GRAND RAPIDS — Adding clarity to the definition of the word “charitable” as it applies to Michigan nonprofits could enable more organizations to claim tax-exempt status.
Earlier this year, the Michigan Supreme Court heard arguments in a case involving Grand Rapids-based Baruch SLS Inc., a faith-based nonprofit that operates 24 assisted-living facilities throughout Michigan. The organization filed a lawsuit against Tittabawassee Township after that municipality denied Baruch’s request for property tax exemptions because it didn’t meet its burden of proof to demonstrate that it was a charitable institution.
In a June 28 opinion, Supreme Court justices said tax assessors, the Michigan Tax Tribunal, and Michigan Court of Appeals misinterpreted the factor that prevents charitable organizations from discriminating when determining who is eligible to receive their services. This is one of six criteria the court established to assess a nonprofit as “charitable.” The court is expected to issue a decision by Sept. 19.
Rob Collier, president and CEO of the Grand Haven-based Michigan Council of Foundations, said the opinion is favorable to Michigan’s nonprofit community because it provides clarity to the question that has been asked by assessors and others about what “non-discrimination” means.
“It will be utilized when the Michigan Nonprofit Association goes forward with efforts to enact legislation to provide clarity on nonprofit property tax exemptions,” Collier said. “The goal is to reduce the number of cases where folks are having to go to the Tax Tribunal, which can take a lot of money, effort and work.”
Joan Bowman, a spokesperson for the MNA, said her organization is pleased with the court’s June opinion and is looking forward to hearing specifics in the September decision.
Officials in Kent County also are anticipating the outcome, but for very different reasons.
Matt Woolford, the equalization director for Kent County, said the concern he has is that it’s being portrayed as a clarification when it may in fact not clarify the statute. Instead, it may simply expand the number of previously taxable properties that could now be eligible for exemptions.
“The more properties that are exempted, the more everybody else has to absorb the shift in the tax burden. It’s something we are going to monitor closely,” Woolford said. “We are going to be closely examining the mix of properties subject to this to make sure it’s limited in scope.”
Interim Kent County Administrator Wayman Britt said he thinks the Michigan Supreme Court decision has the potential to affect the county, but he doesn’t know to what extent.
“We’re always concerned about the loss of property tax revenue,” Britt said.
CITIES FEEL PINCHED
If the court’s decision broadens the definition of “charitable” as it applies to 501(c)(3) organizations, more nonprofits likely will attempt to secure tax-exempt status, said Thomas King, an attorney with Kreis Enderle Hudgins & Borsos PC.
King, whose practice areas include governmental law, said the broadening of the definition will enable more nonprofits to qualify as charitable.
“It will affect municipalities that are more urbanized than non-urbanized,” King said.
As an example, he cited the city of Kalamazoo, which has a higher concentration of nonprofits in its urban core as opposed to other municipalities. He said municipalities in this situation end up with a greater percentage of exempted real and personal property.
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