Nonprofit Groups Keep Tax Breaks

The U.S. Supreme Court on Monday shielded private colleges, charities, research institutions and other nonprofit groups from losing their state tax exemptions because they serve a national clientele.

On a 5-4 vote, the court struck down a Maine law that denied the usual property-tax exemption to schools and charities that served mostly children from outside the state.

While the case involved a small summer camp for children of the Christian Science faith, it raised a novel tax question that drew wide attention in the nation’s huge nonprofit sector, which owns more than $300 billion in tax-exempt property.

The Constitution’s “barrier against protectionism” stands against not only higher taxes on out-of-state products, the court said, but also unequal tax treatment of nonprofit institutions just because they serve mostly those from outside the state.

Taking the nationalist view of the Constitution, Justice John Paul Stevens quoted a New Deal-era opinion saying the states “must sink or swim together because in the long run prosperity and salvation are in union and not division.”

In dissent, Justice Antonin Scalia took the states’ rights view, arguing that states and counties should be permitted to apply “the principle that charity begins at home. States have no legitimate interest in protecting nonresidents,” he said.

Monday’s decision basically preserves the status quo. Had the ruling gone the other way, it could have had broad impact on taxing policies, legal experts said.

“I think it’s fair to say these laws would have popped up all over the place,” said Washington attorney Carter G. Phillips, who filed a friend-of-the-court brief on behalf of the American Council on Education and a series of private, nonprofit groups.

“The political pressure would have been to put the tax onus on the outof-state guys,” he said.

A 1992 study presented to the court found that private nonprofit groups in education, health care, research, religion, the arts and social services contribute $389 billion per year to the nation’s economy, or 7 percent of the total output.

A 1985 study concluded these institutions held more than $300 billion in property that is exempt from state and local taxes.