April 10, 2014; St. Louis Post-Dispatch
Tax exemption battles continue, focusing on distinctions between what might be “nonprofit” by federal tax status and what might be “charitable” by function. The debate in Missouri is whether “high end” nonprofit retirement communities should be granted property tax exemptions. State legislation sponsored by Republican state legislator Mike Leara reauthorizes property tax exemptions for schools and religious organizations, but adds an explicit authorization of tax exemptions for “residential facilities for the aged owned by an organization that is exempt” under the federal tax code.
Why add that specific language? Leara says that he introduced the legislation at the request of Friendship Village, a 31-state religious entity that operates senior citizen residential communities. Sunset Hills Senior Living, a Friendship Village facility, is in Leara’s legislative district.
This issue seems to have been spurred by the opposition of Aberdeen Heights to a tax bill from the Kirkwood School District. Aberdeen Heights is a nonprofit-owned retirement community (owned by Presbyterian Manors of Mid-America) whose average “entry fee” is $425,000. The head of the Kirkwood School Board, E.J. Miller, charged that Leara’s bill would “inoculate” luxury retirement communities from property taxes. Leara believes that if the IRS gives these senior communities 501(c)(3) charitable status, local tax assessors could logically conclude that they merit the same status regarding property taxes.
Retirement communities owned and operated by 501(c)(3) nonprofits have been proliferating in recent years, and some have very high cost structures. For example, Edgemere, a nonprofit continuing-care retirement community (CCRC) in Dallas, charges one-time entrance fees ranging from $325,000 to $900,000.
The question of the tax status of these high-end CCRCs has arisen in various communities around the nation, including a long-running debate in Tulsa, Oklahoma. The argument of local tax assessors is that these retirement communities do not look particularly “charitable” because of the high-income nature of their clientele and the exclusivity of the developments. However, in awarding 501(c)(3) tax status to elderly housing organizations, the IRS gives credence to the charitable legitimacy of serving the elderly without making their socioeconomic status a significant issue. The IRS defines “elderly housing” for tax exemption purposes as follows:
“Generally, the primary beneficiaries of the tax-exempt housing are age 62 and older. The elderly are treated as appropriate charitable beneficiaries for certain purposes regardless of socio-economic status because, as a group, they face many barriers to their basic needs as they age. The elderly, as a class, face forms of distress other than financial, such as the need for suitable housing, physical and mental health care, civic, cultural, and recreational activities, and an overall environment conducive to dignity and independence.”
On principle, it would appear that the local assessor is defining “charitable” as regards high-end senior citizen housing differently than the IRS does. The assessors are looking for evidence that these facilities do something for lower-income people rather than simply operating like any for-profit CCRC operator with the only difference its federal tax status. On the other hand, some of these high-end CCRCs may barely reach—if that—the level of nonprofit activity in their operations met by some nonprofit hospitals, whose “nonprofitness” has been challenged in various parts of the nation. Like many other debates about property tax exemptions for nonprofit entities, this one around luxury retirement communities has no easy answers.—Rick Cohen