May 15, 2024 State law developments could impact tax-exempt organizations
The following state tax developments could affect tax-exempt organizations operating in certain states. Given the possible effects on their operations, tax-exempt organizations should consider monitoring their respective states' tax developments regularly. Mississippi On April 25, 2024, Mississippi Governor Tate Reeves approved legislation (SB 2476) that indefinitely extends the personal income tax credit for voluntary cash contributions to qualifying charitable organizations and charitable foster care organizations. The credit had been set to expire on January 1, 2025. New Jersey On April 17, 2024, the New Jersey Superior Court, Appellate Division affirmed a New Jersey Tax Court ruling that a property owned by a non-profit organization qualified for a charitable tax exemption. In Options Imagines v. Parsippany-Troy Hills Township, No. A-1144-22, the court considered whether a two bedroom condo owned by a non-profit entity providing support services to persons with intellectual and developmental disabilities qualified for property tax exemption. The court determined that the non-profit entity used the condo in furtherance of the entity's charitable purpose by housing those individuals with disabilities and providing them with support services approved by New Jersey's Department of Human Services. Rhode Island On May 2, 2024, the Rhode Island Supreme Court held that the City of Pawtucket could not receive Payment in Lieu of Taxes (PILOT) funding in connection with two properties owned by Memorial Hospital in the city, because the hospital had relinquished its hospital license and thus did not satisfy the definition of a "nonprofit hospital facility." The state of Rhode Island pays municipalities a portion of the property tax value of land held by tax-exempt nonprofit institutions, including hospitals and universities, that are exempt from paying property tax under state law. In City of Pawtucket v. The Rhode Island Department of Revenue, et al., No. 21-185, the court considered whether the city continued to qualify to receive such PILOT payments for Memorial Hospital's two properties after the hospital ceased to operate an emergency room and thereby relinquished its hospital license. The city argued it was entitled to PILOT payments because two licensed hospital affiliates of Memorial Hospital continued to provide medical services at the properties. But the court held that the city no longer qualified to receive PILOT funding for the properties because Memorial Hospital owned those properties and was no longer a licensed hospital. South Carolina On March 22, 2024, the South Carolina Administrative Law Court (ALC) ruled that a private college could not claim a property tax exemption on a building it leased from a for-profit real estate development company for the purposes of providing student housing. In Oakland Mills Development Group LLC v. Department of Revenue, No. 22-ALJ-17-0442-CC, the ALC found that Newberry College did not qualify for the property tax exemption under Section 12-37-220(A0(2) of the South Carolina Code because it did not itself own the subject property, as leasehold interests do not qualify for the exemption. Tennessee In two recent Tennessee Administrative Law Judge (ALJ) decisions, religions institutions were granted property tax exemptions on land deemed to be used in furtherance of their religious or charitable purposes. In Restoration Southside Church v. Hamilton Country Assessor's Office, No. 53.06-237038J, an ALJ for the Tennessee Board of Equalization ruled that a building and parking lot purchased by a church qualified for property tax exemption. The ALJ determined that the property was used in furtherance of religious and charitable purposes despite being used for some non-exempt purposes before the church applied for the exemption. In Straitway Truth Ministry v. Macon County Assessor's Office, No. 53.06-23692J, an ALJ for the Tennessee Board of Equalization ruled that property owned by a religious ministry qualified for a property tax exemption because it was used in furtherance of the entity's mission of "living off the land." The ALJ determined that the group's primary parsonage, a building used to store equipment, supplies and livestock, and vacant land used on feast days, both furthered the group's religious mission. Wisconsin On March 14, 2024, the Wisconsin Supreme Court affirmed an appellate court ruling that a religious institution and four of its subsidiary organizations did not qualify for a religious-purposes exemption from the requirement that it contribute to the state's unemployment insurance fund. In Catholic Charities Bureau Inc. v. Wisconsin Labor and Industry Review Commission, No. 2020AP2007, the Court ruled 4-3 that the entities did not qualify for the religious purposes exemption in Section 108.02(15)(h) of Wisconsin Statutes because they were not operated primarily for religious purposes. According to the majority, the activities of the organizations - providing services to persons with developmental and mental health disabilities - were primarily secular in nature. The religious motivation behind providing the services alone was not enough to satisfy the exemption criteria, the majority ruled. Implications These decisions reflect a complex and evolving landscape for state and local tax exemptions for charitable and religious entities in different jurisdictions. Tax-exempt organizations should continue to closely monitor legal developments in their respective states and localities to understand their tax obligations, opportunities for exemptions or credits, and other tax developments that may affect them. ——————————————— RELATED RESOURCES — For more information about EY's Exempt Organization Tax Services group, visit us here. ———————————————
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