All. Hous. & N. Penn Supportive Hous. v. Cnty. of Hennepin
| Docket Number | 27-CV-20-7738 |
| Decision Date | 22 March 2023 |
| Parties | Alliance Housing Incorporated and North Penn Supportive Housing LLC, Petitioner, v. County of Hennepin, Respondent. |
| Court | Tax Court of Minnesota |
1
Alliance Housing Incorporated and North Penn Supportive Housing LLC, Petitioner,
v.
County of Hennepin, Respondent.
No. 27-CV-20-7738
Tax Court of Minnesota, Regular Division, Hennepin County
March 22, 2023
This consolidated matter came on for trial before the Honorable Wendy S. Tien, Judge of the Minnesota Tax Court.
Adam J. Pabarcus and Natalie Stubbs, Faegre Drinker Biddle & Reath LLP, represent petitioners Alliance Housing Incorporated and North Penn Supportive Housing LLC.
Sara L. Bruggeman and Caroline H. Brunkow, Assistant Hennepin County Attorneys, represent respondent Hennepin County.
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT
WENDY S. TIEN, JUDGE
This property tax case concerns the exempt status of twelve parcels of real property in South Minneapolis and nine parcels in North Minneapolis owned by petitioner as of the assessment date of January 2, 2020 (collectively, the "Subject Properties"). This court finds that the Subject Properties are exempt from tax under Minnesota Statutes section 272.02, subdivision 7(a).
The court, having heard and considered the evidence adduced at trial and the arguments of counsel, and upon all the files, records, and proceedings herein, now makes the following:
FINDINGS OF FACT
1. Petitioners Alliance Housing Incorporated ("Alliance Housing") and North Penn Supportive Housing LLC ("North Penn") (collectively "Alliance") have sufficient
interest in the property to maintain this petition; all statutory and jurisdictional requirements have been fulfilled; and the court has jurisdiction over the subject matter of the action and the parties thereto.
2. Alliance Housing is a Minnesota nonprofit corporation founded in 1991. Since around 2006, Alliance Housing has been located at 2309 Nicollet Avenue, Minneapolis, MN 55404. Its stated purpose is "to create, own, and operate affordable housing for low and very low-income people."
3. North Penn is a Minnesota nonprofit limited liability company founded in 2010. Its sole member is Alliance Housing. North Penn is also located at 2309 Nicollet Avenue, Minneapolis, MN 55404.
4. Both Alliance Housing and North Penn are organized exclusively for purposes within the meaning of Internal Revenue Code Section 501(c)(3).
5. Alliance Housing owns and manages 12 properties in South Minneapolis (the "South Minneapolis Properties"). Alliance Housing has owned all the South Minneapolis properties since around 2000.
6. Alliance Housing and North Penn own and manage 9 properties in North Minneapolis (the "North Minneapolis Properties"). Alliance Housing and North Penn have owned all the North Minneapolis Properties since approximately 2010.
7. In fiscal year 2017, Alliance raised $110,504 from individual charitable donations from 320 individual donors. It also raised $181,436 in contributions from 104 organizational donors. In fiscal year 2018, Alliance raised $92,072 in charitable donations from 278 individual donors. It also raised $112,480 from 62 organizational donors that made in kind and monetary donations.
8. Alliance maintains strict income thresholds for who may reside at the Subject Properties based on restrictions imposed by capital funding sources. Most of its funding sources required that tenants be at 30% of the area median income, while others allowed tenants to be at 50% of the area median income. Other than the income eligibility requirements for applicants, Alliance does not impose any other restrictions on the use of its services.
9. Alliance's funding sources impose limits on the maximum amount of rent it may charge. 10. In 2018, Alliance served 96 individuals across the Subject Properties.
11. Alliance does not charge its tenants application fees, late payment fees, lockout fees, or for toiletries in the common bathrooms, and provides janitorial and cleaning services for the shared restrooms and kitchen areas for the property located at 2011 Pillsbury.
12. The stated purpose of both Alliance Housing's and North Penn's undertakings is to be helpful to others without immediate expectation of material reward.
13. Both Alliance Housing and North Penn are supported in substantial part by material donations, gifts, or government grants for services to the public.
14. Both Alliance Housing and North Penn provide rental services to the tenants of the Subject Properties, at below market rents and below their operating costs.
15. Both Alliance Housing and North Penn provide services to the public that alleviate burdens or responsibilities that would otherwise be borne by the government.
16. The income Alliance Housing and North Penn received, including material gifts and donations, did not produce a profit to either entity that was distributed to private interests.
17. The beneficiaries of Alliance Housing and North Penn charity are restricted to low-income and very low-income individuals, and this restriction has a reasonable relationship to their charitable objectives.
18. Dividends from Alliance Housing and North Penn, in form or substance, or assets upon dissolution, are not available to private interests.
19. Alliance Housing and North Penn use the Subject Properties in furtherance of their charitable objectives.
20. Prior to January 2, 2020 (the tax year at issue), the South Minneapolis Properties were classified as exempt from property tax.
21. For the Assessment Year 2020 for taxes payable in 2021, each of the South Minneapolis Properties was classified as Class 4a, 4b, or 4bb under Minn. Stat. § 273.13, subd. 25(a).
22. For the Assessment Year 2020 for taxes payable in 2021, each of the North Minneapolis Properties was classified as Class 4d, qualifying low-income rental housing under Minn. Stat. § 273.13, subd. 25(e). Neither Alliance Housing nor North Penn sought tax exemption for the North Minneapolis Properties before the tax year at issue.
23. On September 13, 2018, Alliance Housing submitted its applications to renew its property tax exemptions for the South Minneapolis Properties. On December 10, 2018, Alliance Housing submitted applications for new property tax exemptions for the North Minneapolis Properties.
24. On November 14, 2019, the Minneapolis City Assessor denied the Subject Properties' applications for property tax exemption.
CONCLUSIONS OF LAW
1. Alliance Housing and North Penn submitted sufficient credible evidence to rebut the prima facie validity of the exempt status of the Subject Properties as of January 2, 2020.
2. The Subject Properties are exempt as of January 2, 2020.
ORDER FOR JUDGMENT
1. The Subject Properties are classified as exempt as of January 2, 2020.
2. Real estate taxes due and payable in 2021 shall be recomputed accordingly and refunds, if any, paid to Alliance Housing and North Penn as required by such computations, together with interest from the original date of payment
IT IS SO ORDERED. THIS IS A FINAL ORDER. ENTRY OF JUDGMENT IS STAYED FOR 30 DAYS. LET JUDGMENT BE ENTERED ACCORDINGLY.
MEMORANDUM
I. Alliance and Its Properties
A. Two Minnesota Nonprofit Corporations
Petitioner Alliance Housing Incorporated ("Alliance Housing") is a Minnesota nonprofit corporation founded in 1991.[1] Alliance Housing filed an Amended and Restated Articles of
Incorporation in 2000,[2] and Amended and Restated bylaws in 2014; these have been continuously in effect since their approval.[3] Since around 2006, Alliance Housing has been located at 2309 Nicollet Avenue, Minneapolis, MN 55404.[4]
Petitioner North Penn Supportive Housing LLC ("North Penn") is a Minnesota nonprofit limited liability company founded in 2010.[5] Its sole member is Alliance Housing.[6] North Penn is also located at 2309 Nicollet Avenue, Minneapolis, MN 55404.[7] North Penn was formed to receive and maintain funds of real and/or personal property and to use and apply its income for charitable purposes.[8] Together, Alliance Housing and North Penn are "Alliance" for purposes of this Memorandum.
Alliance Housing's certificate of incorporation and articles of incorporation both provide that it is a nonprofit corporation and organized for charitable purposes within the meaning of IRC section 501(c)(3).[9] Alliance Housing's stated purpose is "to create, own, and operate affordable housing for low and very low-income people."[10] North Penn's stated purpose is that "[t]he nonprofit limited liability company is organized exclusively for charitable, educational, literary,
scientific or testing for public safety purposes within the meaning of Internal Revenue Code Section 501(c)(3)."[11]
The Amended and Restated Articles of Incorporation provide that Alliance Housing "shall not afford pecuniary gain, incidentally or otherwise to its members." It further states,
"[n]o part of the net earnings of this corporation shall inure to the benefit of any member of the corporation, except that reasonable compensation may be paid for services rendered to or for the corporation affecting one or more of its purposes. Such net earnings, if any, of this corporation shall be used to carry out the nonprofit corporate purposes set forth in Article IV above." [12]
At dissolution, the Amended and Restated Articles of Incorporation state that,
"the board shall, after paying or making provisions for the payment of all the liabilities of the corporation dispose of all the assets of the corporation exclusively for the purposes of the corporation in such a manner or to such organization or organizations organized and operated exclusively for charitable, educational, religious or scientific purposes as shall at the time qualify as an exempt organization or organizations under Section 501(c)(3) of the Internal Revenue Code "[13]
The Articles of Organization for North Penn provide that there is no pecuniary gain to its members. It states,
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