Charitable Property Tax Exemption Redefined

In May 2009 Governor Pawlenty signed a bill into law that defines a "charity" for property tax exemption purposes. The new definition modified and codified the factors to provide clarity and consistency in the definition of charity and established a review board that continues the work today.

This new law was adopted in response to a 2007 Minnesota Supreme Court decision that narrowed the definition of charity that developed in case law throughout the previous 35 years, since the North Star decision. North Star outlined six factors to be considered by assessors in determining whether an organization was an institution of purely public charity. Under North Star, no one factor was determinative over the others and not all had to be satisfied. The December 2007 Under the Rainbow Childcare Center v. Goodhue County decision declared that the third factor must be met in order for an organization to qualify as an institution of purely public charity.

Over the next two years, the Minnesota Council of Nonprofits convened nonprofit property owners, attorneys and advocates to review law, outline possibilities, draft language and proposals. In ongoing meetings with the Minnesota Department of Revenue, MCN negotiated a conclusion that allowed a codified definition of a charitable organization qualifying for the exemption.

The new statute, Minnesota Statutes section 272.02, subdivision 7, modified and codified the North Star factors to provide clarity and consistency in the definition of charity. The new law requires that an organization satisfy all six factors. If an organization fails to satisfy factors 2, 3, or 5, the organization may provide a "reasonable justification" for its failure of those factors. An assessor must heed the justification and may accordingly grant exemption. The new law states:

Institutions of purely public charity that are exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code are exempt if they meet the requirements of this subdivision. In determining whether real property is exempt under this subdivision, the following factors must be considered:

(1) whether the stated purpose of the undertaking is to be helpful to others without immediate expectation of material reward;

(2) whether the institution of public charity is supported by material donations, gifts, or government grants for services to the public in whole or in part;

(3) whether a material number of the recipients of the charity receive benefits or services at reduced or no cost, or whether the organization provides services to the public that alleviate burdens or responsibilities that would otherwise be borne by the government;

(4) whether the income received, including material gifts and donations, produces a profit to the charitable institution that is not distributed to private interests;

(5) whether the beneficiaries of the charity are restricted or unrestricted, and, if restricted, whether the class of persons to whom the charity is made available is one having a reasonable relationship to the charitable objectives; and

(6) whether dividends, in form or substance, or assets upon dissolution, are not available to private interests.

On March 1, 2010 the Minnesota Department of Revenue released a bulletin with examples of what may qualify as a reasonable justification for failure to satisfy one of these factors.

The Minnesota Council of Nonprofits has created a Property Tax Exemption Guide to help you determine whether your organization qualifies for this exemption. The guide also provides information on how to prepare an application to assessors and other interested parties.

 
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