Ohio Supreme Court Upholds
Tax Exemption for Girl Scouts

The Ohio Supreme Court upheld a decision by the Board of Tax Appeals granting property tax exemption to a small store used by the Girl Scouts to sell scouting merchandise and other items integral to the scouting program. Girl Scouts-Great Trail Council v. Levin (2007), 113 Ohio St.3d 24

The Girl Scouts sought tax exemption for its property, including the store in 2002. By happenstance, the store made a small profit for the first time in twelve years in 2003. As a result, the Tax Commissioner determined that Girl Scouts did not use the store exclusively for charitable purposes and denied the exemption requested for the store. The Girl Scouts appealed this decision to the BTA, which reversed the Tax Commissioner. The Tax Commissioner then appealed this decision to the Supreme Court, which affirmed the BTA and granted the Girl Scouts property tax exemption.

R.C. 5709.12(B) provides a tax exemption for property belonging to institutions and used exclusively for charitable purposes. R.C. 5709.121 provides, in part, that property will be considered used exclusively for charitable purposes if it used "in furtherance of or incidental to its charitable, educational, or public purposes and not with the view to profit." Construing these provisions, the Supreme Court ruled that the mere fact that the Girl Scouts generated revenue from the store does not mean that it was used with a view to profit, because the store was an essential and integral part of the Girl Scouts' operations used primarily to support its charitable mission, and not intended to compete with for-profit enterprise.

California Supreme Court Allows Religious Schools
to Receive Municipal Bonds

The California Supreme Court ruled that municipalities may issue bonds for the benefit of religious schools, so long as the schools offer secular classes. Cal. Statewide Communities Dev. Auth v. All Persons Interested etc. (2007), 40 Cal.4th 788.  The 4-3 decision permitted three religious schools to receive the proceeds of municipal bonds for the purposes of constructing cafeterias, a mail center and athletic facilities.

In 1974, the Court upheld the constitutionality of a state bond program created to fund the construction of educational facilities at religious affiliated colleges that expressly prohibited bond proceeds to be used for religious purposes. See California Educational Facilities Auth. v. Priest (1974), 12 Cal. 3d 593. In that decision, the Court declined to address whether such bonds could be used for improvements at schools that were "pervasively sectarian" (a term used by the U.S. Supreme Court to describe a school devoting a substantial portion of its functions to its religious mission).

The schools involved in the recent litigation were pervasively sectarian. Nevertheless, the Court ruled that the issuance of municipal bonds on behalf of the schools violated neither the California State Constitution nor the U.S. Constitution, so long as the schools provided some secular education and no portion of the bond proceeds could be used for religious purposes.

This decision follows a recent trend of cases permitting religious institutions to receive the benefits of municipal financing, although the law remains murky on many aspects of these financings.

IRS Suspends Issuance of Determination Letters
for Certain Type III Organizations

The Internal Revenue Service has suspended the issuance of determination letters for exempt organizations requesting to be classified as a functionally integrated Type III supporting organization, pending the issuance of additional guidance.

Charitable Care Update

The Illinois Department of Revenue has denied a property tax exemption requested for the Carle Foundation Hospital, located in Champaign County, Illinois. The most recent denial follows its decision to revoke the tax-exemption of Provena Covenant Medical Center. The status of Illinois property tax exemptions is very tenuous right now, and the stage has been set for significant future litigation.

Meanwhile, the Minnesota Legislature introduced a bill (H.R. No. 1078) that would establish a charity care floor of 6% that hospitals must satisfy in order to qualify for property tax exemption. Although it is unclear whether the bill will pass, it demonstrates that the public remains focused on the amount of charity care provided by hospitals.

Quick Hits

• The IRS is promising to issue guidance, in a question and answer format, in the next month or two about the Form 990 compensation questions. This guidance is expected to focus on new questions 25A, 25B and 75C.

• Charities can track guidance issued on the changes required by Pension Protection Act at the IRS website.

• Legislation has been introduced in both the U.S. House and Senate to make the IRA charitable rollover permanent.

• IRS Office of Professional Responsibility plans to issue standards for appraisers. These standards are likely to be similar to the USPAP guidelines.

• The Department of Treasury is requesting comments on charitably-owned life insurance contracts. See IRS Notice 2007-24. The request for comments indicates some concern that these contracts may be used for abuse.

• The IRS has ruled that revenues generated by state-chartered credit unions from sales of car warranties, life, health and other types of insurance is unrelated business income. See Technical Advice Memorandum 200710017 and 200710019.