High Court Frees Charities From Property-Tax Pinch

In a decision that will benefit nonprofit organizations around the United States, a Maine summer camp operated for the children of Christian Scientists won a Supreme Court decision.

Yesterday's 5-to-4 ruling gives legal footing for nonprofit organizations to benefit from state tax breaks - even if most of the nonprofit's business comes from out of state.

The ruling opened a new patch of ground in American law, since the high court has never taken up the question of the residence of people contributing to or doing business with nonprofits.

In so doing, the high court said that nonprofits are protected from discriminatory state law by the commerce clause of the US Constitution, which governs free and fair economic trade among the states.

The case stems from a 1992 challenge by Camps Newfound/Owatonna. The group objected to a 40-year-old Maine law that exempts nonprofit summer camps from taxes - but only if a majority of the campers live in Maine. Some 95 percent of Owatonna's campers are from out of state.

Lawyers for Owatonna asked for a return of some $20,000 a year in real-estate and personal-property taxes the camp paid between 1989 and 1991, saying the state law violated the commerce clause.

Writing for the court, Justice John Paul Stevens stated, "There is no question that if this statute targeted profit-making entities, it would violate the dormant Commerce Clause. The statute discriminates on its face against interstate commerce...." He added, "The rule applicable to profit-making enterprises also applies to a discriminatory tax exemption for charitable and benevolent institutions.... Even though petitioner's camp does not make a profit, it is ... engaged in commerce, not only as a purchaser, but also as a provider of goods and services."

Nonprofits keep a close eye

The case was being closely watched for a number of reasons. If Owatonna had lost, hundreds of nonprofit groups worth billions of dollars could find themselves taxable. About two dozen nonprofits filed "friend of the court" briefs with the camp. Constitutional scholars also see the case as another test of how much power the Supreme Court will allow state courts and legislatures at a time of devolution of power.

Voting in the majority, along with Stevens, were Justices David Souter, Anthony Kennedy, Stephen Breyer, and Sandra Day O'Connor. Justice O'Connor's vote, in particular, was seen as the swing vote in the case, because she has been a leading voice on behalf of "states' rights."

Dissenters were Chief Justice William Rehnquist and Justices Antonin Scalia, Clarence Thomas, and Ruth Bader Ginsburg.

The 180-acre camps, located on the last undeveloped land on a lakefront in tiny Harrison, Maine, serve the children of Christian Scientists (though the organization is not affiliated with the Christian Science Church). The camps, one for girls and one for boys, are open nine weeks a year and attract 400 to 500 campers. In recent years, the camp ran an annual deficit of about $175,000. Owatonna challenged the town of Harrison when its property taxes rose from about $7,000 a year to about $22,000 a year based on an assessment of the commercial value of the lakefront property.

Maine law exempts charitable groups that provide a benefit for Maine residents, thus deferring taxpayer costs. A Maine Supreme Court ruling upheld the town of Harrison on this point. Harrison also pointed to a US Supreme Court ruling out of Montana that the state could charge nonresidents more than residents for elk-hunting licenses.

Other court actions

In another decision, the court ruled that prison inmates who lose good-conduct credits toward early release generally cannot sue for financial damages. The inmate had sued for financial damages, invoking a federal civil rights law and contending he had been denied a fair hearing.

The court also agreed to consider whether some defendants' rights are violated by a flat ban on using lie-detector test results as evidence in criminal trials. A court-martialed airman sought to present lie-detector test results that indicated he had not used illegal drugs, to counter a urine test that showed he did. His request was denied, but the nation's highest military court later ruled that the denial may have been unconstitutional.