Baruch SLS, Inc. v. Tittabawassee Township
Docket No. 152047
Trial Lawyers’ Bottom Line: Any restriction of recipients by a charitable institution must be reasonably related to the organization’s legitimate charitable goals.
Baruch is a nonprofit corporation registered as a tax exempt for its operation of Stone Crest Assisted Living, an adult foster care facility. For the years 2010–2012, Baruch sought tax-exempt status for real and personal property taxes under MCL 211.7o and MCL 211.9. The Tax Tribunal held that Baruch failed to satisfy three of the six Wexford factors. The Court of Appeals affirmed the tribunal’s judgment, but only regarding the third Wexford factor, which requires a charitable institution not to offer its charity on a discriminatory basis. The Supreme Court granted leave to appeal the Court of Appeals’ determination of the third Wexford factor.
Under Wexford Medical Group v. City of Cadillac, 474 Mich 192 (2006), a “charitable institution”: (1) must be a nonprofit; (2) must be organized chiefly, if not solely, for charity; (3) must not offer its charity on a discriminatory basis, instead serving any person who needs the charity offered; (4) must bring people under the influence of education or religion; relieve disease, suffering, or constraint; assist people to establish themselves for life; erect or maintain public buildings or works; or lessen the burden of government; (5) can charge for its services so long as not more than needed for successful maintenance; and (6) need not meet a monetary threshold, but rather have its overall nature be charitable, regardless of time devoted to charitable activities. Only the third factor was at issue in this case.
In a unanimous opinion by Justice McCormack, the Court stated that, since Wexford, the Tax Tribunal had interpreted the third factor—that an institution not discriminate—as denying tax-exempt status to organizations that charge fees for their services. The Court continued to say that the tribunal and the Court of Appeals had interpreted the factor to deny tax-exempt status to institutions that select beneficiaries. The Court rejected this interpretation: “Yet if an institution cannot serve who could benefit from the service (as most cannot), surely it will have to select beneficiaries in some manner.”
The Court declared that it had “several problems with interpreting Wexford factor three to exclude an organization from the definition of a charitable institution if it charges any amount or use any non-random criteria.”First of all, the Court noted, requiring an institution to offer its services for free conflicts with the fifth Wexford factor, which says an institution can charge for its services. In addition, the Court cited a pre-Wexford case (Mich Sanitarium & Benevolent Ass’n v. Battle Creek, 138 Mich 676 (1904)) for the proposition that a charitable institute may still charge. Lastly, the Court stated that the lower courts’ interpretation required charitable institutions to operate at a loss. This is “unrealistic and unsustainable,” the Court said.
But factor three does exclude organizations that “discriminate by imposing purposeless restrictions on the beneficiaries of the charity.” The Court clarified this standard by stating that the factor bans “restrictions or conditions on charity that bear no reasonable relationship to an organization’s legitimate charitable goals.” And the legitimate charitable goals are identified in factor four of the Wexford test. Thus, if the institution’s restriction is reasonably related to a goal listed in factor four, then the restriction is acceptable under Wexford factor three.
The Court made clear that this “reasonable relationship” test “should be construed quite broadly.” The Court proceeded to list a number of examples. First, a low-cost daycare that operates for low-income families could have a preference for single-parent households and charge them less due to a potentially lower income. Next, a scholarship funded through a baseball team’s charitable foundation could restrict applications to fans of the team if it could show that fundraising is more successful when the application process is limited to fans of the team. This test, the Court stated, “is quite deferential to the charitable institution,” and the relationship “need not be the most direct or obvious.”
Because the Tax Tribunal and the Court of Appeals decided the case below on the basis of an incorrect interpretation of Wexford’s third factor, the Court vacated those opinions and remanded to the Tax Tribunal for further proceedings.
Full opinion here.