DATE: February 25, 2022 

TO: Planning & Development Committee 

FROM: Ben Shaiken, Director of Government Relations, The Alliance 

RE: H.B. 5168 An Act Concerning Property Tax Exemptions for Property Used for Charitable Purposes 

Good afternoon Senator Cassano, Representative McCarthy Vahey, Senator Hwang, Representative Zullo and distinguished members of the Planning & Development Committee: 

I am Ben Shaiken, Director of Government Relations at the Connecticut Community Nonprofit Alliance (The Alliance). The Alliance is the statewide advocacy organization representing nonprofits. Community nonprofits provide essential services to over half a million individuals and families in Connecticut every year, improving the quality of life in communities across the State. 

The Alliance urges you to support H.B. 5168 An Act Concerning Property Tax Exemptions for Property Used for Charitable Purposes. We thank the members of this Committee for unanimously supporting H.B. 6103 last year and look forward to working again on this proposal in 2022. 

Nonprofits are explicitly exempt from federal, state, and local taxes for good reason: they provide essential services to residents, so government doesn’t have to. Nonprofits feed the hungry, house the homeless, support people with intellectual/developmental disabilities, treat people with mental health and substance abuse needs, provide arts and culture that make our communities vibrant, and much more.  

Nonprofits exist for public benefit and must operate for specific charitable, educational, or religious purposes. The mission of nonprofits is to improve the health and well-being of our local communities, enhance the quality of life and serve the public good. In exchange, nonprofits are exempt from property, income, and sales tax, and have access to tax-deductible contributions from individuals and corporations. This social compact dates back more than 100 years. 

But unfortunately, some local assessors have been denying tax exemption applications for charitable property owned and operated by Connecticut’s nonprofit organizations. 

H.B. 5168 proposes several changes to the existing exemption statutes to clarify the legislature’s intent to exempt from property taxes group homes for people with disabilities, substance abuse treatment centers, homeless shelters, domestic violence programs, and other residential programs. This bill is not an expansion of any exemption and does not propose an additional exemption. For municipalities already following the law, there would be no fiscal impact. 

The bill also proposes changes to the current process for determining exemptions, and adds language to, in cases where a charitable exemption denial could not have happened except by ignoring the law, allow nonprofits to collect legal fees from towns if they have been wrongly denied an exemption. 

The legislature has granted broad authority to 169 municipal assessors to interpret complicated state statutes and their accompanying jurisprudence. If it intends to continue to grant this authority without reform, then it should pass these provisions of H.B. 5168 to standardize the determination process and to provide a disincentive to the few towns that are issuing vexatious denials rather than implementing the law. 

The testimony below goes into detail about the situation facing Connecticut’s charitable nonprofits and the solutions proposed in H.B 5168.

Nonprofits are still being wrongfully assessed, impacting programs.  

Charitable nonprofits are exempted from local property tax by Section 12-81 of the Connecticut General Statutes. Subsection (7)(a)1, which exempts the property owned by “a corporation organized exclusively for… charitable purposes.” But despite this statute, some tax assessors are taxing nonprofits for property that is exempt. 

The Alliance has analyzed the exemption status of almost 300 properties owned by nonprofits and in charitable use across nearly 100 municipalities and found that at least 44 charitable properties across 23 towns have been denied tax exemption by local assessors as recently as this month. An additional 137 properties have received no response at all yet from assessors, despite applying for exemption in November.  

This is following a unanimous State Supreme Court decision in September 2021 in Rainbow Housing Corporation, et al v. Town of Cromwell2 that clarified and reaffirmed the exemption of charitable property. 

Critical funding is diverted away from direct service provision to people in need when nonprofits, burdened by years of state budget cuts, are forced to choose between costly litigation and paying taxes on property that is exempt by state law.  

In a survey we conducted in 20183, one nonprofit stated “Funding for the program is already below program expenses and is subsidized by fundraising. A tax payment will further decrease our funding and make sustaining the current program model difficult going forward.”  

People who depend on community services would have nowhere to turn if funding is redirected away from direct care to taxes. These cuts would come at a time when the demand for community services is increasing. Nonprofits told us: 

• “Having to pay taxes could literally force the close-down of our residential programs. There is no other source of revenue for taxes.”  

• “We cannot afford to pay property tax and continue individualized services to the DDS population.”  

• “We had paid almost $50,000 in taxes. $50,000 is the equivalent of 25,000 meals or one case manager.”  

• “We have no dollars for anything but direct service. This will lead to more homeless men not getting housed – which will be a domino effect.” 

Residential services are being targeted. 

Many nonprofits that provide residential supports and services to Connecticut’s most vulnerable residents are being targeted to receive tax bills. 

According to C.G.S. § 12-81(7)(B)4, subsidized low-income housing is not exempt from property taxes. This language was added to the law in 1975 and applies to property known then as “project housing,” now referred to as “low-income housing developments.” In 2003, because some assessors were using this statute to tax services provided by nonprofits, the legislature passed a law to specifically exempt different types of residential services provided by nonprofits from property taxes. The statute currently reads: 

“(B) On and after July 1, 1967, housing subsidized, in whole or in part, by federal, state or local government and housing for persons or families of low and moderate income shall not constitute a charitable purpose under [subsection A]. As used in this subdivision, “housing” shall not include real property used for temporary housing belonging to, or held in trust for, any corporation organized exclusively for charitable purposes and exempt from taxation for federal income tax purposes, the primary use of which property is one or more of the following: (i) An orphanage; (ii) a drug or alcohol treatment or rehabilitation facility; (iii) housing for persons who are homeless, persons with a mental health disorder, persons with intellectual or physical disability or victims of domestic violence; (iv) housing for ex-offenders or for individuals participating in a program sponsored by the state Department of Correction or Judicial Branch; and (v) short-term housing operated by a charitable organization where the average length of stay is less than six months. The operation of such housing, including the receipt of any rental payments, by such charitable organization shall be deemed to be an exclusively charitable purpose;” 

Some assessors have contented in public hearings, exemption denials and in ensuing court cases that the current law means that as soon as the average length of stay in one of these settings is more than six months (or some other durational limit they can determine within their discretion), the property is no longer tax-exempt. 

The State Supreme Court explicitly rejected this argument. Their decision states5: 

“In light of the objectives animating P.A. 03-270 and the foregoing legislative history, we conclude that the term ‘temporary’ does not have an inflexible or fixed durational limitation; instead, the durational limitation will vary depending on the particular purpose of the charitable organization and the needs of the residents who fall within the categories enumerated in § 12-81 (7) (B). So long as a resident’s stay is impermanent, transitional, and in furtherance of one of the enumerated categories of charitable purposes, it is ‘temporary’ within the meaning of § 12-81 (7) (B).
…
“The durational limits attaching to the term “temporary” may vary depending on the purpose of the charitable organization and the needs of the residents being served, and our construction of the statute is consistent with the intent of the legislature to exempt from taxation real property used exclusively for charitable purposes enumerated in § 12-81 (7) (B) (i) through (v).” 

Despite this decision, denials of these programs continue. Our recent analysis has found at least seven new denials of residential programs since the decision was issued in September, some occurring as recently as this month. 

That’s why we support the language in Section 1 of H.B. 5168, that provides technical and clarifying changes to statute to:

1. Remove the word “temporary,” 

1. Change the word “and” in between subdivisions (iv) and (v) to “or,”  

1. Add definition to the term “subsidized housing.”

These changes clarify that group homes and other kinds of residential services provided by nonprofits are tax exempt and will, if passed, prevent attempts to wordsmith the word “temporary” and nullify the fact that different assessors define the term differently, despite a clear directive from the State Supreme Court. 

The process of determining tax exemption is broken. 

We also support the provisions of H.B. 5168 that address process-related changes to the law. 

The Charitable Tax Exemption Application Form: 

Nonprofits are required to fill out a form in each town every four years to be granted their exemption. Often, community nonprofits own and operate exempt property across many municipalities. Despite best practice, different municipalities use different forms for this purpose. 

Some municipalities have also begun requiring organizations share data that is protected by patient privacy laws like HIPAA (e.g.: the names of each person receiving treatment in a residential program) and/or asking for information that has no relation to the statutory requirement for exemption (e.g.: the salaries of the 10 highest paid employees). Even the standard form that the statewide association suggests assessors use includes questions that have no bearing on their legal duty (e.g.: “List any other Connecticut Municipality that has DENIED the organization an exemption…”)6. 

We support the provisions in Section 2 of H.B. 5168 that standardize the practice of determining exemptions across the State. The bill would direct the Office of Policy and Management to create a form that requires nonprofits provide only the information that an assessor is required by law to analyze when making an exemption determination. Once the form is developed, the bill requires its use in each municipality.  

We are also hopeful this provision will eliminate the disagreement that exists today among assessors. Our recent analysis shows that while denials are certainly widespread, they do not represent the majority opinion of assessors. Of the 295 properties we’ve analyzed, 44 properties in 23 towns have been denied exemption, but 114 properties in 54 towns have had their exemptions approved. 

Requiring the state to produce the form, in consultation with The Alliance and the Assessor’s association, will mean that all assessors can use all use a rubric set by the boundaries of the law to determine whether the organization applying, and the property’s use is charitable. 

Notice of Approval or Denial: 

Section 2 of the bill also requires assessors provide a detailed reason for their denial of a charitable property tax exemption in writing at the time the denial is issued. The Committee has wisely narrowly applied this provision to properties claiming charitable exemption only. We support this language because if passed, nonprofits will know if they were denied because of an error or a missed deadline or an actual dispute over the use of their property without having to pay a lawyer and go to court. 

We have found 46% of properties have not yet received any answer from municipalities regarding their application as of this week, despite filing for their exemptions by November 1 and the fact that Boards of Assessment Appeals begin meeting in March. Our members report that it is common practice for assessors to send nothing but a tax bill if the exemption is denied (and, to send nothing at all if it is approved). We are supportive that H.B. 5168 addresses at least part of this challenge. 

There needs to be a disincentive for municipalities ignoring the law. 

While this is certainly not widespread, some municipalities are aggressively and vexatiously pursuing charitable tax-exempt properties, making it difficult, costly, and confusing for nonprofits to be granted the exemption which they are entitled to by law.  

Charitable nonprofits struggle to find the resources to fight these denials in court, and those who have been engaged in years-long legal battles report spending well over $100,000. Even as they ultimately prevail, they are only compensated by a return of the taxes they paid under protest. Many other organizations choose to just pay taxes, because fighting a wrongly issued denial is not worth the legal fees. 

For a municipality, the only downside to aggressively litigating these cases, even when denials have been issued on shaky legal grounds, is that if they ultimately lose, they no longer collect the tax.  

That’s why we support Section 3 of H.B. 5168, which would, in the very small minority of cases where charitable property has been denied and that denial could not have been reached except by an assessor ignoring the law, allow a judge to award a nonprofit the reimbursement of its costs pursing the case, including their legal fees. We understand this proposal will be controversial, but we struggle to think of a solution short of this measure to disincentive municipalities from engaging in vexatious denials of tax exemptions. 

Nonprofits are always willing to work with municipalities to ensure their properties and the people served in them are welcomed into their communities—to be “good neighbors.” They often go to great lengths, well beyond their statutory and contractual obligations, to work closely with emergency services and others. 

We look forward to working with this Committee and other stakeholders to continue to design a bill that can solve this problem without opening the door to abuse by anyone—municipalities or property-owners. 

We thank the Committee raising this important bill and respectfully request your support for H.B. 5168.  

Ben Shaiken 

bshaiken@ctnonprofitalliance.org 

Attachments: 

Appendix A: What nonprofit property is exempt from property taxes? 

Appendix B: What did the State Supreme Court decide in Rainbow Housing, et al v. Town of Cromwell? 

Appendix C: State Supreme Court Majority and Concurring opinions in Rainbow Housing, et al v. Town of Cromwell 

Appendix D: Amicus Brief from Rainbow Housing, et al v. Town of Cromwell from Attorney General William Tong & Solicitor General Clare Kindall 

Page Break 

Appendix A: What nonprofit property is exempt from property taxes? 

As previously mentioned, charitable nonprofits are exempted from local property tax by C.G.S. § 12-81 of the Connecticut General Statutes. Subsection (7)(a), which exempts the property owned by “a corporation organized exclusively for… charitable purposes.” The Connecticut Supreme Court has laid out a simple test7 for assessors to determine what does and does not constitute “charitable”: 

1. The corporation must be organized exclusively for charitable purposes. The Court has held that, “Charity embraces anything that tends to promote the well-doing and the well-being of social man.” 

1. The organization must not be self-supporting. This means the organization must rely on or expect private philanthropic support and cannot rely exclusively on fees for its services. 

1. The organization must relieve a state burden. This means the organization must give “something to the state in return for the privilege [of being tax exempt], either by relieving it of a financial burden or by pursuing a publicly mandated moral obligation.” 

In its Rainbow Housing decision8, the State Supreme Court reaffirmed this definition. 

This test is important because it means that in Connecticut, not all nonprofit corporations are exempt from property taxes. Nonprofits must prove they meet the requirements of this test, which are more restrictive than federal Internal Revenue Service and state Department of Consumer Protection requirements for receiving the corporate designation as a “nonprofit.” 

Our members have reported receiving tax bills for day and employment programs for people with intellectual/developmental disabilities, outpatient behavioral health treatment facilities, arts and culture organizations, and more, all of which would clearly meet the requirements of this test. 

According to C.G.S. § 12-81(7)(B)9, subsidized low-income housing is not exempt from property taxes. This language was added to the law in 1975 and applies to property known then as “project housing,” now referred to as “low-income housing developments.” In 2003, the legislature passed a law to specifically exempt different types of residential services provided by nonprofits from property taxes. The statute currently reads: 

“(B) On and after July 1, 1967, housing subsidized, in whole or in part, by federal, state or local government and housing for persons or families of low and moderate income shall not constitute a charitable purpose under [subsection A]. As used in this subdivision, “housing” shall not include real property used for temporary housing belonging to, or held in trust for, any corporation organized exclusively for charitable purposes and exempt from taxation for federal income tax purposes, the primary use of which property is one or more of the following: (i) An orphanage; (ii) a drug or alcohol treatment or rehabilitation facility; (iii) housing for persons who are homeless, persons with a mental health disorder, persons with intellectual or physical disability or victims of domestic violence; (iv) housing for ex-offenders or for individuals participating in a program sponsored by the state Department of Correction or Judicial Branch; and (v) short-term housing operated by a charitable organization where the average length of stay is less than six months. The operation of such housing, including the receipt of any rental payments, by such charitable organization shall be deemed to be an exclusively charitable purposes.

Appendix B: What did the State Supreme Court decide in Rainbow Housing, et al v. Town of Cromwell? 

This case follows the denial of property tax exemption for a group home for men with mental health needs owned and operated by Gilead Community Services and Rainbow Housing called “Valor Home.” In 2015, the Town of Cromwell denied their tax-exempt status after years of granting it. The trial judge ruled in favor of Rainbow Housing in summary judgement and the Town of Cromwell appealed. The appeal was forwarded directly to the Supreme Court, which heard oral arguments in late 2020 and issued their opinion in September 2021.10 

The State Supreme Court ruled 5-0 with one concurring opinion that Valor Home was tax exempt. The majority ruled that when the legislature wrote “temporary housing” was exempt in statute in 2003, they did not mean that an average length of stay of less than six months, or any other arbitrary durational limit constituted “temporary housing.” 

The Court also established, based on their reading of P.A. 03-270, a test for assessors to determine whether property is “temporary.” From the majority decision (with internal references removed):11 

“In light of the objectives animating P.A. 03-270 and the foregoing legislative history, we conclude that the term ‘temporary’ does not have an inflexible or fixed durational limitation; instead, the durational limitation will vary depending on the particular purpose of the charitable organization and the needs of the residents who fall within the categories enumerated in § 12-81 (7) (B). So long as a resident’s stay is impermanent, transitional, and in furtherance of one of the enumerated categories of charitable purposes, it is ‘temporary’ within the meaning of § 12-81 (7) (B). 

… 

“[Cromwell] contends that a specific, defined time limitation must be read into the statute by judicial construction in order to avoid absurd and unworkable results. We disagree. As discussed previously, the durational limits attaching to the term “temporary” may vary depending on the purpose of the charitable organization and the needs of the residents being served, and our construction of the statute is consistent with the intent of the legislature to exempt from taxation real property used exclusively for charitable purposes enumerated in § 12-81 (7) (B) (i) through (v). We see nothing absurd or unworkable from this conclusion.” 

In plain language, the Court ruled that so long as the housing is impermanent, transitional and in serves one of the purposes laid out in § 12-81 (7) (B)12, then it is “temporary housing,” even if the people served there had resided there for longer than some fixed durational limit. 

The Court also restated and affirmed the test from St. Joseph’s Living Center for determining whether a property’s use is charitable, referenced above in Appendix A.  

The majority was joined by Chief Justice Robinson in a concurring opinion13, which agreed that Valor Home was tax exempt but disagreed that the existing law was ambiguous enough for the other justices to refer to legislative history and intent. In order for a Court to look past the plain language in the law and to the legislative history to determine the legislature’s intent, it must first conclude that the language in statute is ambiguous. The majority made that determination and was therefore able to read the legislative debate and public hearing testimony about P.A. 03-270 to draw their conclusions. But C.J. Robinson disagreed. He looked at the dictionary definition of “temporary” and determined it was not ambiguous. Because he was therefore forbidden from reading the legislative history, he wrote of several other areas in the law where permanent residency tests exist.