Constitutional Amendment Clarifies Property Tax Law, But Just for Boy Scouts
On November 4th, a constitutional amendment will be on the ballot to allow the Boy Scouts of America to rent out its Summit Bechtel Reserve to for-profit businesses without losing its non-profit property tax-exempt status.
The Summit Bechtel Reserve is a 10,600 acre outdoor activity center that hosts the National Scout Jamboree. In addition to hosting the Jamboree, the Boy Scouts wish to use the reserve to host other events, and use the profits from those events to maintain the property and offset expenses. However, the Boy Scouts are concerned that by leasing the facility to a for-profit business, they could lose their property-tax exempt status, leading them to seek the constitutional amendment.
Current West Virginia law is ambiguous as to whether or not the Boy Scouts would lose their property tax exemption if they leased their facility to a for-profit business. The West Virginia Constitution provides a property tax exemption for, "property used for educational, literary, scientific, religious or charitable purposes." The Constitution does not address the leasing of property by exempt entities.
The leasing of property is addressed in state code. West Virginia code states that property used for charitable, or economic development purposes by a nonprofit is exempt, unless the property is held or leased out for profit . However, the code also states that any property owned or held in trust by a nonprofit or charitable organization is not exempt, unless the, "property, or the dividends, interest, rents or royalties derived there from, is used primarily and immediately for the purposes of the corporations or organizations ."
According to Dr. Calvin Kent at Marshall University, the language granting the property tax exemption to nonprofits that use rents received from the property for their organizational purpose was adopted in 1945, in response to a 1944 West Virginia Supreme Court decision in which a nonprofit organization that used the profits of a commercial hotel it owned for charitable purposes lost its property tax exemption.
Since the 1945 amendment, the West Virginia Supreme Court has allowed an exemption for buildings owned by a nonprofit but leased to another nonprofit, but has not considered a case where a nonprofit leases to a for-profit organization, nor has it ruled on the constitutionality of the 1945 amendment.
It is unclear whether or not the Boy Scouts would lose their property tax exemption by renting their facility to for-profit businesses under current state law. How such scenarios are treated apparently varies county by county. In a recent survey conducted by the Center for Business and Economic Research at Marshall University, county assessors where given hypothetical scenario of nonprofit foundation which owns a campsite that is rented to for-profit businesses and that rental income is used for the expenses and debt of the campsite. 11 of the 19 responding assessors said that the campsite would be exempt from property taxes, while 8 said it would lose its exemption.
In another scenario, assessors were asked about a building owned by a nonprofit, but partially leased to a for-profit, with the rental income used for the work of the nonprofit. 7 of the 16 responding assessors said that the entire building would be exempt from property taxes, while 9 said it would not be fully exempt. Of the 9 that said it would not be exempted, 8 said that the portion of the building used by the nonprofit would be exempted, while 1 said the entire building would be taxable.
With the ambiguity in state law, and disagreement among county assessor over the issue, the Boy Scouts are right to be concerned with the property tax exemption, and West Virginia's laws do need clarifying. But the constitutional amendment on the ballot in November only clears up the issue for the Boy Scouts.
The proposed amendment clarifies that a nonprofit organization would not lose its property tax exemption on its property whether or not that property is used for the purposes of the nonprofit. However, the amendment only applies to a nonprofit, "that has as its primary purpose the development of youth through adventure, educational or recreational activities for young people and others, which property contains facilities built at a cost of not less than $100,000,000 and which property is capable of supporting additional activities within the region and the State of West Virginia." In other words, the amendment would only apply to the Boy Scouts' Summit Bechtel Reserve.
So while the Boy Scouts would be in the clear if the amendment passes, the ambiguity in the law would remain for everyone else. Hospitals, churches, and other nonprofits that engage in this activity would be left in limbo.
For example, the CAMC Nautilus facility is run by a for-profit corporation, but is located on CAMC property. And while CAMC Nautilus pays personal property taxes on its equipment, neither it nor CAMC, a tax exempt non-profit hospital, pays real property taxes. The passage of the constitutional amendment may imply that either CAMC or CAMC Nautilus should be paying real property taxes. The same is probably true for any other tax exempt hospitals that lease space to privately run gift shops, coffee stands, and cafeterias.
Of note is the fact that while the Boy Scouts claim to want to use the revenue for maintenance and upkeep of the park, which arguably is already legal under state law, the proposed amendment allows for the use of the property whether or not it is for the purposes of the organization. This could be the key factor. If the Boy Scouts are planning to use the proceeds from renting the facility for reasons outside the purposes of the Boy Scouts organization, then they would need the amendment to keep their tax exemption, since the code clearly states the property and rents must be "used primarily and immediately for the purposes of the corporations or organizations."
While it is clear that West Virginia's law need clarifying, the proposed amendment doesn't actually fix the law. By carving out a special exemption for one organization, the state would be leaving all other organizations in limbo, and would set a bad precedent for the future. And if, as the language of the amendment implies, the Boy Scouts want to engage in activities that do not further the purposes of its organization, then they probably don't need special tax treatment to do so.