges available to all qualified) medical staff consistent with the size and nature of the facility; and,
vii. a majority independent board of directors including community members.
b. IRS Hospitals Study – The IRS recently released the results of a study it conducted of more than 500 nonprofit hospitals. The 191 page study, released February 12, 2009, focused on the community benefit and executive compensation practices of nonprofit hospitals. The IRS conducted this study by surveying hospitals on many issues now required to be disclosed on the new Form 990 and Schedule H (patient mix, emergency room information, board governance practices and policies, privileges of medical staff, the extent to which care is provided to the indigent, programs for the community, and other issues). The IRS found that there is a wide disparity in the amount of charity care and uncompensated care provided for by hospitals. Rural hospitals had the lowest rate of
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community-benefit expenditures as a percentage of revenues while the opposite was true for large urban hospitals. The study also found that most hospitals surveyed complied with the procedures for establishing a rebuttable presumption of reasonableness with respect to compensation including the use of comparable salary surveys and independence of the decision-makers.
c. The State of California Conducted its Own Study - The Board of Equalization of the State of California recently approved new reporting requirements for non-profit hospitals that will require them to provide data on charity care on a cost basis on the basis of a study conducted by the California State Auditor that did not find significant differences between the uncompensated-care costs for care provided by nonprofit and that provided by for-profit hospitals.
2. State Scrutiny Has Been Steadily Increasing –
a. Legislation – Utah, Pennsylvania, Texas, California and New York have all passed legislation aimed at quantifying and requiring community benefit or requiring planning and reporting of benefit to the community. Utah passed legislation that requires that hospitals make an annual gift to the community in excess of property tax exemption benefits. Massachusetts provisions are voluntary.
b. Jurisprudence –
i. HCPI Indiana, LLC v. Hamilton County Property Tax Assessment Board of Appeals, No. 49T10-0604-TA-36, 2007 WL 1559294 (Ind. Tax Ct. May 31, 2007) (unpublished table decision) – The organization’s property, the Methodist Medical Plaza of Carmel and a parking lot, was denied property tax exemption because the owner was unable to show that the property “was used more than 50% of the time (ie, predominantly) to educate medical students or to provide charitable health care.” HCPI argued that the property was owned and used for charitable or educational purposes with respect to the 59% of the property that was leased to Clarian Health Partners, Inc., a nonprofit corporation, at below market rates. Clarian used the property to provide surgical and medical care, including free or reduced medical care to indigent patients and for providing medical students with a “experiential educational setting.”
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ii. Methodist Hospitals, Inc. v. Lake County Property Tax Assessment Board of Appeals, 862 N.E.2d 335 (Ind. Tax. Ct.), review denied, 869 N.E.2d 456 (Ind. 2007) – Methodist Hospitals, a 501(c)(3) organization, appealed the denial of a charitable purposes exemption for two medical offices it owned and operated. Methodist also owned and operated two acute care hospitals. Methodist employees provided staffing and administrative services for all of the properties and, including billing and collections. The medical offices provided medical services to the general public and, although patients could be admitted to the acute care hospitals as needed, they would not ordinarily be sent from the hospitals to the medical service offices. The court denied the exemption on the ground that mere ownership of the medical offices by the exempt hospital was not enough. The court held that Hospitals was unable to show that the medical offices were “substantially related to or supportive of” the inpatient facilities as required by the relevant statutes. The court stated that it “will not [be] presume[d] that a substantial relationship or supportive network arises merely because two entities are engaged in the same type of business activity.”
iii. McLaren Regional Medical Center v. City of Owosso, 275 Mich.App. 401, 738 N.W.2d 777 (Mich. App., 2007) - Michigan Supreme Court overturned denial of property tax exemption holding that the exemption is based on analysis of the organization’s charitable purpose and not on the basis of a threshold level of charity. Consolidated with Wexford Medical Group v. City of Cadillac, 713 N.W.2d 734, 474 Mich. 192 (MI 2006).
iv. Hotel Dieu v. Williams, 410 So. 2d 1111 (La. 1982), was a case in which the Louisiana Supreme Court determined that a parking garage and medical office building, which contained a restaurant, were sufficiently related to the exempt purpose of a hospital operated by a nonprofit so as to be entitled to exemption under the State Constitution.
v. Provena Covenant Medical Center v. Department of Revenue of State, App. 4 Dist. 2008, 323 Ill. Dec. 685, 384 Ill.App.3d 734, 894 N.E.2d 452, appeal allowed, 326 Ill.Dec. 879, 229 Ill.2d 694, 900 N.E.2d 1126 – The organization had great difficulty establishing that its primary purpose is charitable care in light of the fact that only .7% of its total revenue is devoted to charitable activities. The assessor argued that the operation of the
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property was commercial or businesslike and more characteristic of a business activity than a facility devoted to religious purposes.
B. Affordable Housing and Elderly Residential and Assisted Living Charities –
1. Residential Charities for the Elderly - Local governments have been increasingly challenging property tax exemptions and even sales tax exemptions for charities that provide housing for the elderly.
a. New Orleans Towers Affordable Housing Corp., Inc. v. Kahn, 744 So 2d 50 (La. Ct. App. 4th Cir. 1998), aff'd on rehearing, ___ So. 2d ___ (Jan. 29, 1999) - A federally tax-exempt nonprofit corporation was held to be entitled to the exemption over the City’s objection that the property was making money and was competing with for-profit businesses for tenants and rents. The court cited IRS Rev. Rul. 67-138, 1967-1 CB 129, in support of its holding that providing adequate or affordable housing to low-income families was an acceptable charitable purpose. The court rejected the City’s argument that the operation was a commercial enterprise operating "under the cloak of a nonprofit organization." The court held that the nonprofit corporation’s receipt of federal rent subsidies and other funding was related to its charitable purpose of providing a home for persons who met low-income requirements. The court held that, as long as the corporation continued to operate consistent with its charitable purpose, then it was not operating as a commercial entity and it was entitled to the exemption.
b. Pratt-Stanton Manor Corp. v. Parish of Orleans, 821 So. 2d 748 (La. Ct. App. 4th Cir. 2002). An Orleans Parish assessor challenged the exempt status of another nonprofit-owned and operated complex. In the Pratt-Stanton case, all of the tenants were elderly and although they paid rents and could purchase additional services for a fee, their rents were subsidized by donations and an endowment. Other than being elderly, the tenants were not otherwise disadvantaged and appeared to be paying rents which were more than nominal. The court once again held that the property was exempt from taxation because it was organized and operated for charitable purposes and, although irrelevant, the court noted that the property was not making a profit.
c. St. Joseph's Living Center, Inc. V. Town Of Windham, 290 Conn 695, 966 A2d 188 (CT 2009) – The local assessor denied property tax exemption to a skilled nursing facility owned by a diocese of the Catholic church and developed with a for-profit partner who was bought out on the ground that the organization was not a
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public charity (it was covered by the blanket exemption granted the Catholic church but had not sought exemption on its own) and was not organized or operated exclusively for charitable purposes. The court found that the organizational documents reflected organization for a sufficient charitable purpose (the provision of healthcare to the elderly), that the organization, although profitable, was not impermissibly self-supporting and that the organization was providing a public benefit as a result of primarily treating patients covered by Medicare and Medicaid. Nevertheless, the organization was not allowed the exemption because the court found that its long-term chronic care services (a charitable purpose for which it was organized) were offered in a portion of the facility that was not physically separate from, and exclusively dedicated to, its short-term rehabilitative care operation (a charitable purpose not stated in its organizational documents). The court could not bifurcate the exemption between charitable and noncharitable uses of the subject property but suggested that the organization could modify its organizational documents so as to include the short-term rehabilitative use and thus be entitled to the exemption.
d. Brothers of Holy Cross, Inc. v. St. Joseph County Property Tax Assessment Board of Appeals, 878 N.E.2d 548 (Ind. Tax Ct. 2007) - The Brothers of Holy Cross, Inc., were allowed only a 17% charitable purposes property tax exemption with respect to a retirement community that the religious organization owned and operated. The exemption was granted only with respect to the property’s administrative center and the land itself on the ground that the property was not predominantly used for a charitable purpose.
e. Catholic Health Initiatives Colorado v. City of Pueblo, Dept. of Finance, --- P.3d ----, 2009 WL 806827 (Colo.) – An organization exempt under 501(c)(3) and that was affiliated with the Catholic church, provided housing for the elderly. Although the organization was motivated by religious belief, the sales tax exemption was available to "charitable organizations" which were those certified as not-for-profit under the Internal Revenue Code and which were religious or charitable organization, and which “exclusively, and in a manner consistent with existing laws and for the benefit of an indefinite number of persons, freely and voluntarily ministers to the physical, mental or spiritual needs of persons, and which thereby lessens the burdens of government." The organization did not qualify for exemption because its ministry to the physical, mental, and spiritual needs of the residents was not exclusively free and voluntary, and so did not lessen the burden of government. Further, the organization's pricing and fee structure made the nature of the services provided transactional,
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rather than charitable. Finally, the organization provided "retirement lifestyle" housing to some elderly persons who were financially independent.
2. Affordable Housing Charities – In Louisiana and elsewhere, affordable housing projects and particularly mixed-income developments (that include units rented to tenants who do not strictly qualify as low income under federal guidelines) have been having their exemption for property taxes challenged.
a. Whitten Foundation v. Granger, 950 So.2d 720 (La. App. 1st Cir. 2006), writ denied, 948 So.2d 1080 (La. 2007) – The East Baton Rouge Parish assessor has been challenging tax exemption for all affordable housing charities in that parish. In Whitten, the assessor challenged the exemption for a nonprofit that operated an affordable housing facility resulted in an unnecessarily broadly worded opinion suggesting that, if rents were calculated based on commercially available rates, no exemption would be available. The opinion stated:
There is no evidence in the record before us that the low-income tenants received any type of reduction [in rent] or benefits from [the nonprofit’s] operation of the apartment complexes as a commercial operation. In fact, the joint stipulation indicates the low-income tenants are paying the same or comparable rates as any other commercially operated apartment complex in the Baton Rouge area. There is no question that Whitten qualifies as a non-profit corporation for the purposes of Section 501 of the Internal Revenue Code. However, Art. VII, § 21(B) of the Louisiana Constitution does not deal with income taxes. It addresses Louisiana ad valorem property taxes, which are separate and distinct from the Internal Revenue Code or the Louisiana Income Tax Laws. In addition to requiring that a corporation be organized as a non-profit corporation, Art. VII, § 21(B) of the Louisiana Constitution also requires that the corporation owner must operate exclusively for charitable purposes and that the property cannot be used for any commercial purpose unrelated to the exempt purposes of the corporation. Id. at 727.
i. Although the First Circuit took the position that unless reduced rents were offered to low-income tenants the affordable housing complex could not qualify as exempt, reduced rents are not a requirement of the Louisiana Constitution.
3. Carlton Cove Retirement Facilities – An Alabama appellate court upheld the denial of property tax exemption to a public charity qualified
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under 501(c)(3) that provided senior living facilities because it held that the use of the property was not strictly charitable. Assistance to the “financially well-off” elderly was not considered sufficiently charitable under the circumstances.
4. Tax-exempt Bonds Used in Developing Affordable Housing – Tax-exempt bonds are valid debt obligations of state, local, or Indian tribal governments and the interest paid on these bonds is exempt as a matter of federal government policy not of right. South Carolina v. Baker, 485 US 505 (1988). Interest on these bonds will remain exempt for the life of the bonds if all applicable federal tax laws are satisfied. The Internal Revenue Code imposes various requirements on the issuers of these bonds as well as various restrictions including restrictions against issuing bonds for the purpose of earning arbitrage profits or for the benefit of private persons. Information filing requirements apply. Tax-exempt bonds are frequently used in deals to develop affordable housing. As is the situation with a nonprofit’s determination of tax-exemption under the Internal Revenue Code, the fact that a project has been financed with tax-exempt bonds (and that there are numerous restrictions on the use of the property under trust indentures and covenants as to land use filed in the public records), this fact alone does not guarantee tax-exempt status.
C. Property Owned by Economic Development Entities – Localities may be authorized to create economic development boards which hold title to property for the purpose of economic development. Developers invest their own money or locate investors and lease the property under a lease to own agreement and develop the property. Sometimes the projects are funded through the use of tax increment financing. Nonprofits may or may not be involved. Exemption in this situation is available on the basis of the ownership of the property by a quasi-governmental entity. This is a situation in which PILOT agreements are frequently used in this situation to create payments in lieu of taxes but which are typically less than the taxes would be if the property were owned directly by the developer. In Louisiana, the relevant statutory provision that authorize a “payments in lieu of [ad valorem] taxes” agreement, is La. Rev. Stat. §51:1160 which provides that, because a municipal and parish industrial development board corporation (an exempt entity created to promote state industry and trade and performing a quasi-governmental function), does not pay tax, it may require the lessee of one of its projects to pay annually a sum equal to, and in lieu of, all ad valorem taxes that would be due if the lessee itself were the owner of project. In order for the property to enjoy exemption as property of an IDB, it must be “properly titled” in the IDB and, if so, may be leased to a “developer or other private user” and still be exempt from ad valorem taxation. See La. Atty Gen. Opin. 06-0047 (Sept. 15, 2006).
D. Fraternal Organizations -
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1. United Ancient Order of Druids-Grove #29 v. Wayne County Property Tax Assessment Board of Appeals, No. 49T10-0406-TA-25, 2007 WL 1439560 (Ind. Tax Ct. May 17, 2007) (unpublished table decision) - The UAOD, an Indiana not-for-profit corporation, argued that it was entitled to a property tax exemption as a fraternal beneficiary association under I.C. §6-1.1-10-23. The organization argued that its property as used for charitable fundraising and for providing members with meals and private social events. The exemption was denied on the ground that the organization did not have a representative form of government because neither a supreme governing body nor a board of directors elected the organization's officers, rather the officers were elected by local members, and officer positions were not exclusive to benefit members. The UAOD countered that this argument glorified form over substance and misread legislative intent. The court disagreed, holding that the relevant statute, I.C. § 27-11-2-2(2), was clear and unambiguous and specifically defined a representative form of government as being elected by the supreme governing body or the board of directors.
2. Sherwood Forest Country Club v. Litchfield, 998 So. 2d 56 (La. 2008), on reh'g in part, 2008-194 La. 2/13/09, 2009 WL 353296 (La. 2009) – the Louisiana Supreme Court held that a country club was not organized and operated exclusively for fraternal purposes under La. Const., Art. 7, § 21, and so was not entitled to exemption from property taxes exemption as the exemption from ad valorem property taxes provided in La. Const. art. VII, § 21(B)(1)(a)(i) to nonprofit corporations “organized and operated exclusively for religious, dedicated places of burial, charitable, health, welfare, fraternal, or educational purposes” implicitly recognizes the quid pro quo of an exchange of a property tax exemption for the public benefits provided by the listed organizations. The court held that, although the word “fraternal” can be defined broadly, it is only on the theory that fraternal acts alleviate the burdens of government that a tax exemption for fraternal purposes can be justified. In general, no exemption is available for property primarily for social or recreational purposes, even if that property is owned by a fraternal organization. The court distinguished exemption for income tax purposes from exemption for property tax purposes by quoting McGlotten v. Connally, 338 F.Supp. 448, 458 (D.D.C.1972):
“Congress has determined that in a situation where individuals have banded together to provide recreational facilities on a mutual basis, it would be conceptually erroneous to impose a tax on the organization as a separate entity. The funds exempted are received only from the members and any “profit” which results from overcharging for the use of the facilities still belongs to the same members. No income of the sort usually taxed has been generated; the money has simply been shifted from one pocket to another, both within the same pair of pants.” [Accordingly,] The rationale
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for granting an income tax exemption to a club such as Sherwood Forest because the club's revenues from its members have already been taxed does not support the granting of a property tax exemption. The country club members, by the payment of dues to the club, would be enjoying the pool and tennis courts without the burden of paying ad valorem taxes. However, if any member built a swimming pool or a tennis court at his or her own home, these amenities would be considered in the property tax assessment of the home. Thus, to grant to a private club a property tax exemption on its club house, grounds, swimming pool, tennis courts, and golf course is to allow its members to enjoy tax-free amenities. If the property tax exemption were granted, it could not be said that the club members are merely shifting resources that have already borne their tax burden.
3. Metairie Country Club v. Louisiana Tax Commission, 860 So.2d 165 (La. Ct. App. 5th Cir., 2003), writ den. 865 So.2d 728 (La., 2004) – The Louisiana Supreme denied writs in a case involving an assessor’s challenge to the property tax exemption of a country club on the grounds of a private inurement argument. The assessor’s arguments that the members dues increased when its revenues were down so that when revenues were up and members paid lower dues, the organizations earnings were inuring to the benefit of the private individual members, were rejected. The assessor also argued that on dissolution, the members would have access to the assets of the club.
