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December 10, 2007
Minnesota Supreme Court Property-Tax Ruling Worries Charities
The Minnesota Supreme Court last week denied a property-tax exemption to a day-care center in a decision that has alarmed many charities in the state.
In a 4-3 decision, the court ruled that the Rainbow Child Care Center, in Red Wing, did not qualify for the tax exemption because it charged full price for all of its services.
“There must be a substantial charitable, or gift, component to an organization’s operation in order to qualify as an institution of purely public charity,” the court said. “That means the organization must provide a substantial proportion of its goods or services free or at considerably reduced rates.”
Jon Pratt, executive director of the Minnesota Council of Nonprofits, said the decision could hurt many community organizations, and the people who depend on their programs, in Minnesota
“Donations intended for charitable purposes will be diverted to tax payments, based on the ruling on this case,” he said in a statement.
He said his organization would probably ask the state Legislature to take up the issue.
The court said the Rainbow center offered no scholarships, retained the right to dismiss children if their parents were unable to pay the fees, and offered no discounts for participants whose fees were paid by county or tribal governments. It added that most of the center’s weekly fees were above market rates.
“There is no evidence that Rainbow’s intended purpose was to provide day care to the economically disadvantaged; rather, Rainbow’s purpose was to provide day care to those who could pay, either on their own or through government subsidy,” it said.
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