By Phil Drake | Montana Watchdog

ESSMANN: Tax exempt status for nonprofits needs to be tracked and checked.

HELENA — More than 11,000 nonprofits statewide are tax exempt, but are they really?

Once Montana grants that status, the nonprofit doesn’t have to renew its exemption ever again. Several nonprofits have enjoyed this tax exemption since statehood was established.

Nonprofits come and go, but the state doesn’t keep track of them and doesn’t even have a comprehensive list of the tax exempt properties.

State Sen. Jeff Essmann, R-Billings, wants to create such a list to begin determining the true status of the nonprofits. Taxpayers could get some richly deserved relief, if properties found not to be exempt paid their fair share in taxes, he said.

“Our No. 1 duty as legislators is to not increase the taxpayer burden,” he said. “The goal (is) for taxpayers to not pay greater taxes, because some organizations are not paying their fair share.”

Sounds like a good idea, but the  Senate Revenue and Transportation Interim Committee on Sept. 13 derailed Essmann’s bill that would help evaluate just how much work and money checking the status of nonprofits entails.

The reason? Opponents say it is too expensive to do the legwork.

“There is merit to having a list of tax exempt properties, but I think this bill is not the one right now,” state Sen. Jim Peterson, R-Buffalo, said about LC9501.

Not deterred, Essmann plans to introduce his bill in the upcoming legislative session.

The  bill would have required the state Department of Revenue to request documents that included, showing ownership, deeds, articles of incorporation, bylaws, Internal Revenue Service tax-exempt status, photographs of the properties, lease agreements and proof that the occupant is a member of the clergy and using the property for religious housing.

DOR would have until July 1, 2015, to complete its first renewal application update.

The Department of Revenue began overseeing tax exempt properties in the counties in 1981, a responsibility formerly held by the county appraiser. The Montana Constitution was revamped, giving this authority to DOR.

But DOR’s Deputy Director Alan Peura warned that the bill could come with a high price tag and be a daunting task to gather the information.

“We have grave concerns about this bill,” Peura said, adding it would require the state to approach 56 counties that use 56 different criteria.

“While we agree with the good government intentions of this, this bill has a lot of unrealistic expectations and unrealistic deadlines,” he said.

Peura added that the bill did not have a cost estimate attached.

Not deterred, Essmann plans to introduce his own proposal in the upcoming legislative session. This time he will propose a pilot program that will focus on one or two counties to see how much work and costs it will entail.

In 2011 alone, Montana had 418 properties worth about $124 million granted or partially granted tax exempt status, according to DOR. In all, 464 applications were received and 46 were denied.

There are now 11,034 active exemptions, which do not include the exemptions the counties granted prior to 1981, said DOR spokeswoman Mary Ann Dunwell. 

“The total list is far longer and bigger,” Essmann said.

The head of the Montana Nonprofit Association, an advocacy group for charitable nonprofits, told Montana Watchdog that there is not much abuse of the current system and believes legislators may be concerned about some large hospitals not paying their share of business taxes.

“It’s hard to tell from the bill what the problem is,” said Liz Moore, executive director of the 670–member MNA. “Are they concerned about unrelated business tax not being paid? … Let’s not use a broad-brush approach.”

She said many of her members rent property.

The Senate Revenue and Transportation Interim Committee’s decision flies in the face of a 2011 poll of legislators, who wanted to know if the tax exemptions granted to nonprofit corporations and organizations were justified.

The resolution based on the poll found that “… nonprofit corporations more and more are buying office buildings, agriculture lands and other real estate investments and removing them from property tax rolls.

“This shifts the property tax burden to small businesses and homeowners who remain on tax rolls. It also forces governments to get the same dollars from fewer taxpayers.”

Contact Phil Drake at phil@montanawatchdog.org or (406) 442-4561.