Daniel W. Gentges
Friday, August 01, 2008

Columbus Park Tax Exemption Issues Remain Unresolved

In 2003, the Wisconsin Supreme Court ruled, in Columbus Park Housing Association v. Kenosha, that nonprofit organizations renting low income housing units were not exempt from real estate taxes under section 70.11(4) of the Wisconsin Statutes, unless their tenants would themselves be exempt from taxation if they owned the units.  Prior to Columbus Park, the consensus view of section 70.11(4) was that its exemption from real estate taxes for property owned by churches, or religious, educational or benevolent associations extended to benevolent organizations that rented property to lowincome families who received federal rent subsidies.
The Wisconsin legislature adopted 2003 Wisconsin Act 195 in response to Columbus Park, and Governor Jim Doyle signed Act 195 into law in April 2004.  Act 195 reversed Columbus Park and prevented local government taxing units from collecting real estate taxes from nonprofit owners of low-income housing.  Act 195 did not, however, address the introductory provisions of section 70.11, which require all leasing income derived from a low-income project be applied to maintenance of the leased property, retirement of construction debt or both.  Since many benevolent organizations use leasehold income from their low-income rental projects to subsidize care provided to others served by those organizations, to refinance debt, to offset Medicaid losses and to purchase new properties for low-income housing development, this “rent use” condition contained in section 70.11 threatened to undermine the purpose of Act 195 and the very purpose of those benevolent organizations.
Separately, in Attic Angel Prairie Point, Inc. v. Madison, a Dane County judge ruled in 2005 that the provision of senior housing was not a benevolent activity in and of itself.  The Attic Angel decision called into question the property-tax-exempt status of numerous senior housing projects around Wisconsin.
In response, the Wisconsin legislature attempted throughout 2006 and 2007 to clarify both the “rent use” issue and the status of senior housing projects as benevolent uses.  In June of this year, the Wisconsin legislature’s joint finance committee proposed a substitute amendment to the Wisconsin Senate’s budget bill that attempted to address at least partially both issues.
The joint finance committee’s substitute amendment specified that the property tax exemption for benevolent organizations under section 70.11(4) includes organizations that own low-income residential housing as defined in the applicable portions of the Internal Revenue Service’s Revenue Procedure 96-32, and excluded such low-income residential housing from the “rent use” condition contained in the introductory language of section 70.11 (the Wisconsin Assembly proposed analogous amendment language for the budget bill in July of this year).
Revenue Procedure 96-32 provides in relevant part that a project qualifies for low-income housing status if:
  1. At least 75 percent of the project units are occupied by low-income residents (defined as persons having income levels at or below 80 percent of an area’s median income), and
  2. Either (a) at least 20 percent of the project units are occupied by very low-income residents (defined as persons having income levels at or below 50 percent of an area’s median income) or (b) 40 percent or more of the project units are occupied by residents whose incomes do not exceed 120 percent of the area’s very low-income limit. Revenue Procedure 96-32 also permits up to 25 percent of a project’s units to be made available at market rental rates to persons who have incomes in excess of the low-income limit.
Unfortunately, both houses of the Wisconsin legislature deleted the joint finance committee’s proposed clarifications to section 70.11 from their biannual budget packages for 2007-09, and the proposed clarifications to section 70.11 have thus far not been revisited during the legislature’s current budget impasse.  As a result, the property tax exemption uncertainty facing benevolent organizations that own low-income housing, following Columbus Park, Act 195 and the Dane County Circuit Court’s
Attic Angel decision, will continue for the foreseeable future.  Local government taxing units can be expected to probe this uncertainty aggressively to meet their budgeting needs.
For more information, please contact Dan Gentges (414-978-5508 or or your
WHD attorney.
This article appeared in the Summer 2008 Edition of The Real Deal, presented by the Real Estate Law Practice Group of Whyte Hirschboeck Dudek S.C.

Related Practice Areas:

Commercial Real Estate

State & Local Taxation (SALT)