As MPR’s Jessica Mador reported today, the Minnesota Supreme Court has ruled that a Red Wing daycare center does not qualify for a property tax exemption because the organization failed to meet one of six criteria long used to determine tax exemption status. This case is seen as having major impact on nonprofits in Minnesota.
We’ve had quite a bit of e-mail on this today, most folks asking about the criteria.
According to the court ruling , the criteria are:
- Whether the stated purpose of the undertaking is to be helpful to others without immediate expectations of material reward.
- Whether the entity involved is supported by donations and gifts in whole or in part.
- Whether the recipients of the “charity” are required to pay for the assistance received in whole or in part.
- Whether the income received from gift and donations and charges to users produces a profit to the charitable institution.
- Whether the beneficiaries of the “charity” are restricted or unrestricted, and
- Whether dividends in the form or substance, or assets upon dissolution are available to private interests.
The daycare, in this case, didn’t meet #3. People are required to pay “tuition,” so the court ruled that it’s not entitled to nonprofit status.
But the devil’s in the dissent, according to those who fear the ramifications of the ruling.
“I believe that the question of whether an organization is a charity depends primarily on the nature of the service it provides and only secondarily on the type of funding mechanisms that may be used by a nonprofit organization…” wrote outgoing Justice Sam Hanson.
Hanson said “there is no doubt that the objectives of Rainbow qualify as traditionally charitable,” noting also that a “significant percentage of the parents whose children are served at Rainbow are low-income and qualify to receive county assistance. Although Rainbow works with low-income parents to help them obtain public assistance, it also provides service to some children with no or lower fees.”
Hanson, it would appear, is calling for common sense over a strict interpretation of six criteria. In the past, the majority of the court acknowledged, the court has not required that all six be met to be considered nonprofit.
Chief Justice Russell Anderson, however, noted that an institution has never been considered a non-profit (in this case, defined as a “purely public charity”) without satisfying #3.
But what, exactly, is the goal of declaring something to be nonprofit? Hanson says it’s too encourage charitable services, in this case daycare.
While some may see this as a chance for cities and counties to get more tax revenue, others are clearly seeing this decision as the beginning of the end of daycare.
This one’s going to the Legislature.
Are you a daycare provider? What’s your take?