Some California Nonprofits with Global Focus Denied Tax Exemption

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August 14, 2011; Source: The New York Times | Stephanie Strom of The New York Times has contributed an excellent addition to the continuing story of eroding tax-exempt status of nonprofits in the states. According to this article, nonprofits in California have to apply for tax exemption first to the state’s Board of Equalization and then they must also be approved by the county in which they own property. California has 58 counties, each one with its own assessor who makes a case-by-case decision on whether the property is used in a way that is of “primary benefit” to Californians. This, of course, places organizations headquartered in California but operating on a wider stage at risk of being denied property and other tax exemptions.

Anita Gore, spokeswoman for the Board of Equalization, told the Times, “Although there has to be a primary benefit in California or to Californians, the way we look at primary is not a straight 50 percent test. . . . Some activities and things nonprofit organizations do can’t be quantified in that sort of easy way.”

Apparently not. Strom cites three organizations that one might have thought would be singled out for denial of property-tax-exempt status: World Vision International and Direct Relief International, which have big overseas operations, and the William and Flora Hewlett Foundation, which gives a significant portion of its grants outside of California. Yet all three retain their exemption, although the Hewlett Foundation is on the local tax assessor’s radar. On the other hand, the International Community Foundation, which operates nine miles from the Mexican border and builds support for nonprofits in Mexico and Latin America, was denied an exemption by San Diego County. Says Richard Kiy, its president, “A number of the issues we grapple with have cross-border impacts and so have an impact on Californians both directly and indirectly. . . . Imposing property taxes on nonprofits in a global era is clearly just a money grab.”

Attorney Ofer Lion says that he is getting ready to represent a nonprofit client with a global mission that was recently denied an exemption. His client will possibly mount a legal challenge to the primary benefit rule. Lion said, “I think it’s clearly a violation of the commerce clause of the Constitution, and it may also be a violation of the equal protection clause, given the uneven application of the standard.”—Ruth McCambridge