January 05, 2017
By Melinda Baird, firstname.lastname@example.org
The definition of charity is at the heart of Michigan draft senate bill now dead, to the relief of at least two local municipalities, but with potential to be resurrected early next year. Senate Bill 960, passed by the Senate finance committee in late October, was not taken up during lame-duck session and therefore will need to be reintroduced to again be considered.
That’s good news to Dexter City Mayor Shawn Keough, who testified before the committee against the proposed bill largely because, he believes, it poses a threat to Dexter’s property tax base. Keough is not against tax-exemption for organizations he says are “doing charitable work in a fair way that everyone can see.” But he said he is against “self-serving entities” that don’t consider the impact of their absence on the city’s tax roll.
Keough said he hopes Senator Jack Brandenburg, the senator to sponsor the bill, doesn’t bring it back to committee. “I hope we hit hard enough,” Keough said during a round table discussion at the most recent Chelsea Area Planning/Dexter Area Regional Team (CAPY/DART) meeting.
Beyond his testimony, Keough and other Dexter City Council members sent to Lansing individual emails opposing the bill, while the City of Chelsea unanimously passed a resolution in early November also in opposition.
The bill, initiated by the Michigan Nonprofit Association, amends the state’s General Property Tax Act for the purpose of codifying the definition of charitable institution so that nonprofits and local assessors are treated uniformly throughout Michigan. Michigan Nonprofit Association representative Joan Bowman expressed her belief that too many nonprofits are wrongly assessed property taxes – and therefore forced to spend time and money appealing in court – because the law is not clear and consistent about what constitutes a charitable nonprofit.
The bill attempts to codify a 2006 Michigan Supreme Court ruling (Wexford Medical Group vs. City of Cadillac) that laid out six criteria of which Michigan tax tribunal judges are left to interpret when deciding appeals cases. But for Dexter and Chelsea city officials, the bill’s language is too broad. It opens the door too widely to tax-exemption qualification, and in their belief, threatens much-needed property tax revenue. That’s money on which not only local government but schools and other local entities rely.
“This is McCoig all over again, and should be broadcasted as such,” said Chelsea Councilwoman and CAPT/DART representative Cheri Albertson, equating the bill’s potential harm to the communities with that of McCoig Materials’ gravel mine proposal. Albertson spoke of the millions of dollars Michigan’s School Aid Fund would stand to lose under too vague property tax law.
Draft Bill 960 in its original form considers the six criteria and broadens them to include “the promotion of health and wellness” and “the promotion of a governmental purpose” as charitable purposes. Dexter and Chelsea city officials take issue with these additions (as well as some notable deletions) because of the substantial tax loopholes the proposed language creates. Small business owners and regular tax-paying citizens would bear the negative effects if passed, city officials say.
The language could be especially impactful to a 5 Healthy Towns Foundation vs. City of Dexter case currently pending before the Court of Appeals. The tax tribunal in April ruled the Dexter Wellness Center, owned by the non-profit foundation, should remain on the city’s tax rolls in years 2014 and 2015. That decision hinged on just one of the six criteria not met by the foundation, and draft Bill 960 could tip the case in favor of 5 Healthy Towns. Ruling the wellness center as tax-exempt would mean a loss of $325,000 to Dexter’s taxing jurisdictions, $170,000 of which is earmarked for public education.
The City of Chelsea may face similar circumstances now that Chelsea Wellness Center – also owned by 5 Healthy Towns Foundation – is back on the city’s tax roll, Albertson said.
But Bowman says the language in the draft bill defines, not expands, so that myriad nonprofits – most of which have annual operating budgets under $500,000 – and roughly 2,000 assessors in Michigan aren’t dragged into lengthy and expensive lawsuits. The bill states a charitable institution must be designated 501(c)(3) by the IRS – a process not easy to get through.
“[Obtaining 501(c)(3) status] is not just a perfunctory exercise,” Bowman said. “In this way the bill actually tightens qualifications.”
5 Healthy Towns Foundation Executive Director Amy Heydlauff said that although the foundation didn’t seek out the MFA to initiate the bill, it would benefit if enacted. She pointed to the overall value of nonprofits to communities for their ability to fill a gap in services that otherwise couldn’t be funded through the regular budget process of local government and schools. Grant money spent in the Dexter community, for example, far exceeds what could be realized through property taxes, she said.
“The freedom and flexibility of non-profits are unmatched by money going straight into a municipality’s coffer,” Heydlauff said.
The Michigan Department of Treasury, which, along with the Michigan Municipal League, Michigan Township Association, and Michigan Association of School Boards, oppose the draft bill, offered a substitute language that may or may not be introduced next session.
“We’re just glad it didn’t fly through lame-duck,” Dexter City Manager Courtney Nichols said. “We tried to raise enough dialogue to make a case.”