Tax refund season has a whole new meaning for the city of Grand Rapids.
The city lost a key decision last week before the Michigan Tax Tribunal and owes the nonprofit Acton Institute for the Study of Religion and Liberty $205,000 — plus interest — for taxes already paid to the city.
Acton Institute filed a petition with the Michigan Tax Tribunal nearly two years ago to determine whether the nonprofit’s property at 98 E. Fulton St. was exempt from taxation.
Established in 1990, Acton Institute provides seminars, publications and academic research on the relationship between religion, politics, literature, culture and free-market economics. The organization was named after Lord John Acton and inspired by the English historian’s work on the relation between liberty and morality.
The institute is headquartered on three contiguous tax parcels of land located on the Fulton Street property, which was purchased in 2012. After the organization was denied a request by the city for tax exemption on its building, parking area and personal property in 2014, it appealed before the city’s 2014 Board of Review and again was denied.
On May 23, 2014, the case was brought before the Michigan Tax Tribunal in Lansing through its attorneys, Deborah Ondersma and Adam Brody of Varnum LLP.
The property in question houses office space, a library, an art gallery, a chapel, a theater, educational facilities and supporting parking facilities. A portion of the property was also leased to another nonprofit charitable institution and, at the time of the petition filing, the total state equalized value in dispute was about $2.08 million, according to the May 2014 petition.
Ondersma, who specializes in property tax appeals, said the exemption status under state property tax law is governed by statute, which is then interpreted by the court.
“In the context of the charitable exemption, there is a lead Michigan Supreme Court case that provides substantial guidance as to what factors should be looked at to determine if a specific entity qualifies,” said Ondersma.
The Michigan Supreme Court case outlining the necessary elements and factors qualifying a charitable institution for tax exemption is the 2006 Wexford Medical Center v. City of Cadillac. Wexford Medical Center appealed the Tax Tribunal’s refusal to grant it “a charitable institution exemption and public health purpose exemption” under the General Property Tax Act.
The case outlined a three-part test that helped assess whether a claimant was entitled to a tax exemption by showing: the real estate was owned and occupied by the exemption claimant; the exemption claimant was a nonprofit charitable institution; and the buildings and other property were occupied by the claimant solely for the purposes “for which it was incorporated,” according to the 2006 suit.
Jessica Wood, assistant city attorney for Grand Rapids, said there are many factors that can disqualify an entity from qualifying as “charitable” under state law.
“Being established as a ‘nonprofit’ is only one of many requirements for an exemption — it is by no means dispositive and the case law restates that rule repeatedly,” said Wood. “In case law, the definition of ‘charity’ is multi-faceted.
“One line of case law considers activities which ‘bring people’s hearts and minds under the influence of education and religion’ charitable. The analysis does not end there, however, and the burden is always on the taxpayer to establish that it meets all of the criteria for the exemption, not only in the statute but in the case law,” added Wood.
When determining whether the claimant was a charitable institution, six additional factors were highlighted in the Michigan Supreme Court case: must be a nonprofit institution; organized chiefly for charity; does not offer its charity on a discriminatory basis; and brings people’s minds or hearts under the influence of education or religion, relieves people’s bodies from disease or suffering, assists people to establish themselves for life, erects or maintains public buildings or works, or otherwise lessens the burdens of government.
“We had asked the city at the very beginning of this process to identify for us why they believed we didn’t qualify. They could never articulate an answer for us,” said Ondersma. “I would say that the most disappointing part of the process for me as an attorney was to see the tone of the city’s briefing. That was surprising and disappointing to me.”
In the Jan. 21, 2016, respondent’s brief motion for summary disposition, the city indicated while the “type of political, economic, and religious guidance Petitioner provides is important in a civil society, it is not the type of pro-social activity the Legislature has deemed so vital as to warrant upsetting the normal balance of equal taxation.”
The respondent brief also stated the petitioner “is a public policy think-tank attempting to masquerade before this Tax Tribunal as a charitable and educational organization,” and publishes “right-wing libertarian, philosophical and political propaganda tempered with extreme-right religious viewpoints.”
The city’s brief also noted Acton “does not feed the hungry, help the homeless, fight for economic or social injustice, provide food or health care to those in need, or provide job training or skills.”
Ultimately, Tribunal Presiding Judge Preeti P. Gadola granted a Consent Judgment between Acton Institute and the city of Grand Rapids on March 8, 2016. The city must now refund more than $205,000 in property taxes with interest for the last two years, and Acton Institute will be exempt from taxes going forward, according to a press release from Acton.
Wood indicated after the city received documentation in the form of evidence “it had requested for many months, it was satisfied the taxpayer had met its burden.”
“The city is obviously satisfied with the outcome as evidenced by the fact it agreed to grant the exemption and settle the case,” said Wood. “The case never went to trial and was not ‘litigated on the merits’ as some had suggested.”
Ondersma said each time an exemption is granted, it is fact-specific and the outcome between Acton and the city doesn’t set any special precedent.
“To the extent that other organizations are denied exemption, if they believe they meet criteria, then this might be a reminder that sometimes you have to pursue your rights to get the right answer, but I think it is a case-by-case analysis as to whether you fit those factors,” said Ondersma.