By RAY WILBUR
Capital News Service
LANSING — Local officials are concerned that a legislative attempt to clarify how charitable organizations are defined could cost them property tax revenues.
The bill, introduced by Sen. Jack Brandenburg, R-Harrison Township, would define charitable organizations in a way that exempts more of them from property tax.
That may be good for them. But local units of government rely heavily on property tax revenues and this bill would decrease those revenues, said Deena Bosworth, director of governmental affairs at the Michigan Association of Counties.
The Senate Fiscal Agency says the bill would decrease property tax revenues by about $27.6 million across the state.
Property tax revenues are in steady decline for local governments. Counties lost an average of 36 percent of their revenues from 2006 to 2015, according to the counties association.
“The way we see it, the bill would create all kinds of loopholes that aren’t necessarily charitable,” Bosworth said. “Further erosion of the property tax system would cripple us.”
One of those loopholes would be to allow organizations that “promote health and wellness” to be tax exempt.
A gym in Dexter owned by a nonprofit organization has been fighting for tax exemptions since 2013, even though the actual gym facility is run as a for-profit business. The tax tribunal declared it should not receive tax exemptions and the case is in the Court of Appeals.
According to committee testimony, if the gym were found to be charitable, the total loss to the taxing areas would be $325,000.
Under the proposed bill, this facility would be eligible for tax exemptions.
“We are concerned the bill will allow nonprofits to be exempt even when their number one purpose is not to be charitable,” said Judy Allen, director of legislative affairs at the Michigan Townships Association. “There are gyms that want to be exempt because they’re nonprofit, but they certainly aren’t charitable.”
Proponents say the bill will help codify a 2006 Michigan Supreme Court decision that exempted a medical nonprofit institution from property taxes. The Wexford Medical Group v. Cadillac decision laid out six standards for an institution to be labeled charitable and exempt from paying property taxes.
The state’s tax tribunals, tax assessors and courts of appeal use the standards from the Wexford decision to decide if an organization is charitable.
“There is a lack of clarity,” said Joan Bowman, external affairs officer for the Michigan Nonprofit Association. “There’s a reason nonprofits are exempt from property taxes and we want to make sure they get those exemptions.”
Nonprofit organizations seeking tax exemptions face a long and expensive process to be approved as a charitable organization, she said.
“This bill aims to strengthen and bring consistency to the process for nonprofits and assessors,” she said. “There are more than 2,000 assessors in the state and there isn’t a clear way to address this.”
Tax assessor works with nonprofit organizations to fill out applications to receive tax exemptions on a local level as a charitable organization, but there isn’t one defined application and this can cause confusion and even legal action, like in the case of Wexford v. Cadillac.
But the bill takes away the most important standard laid out in the Wexford decision, which states that an organization’s number one mission has to be charitable to be exempt from property taxes, Allen said.
The Senate Finance committee approved the bill by a 5-1 vote. It will now go to the Senate.
By RAY WILBUR