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Unsportsmanlike conduct? Bill to provide tax exemptions for hunting and fishing clubs falls flat

BY Sunday, December 11, 2016 04:28pm

State House lawmakers killed a Senate bill earlier this month that would have provided sportsman’s clubs an exemption from state and local property taxes. 

Proponents of the bill, including its sponsor, Sen. Peter MacGregor, R-Rockford, said local taxing authorities took aim at charitable sportsman’s clubs in recent years as a way to shore up their budgets during and after the recession. The goal with Senate Bill 570, which MacGregor introduced in October 2015, was to specify which organizations qualify as charitable sportsman’s clubs and should be exempt from paying the taxes. 

“I’m trying to make it more black and white,” MacGregor said. “This narrowly defines what it means to be a charitable sportsman club.”

But critics disagreed, arguing the bill’s ambiguous language could have provided a loophole for affluent clubs that own vast tracts of land to avoid paying taxes, often in rural areas of the state that need it the most. 

If four of the main sportsman’s clubs in rural Lake County, about an hour north of Grand Rapids, had taken advantage of the tax breaks, it would have cut about $8,200 from the county’s general fund, library, ambulance and other services, said County Administrator Tobi Lake. 

That figure doesn’t include the thousands of dollars in revenue that would go to the various townships in which the clubs are located.

While that loss of revenue out of a combined annual budget of $20 million for the county may not seem that significant, Lake notes the tax exemption would be one of many pinch points that are stressing rural communities. 

“It’s not the end of the world, but to me, if the needle keeps moving in that direction, we’re not going to have anything to pay the bills with,” Lake said. 

ISSUES OF AMBIGUITY 

MacGregor introduced the bill to protect charitable organizations such as Rockford Sportsman’s Club, which is located in his district and until recently was not assessed property taxes. However, that changed when tax officials began looking for new sources of revenue for struggling municipal budgets, MacGregor said. 

Rockford Sportsman’s Club began paying nearly $11,000 in property taxes annually in 2012 after years of not being assessed, according to public documents. 

“There are sportsman’s clubs that are not paying property tax that should be and ones that shouldn’t be that are paying property taxes,” said Gordon Pickard, vice president of Rockford Sportsman’s Club. “It’s (based on) how aggressive the local municipality wants to be.” 

However, critics of the legislation say the six conditions qualifying a club for the exemption were too open-ended.

For example, the legislation would have required a sportsman’s club either to be organized as a charitable 501(c)(3) organization or have all of its members be affiliated with a 501(c)(3). Many of the organizations in question are organized as 501(c)(7) social clubs. However, these clubs could qualify if all of their members were affiliated with another nonprofit organization, such as the Michigan United Conservation Clubs or the Michigan chapter of Ducks Unlimited. 

“This bill is designed to exempt private hunting and fishing clubs from paying property taxes,” said a local nonprofit attorney who agreed to speak with MiBiz on the condition of anonymity. “It permits them to qualify by making very minor public accommodations. … Because many of the fishing clubs own very valuable riverfront property and because the acreage owned by many clubs is very large, the tax savings for club members could be very large.”

MacGregor notes that he included the affiliation language to allow clubs that can’t afford to file the paperwork required to organize as a nonprofit organization to be covered. 

But the attorney MiBiz spoke with took issue with the conditional language, saying it could offer wealthy clubs a loophole to avoid paying taxes. 

“I can pay $25 and be ‘affiliated’ with the Michigan Duck Hunters Association,” the attorney said. “If the club has 40 members, the total annual cost would be $1,025 for the members and the club itself. That is a very small price to pay for a property tax exemption that may result in well into five figures of savings for the club members.”

The bill passed the Senate on a 24-10 vote, largely along partisan lines. It was then sent over to the House and referred to the Tax Policy Committee, which ultimately decided not to vote on the legislation, according to MacGregor’s office.

UNKNOWN IMPACTS 

An analysis by the nonpartisan House Fiscal Agency stated the bill could reduce local property tax revenue and State Education Tax revenue “by an unknown, but potentially substantial amount.” 

That’s largely because there’s not a reliable way of knowing how many sportsman’s clubs can or would take advantage of the tax break, said Jim Stansell, senior economist at the House Fiscal Agency, who drafted the fiscal analysis on this bill. 

“We don’t know what the distribution of this is,” Stansell said. 

Other conditions that the club must offer education to the public and make its property available to the government are equally vague, according to Stansell.

“They have to offer these things, but no one has to take them up on it,” he said. “It has to offer education to the public, but it doesn’t mean anyone will actually come take advantage of it. Or should you say you must provide (education) and therefore if you want to get an exemption, you better be actually doing these things, not just willing to do them?

“I don’t think there’s anything particularly nefarious about the legislation. I’m sure the intent is a benefit some of the smaller (sportsman’s clubs) that would be in a position to provide this type of public education where there aren’t outlets to that. Could these other situations piggyback along the way? Very potentially.” 

If some of the exclusive clubs claimed the exemption, the tax breaks could add up quickly in Lake County. For example, the PM Rod & Gun Club on the Pere Marquette River near Baldwin paid $63,492.26 in property taxes last year, while the Indian Club that owns land along the Little Manistee River in Irons paid $25,734.88, according to an analysis by MiBiz.

Although the bill was designed to make the determinations more “black and white,” enforcing and ensuring that sportsman’s clubs met those conditions would still fall on the local assessor, MacGregor said. 

For his part, Pickard of Rockford Sportsman’s Club maintains that because organizations would have to meet all six conditions laid out in the bill, it will limit misuse. 

“I don’t see affluent sportsman’s clubs using it,” Pickard said. 

Despite the bill’s failure to gain traction, Pickard plans to advocate for lawmakers to revisit the House committee decision and continue to push the legislation forward. 

Conditions for exemption

Senate Bill 570 included six qualifying conditions to receive an exemption from paying local and state property taxes. Here are details of the conditions. 

  • Be organized or established for the primary purpose of educating the public in conservation and in hunting, fishing, archery, or shooting sports and firearm safety. 
  • Make its real property available to the public consistent with its primary purpose. (“This requirement could be met by charging a reasonable membership fee for use of its property,” according to an analysis from the House Fiscal Agency.) 
  • Offer education to the public, without charge or at reduced rates, consistent with its primary purpose. (“The regular distribution of free educational literature to a local public school would meet this requirement,” according to the House Fiscal Agency.) 
  • Make its property available without charge to one or more governmental entities for uses consistent with its primary purpose. 
  • Offer membership without charge or at reduced rates based on a prospective member’s financial ability to pay a membership fee.  
  • Either (1) be exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code; or (2) be organized not for pecuniary profit, and be an affiliate of a statewide conservation organization that is a 501(c)(3) organization whose primary purpose is to educate the public in conservation and in hunting, fishing, archery, or shooting sports and firearm safety.

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