Nonprofits' Tax-Exemption Battle Moves to the Courts

Nonprofits' Tax-Exemption Battle Moves to the Courts

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The Princeton case differs from previous legal challenges in one important way: It was brought by residents. The fee for filing a property tax challenge is typically very low -- less than $100. If the residents of Princeton win, it could lead to copycat challenges aimed at nonprofits that have a controversial mission, said Linda Czipo, executive director of the New Jersey Center for Nonprofits. She warns that places like abortion clinics or alcohol and drug rehab centers would be particularly vulnerable.

David L. Thompson, vice president of public policy for the National Council of Nonprofits, argues the real issue is one of public finance and not tax fairness. Many governments' long-term liabilities -- health care and pensions -- are growing faster than their annual revenue streams. Because of that, said Thompson, it’s tempting for politicians and policymakers in times of tight revenue to view nonprofits -- however inaccurately -- as freeloaders.

For instance, last year he testified before the Pennsylvania General Assembly, which has dealt with chronic budget deficits in recent years. Thompson spoke after the state auditor who testified that taxing the state’s tax-exempt properties would net about $1.5 billion in new revenue -- but, Thompson immediately clarified, government buildings account for most of that figure.

“They always talk about that dollar figure then say that’s why we need to tax nonprofits,” said Thompson. “But it’s a bait-and-switch argument. And they don’t even mention the tax breaks that developers get in incentives. Nonprofits are typically only somewhere between 4 and 8 percent.”

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