Archived Sections, Commentary

Court ruling threatens tax exemption of social ministry agencies

On Thursday, December 6, 2007, the Minnesota Supreme Court issued a ruling that immediately sent shockwaves through the Minnesota nonprofit community. The case involved the property exemption of a nonprofit daycare in Red Wing, Minnesota.
In the case, the Minnesota Supreme Court held that a nonprofit does not qualify for property tax exemption (or sales tax exemption) unless it provides goods or services free or at a considerably reduced rate as part of its operation. This ruling is a clear departure from 30 years of previous case law in Minnesota and is also a significant narrowing of the property tax exception available to many organizations.
What nonprofits does this ruling impact? The ruling will affect those nonprofits that have property tax exemption as “institutions of purely public charity” — a subset of nonprofit organizations that have 501(c)3 status. Churches, schools, and public hospitals are generally exempt from property taxes on different constitutional grounds. Remember, however, that many of the “institutions” are faith-based and function as ministries within the broader missions of churches.
What will happen now as things move forward? State Revenue Commissioner Ward Eisness has indicated that his department has no plan to change how it interprets tax exemptions for nonprofits. However, it is important to recognize that it is local county assessors who make decisions regarding property taxes.
Reality today suggests that our elected officials are looking for expanded revenue sources or to close tax loopholes.
The “64 thousand dollar question” is what must be the response of the churches and nonprofits to this very real threat? I am sure that we can all appreciate the pressure that elected officials are under to raise revenue. But is the solution really to be found through “taxes” on churches and nonprofit organizations? It reminds me of the old adage regarding “robbing Peter to pay Paul.”
Consider the ramifications for a moment.
If the government truly believes that it is now necessary in some way to tax churches and nonprofit organizations, the question becomes “Are government agencies prepared to step in and take responsibility to provide the present assistance that these churches and nonprofits are contributing if these measures force them to curtail their current efforts?”
Churches and nonprofit organizations today now provide the “safety net” that in years past citizens looked to the government to insure. Churches and nonprofits have become a lifeline today for more and more people left in need by government restructuring and cutbacks. Where are the hungry of our community turning, or the homeless, or the working poor, or seniors and children in crisis? What would happen to those most in need among us without organizations like the United Way, Second Harvest Heartland Food Bank, Lutheran Social Service of Minnesota, Habitat for Humanity, Dorothy Day, health clinics, homeless shelters, and all the other church and nonprofit organizations that now help to catch those who now fall through the gaps of the currently limited government support available?
Consider also, how many of these worthy organizations look to the churches for their volunteers, financial support, space, and other resources. Yes, there are government programs, but not enough to meet the challenges of today’s world.
So how does this affect you, the reader, and my fellow members of the Lutheran community in the Twin Cities area? How does this ruling concern you and your fellow parishioners?
Ongoing polls since 1989, sponsored by the Minnesota Council of Nonprofits and the Minnesota Center for Survey Research at the University of Minnesota, have shown that nine out of ten Minnesotans are in favor of support for tax exemption status for churches and nonprofit organizations.
In light of these surveys and its findings, I believe that we as Lutherans need to emphasize:
— Churches and nonprofits are a vital part of our society and provide benefits and services that strengthen our community.
— Donors intend all of the dollars given to churches and nonprofit organizations to be used to provide services.
— If churches and nonprofits are to fulfill their missions, they need to know what future resources will be there to help them get the job done.
— We, as a unified Lutheran community, need to contact our local and state elected officials to immediately enact legislation to remove this looming threat hanging over our churches and vital nonprofit organizations in Minnesota. For further information, contact the Minnesota Council of Nonprofits ( or 651/642-1908).
Rev. Richard F. Goebel is Board President of Lutheran Inter-City Coalition Network – Twin Cities. He is a retired LCMS Pastor and former executive director of Second Harvest St. Paul Food Bank.