Bar Journal - Summer 2007
To Tax, or Not to Tax? Elder Trust v. Town of Epsom Answers the Question
By: Glen Fries
Tax Exempt or Not? City Will See.1 This was the seemingly benign headline of an article in the May 10, 2005 edition of the Concord Monitor. It discussed a multi-year plan by Concord’s assessing department to increase scrutiny on tax-exempt organizations in the city.2 Specifically, Concord, home to more than $1.2 billion worth of tax-exempt property, or 26.5 percent of the total value for all land and buildings in the city, planned to review all tax-exempt properties to determine if they were being “used” for a charitable purpose, and whether the owning entities were serving a charitable purpose.3 The increased scrutiny underscored the fact that just because an entity satisfied the Internal Revenue Code’s definition of “charitable,” and thus was exempt from paying federal income taxes, the entity must still satisfy New Hampshire’s definition of “charitable”4 to remain exempt from paying property taxes.
Concord’s announcement and its actions would ultimately have a huge impact on the Centennial Senior Center, a non-profit organization serving senior citizens in the Concord area. The reason? Concord determined the Center owed $100,000 in local property taxes.5 What happened to the Centennial Senior Center is not an isolated incident. The MacDowell Colony6 in Peterborough has faced similar tax scrutiny but possesses the financial resources to mount a legal campaign against the town.7 Farmsteads of New England, a nonprofit organization devoted to caring for people with autism and other developmental disabilities8, recently had its property tax exemption affirmed by the New Hampshire Board of Tax and Land Appeals (BTLA) following a challenge by the town of Hillsborough.9 However, there are countless tax-exempt groups which do not have the resources to pay a hefty property tax bill, not to mention the funds for a lengthy court battle against a municipality.
This article will focus on several aspects of New Hampshire’s property tax exemption as it pertains to charitable organizations. First, the article will discuss the current federal and state statutory schemes. Second, it will address recent, high-profile cases in addition to established case law that likely helped shape the ElderTrust of Florida, Inc. v. Town of Epsom10 decision. Third, it will analyze recently published opinions already relying on the four-factor test articulated by the ElderTrust Court. Finally, the article will make recommendations for tax-exempt entities which hope to retain that status in the eyes of their host communities.
STATE VS. FEDERAL TAX EXEMPTION STATUTES
A federal tax exemption under Internal Revenue Code Section 501(c)(3)11 does not automatically grant a New Hampshire charitable organization a state property tax exemption.12
State and federal tax exemption classifications operate independently. A charitable organization may legitimately be entitled to federal tax exemption, but based on the use of its land, must pay property taxes to its host community. The Internal Revenue Service does not collect local property taxes; this function is delegated by the state Constitution to the General Court, which further delegates the authority to municipalities to assess and collect taxes.13 The state has the prerogative to tax or not, and municipalities must apply the law as it relates to charitable entities. For example, in assessing property taxes, municipalities must adhere to RSA 72:23 which provides that, “The following real estate and personal property shall, unless otherwise provided by statute, be exempt from taxation…”
The buildings, lands and personal property of charitable organizations and societies organized, incorporated, or legally doing business in this state, owned, used and occupied by them directly for the purposes for which they are established, provided that none of the income or profits thereof is used for any other purpose than the purpose for which they are established. (RSA 72:23, V).14
The potential conflict between state and federal tax-exempt classifications can be frustrating and confusing for charitable organizations that believe they are in compliance with federal and state guidelines, yet face heavy municipal and state scrutiny on issues such as land use, public benefit derived from the organization, and pecuniary profit, if any, derived by board members or officers of the organization.15
APPEALING THE DENIAL OF TAX-EXEMPT STATUS
New Hampshire has a specific procedure for an appeal by an organization or individual aggrieved by the assessment of tax on its property. After receiving notice of its tax liability, the aggrieved party may, by March 1 of the current year, apply in writing to the town selectmen or assessors for an abatement of the tax.16 Upon receipt of an application for tax abatement, the selectmen or assessors shall grant or deny the application in writing by July 1.17 The failure of the selectmen or assessors to respond automatically constitutes a denial of the abatement.18
Should the municipality deny a charitable organization’s tax exemption under RSA 72:23, V, the taxpayer may pursue one of two legal avenues. The first is to appeal the municipality’s decision to the BTLA19 by September 1.20 An order of exemption, abatement, or tax credit by the BTLA has the full effect of law and may be enforced as any final judgment of the superior court.21 RSA 72:23-m places “…the burden of demonstrating the applicability of any exemption…upon the claimant.”
A charitable organization denied a property tax exemption may also choose to appeal directly to the county’s superior court.22 As with an appeal to the BTLA, a superior court appeal must be filed by September 1.23 The differences between an appeal to the BTLA or the superior court rest in the procedure governing the hearing. An appeal to the BTLA is decided by a four-member Board and evidence rules are relaxed, while a hearing in the superior court is a traditional court case before a judge, adhering to formal rules of evidence.24 Although the taxpayer is advised to consult an attorney before appearing before either the BTLA or superior court, going pro se before the BTLA can be a more feasible alternative because of the informal atmosphere. The losing party may appeal an adverse decision by the BTLA or superior court to the New Hampshire Supreme Court.25 Appeals from the BTLA are discretionary and governed by Supreme Court Rule 10, Appeal from Administrative Agency. Appeals from a superior court, however, are mandatory under Supreme Court Rule 7, Appeal from Trial Court Decision on the Merits.
RECENT CASES LEADING UP TO ELDERTRUST
Late 2006 and early 2007 saw several charitable tax-exemption cases move beyond the municipality level to the BTLA and superior court. In addition to MacDowell Colony26, the two cases highlighted below, both heard by the BTLA, emphasized the rising tension between tax assessors and tax-exempt organizations in their communities. After an examination of the facts in each case, the BTLA granted tax-exemptions in both.
Farmsteads of New England, Inc. v. Town of Hillsborough27 involved the status of a farm organized to “care for people with autism and other developmental disabilities in a ‘holistic lifestyle’ environment that is supportive of their vocational, residential, and recreational needs…” The town denied the charitable tax exemption of a 36.7-acre lot with buildings because it believed the taxpayer did not meet its burden of proving it was “providing charitable services to the general public or a substantial and indefinite segment of the general public” and that Farmsteads’ charter was too vague to fulfill the ‘obligation’ requirement.28 More specifically, the town claimed the services provided by Farmsteads were “too narrowly targeted and specialized” since only a small number of autistic individuals might derive a benefit.29 However, the BTLA reversed and granted a full tax exemption, reasoning that size of a charitable organization’s client base and the population it serves should not be the deciding factor in granting a tax-exemption.30 In dicta, the BTLA surmised that it would be unlikely that the government and the public would support such a residential treatment facility for autistic people if it was deemed to be of little or no benefit.31 Finally, the BTLA admonished the town for engaging in “clinical second-guessing” as to whether residential care was necessary for developmentally disabled individuals.32
In Girl Scouts of Swift Water Council v. Town of Antrim33, the town denied the tax exemption for a parcel of land at “Camp Chenoa” which had been granted a full charitable exemption for the preceding 12 years. The parcel of land in question was primarily undeveloped, but used by the Girl Scouts for a variety of “hiking, camping, and outdoor orienteering activities,” thus justifying the land’s undeveloped nature.34 Although the town cited cases such as Nature Conservancy35 and First Congregational Church of Laconia36, both standing for the proposition that those charitable organizations did not meet the occupancy and use threshold of RSA 72:23, the BTLA reversed the town and granted the tax exemption since the use of the land was neither “slight nor insignificant”37 even though the land was undeveloped and kept pristine.
EVOLUTION OF CASE LAW IN THE CHARITABLE SECTOR
The ElderTrust decision does not exist in a vacuum. The Court’s rationale was based on nearly 70 years of case law. Although not cited in ElderTrust, in YWCA v. Portsmouth38, the Court determined a charitable organization was tax-exempt, applying a presciently similar test to the one the ElderTrust Court would apply seven decades later. In YWCA, Portsmouth challenged the YWCA’s status as a charitable organization.39 The municipality asserted “tax exemption laws are to be construed with rigorous strictness and a technique of narrowing application.”40 Relying on the 1908 case of Carter v. Whitcomb41, however, the YWCA Court ordered a tax exemption, stating, “The legislative purpose to encourage charitable institutions is not to be thwarted by a strained, over-technical, and unnecessary construction…” The YWCA Court derived its test from the plain language of the statues:
[Charities] must be local and institutionally organized…Their real estate not occupied by them is not exempt. And their income and business profits must be used for charitable purposes. Summarized, if an institution is organized and conducted to perform some service of public good or welfare, with no pecuniary profit to its officers or members, and with no restrictions which confine benefits to them, its descriptive character as charitable under the statute follows.”42
In Society of Cincinnati v. Exeter, a case discussing a charitable organization’s public benefit as evidenced by language in its charter, the Society, a group of men, sought to obtain tax-exempt status for their organization and a piece of property referred to as the “Folsom Tavern.”43 The Society’s stated purpose was to foster patriotism and “perpetuate the remembrance” of the Revolutionary War and past military sacrifice.44 In finding that the Society was more similar to a social club or fraternal organization than a charity for the public benefit, the Court rejected its tax-exempt status.45 Upon examination of the Society’s charter and activities, the Court determined that the benefits of the organization were confined mostly to its members and there was no obligation upon the organization to foster patriotism among anyone else other than its members.46 (Emphasis added). As such, the Attorney General, tasked with the oversight of charitable trusts,47 would not be able to bring an enforcement action against an essentially private trust with no obligation to perform a public service.48 Regarding the Society’s real estate, the Court said, “The question of the plaintiff’s status as a charitable institution and of the use it makes of its real estate occupied by it are in many aspects interrelated and not readily considered separately. If it is a public charity, the fact bears on the issue of its use of its real estate for purposes of public service, and, reciprocally, the use of its real estate for such service tends to denote its character as a charity.”49
Nature Conservancy v. Nelson demonstrated the Court’s proclivity towards fact-specific inquiries into a charitable organization’s charter and use of land for charitable purposes.50 A 400-acre tract of land purchased by the plaintiff was to be “irrevocably dedicated to charitable purposes,” including conservation of natural resources, educational and scientific studies, and wildlife observation.51 Although the Court recognized the charitable nature of the organization under RSA 72:23, V, the property itself was not deemed “used and occupied” by the organization for charitable purposes.52 “This occupation and use cannot be slight, negligible or insignificant, but must, on the contrary, be in performance of these public purposes.”53 (Emphasis added). Despite the cumulative effect of increased patronage, a student survey, several field trips by Keene State College students, and the creation of two hiking trails, the Court denied the tax exemption because the use did not constitute “sufficient occupation,” or adequate and frequent use of a charitable nature.54
In Wentworth Home v. City of Portsmouth, the Court gave specific instruction on what types of uses could qualify a property for a tax exemption.55 A dispute arose between the charity, operator of a home for “individuals having incurable conditions,” and the town over the tax-exempt status sought for three parcels of land: (1) on-site housing for nurses so that they could conveniently and quickly provide care for patients at all times, (2) parking for these critical employees, and (3) vacant lots adjacent to the home, but owned by the organization.56 The Court ruled that housing and parking lots were tax-exempt, but the vacant lots were not “used directly for the charitable purposes of the plaintiff” and thus failed the “negligible or insignificant” test set forth by the Nature Conservancy Court.57
In St. Paul’s School v. City of Concord, a case decided pursuant to RSA 72:23, IV58, because the legislature carved out a special category for schools and institutions of learning, the Court rejected St. Paul’s initial argument that the school’s entire property should be judged under the more inclusive standards of RSA 72:23, V.59 The Court determined that language in RSA 72:23, IV and V regarding use and occupancy was similar, however, and the statutes should be interpreted alike.60 The significance of St. Paul’s School is the Court’s extensive treatment of the tax-exempt status of each part of the 1,600-acre campus. Because charitable organizations under both 72:23, IV and V might have uses for their property similar to those of St. Paul’s School, organizations can rely on the St. Paul’s School decision in predicting a court’s response to a tax-exemption challenge. St. Paul argued that all the property in question was “used and occupied directly” for educational purposes and should thus be exempt from taxation.61 The Court would individually address ten areas of the campus (e.g. faculty quarters, post office, parking lots, power plant, etc.) and give a detailed analysis granting or denying tax-exempt status for each parcel of land. The Court considered “integrated activities of the association as a whole” and ruled only facilities “reasonably necessary for the accomplishment of the association’s charitable purposes” were exempt from taxation. (Quoting Alton Bay Camp Meeting Assoc. v. Alton62).
East Coast Conference of the Evangelical Covenant Church of America, Inc. v. Town of Swanzey expanded upon the Court’s earlier decisions in Society of Cincinnati and Nature Conservancy by affirming a tax-exempt organization’s obligation to provide benefits to those beyond its own membership.63 The Church appealed a lower court ruling denying a tax exemption on parts of its “Pilgrim Pines” campground.64 During summer months, the camp hosted Christian-themed programs for families and adults.65 During non-summer months, Pilgrim Pines was rented to church-approved groups.66 The Court noted “the purpose of the ‘obligation’ requirement is to prevent purely private organizations, albeit with charitable purposes, from benefiting by a tax exemption without, in turn, providing some service of public good.”67 In determining whether an organization satisfied the obligation requirement, the Court “looked to both its charter or organizational statement and its action taken pursuant to those statements.”68 Based upon its review of the record, the Court rejected tax-exempt status for Pilgrim Pines, holding that “the Church failed to prove that the beneficiaries of Pilgrim Pines were a substantial and indefinite segment of the general public for the tax years at issue.”69
ELDERTRUST OF FLORIDA, INC. V. TOWN OF EPSOM
By articulating a four-part test to determine eligibility for a charitable tax exemption, ElderTrust bodes well for charitable entities. ElderTrust’s subsidiary purchased two properties in the town of Epsom and planned to continue the properties’ previous uses as a skilled nursing and assisted living facility.70 ElderTrust sought a tax exemption on the facilities under RSA 72:23, V for the 2002 tax year.71 Epsom denied the tax exemption and assessed a tax totaling $104,774.90 on both facilities.72 ElderTrust appealed to the superior court, which granted the tax-exempt status, but Epsom appealed the superior court’s decision to the Supreme Court.73
Epsom contended that ElderTrust’s articles of incorporation were not sufficiently indicative of a charitable purpose, the housing arrangements did not aid “worthy aged people,” ElderTrust did not operate under any enforceable obligation to fulfill a charitable purpose, ElderTrust property was not used or occupied for a charitable purpose since some elderly residents had to pay a fee for services, and some ElderTrust officials were receiving pecuniary benefit resulting from financial arrangements between ElderTrust and the previous property owner and between ElderTrust and the present facilities’ management firm.74
In noting that this was a “particularly close case,” the Court took “the opportunity to join a number of other courts,”75 and articulated a four-part test to clarify the requirements of RSA 72:23, V and 72:23-l, whether:
(1) the institution or organization was established and is administered for a charitable purpose; (2) an obligation exists to perform the organization’s stated purpose to the public rather than simply to members of the organization; (3) the land, in addition to being owned by the organization, is occupied by it and used directly for the stated charitable purposes; and (4) any of the organization’s income or profits are used for any purpose other than the purpose for which the organization was established. Under the fourth factor, the organization’s officers or members may not derive any pecuniary profit or benefit.76
Analyzing the above factors, the Court found that ElderTrust met its burden with respect to each factor.77 Regarding the first factor, the Court found that ElderTrust’s articles of incorporation “demonstrated that is was established to perform a service of public good, namely providing skilled nursing and assisted living facilities for the elderly.”78 Also, beyond simply providing rental units to the elderly, which does not in and of itself permit a charitable tax exemption, ElderTrust provided a level of service or care above that of mere apartments or rental units.79
Regarding the second factor, which the Court described as “close,” the town argued that ElderTrust did not operate under an enforceable obligation to fulfill a charitable purpose.80 An examination of ElderTrust’s articles of incorporation, however, revealed express language that ElderTrust was required to be “operated exclusively for public charitable uses and purposes.”81 The Court determined that ElderTrust’s articles of incorporation and mission created an enforceable charitable obligation, even without an express reference to serve persons of “low and moderate income,” because an organization does not necessarily have to serve the poor and needy in order to qualify for the charitable exemption.82
“An analysis of the third factor may overlap with that of the first because these two factors are interdependent – that is, the third factor primarily asks whether the charitable purpose identified under the first factor is being carried out on the particular parcel of property for which the exemption is being sought.”83 When the use is slight, negligible or insignificant, or not in the performance of the public purpose, the applicant is not entitled to a tax exemption.84 In ElderTrust, the Court was concerned with the fact that some of the elderly residents paid for their living and care arrangements, potentially making the units more like traditional condos or apartments.85 The Court found, however, that the facilities in question provided care and services that often cost more than the fees charged, and no resident was ever evicted for failure to pay.86 ElderTrust was essentially providing a service that would otherwise have imposed a burden on the government.87 The record also showed that ElderTrust used profits generated from other facilities to advance its charitable mission in New Hampshire. Thus, considering all the circumstances, ElderTrust’s facilities were operated for a charitable purpose within the meaning of RSA 72:23.88
The fourth factor, also “close” in the eyes of the Court, concerned whether certain ElderTrust board members were benefiting financially from business deals ElderTrust had with for-profit entities.89 After a thorough analysis of the ElderTrust’s relationship with these other corporations, however, the Court was satisfied with the lower court’s finding that ElderTrust had performed due diligence in selecting the outside companies, and proper procedural safeguards existed to avoid any conflicts of interest. For example, the articles of incorporation prevented distributions of profits to directors and overlapping shareholders left the room during certain contract negotiations.90
The articulation of a concrete test could be interpreted as favorable to tax-exempt entities because it essentially provides a “road map” for preserving tax-exempt status. Previously, although there was a body of case law on the subject, a tax-exempt entity in jeopardy of losing its status would have had to either wind its way through the legal system or succumb to the tax bill of its host community. The ElderTrust decision may force municipalities to refocus their tax assessment practices and perform more due diligence before denying the tax exemption of a charitable entity. Already facing budget crunches, municipalities risk accumulating hefty legal bills by fighting denials of charitable tax exemptions in court.
Interestingly, the ElderTrust Court ended its opinion on the following note, “While we are bound to apply to statute as written…the legislature is of course free to amend the statutory scheme, should it disagree with the result we reach today.” 91 This statement was an invitation to the legislature to amend RSA 72:23 and will likely pique the interest of the charitable sector, local governments, and lobbyists as well as the state legislature.
ELDERTRUST AS PRECEDENT
Despite being less than six months old, the four-part test articulated in ElderTrust has already been cited in key decisions by both the BTLA and superior court. Fraternal Order of Eagles, Aerie # 1934 v. Town of Newmarket92 concerned an appeal by the Fraternal Order of Eagles of the town’s denial of a charitable exemption under RSA 72:23, V. The taxpayer had been in existence for over 100 years and its property had been granted a charitable tax exemption from 1997 through 2004.93 The town argued that the organization operated more as a “social club”, its charitable donations were not substantial (less than 3 percent of revenues), and there was no enforceable obligation requiring the taxpayer to fulfill a charitable purpose.94 The BTLA applied the ElderTrust test and determined that the taxpayer’s articles of incorporation and constitution were insufficient to show the group was organized as a charitable organization and obligated to perform charitable services.95 In addition, the BTLA agreed with the town that the group was primarily a social club, it benefited mostly its own members, and “there does not appear to be a mandatory or enforceable obligation that charitable donations be made or that its property be available to other charitable organizations for use.”96
Fleur de Lis Camp v. Town of Fitzwilliam97 involved the town’s denial of a property tax exemption to a summer camp for girls in operation since 1930. Although the camp was originally affiliated with the Episcopal Church, the camp had long been open to all girls, yet the Articles of Agreement remained unchanged, “…to promote the welfare of girls, religiously, educationally, and socially, through the medium of a non-profit-producing church camp for girls.”98 The BTLA applied the ElderTrust test and immediately determined that the camp occupied and used the property for its stated purpose and that its income was used for running the camp, thus the third and fourth factors in ElderTrust were met.99 The taxpayer failed to prove, however, that the operation of its summer camp fulfilled a charitable purpose or that the Attorney General could enforce an obligation to fulfill a charitable purpose, based on the language in the camp’s present charter.100 The BTLA compared the Fleur de Lis camp to Boy Scout and Girl Scout camps, usually considered charitable per se due to a focus on “citizenship, character, and leadership.”101 But in denying the tax exemption, the BTLA found the Fleur de Lis camp more similar to for-profit camps for fun and recreation as opposed to those charitable organizations running camps focused on training young people for citizenship.102
Town of Peterborough v. The MacDowell Colony, Inc.103 was a highly publicized case in the national media due to the rich history and tradition associated with the MacDowell Colony. MacDowell, an artists’ retreat celebrating its 100th year of existence, provides “residencies” to writers, sculptors, filmmakers, architects, and other artists who are able to focus on their work while residing at the Peterborough colony.104 MacDowell had received a RSA 72:23 exemption through 2004. It applied for a charitable tax exemption in 2005 for 420 acres of land and 40 buildings, but the town denied the exemption and levied a tax of $50,000.105
As the first adjudicatory body to apply the four-part ElderTrust test, the MacDowell court agreed with MacDowell that “promotion of the arts constitutes a charitable purpose, as it necessarily advances the spiritual, physical, intellectual, social, and economic well-being of the general public.”106 MacDowell provided benefit to the public by contributing completed works to the local library and taking part in programs in conjunction with area schools, in addition to producing works for consumption by a wider audience.107 Second, the court determined that should MacDowell diverge from its stated mission, the Attorney General would have standing to enforce the charitable mission on behalf of the public.108 Third, “MacDowell’s use and occupancy of its property is necessary for it to carry out its mission. MacDowell promotes the arts through its artist-in-residence program. In so doing, MacDowell provides more than mere residences to Colony fellows.”109 Finally, under the fourth factor, the Court found no evidence that MacDowell used its profits or income for any purpose other than to promote the arts and run its programs.110 Since MacDowell met all four factors of the ElderTrust test, the superior court found that it was entitled to a charitable tax exemption under RSA 72:23, V.111 The decision continued, “Charitable institutions, such as MacDowell, that are aimed towards enabling artists to significantly contribute to the well-being of our society should be supported, not discouraged.”112 Despite MacDowell’s victory in the superior court, Peterborough’s board of selectmen has made it known that it intends to appeal.113
RECOMMENDATIONS FOR TAX-EXEMPT ENTITIES
As municipalities are confronted with increased operating costs, they must develop creative solutions for raising revenue to run programs and meet residents’ needs. It is not unreasonable for municipalities to scrutinize charitable organizations to ensure property is truly being used for charitable purposes. One aspect of tax-exempt entities, however, that raises the ire of tax assessors and citizens alike is that the entities pay no taxes yet take advantage of municipal services such as trash pickup, fire and ambulance services, and public works. As a result, many municipalities have developed PILOT (“payment in lieu of taxes”) programs whereby a charitable organization makes a negotiated payment in “good faith” to its host community to compensate it for utilities and services used. New Hampshire actively encourages such arrangements, going so far as to codify the following at RSA 72:23-n: “The governing body of any municipality may enter into negotiations for a voluntary payment in lieu of taxes from otherwise fully or partially tax exempt properties, and may accept from such properties a voluntary payment in lieu of taxes.” Concord’s “Adopted Fiscal Policy Statement for 2006-2007” Goal K8 states:
Seek Payments in-lieu-of Taxes from charitable agencies and other governmental agencies that benefit from or receive city services. In the absence of obtaining such payments, the City should pursue methods of receiving payments for general government service whenever possible and practical.114
Other examples of New Hampshire PILOTs include an active program in Laconia through which voluntary donations in lieu of taxes by six nonprofits brought around $365,000 into Laconia municipal government in 2005.115 After Taylor Home won a Supreme Court decision over its tax-exempt status in 2003, the organization made a voluntary payment to Laconia for $150,000.116
PILOTs have become popular among major universities and their host communities. Cambridge, Massachusetts, a city in which M.I.T. and Harvard own huge swaths of tax-exempt land, has recently brokered PILOT deals with both schools that span decades and account for millions of dollars in city revenue.117
As a first line of defense for charitable entities, it may be advisable to negotiate a PILOT with the host community to avoid a possibly larger property tax bill or increased scrutiny down the road. A PILOT theoretically builds a stronger rapport between both town and charitable organization along with cementing the notion of fair play since the charity will make a symbolic payment for services they could otherwise get for free.
There has been no litigation regarding RSA 72:23-n since its adoption in 1996. Because the statute does not define “payment in lieu of taxes,” it is difficult to predict how a court may rule on an issue involving a PILOT. However, because the statute calls for PILOT negotiations with “fully or partially tax exempt properties,” by entering into such negotiations, evidentiary issues arise over whether a PILOT negotiation is a tacit admission by a municipality that the organization is indeed tax exempt. Further, the statute does not mention whether a municipality can accept a PILOT from an entity that may not be tax-exempt.
In ElderTrust’s final sentence, the Court notes, “the legislature is of course free to amend the statutory scheme, should it disagree with the result we reach today.”118 The legislature could amend RSA 72:23, V or RSA 72:23-l, although these statutes have been refined over many years to encompass all types of charitable organizations and the ways in which they use their property. The ElderTrust four-part test does not need to be codified since it essentially synthesizes existing statutes and case law. The legislature is most likely to hear from lobbyists and municipal officials who have recently come up short in their legal fights over tax-exemptions. Certain charities, wary of increased municipal scrutiny, may also lobby their legislators for a blanket tax-exemption. An examination of RSA 72:23 reveals specifics groups who have statutes dedicated solely to their organizations, for example New Hampshire Congregational-Christian Conference (RSA 72:23-d), Nutfield Heights Inc. (RSA 72:23-e), and Salemhaven, Inc. (RSA 72:23-f).
Although ElderTrust’s four-part test creates a useful roadmap for charitable organizations attempting to retain or establish the tax-exempt status of their property, the real significance of this case is the Court’s acknowledgment that charitable issues are of contemporary concern to municipalities, citizens, the state and federal government, and philanthropic sector. Charities hold a special place in society. They make available services that the government may not have the resources, expertise, or will to provide. Despite their value to society, however, charities are too often exploited by those who see an easy mark or a way to launder funds. ElderTrust, decided only a few months ago, is already serving as precedent for decisions by the BTLA and superior courts. The decision should serve dual notice - to municipalities that frivolous challenges to tax-exempt entities will not stand in court, and to charitable organizations that they are now under a microscope and must satisfy the ElderTrust criteria or risk losing their property tax-exemption.
1. Eric Moskowitz, Tax-exempt or Not? City Will See. Concord Monitor (May 10, 2005).
4. RSA 72:23-l defines “charitable” as:
…a corporation, society or organization established and administered for the purpose of performing, and obligated, by its charter or otherwise, to perform some service of public good or welfare advancing the spiritual, physical, intellectual, social or economic well-being of the general public or a substantial and indefinite segment of the general public that includes residents of the state of New Hampshire, with no pecuniary profit or benefit to its officers or members…
5. Anne Ruderman, Senior Center Sues Concord over Taxes. Concord Monitor (April 14, 2006).
6. The MacDowell Colony, an artist’s retreat founded in 1907 in Peterborough, NH, provides fellowships for writers, composers, filmmakers, and other artists. Colonists receive room, board, and tuition during their stay at the Colony. Some of its distinguished visitors over the past century have included Aaron Copeland, Willa Cather, Thorton Wilder, and Leonard Bernstein. www.macdowellcolony.org.
7. Alex Beam, What is Art? Let the Debate Begin. The Boston Globe (August 16, 2006).
8. According to its web site at www.farmsteads-ne.org, Farmsteads’ Mission Statement reads:
“Farmsteads of New England, Inc. (FNE) was created to provide a farming environment that is conducive to a meaningful and satisfying life for people who have autism and other developmental disabilities and who are seeking a holistic lifestyle that supports their vocational, recreational, and residential needs. FNE is a 501(c) 3 tax-exempt nonprofit corporation.”
9. Farmsteads of New England, Inc. v. Town of Hillsborough, Docket No.: 21421-05EX (BTLA, August 31, 2006).
10. 2007 N.H. LEXIS 7 (January 18, 2007).
11. IRC 501(c)(3) provides Federal tax exemption to:
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
12. RSA 72:23-l:
“…The fact that an organization’s activities are not conducted for profit shall not in itself be sufficient to render the organization “charitable” for purposes of this chapter, nor shall the organization’s treatment under the United States Internal Revenue Code of 1986…”
13. See generally N.H. Const., Part Second, art. 5.
14. Although this article will focus primarily on RSA 72:23, V, it is worth briefly reviewing the statute in its entirety:
• RSA 72:23, I pertains to “lands and the buildings and structures thereon and therein and the personal property owned” by the State, towns, and school districts.
• RSA 72:23, II pertains to “lands and buildings and personal property owned and used” by counties for governmental purposes, such as courthouses, hospitals, registry buildings, etc.
• RSA 72:23, III pertains to houses of public worship, “buildings and the lands appertaining to them owned, used and occupied directly for religious training or for other religious purposes…and the personal property used by them for the purposes for which they are established.”
• RSA 72:23, IV pertains to “the buildings and structures of schools, seminaries of learning, colleges…used and occupied by them directly for the purposes for which they are established…”
• RSA 72:23, V (see body of article).
• RSA 72:23, VI mandates that each charitable organization (except those exempt under organization’s financial condition and other factors that could potentially effect eligibility for tax exemption.
• RSA 72:23, VII states that the term “charitable” shall have the meaning set forth in RSA 72:23-l (see above).
15. See generally RSA 72:23, V; RSA 72:23-l.
16. RSA 76:16, I.
17. RSA 76:16, II.
18. Id. “There is hereby established a board of tax and land appeals, hereinafter referred to as the board, which shall be composed of 4 members who shall be learned and experienced in questions of taxation or of real estate valuation and appraisal or of both. At least one member of the board shall be an attorney admitted to practice in New Hampshire. The members of the board shall be full-time employees and shall not engage in any other employment during their terms that is in conflict with their duties as members of the board.”
19. The BTLA was established pursuant to RSA 72-B:1:
“There is hereby established a board of tax and land appeals, hereinafter referred to as the board, which shall be composed of 4 members who shall be learned and experienced in questions of taxation or of real estate valuation and appraisal or of both. At least one member of the board shall be an attorney admitted to practice in New Hampshire. The members of the board shall be full-time employees and shall not engage in any other employment during their terms that is in conflict with their duties as members of the board.”
RSA 71-B:5 lists the full authority and duties of the BTLA. However, the BTLA web site, www.nh.gov/btla succinctly states the BTLA’s function:
• hearing appeals of individual tax assessments, exemptions or refunds, whether levied by the State or its municipalities;
• hearing petitions for reassessment and determining the adequacy of reassessments ordered by the board; and
• determining any appeals of the equalization ratios established by the Commissioner of Revenue Administration.
20. RSA 72:34-a.
21. RSA 76:16-a, VI.
22. RSA 72:34-a.
24. Compare 76:16-a with 76:17 for abatement procedures.
25. E.g. ElderTrust of Florida, Inc. v. Town of Epsom, 2007 N.H. LEXIS 7 (January 18, 2007) (appeal by Town from superior court decision); Appeal of Town of Wolfeboro, 152 N.H. 455 (2005) (appeal by Town of BTLA decision).
26. Town of Peterborough v. The MacDowell Colony, Inc., Docket No.: 05-E-0478 (Hillsborough, SS. Northern District, March 1, 2007).
27. Farmsteads of New England, Inc. v. Town of Hillsborough, Docket No.: 21421-05EX (BTLA, August 31, 2006).
28. Id. at 2.
29. Id. at 5.
31. Id. at 13.
33. Girl Scouts of Swift Water Council v. Town of Antrim, Docket No.: 21006-04EX (BTLA, November 2, 2006).
34. Id. at 2.
35. 107 N.H. 316 (1966).
36. 123 N.H. 343 (1983).
37. Id. at 11-13.
38. 89 N.H. 40 (1937).
39. Id. at 42.
40. Id. at 41-42.
41. 74 N.H. 482 (1908).
42. YWCA, 89 N.H. at 43.
43. 92 N.H. 348, 350 (1943).
44. Id. at 352.
45. Id. at 354.
46. Id. at 352.
47. Pursuant to RSA 7:20:
“The director of charitable trusts shall be appointed in the same manner as an assistant attorney general under RSA 7:16. The director, under the supervision of the attorney general, shall have and exercise all the common law and statutory rights, duties, and powers of the attorney general in connection with the supervision, administration, and enforcement of charitable trusts, charitable solicitations, and charitable sales promotions.”
The Attorney General is a necessary party to any litigation involving charitable trust enforcement and represents the public interest in such cases. Charitable trusts, upon creation, must register with the Attorney General. They must also file a copy of IRS Form 990 with the Attorney General, as well as disclosure of pecuniary benefit transactions or conflicts of interest. (http://doj.nh.gov/charitable).
48. Society of Cincinnati, 92 N.H. at 356.
49. Id. at 352-53.
50. 107 N.H. 316 (1966).
51. Id. at 319-20.
52. Id. at 320.
54. Id. Note First Congregational Church of Laconia v. Town of Gilmanton, 123 N.H. 343 (1983) also addressed the issue of land use by a charitable organization. The Church owned a 17-acre tract of land which it permitted a Boy Scout troop to use three or four times in a year. Relying upon the rationale in Nature Conservancy, the Court denied the tax-exemption because the use of the land was “negligible and insignificant” and the plaintiff had failed to meet the use and occupancy requirements of [RSA 72:23, V].
55. 108 N.H. 514 (1968).
56. Id. at 515-16.
57. Id. at 517-18.
58. Although not relevant in the context of RSA 72:23, V, New Canaan Academy, Inc. v. Town of Canaan, 122 N.H. 134 (1982) provides an interesting case study on what constitutes an “educational institution” under RSA 72:23, IV. The Academy sought tax-exemption for a 42-room house on six acres of land on which it ran a school for the meditative arts (e.g. tai chi, and one class entitled “Zen Basketball”). Because the school was not an educational institution in the spirit of the statute, the Court affirmed a lower court ruling denying the tax exemption,. The Court laid out general guidelines for determining if an entity is an educational institution under the law:
1. Whether the purposes for which the institution is organized and operated are educational - i.e., intended to develop the faculties and powers and the expansion of knowledge through a systematic course of instruction or schooling, as distinguished from the mere communication of facts or ideas;
2. The land and buildings in question must be used and occupied directly for the purposes for which they are organized or incorporated;
3. None of the income or profits may be divided among the members or stockholders or used or appropriated for any other purpose than the purpose for which they are organized; and
4. Although it is not necessary that the training be of the type that would otherwise be furnished by the government, the task of the taxpayer to prove that he falls within the exemption will be more difficult as the divergence from traditional methods and objectives increases.
59. 117 N.H. 243, 248 (1977).
60. Id. at 250.
62. 109 N.H. 44 (1968).
63. 146 N.H. 658 (2001).
64. Id. at 659.
65. Id. at 660.
67. Id. at 662 (quoting Appeal of City of Franklin, 137 N.H. 622, 631 (1993)).
68. Id. (quoting Appeal of City of Franklin).
69. East Coast Conference, 146 N.H. at 662.
70. ElderTrust of Florida, Inc. v. Town of Epsom, 2007 N.H. LEXIS 7 at 1-2 (January 18, 2007).
71. Id. at 2-3.
74. Id.. at 9.
75. The Court cites the following as examples of courts which have articulated a discrete set of factors “against which a charitable tax exemption application must be evaluated”: Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149, 233 N.E.2d 537, 541-42 (Ill. 1968); Clark v. Marian Park, Inc., 80 Ill. App. 3d 1010, 400 N.E.2d 661, 664, 36 Ill. Dec. 241 (Ill. App. Ct. 1980); Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306, 1317 (Pa. 1985).
76. ElderTrust, 2007 N.H. LEXIS 7 at 8.
77. Id. at 30.
78. Id. at 9.
79. Id. at 11.
80. Id. at 12.
81. Id. at 13.
82. Id. at 14-15 (quoting Western Mass. Lifecare v. Bd. of Assessors, 434 Mass. 96, 747 N.E.2d 97, 104 (Mass. 2001)).
83. Id. at 15.
85. Id. at 17-18.
86. Id. at 20-21.
87. ElderTrust, 2007 N.H. LEXIS 7 at 21.
88. Id. at 22.
90. Id. at 24, 30.
91. Id. at 31.
92. Fraternal Order of Eagles, Aerie # 1934 v. Town of Newmarket, Docket No.: 22319-05EX (BTLA, March 19, 2007).
93. Id. at 1-2.
94. Id. at 2.
95. Id. at 6-8.
96. Id. at 10.
97. Fleur de Lis Camp v. Town of Fitzwilliam, Docket No.: 21564-05EX (BTLA, April 4, 2007).
98. Id. at 1.
99. Id. at 4.
100. Id. at 4-6, 11.
101. Id. at 5.
102. Id. at 5-6.
103. Town of Peterborough v. The MacDowell Colony, Inc., Docket No.: 05-E-0478 (Hillsborough, SS. Northern District, March 1, 2007).
104. Id. at 2.
105. Id. at 6.
106. Id. at 11.
107. Id. at 14.
108. MacDowell, at 16-17.
109. Id. at 19.
110. Id. at 21.
113. Peterborough not Resting on Court’s MacDowell Colony Ruling. www.boston.com (March 31, 2007).
114. http://onconcord.com/finance/concordv2.asp?siteindx=F10,05,03. (last accessed May 7, 2007).
115. Non-profits Getting More Tax Scrutiny. Concord Monitor (December 19, 2005).
117. Colleen Walsh, Harvard, Cambridge City Make Payment in Lieu of Taxes Deal. The M.I.T. Tech (February 15, 2005).
118. ElderTrust, supra, at 30.