To:Senator Joe Wineke and Representative Frank Urban, Co Chairs Members, Joint Survey Committee on Tax Exemptions
From: John Sauer, Executive Director and Tom Ramsey, Director of Government Relations
Subject:1997 Senate Bill 261
Senate Bill 261 would replace the property tax exemption for benevolent retirement homes for the aged with an exemption for charitable retirement homes for the aged, effective with property assessed as of January 1, 1998. To be exempt from property taxation, a charitable retirement home for the aged would have to meet all of the following conditions: 1) No part of the home’s net earnings could inure to the benefit of any shareholder, member, director or officer; 2) A substantial number of the residents would pay fees that do not fully cover the costs of providing the housing and the services they receive; and 3) The home would benefit a substantial number of persons who are legitimate objects of charity.
WAHSA members oppose SB 261 because the bill creates a property tax exemption standard of charitability solely for a single class of taxpayer and because the bill’s lack of clarity makes it virtually impossible for a retirement home for the aged to determine with certainty whether that entity will remain exempt from property taxation under SB 261.
That lack of clarity manifests itself in several ways:
As members of the joint committee are aware, an amendment which duplicates SB 261 was attached and later removed from 1997 Wisconsin Act 27, the 1997-98 State budget. What was approved by the Legislature in its final version of the budget and signed into law by the Governor was the creation of a 10-member Benevolent Retirement Home for the Aged Task Force, which was directed to “investigate the property tax exemption for benevolent retirement homes and all problems that are associated with it.” The task force is further directed to submit its report and proposed legislation to the Legislature on or before June 30, 1999.
Although WAHSA did not suggest the creation of this task force, our members support its objectives. Hopefully, it will provide a forum for our members to ask who or what the problem is that warrants a legislative response such as SB 261 and why the benevolent retirement home for the aged is the sole source of that perceived problem. Having stated that, our members have raised a pertinent question: Why proceed with SB 261, which would appear to offer a solution to a perceived problem, when the Legislature and the Governor both recently agreed to create a task force to determine if a problem exists and to offer a solution if it is determined a problem indeed does exist?
WAHSA members have other questions and concerns with SB 261:
WAHSA continues to support an exemption from federal taxation under s.501(c)(3) of the Internal Revenue Code as the requisite standard of charitability necessary to be granted an exemption from property taxation.
Indeed, the IRS already provides a specific test for “homes for the aged” which differs from other 501(c)(3) entities for purposes of exemption from federal taxation. Under IRS Revenue Ruling 72-124, the IRS for the first time allowed a “home for the aged” to be exempt from federal taxation if the “home for the aged” otherwise qualifies for a federal tax exemption under s.501(c)(3) and if the facility operates to satisfy all three of these basic needs of aged persons: a) The need for suitable housing, which would be met if an organization provides residential facilities that are specifically designed to meet the physical, emotional, recreational, social, religious and similar needs of aged persons; b) The need for health care, which would be met if an organization either directly provides or arranges for health care services designed to maintain the physical and mental well-being of its residents; and c) The need for financial security, which would be met if an organization: 1) Maintains a policy of financial assistance which would guarantee continued residence at the facility for any resident who is no longer able to pay for services provided; 2) Provides services to its residents at the lowest feasible cost; and 3) Maintains a payment structure set at a level that is within the financial reach of a significant segment of the community’s elderly persons. The IRS continues to audit Wisconsin not-for-profit facilities to determine their compliance with these provisions.
Proposals similar to SB 261 have been introduced as separate bills since the 1991-93 legislative session. They have never made it out of a standing committee, possibly because proponents of modifying the property tax exemption qualifications for benevolent retirement homes for the aged have never concisely defined who it is they wish to tax (or, more fairly, determine to be ineligible for a property tax exemption) and why. Or, stated differently, why they believe certain tax-exempt organizations do not deserve that tax-exempt status. Without a clear understanding of whom the “target” is and why that entity is being “targeted,” it is difficult to raise concrete objections or potentially preferable alternatives to SB 261 or any of the other similar proposals which have been offered in the past.
For instance, should charitability be defined solely as care or services provided to the indigent or should the community benefits provided by an entity be considered in the determination of charitability? In defining charitability, specifically in the area of benevolent retirement homes, we would respectfully request members of the Joint Survey Committee on Tax Exemptions to keep several things in mind:
WAHSA members support s.501(c)(3) of the IRS Code as the accepted standard of charitability because it is a known and understood test, because it would not add any administrative costs to the State and because it sets a higher standard for homes for the aged, or benevolent retirement homes. If applied solely to benevolent retirement homes, the federal 501(c)(3) standard also would result in some currently property-tax exempt benevolent retirement homes losing that tax-exempt status since they do not qualify under 501(c)(3) (specifically, condominiums or co-op structures). In other words, these organizations currently are exempt from property taxation under State statute but currently pay federal taxes because they do not meet the 501(c)(3) standard.
Arguably, all the proposed modifications to the property tax exemption standards offered to date have had a certain degree of arbitrariness. Until WAHSA members see a proposal which is as easy to administer and understand and as fair to the provider, the resident and the taxpayer as 501(c)(3), our support for 501(c)(3) as the accepted standard of charitability for purposes of property tax exemptions will continue.
The Wisconsin Association of Homes and Services for the Aging (WAHSA) is a statewide membership organization of not-for- profit corporations principally serving the elderly and disabled. Membership is comprised of 186 religious, fraternal, private and governmental organizations which own, operate and/or sponsor 147 not-for-profit and 49 county-operated nursing homes, 28 facilities for the developmentally disabled (FDD), 62 community-based residential facilities (CBRF), 10 licensed home health agencies, 13 residential care apartment complexes (RCAC), 99 senior housing complexes, 40 adult day care programs and over 300 community service agencies which provide programs ranging from Alzheimer’s support, child day care, hospice and homecare to Meals on Wheels.