Our opinion: The tax-exempt litmus

The proposal to take the question of tax-exempt charitable status away from the courts and give it to lawmakers has its backers and opponents divided along predictable lines: the taxers and the taxed.

There hasn’t been a great hoopla over it, but a bill that would allow the state lawmakers rather than the courts to decide what nonprofit entities deserve tax-exempt status has already passed the Senate, and a version of the bill has passed muster in a House committee.

Because the bill would amend the state constitution, it would have to pass in two consecutive terms of the legislature and then be approved by the voters in referendum. So, it’s not likely it would have much affect on the current legal tussle involving a number of local nonprofits and the Warren County Board of Assessment Appeals.

Currently, the question of tax-exemption is answered by the five criteria established by the state Supreme Court in its ruling in Hospital Utilization Project versus the Commonwealth: The HUP Test.

To be considered a purely public charity, an organization must:

Advance a charitable purpose;

Donate or render gratuitously a substantial portion of its services;

Benefit a substantial and indefinite class of persons who are legitimate subjects of charity;

Relieve the government of some of its burden; and,

Operate entirely free of the profit motive.

All five criteria must be met, and in the coming months attorneys for the county and for the several nonprofits who learned late last year that all or part of their tax-exempt status was being revoked will argue over those five points.

The impetus for the legislation, according to its sponsors, is to eliminate inconsistency in how purely public charities are assigned tax-exempt status since the determinations now are in the hands of judges who listen to the arguments of local governments and the charitable organizations and may rule differently under similar circumstances in different locales.

What the General Assembly is debating now is whether to take the issue out of the hands of the judiciary, which is presumed to be immune from outside influence (thus the wraps over the eyes of Lady Justice), and place it in the hands of the legislature, a political body where influence is exerted every day (thus, the profusion of lobbyists and political action committees).

So, the question then becomes, can the legislature craft its criteria for tax-exempt status any clearer than that handed down by the Supreme Court in the HUP Test and applicable in every case?

Not all nonprofits are structured the same. Some have purely charitable compenents that are clearly deserving and eligible for tax-exempt status, but they may also have parts where that eligibility is questionable.