Stanford Property Tax Exemption Challenge Gets an Assist from Minnesota Tax Court
Last month, while I was way up on my high horse, I blogged about Stanford’s suit challenging the denial of charitable property tax exemption for faculty-occupied houses to which Stanford holds reversionary interests, effectively. The Tucker Carlson in me said that Stanford’s ownership of so much tax exempt Palo Alto real estate created the very need for affordable housing that Stanford seeks to ameliorate, but only for its own faculty nevermind people who wait tables at the Sundance on El Camino Real.
Nobody paid me $35 million a year and a great big golden parachute for that bit of highly righteous indignation though.
Stanford is not a willing or typical villain, at least not as much as I might have implied from my old vantage. Its complaint almost apologizes for the reasonable assertion that the part of the estate owned by faculty should be taxed, the part of the estate owned by Stanford for use in its charitable mission should be exempt. As it stands, the faculty have been assessed on the full value of the homes with no diminution for Stanford’s reversionary interest. Stanford’s concern is so genuine, it seems to me, that if it losses I expect it will increase its subsidization of faculty housing to decrease the financial hit on faculty. But that will trigger a cascading Old Colony Trust problem.
It wouldn’t be an insurmountable problem, Stanford has plenty of mathematical minds that can come up with an easy calculus, I’m sure. But it may not have to if California looks east for guidance. In Alliance Housing Incorporated and North Penn Supportive Housing LLC vs. County of Hennepin, two 501(c)(3) organizations devoted to affordable housing owned about 20 homes they rented out to “low” and “very low” income people. Rents were below market and insufficient to cover operating costs. The organizations derive no excess from the rentals and, according to the Minnesota Tax Court, provided housing for about 100 people across Minneapolis.
In Stanford, a 501(c)(3) owns homes and conveys a property interest — we might refer to the faculty as renters with a right of inside build-up, is the interest really much more than a leasehold? Stanford owns the property just like the organizations in Minnesota. Costs to faculty are presumably below market, though faculty shoulder the costs of upkeep. But then, the potential for untaxed inside build-up might mean that faculty ultimately don’t pay maintenance costs because the costs are reimbursed when faculty are permitted to sell their interest at a presumably appreciated cost (but only to another Stanford faculty member). It really is only that we call the faculty “owners” that makes the Stanford case a debatable one. If we agree that Stanford faculty are actually only renters economically, just like the tenants in Mississippi, the cases are on all fours. The owner holds the property for its charitable purpose, the tenants are the means by which the charitable purpose is accomplished even if the renters are personally benefited thereby.
In Minnesota, the Tax Court said the property was entirely tax exempt, not just that portion attributable to the organizations’ reversionary interest. The Court’s opinion consists of some fairly straight forward matters of fact, followed by a conclusion with no analysis or reasoning in between, unfortunately. Stanford might want to take note anyway. In Minnesota, property owned by a charitable entity and rented solely to charitable beneficiaries is tax exempt in its entirety. If Stanford is really just a charitable landlord, and faculty really just very intelligent renters (but still “low income” relative to the cost of unsubsidized homes) the Minnesota holding could be useful.
darryll jones