Overthinking Private Benefit
Can charities engage in non-invidious discrimination without running afoul of the private benefit prohibition? Seem like an easy question, but in Missouri the State Tax Commission had to reverse a County Tax Assessors decision, and a Senior Hearing Officer’s affirmance of that decision denying property tax exemption to a federally exempt organization that granted scholarships to students, but only for attendance at Christian colleges or universities. Missouri has only a half-way better articulation of the private benefit doctrine than federal law. Property is exempt if “[t]he dominant use of the property is for the benefit of an indefinite number of people and directly or indirectly benefits society.” The County and then the State Hearing Officer ruled the organization’s property taxable because scholarships were limited to students attending Christian schools. Tax Commission reversed, stating:
The evidence in the record established that Complainant’s charitable purpose is to advance Christian faith based education through the provision of funding in the form of grants, scholarships, awards, training, and other resources, all of which are available to all persons regardless of their denominational or religious affiliation. The evidence in the record also established that Complainant had awarded funds to “various Christian church schools that are not Protestant, including those of the Catholic, Lutheran, and other Christian faiths . . . even students who are not of Christian faith, but wish to attend a Christian school . . . .” The evidence further established that Complainant did not limit its awards of funds to only certain schools, individuals, or specific categories of persons but instead offered the opportunity to receive awards to anyone, an indefinite number of people, seeking a Christian faith based education. Unquestionably, providing resources for individuals, groups, and schools for the purpose of furthering education either directly or indirectly benefits society. Complainant’s dominant use of the subject property as a physical headquarters to facilitate the provision of funding in the form of grants, scholarships, awards, training, and other resources was tailored to Complainant’s implementation of its charitable purpose.
Its a factually simple case, really, but maybe too simple. Its tempting to just say that of course religious organizations can discriminate in favor of its own faith. But I am not sure the organization is a religious organization. Is merely providing scholarships for attendance at Christian universities a religious purpose? The ruling doesn’t answer the question, but it analyzes the organization’s exempt status as a non-religious charity. And that’s where my cognitive dissonance clicks in. Because under federal law, it is not merely the number of potential beneficiaries that proves “public benefit.” Instead, it is whether the limitation on the number of beneficiaries is conducive to the charitable purpose. That’s why Missouri’s definition is only half-way better than federal law. It merely states an evidentiary rule. The number of people served may indicate “public benefit.” But just because a whole lot of people benefit doesn’t mean the limitation does not create private benefit. Missouri doesn’t take into account whether the limitation on beneficiaries is necessary to achieve the charitable purpose. American Campaign Academy and cases after that — particularly the HMO cases — make that point and maybe the Commission’s last sentence in the quote above acknowledges that point also.
It’s probably a thoroughly academic question, because if the charitable purpose is legitimate — funding Christian education for all comers — the limitation on the eligible beneficiaries is obviously necessary. On the other hand, a County Tax Assessor and a Senior Missouri Tax Hearing officer got it wrong. I don’t think the Commission got it wrong, but why did the County Tax Assessor and a Senior Missouri Tax Hearing officer disagree?
I might be overthinking it.
darryll k. jones