December 13, 2012

Hebron Academy tax case being watched by Maine nonprofits

The town of Hebron argues in court that the school should pay property taxes on facilities it rents out for income, which could have implications for schools, hospitals, churches and other nonprofits.

By Noel K. Gallagher ngallagher@pressherald.com
Staff Writer

(Continued from page 1)

Today's poll: Taxing nonprofits

Should towns be able to collect property taxes from nonprofits on facilities that are rented out for outside use?

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click image to enlarge

Nonprofits are closely watching a Maine Supreme Judicial Court case about whether Hebron Academy, a private boarding school pictured above, must pay property taxes on facilities it rents to outside groups.

Hebron Academy photo

click image to enlarge

Nonprofits are closely watching a Maine Supreme Judicial Court case about whether Hebron Academy, a private boarding school pictured above, must pay property taxes on facilities it rents to outside groups.

Hebron Academy photo

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He noted that the school also pays property tax for a postal office that is on school grounds because all parties agree that property would not be tax-exempt.

Several groups representing private schools, colleges and hospitals have filed briefs supporting Hebron Academy.

"The case between Hebron Academy and the town of Hebron is one of critical importance to Bates and to other colleges and universities throughout the state and country," said a statement from Bates College in Lewiston.

"The tax-exemption is fundamental to the ability of nonprofit colleges and universities to provide affordable access to higher education and community benefits in the form of jobs, cultural activities, recreation, and other contributions," the statement said.

Janet Mills, Maine's incoming attorney general, also filed a brief in support of the school, saying, "A decision to so narrowly construe the exemption as to disallow incidental rental income for qualified institutions would inflict a major blow to the viability of these historic educational institutions."

Brenda Peluso, director of public policy for the Maine Association of Nonprofits, said the ruling could affect many of Maine's roughly 5,000 nonprofits.

"A lot of nonprofits in this day and age are being called to act more like businesses," she said. "They do that by doing multi-purpose uses (of their facilities), like Hebron. It's quite a benefit to the community."

Peluso said association members are reporting that "some towns are more aggressive than others" in determining whether a nonprofit should pay taxes. Some towns, for example, have created "pretty intense" application forms that nonprofits must fill out to get or maintain tax-exempt status locally.

Peluso said it would hurt communities if nonprofits couldn't offer their facilities for outside use.

"They give property tax exemptions for a reason. We provide a public service. And charging a tax on one public service to provide another public service is just eating from the same pie," she said.

If the court rules against Hebron Academy, the school will have to stop renting its facilities to outside groups, said Head of School John King after the hearing.

"As a nonprofit, we struggle every year," he said. "It doesn't make any sense to continue (to allow outside use of facilities) if it's going to put our tax-exempt status in jeopardy."

He said the revenue is roughly equal to what the school would pay in taxes, so renting wouldn't make sense. The school earned about $686,000 over the last six years for all facility rentals, he said.

This is not the first time Maine courts have been asked to decide whether a municipality can collect taxes from a school, Dench said.

In the 1980s, Waterville unsuccessfully sought to tax a Colby College fraternity, arguing that it didn't serve an academic function.

Dench said the Hebron Academy case is different because the school markets its facilities and collects fees.

The town's attorney and Selectman Daniel Eichorn, who were at the court hearing, said they are simply asking for taxation as the law allows. They declined to speculate on what it might mean for other nonprofits in Maine if the town wins the case.

Eichorn said after the hearing that the town's interest is only in collecting what is due. "As a small town, any dollars help."

 

Staff Writer Noel K. Gallagher can be contacted at 791-6387 or at:

ngallagher@pressherald.com

 

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Today's poll: Taxing nonprofits

Should towns be able to collect property taxes from nonprofits on facilities that are rented out for outside use?

Yes

No

View Results