Tax Exemptions of Charities Face New Challenges

RED WING, Minn. — Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.

One issue is the growing confusion over what constitutes a charity at a time when nonprofit groups look more like businesses, charging fees and selling products and services to raise money, and state and local governments are under financial pressure because of lower tax revenues.

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In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay property taxes because, in essence, it gave nothing away.

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The tax-exempt status of charities costs local governments $8 billion to $13 billion annually, according to various rough estimates.

And local assessors are not the only government officials scratching their heads over which groups deserve privileged tax status. Congress has threatened to impose a requirement that wealthy universities make minimum payouts from their endowments and raised questions about whether nonprofit hospitals are really all that different from their for-profit — and tax-paying — competitors.

NY Times