Success - Property Tax Exemptions Saved | Wisconsin Non-Profits Association

AB75, an amendment to the Senate's budget bill, contains language that will protect property tax exemptions for nonprofit rental housing. The Governor signed the bill on June 29, 2009.

Read about new bill introductions that affect nonprofits in Advocacy and Lobbying, Fundraising and Solicitations, Institutional Structure and Management, and Tax Credits and Exemptions.

WISCONSIN NONPROFITS ASSOCIATION
RESOLUTION - PROPERTY TAX EXEMPTION

WHEREAS, the decision of the Dane County Circuit Court in Future Madison Eastpointe, Inc. v. City of Madison and subsequently the Wisconsin Department of Revenue have interpreted Section 70.11 of the Wisconsin Statutes in a manner that will deny a property tax exemption for rental real estate used by charitable organizations to provide affordable housing for low income and disadvantaged tenants, and for certain rental real estate held by other charitable organizations; and

WHEREAS, the loss of property tax exemption will materially impair the capacity of those charitable organizations to provide affordable housing opportunities for low income and disadvantaged tenants; and

WHEREAS, the reduction or elimination of those housing opportunities would be catastrophic for the tenants and for those on waiting lists, and would place significant additional burdens on other community resources to provide services to displaced tenants; and

WHEREAS, the Wisconsin Nonprofits Association believes that it is in the best interests of our state, our communities, and the nonprofit sector that the property tax exemption be promptly restored for charitable organizations that provide subsidized housing for low income and disadvantaged tenants;

NOW, THEREFORE, IT IS RESOLVED, that the Wisconsin Nonprofits Association urges all public officials in the State of Wisconsin to take such action as they deem necessary or appropriate, including but not limited to amending Section 70.11, to restore the property tax exemption to real estate leased by charitable organizations to provide housing for low income and disadvantaged tenants, and for real estate held by other charitable organizations for a comparable purpose, in a manner consistent with the interpretation and application of Section 70.11 of the Wisconsin Statutes prior to the decision in Future Madison Eastpointe, Inc. v. City of Madison; and

FURTHER RESOLVED, that (i) consistent with the limitations imposed by Section 501(c)(3) of the Internal Revenue Code on the Wisconsin Nonprofits Association's efforts to influence legislation, and (ii) in accordance with applicable lobbying laws of the State of Wisconsin and applicable lobbying ordinances of the City of Madison (including any registration of Wisconsin Nonprofits Association or any of its employees, under any such law or ordinance, if required), the officers and employees of Wisconsin Nonprofits Association are authorized and directed to communicate with public officials of the State of Wisconsin and/or City of Madison as they deem advisable to encourage action as may be necessary or appropriate to restore the property tax exemption as described above.

Approved by the Wisconsin Nonprofits Association Board of Directors on Monday, June 1, 2009

Next Tuesday, May 12, 2009 a number of groups are taking action regarding the threat to the property tax exemption by creating a tent city on the capitol lawn, starting with a rally at Noon and continuing throughout the day and possibly the night.

If you are in Madison or can be join in. Go to the Capitol (King Street entrance) at Noon on Tuesday, May 12th for the Rally and Tent City to support property tax exemption.

Take Action Now!

Recent events in Madison have seriously undermined the scope of the property tax exemption for Wisconsin nonprofits. These events include challenges in the City of Madison to the exempt status of all property that nonprofits rent to others and a Wisconsin Department of Revenue letter that seriously undermines the exemption statewide, particularly for nonprofits that own low income rental housing. If you heard of this issue at all, you may have thought it was limited to low income rental apartments. It is not.

The changes may reach much further: to all nonprofit-owned real estate that is leased to others. If this occurs, nonprofit organizations would not be able to afford the resulting higher property taxes without raising rent and exerting undue pressure on tenants, especially nonprofits sheltering residents who depend on these facilities to provide them with the vital public service of affordable housing. Please familiarize yourself with the issue and take action! A detailed explanation of the issue is below.

Act now! Time is of the essence on this problem, because the rental terms of leases for this housing must be set soon. Rents may have to be raised this summer if nonprofits are going to be taxed on their rental units. Tenants who can no longer afford the new rents will need to find new housing, apply for government support or make other arrangements. Nonprofits will need to find donors to make up the difference between rental income and their new tax bills if they are unwilling or unable to raise rents (some cannot raise rents sufficiently under the terms of their loan documents or government approvals). This must be done before current leases expire and before new leases are signed.

The Wisconsin Nonprofits Association is committed to supporting the preservation of the property tax exemption for nonprofits. We urge you to educate yourself about the issues, share with us how this is impacting your organization and then take action to help preserve this important piece of our social safety net in Wisconsin.

What can you do?

We must all act quickly to do a few simple things:

(1) Educate ourselves about the issues and who is affected by loss of the property tax exemption for nonprofit rental housing; (see more in-depth explanation below)

Wisconsin State Journal and Isthmus

(2) Ask our elected officials, particularly those in leadership roles, to clearly state where they stand on preserving the property tax exemption for nonprofit housing agencies that provide affordable rental housing for thousands of low income, disabled and elderly Wisconsin residents

(3) Encourage those elected officials, especially those in leadership roles in the Wisconsin Assembly and the Senate to support the legislation needed to fix this problem for all nonprofits. You can find your state elected officials here.

Clearly this is a complex issue, one that, if not resolved could open a Pandora's Box across Wisconsin as local governments looking to bolster their tax revenues are tempted to turn to the nonprofit agencies that are providing housing and community services for some of our most vulnerable neighbors. We can solve this problem and we must.

We want to hear from you about this issue. We've created a simple tool for you to send us information that you feel we should share with policy makers. The Wisconsin Nonprofits Association seeks to understand and share the impact of this issue on your community, your organization or the clients you serve.

A more detailed explanation…how did we get to this point?

The basic problem arises from competing interpretations of language in the Wisconsin statute governing what property is subject to and exempt from the general property tax in Wisconsin. Although an organization may be tax exempt under federal law, it may still be subject to taxes like the property tax unless an exemption applies. Under the key provision in the first paragraph of Wis. Stats. § 70.11 , nonprofits are allowed to both rent housing to others and maintain the exempt nature of the property if certain conditions are met:

Leasing a part of the property described in this section does not render it taxable if the lessor uses all of the leasehold income for maintenance of the leased property or construction debt retirement of the leased property, or both, and, except for residential housing, if the lessee would be exempt from taxation under this chapter if it owned the property.

If there is a dispute about whether an exemption applies, another provision of Wisconsin law comes into play: the presumption of taxability in Wis. Stats. § 70.109 :

Exemptions under this chapter shall be strictly construed in every instance with a presumption that the party in question is taxable, and the burden of proof is on the person who claims the exemption.

Courts and government agencies cannot ignore the clear statement of the Wisconsin Legislature that tax exemptions are to be construed narrowly. The Legislature can, however, change that presumption or clarify an exemption that may be ambiguous.

For decades, hundreds of nonprofits have been able to rely upon exemption from the property tax when developing housing that they then rent to the poor, the disabled, the elderly and others at below market rents made possible by the property tax exemption. The status quo benefited everyone. That understanding has now changed for these and other nonprofits who own and then lease out their property to others.

Courts, the Wisconsin Department of Revenue and now some local tax assessors are taking a different, and very strict view of what constitutes “maintenance” of a rental property. These bodies are concluding that the property is taxable if any of the rent is used to pay for things like the mortgage debt incurred to acquire the land, utilities, insurance, and property management expenses. In other words, all of the expenses that make it possible to maintain low cost, safe housing for people who have few other choices are apparently no longer considered maintenance for purposes of the property tax exemption; they cannot be paid for with rent from tenants if a nonprofit wants to maintain the property tax exemption for the housing. Instead, nonprofits are being told that they must find other funds to pay these "maintenance" costs if they want to maintain the property tax exemption. That is the position being taken by the City of Madison in a recent case where it was sued by Future Madison. A recent opinion letter from the Wisconsin Department of Revenue that was copied to every property assessor in the state provides a clear statement of this change in how the property tax exemption for nonprofit rental property will be treated.

A Mutually Beneficial Arrangement Unravels

The unfair and abrupt nature of this change in the property tax exemption for nonprofits is not limited to the impact on subsidized residential housing but that is where the change is most extreme and perhaps most disruptive. Historically, nonprofits used the below market rents paid by their low income, elderly or disabled tenants to pay all of the expenses directly related to acquiring, constructing and operating the housing and the properties were exempt from property tax under § 70.11. These expenses were all treated as part of “maintenance” of the rental property or part of retiring “construction debt.” The end result was affordable housing for communities that desperately needed it and a tax exemption for nonprofit agencies that were willing to put in the effort to assemble and operate the projects. It was a good deal with benefits for everyone:

· people who needed affordable housing received it;

· nonprofits who were looking for ways to fulfill their mission of service to the needy found opportunity;

· other taxpayers received stronger, safer, more just communities to offset any marginally higher property tax they paid as a result of the exemption; and

· governments who actively encouraged nonprofit groups to acquire, rehabilitate or build affordable housing for elderly, disabled and low income people in their communities didn’t have to take the risk or the responsibility for providing or maintaining the housing.

All this flowed from the exemption of nonprofit rental property from the property tax.

That understanding has now been upended. The result is uncertainty and far worse. The people truly put at risk by the impending change are not the nonprofit agencies; it is the individuals and communities those groups serve who will pay the price in lost affordable housing, increased homelessness and greater strain on the fraying private safety net maintained by the nonprofit sector.

As numerous media sources have reported, nonprofit housing agencies in the City of Madison are bracing for broad challenges to the property tax exemptions that currently apply to their residential units throughout the community. The scope of the problem facing nonprofits in the City of Madison is actually worse, because WNA has recently learned that the city has notified all nonprofits that are leasing property they own that their property tax exemption is being reviewed, not just those providing rental housing. So, space rented to other nonprofits, for example, is now at risk of being subject to property tax.

What is the likely impact?

At a time when individuals and families are perched on the edge of an economic abyss, Wisconsin stands a real chance of losing a significant part of its safety net of affordable housing. In Madison alone, the estimate is that over 1,000 subsidized housing units are at risk and that the nonprofits in that city face the prospect of being liable for over $1 million in property taxes. When leases for these units are revised this summer, the nonprofits affected will need to raise rents enough to close the gap in their budgets created by this new liability for 2009 and they will have to do it for the whole year, because they cannot retroactively go back to January 1 and change existing leases. Jurisdictions that collect the new taxes are no better off, because the drop in affordable housing simply strains another aspect of the social services system.

What Has Been Done to Address This Problem?

Nonprofits in the City of Madison are the latest to face a challenge to their property tax exemption but their predicament is a symptom of a much larger problem that will very likely impact many more Wisconsin nonprofits. It is important to note that this is a problem that was both foreseeable and preventable. It has been building for years as court decisions and local property assessors chipped away at the property tax exemption for nonprofits in the area of rental housing and elsewhere, yet our elected officials and the nonprofit community have not been able to come to agreement on how to fix the problem. The result has been paralysis on an issue that requires bold action to avoid harming vulnerable Wisconsin residents who need a place they can afford to call home. Whether homeless, ill, elderly, disabled or poor, these fellow citizens all deserve the attention and the best efforts of the people who represent them.

Efforts thus far to address this problem have been unsuccessful. One bill last year that would have addressed the issue for low-income residential housing passed the Legislature during their emergency session on the budget but Governor Doyle vetoed the language because it was a non-fiscal item in the budget repair bill. Other piecemeal proposals have also been floated by various groups and officials but none has garnered sufficient support or attention in the Legislature.

A number of media organizations have highlighted the critical nature of this problem, raising public awareness around the state. Public meetings have taken place in the City of Madison and elsewhere. That is a good start but more is needed.

What More Can Be Done?

We must all act quickly to do a few simple things:

(1) Educate ourselves about who is affected by loss of the property tax exemption for nonprofit rental housing;

The City of Madison and a number of other groups are actively working to encourage the Wisconsin Legislature to enact the language previously vetoed by Governor Doyle as a first step to solving this problem for nonprofit low-income housing. You can find that language here (beginning at p. 7).

Act Now! Time is of the essence on this problem, because the rental terms of leases for this housing must be set soon. Rents may have to be raised this summer if nonprofits are going to be taxed on their rental units. Tenants, particularly those who are low income and can no longer afford the new rents will need to find new housing, apply for government support or make other arrangements. Nonprofits will need to find donors to make up the difference between rental income and their new tax bills if they are unwilling or unable to raise rents (some cannot raise rents sufficiently under the terms of their loan documents or government approvals). This must be done before current leases expire and before new leases are signed.

The good cannot continue to be held hostage to the pursuit of the perfect bill. Clearly this is a complex issue, one that, if not resolved could open a Pandora’s Box across Wisconsin as local governments looking to bolster their tax revenues are tempted to turn to the nonprofit agencies that are providing housing and community services for some of our most vulnerable neighbors. We can solve this problem and we must.

Success - Property Tax Exemptions Saved

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