spirit of america / Shutterstock.com
December 12, 2012; Source: Portland Press Herald
Remember the old saw, “As Maine goes, so goes the nation?” If it is still true, the nation’s nonprofits will be watching a case now before the Maine Supreme Judicial Court.
The town of Hebron, Maine believes that the nonprofit Hebron Academy, a private boarding school, should be required to pay property taxes on facilities that it occasionally rents to outside groups for events such as weddings, banquets, and football camps. To the Hebron Academy and other nonprofits, this is a tough challenge. Many nonprofits, such as schools and churches, rent out their facilities to outside entities for income-generating events. They use the income to help reduce their costs of maintaining the properties or otherwise supporting the organizations’ ongoing operating costs.
The town contends that the Hebron Academy’s pitching of the property for outside uses goes much further, turning the Academy’s ice rink and other facilities into taxable venues. An attorney representing the town says the description of facilities on Hebron Academy’s website represents the equivalent of “go[ing] into business.” The website lists almost all of the school as available for outside use: “Perfect for parties large or small, Hebron offers savory cuisine and a beautiful, expansive setting. Let us turn your dreams into memories.”
In court, the Academy and the township sparred over the money raised and operating costs of the Academy’s ice-skating rink. The Academy’s position is that the money earned from outside rentals, approximately $30,000, is incidental when compared to the rink’s annual operating cost of $370,000.
Although much of the article (quoting NPQ friends Jennifer Chandler from the National Council of Nonprofits and Brenda Peluso of the Maine Association of Nonprofits) discusses payments in lieu of taxes, the Hebron challenge is really one of a township making a determination that the incidental use of a nonprofit property for income-generating activities, at some undefined threshold, converts the property from tax-exempt to taxable. According to Peluso, “A lot of nonprofits in this day and age are being called to act more like businesses.” The implication of her statement is that if the Maine courts decide that acting more like a business means a nonprofit becomes a for-profit for municipal property tax purposes, the quandary for nonprofits is self-evident.
Fortunately for the Hebron Academy, Maine’s incoming attorney general has filed a brief supporting the Academy’s position. In her statement, Janet Mills writes, “A decision to so narrowly construe the exemption as to disallow incidental rental income for qualified institutions would inflict a major blow to the viability of these historic educational institutions.”
Nonetheless, the lurking question is whether there is some implicit threshold where incidental income, like that derived from Hebron Academy facilities rentals, is no longer incidental. Is there some level where the business-like, income-earning activities of nonprofits suddenly make income generation the tail that wags the dog? If the Hebron Academy case generates definitions and thresholds, the nonprofit nation will be closely reading the Maine Supreme Judicial Court’s decision.—Rick Cohen