Environmental Justice as a Basis for Tax-Exempt Farmers’ Markets
After my post about Farmers’ Markets (and teaching tax) a few weeks ago, I got an email from Arthur Rieman, founder of The Law Firm for Non-profits. And then he, Casey Summar, Kristen Anderson and I got together via Zoom and talked it over. Arthur reported that their firm has on occasion obtained (c)(4) status for for farmers’ markets operated for the primary purpose of “community building in suburbs where there was no other extant means for do so.” The firm has also turned away groups who didn’t have the requisite basis for tax exemption. We talked a little while about justifications that might support (c)(3) status. A lot of poor neighborhoods have fewer grocery stores than even the fewer hospitals or pharmacies in those neighborhoods. You certainly won’t find fresh produce in most poor neighborhoods. So we speculated that if the right case was made, the Service would exempt what some might think are just Whole Foods Markets. Coincidentally, the Service released another PLR (linked and discussed below) about farmers’ markets a few days later, again denying tax exempt status.
Churches and liquor stores are two things you will find in abundance in poor black neighborhoods, by the way. One supposes that both are concentrated there to provide hope and assurance that things will get better one day. Maybe not until the next life, though. This is a sensitive topic, I know, because acknowledging the environmental hazards suggests to simple racist minds that black people are at fault. I should mention too that the proprietors of both churches and liquor stores seem to enjoy much higher standards of living than the local residents trapped around them. Don’t get mad at me for saying so. I won’t say more about churches. As to liquor stores, there are studies here and here documenting the phenomenon. From the first study:
Researchers at the Johns Hopkins School of Public Health have shown that predominantly black, low-income neighborhoods in Baltimore were eight times more likely to have carry-out liquor stores than white or racially integrated neighborhoods. Conversely, in higher-income Baltimore neighborhoods a higher percentage of black residents was not associated with a higher per capita number of off-site liquor stores.
First author Thomas A. LaVeist, PhD, MA, associate professor, Health Policy and Management, the Johns Hopkins School of Public Health, said, “Our data reveal an intersection of race and income status that places low-income African-American communities at greater risk for alcohol availability through off-premises liquor stores. Such stores have been shown to be an important component of the social infrastructure that destabilizes communities.”
The second study even controls for economic status:
Results: Blacks face higher densities of liquor stores than do whites. The density of liquor stores is greater among nonwhites in lower-income areas than among whites in lower- and higher-income areas and nonwhites in higher-income areas. Nonwhite youths face higher densities of liquor stores than white youths. The density of liquor stores and bars is lower in higher-income areas, especially for nonwhites.
Conclusions: Mismatches between alcohol demand and the supply of liquor stores within urban neighborhoods constitute an environmental injustice for minorities and lower-income persons, with potential adverse consequences for drinking behavior and other social ills. Our results for bars are sensitive to the measure of outlet density as well as population density. Although neither measure is clearly superior, a measure that accounts for roadway miles may reflect proximity to alcohol retailers and thus serve as a useful refinement to the per-capita measure. If so, alcohol policy might also focus on density per roadway mile.
In Private Letter Ruling 202409020, released last week, the Service seemingly rejected one idea we kicked around about farmers’ markets. If the market is located in a food desert, included educational programs about horticulture and animal husbandry, and even sold products grown or raised by farmers — things not further processed, mind you — then the organization should be entitled to tax exemption. Not just as a (c)(4) but as a (c)(3). Especially if its located in the hood where people lack adequate transportation to grocery stores sometimes only a few miles away. In the “bottoms,” right across the tracks, I mean. The unsuccessful result in Private Letter Ruling 202409020 was based on private benefit and a substantial non-exempt purpose. Fixable things:
You will own and operate a community center that will serve three purposes: church services, community activity, paid-for events. You are partnering with D for church services on Sundays and Wednesdays and will allow them to have an office. There will be no fees charged to D and the community events. The community activities will consist of art fairs, farmer’s markets and educational activities. Educational activities will be conducted by police and fire departments, local schools, and counseling from D. All community activities are open for noncommercial purposes and will be promoted and advertised through social media, school involvement, police and fire departments, and similar non-profit organizations.
The paid-for events will be managed by a for-profit entity, E. E was created by two members of your governing body who also serve as directors of E. Anyone or any entity can rent the facility through E for events, such as weddings, parties, or business meetings. E will be able to rent the spaces whenever you are not holding any church services or community events. E will pay rent at fair market value to you for use of the building. The public will be able to distinguish for-profit entities and non-profit entities by signage placed by the entities’ rented location.
You state the for-profit entities will place their own signage like other for-profit businesses. The paid-for events will serve as a main fundraising activity to help pay for and maintain your facility. It is anticipated that E will be allowed to rent the community center on Fridays and Saturdays when you are not holding other community events. The vast majority of the community center will be used by the church on Sundays and Wednesdays. Most likely, the community center will be closed on Mondays; the remaining days will be used by you for community events and possibly by E for some business events. Thus, the use will be spread over the different uses.
The ruling concludes that the organization is not exempt because “of the six days you have stated you will be open, two are designated for the church, two for E itself, and two split between E and other community events. Your activities are not charitable as defined in Treas. Reg. Section 1.501(c)(3)-1(d)(2) as only one-third of your designated events at this location are dedicated for exclusive Section 501(c)(3) purposes.” And because “you serve a private rather than a public interest by enabling E to operate regular business activities and increase revenues. You and E were created by shared members of each governing body to operate together. You own the facility, and E rents the facility out for a profit. You are E’s only customer. Although there may be some charitable and educational purposes served by your educational and religious activities, the private benefit to E is more than incidental.”
The organization ought to fix the problems raised by E’s participation if it wants to provide more hope than is available from the churches and liquor stores invariably thriving in the neighborhood. Anyway, I was grateful to learn that there are firms like The Law Firm for Non-Profits that “help good people do good things.”
darryll k. jones