WORTHINGTON -- A State of Minnesota Supreme Court decision made in December 2007 could mean the first-ever property tax bill of $72,000 for local nonprofit CCSI, which owns and operates group homes for people with disabilities.
"I won't charge it this year," said Nobles County Assessor Byron Swart, but warned that next year, he would likely have to assess CCSI's 12 properties in Nobles County and charge the organization property taxes.
In all its history, CCSI has never been assessed property taxes, said Marty Rickers, its executive director. All that could change.
Swart received a copy of a letter to Cottonwood County's assessor, Gale Bondhus, indicating that the Minnesota Department of Revenue believed CCSI should be charged property taxes in Cottonwood County -- and implying that CCSI should pay property taxes in other counties as well.
"Please understand that our opinion is only advisory in nature and that you, as the county assessor, are ultimately responsible for granting or denying the request for exemption," wrote Stephanie Nyhus, principal appraiser with the Department of Revenue.
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According to Swart, however, it isn't quite that simple.
"We've got regional representatives that visit us and audit us. This letter gets distributed statewide; you'd hate to be the only one out there not following the rules -- as advised by your boss," Swart explained.
CCSI has been managing group homes since 1955 and is a nonprofit with 501c(3) status, meaning that it is exempt from paying federal income taxes. Just because CCSI doesn't pay federal income taxes doesn't mean CCSI doesn't have to pay property taxes, however.
Other area organizations that might be forced to pay property taxes are nonprofit daycares and organizations like CCSI, including New Dawn. Only nonprofits that qualify for exemption as a "purely public charity" will be affected -- not churches, universities, cemeteries, public schools or public hospitals.
How did the
rules change?
In Under the Rainbow Child Care Center, Inc. vs. County of Goodhue decision, filed Dec. 6, 2007, the Minnesota Supreme Court chose to clarify some of its rules on determining what does and does not qualify as an "institution of purely public charity."
Those clarifications include:
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l Payments made by a governmental entity for goods or services provided to one of its citizens are not considered donations when determining whether property is taxable.
l An organization that does not provide goods or services free or at considerably reduced rates as a substantial part of its operations is not exempt from property taxes.
CCSI receives nearly all its funding from the state and federal government, getting money per diem to provide care to people with special needs. Previously, the government funding was considered a donation; now, it is not.
As such, CCSI would need to pay property taxes, forcing the organization to raise its rates. Ironically, the increase in rates would be paid by the local, state and federal government, not CCSI's clients -- the same organizations that would benefit from the property tax.
The system would rob Peter to pay Paul, but in a situation in which Peter and Paul are actually the same person.
Fixing the problem
The Department of Revenue agreed March 3 with the Minnesota Council of Nonprofits to establish a year-long moratorium to protect nonprofits' existing property tax exemptions until the Minnesota legislature can enact new guidelines for evaluating property taxes.
The moratoriums are not yet in place. The Senate Taxes Committee will meet to discuss the issue Tuesday, and the House Property Tax Relief and Local Sales Tax Division will meet Friday.
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Until the moratoriums are in place, counties could theoretically assess some nonprofits property taxes.
Swart, however, has no intention of charging CCSI property taxes this year.
"There's things the Department (of Revenue) doesn't know about CCSI," Swart said, citing several of the organization's annual fundraising efforts, most of which occur in Nobles County.
The Department of Revenue's letter to Bondhus only regarded the CCSI's Cottonwood County properties and activities in Cottonwood County.
"I understand the CCSI concept, and I guess that's why I have a problem with (assessing property taxes to it)," Swart said, emphasizing the value of CCSI to the community.
Rickers, too, was frustrated, though he was appreciative of the assessors' efforts to sort out the new laws and figure out what the Department of Revenue needed.
"I hope through education, the legislators will see this is not a good thing to do," Rickers said. "... I think they're opening a huge Pandora's box by doing this."
