'Sleeper' Supreme Court Case Tests Right to Tax Nonprofits

A US Supreme Court hearing today on what seems an obscure tax dispute between a Maine summer camp and the town where it's located could prove a turning point in US law - opening the door for states to tax nonprofit charities nationwide.

At issue is a 39-year-old Maine law that exempts nonprofit summer camps from taxes - but only if a majority of the campers are Maine residents.

The issue is regarded as a tough one for the high court since it pits long-standing interstate commerce-clause doctrine against a state's right to define and regulate its tax codes.

Should the court rule for the town, nonprofit groups nationwide worry about an explosion of efforts to tax churches, schools, museums, and groups like the YMCA and the Salvation Army.

Both states and nonprofit groups are under increasing pressure to seek new revenue. Voters in Colorado, for example, are considering a November ballot initiative that would eliminate property tax exemptions for churches and charities. If it passes, it will be the first such law. Recent polls show voters in favor of passing the initiative.

The trustees of Camps Newfound/Owatonna Inc., which brought the suit in 1992 while seeking relief from a sizable increase in property taxes from the town of Harrison, say the law violates commerce-clause laws regulating interstate trade - since it discriminates against out-of-state campers. Only a handful of the Camps Newfound/Owatonna campers are Maine residents.

A Maine lower court agreed with the camps. But the Maine supreme court did not - ruling that the question of deciding real-estate tax exemptions for charities is an "in-state" matter and does not even reach the issue of interstate commerce.

If the US Supreme Court agrees with the town, a powerful message would be sent about new relations between state and federal powers.

In this sense, the case is seen as a "sleeper." Camps Newfound/Owatonna "may not be one of the high-profile cases on the court's 1996 docket," says Ferdinand Schoettle, law professor at the University of Minnesota. "But if ... the exemption statute is upheld, it could be one of the most sweeping decisions of the term."

Normally, say a number of constitutional scholars, the commerce clause would easily prevail in the case. "If this is decided on the commerce clause, the town of Harrison is going to have to cough up some back taxes," says Vicki Jackson, a constitutional scholar at Georgetown University in Washington. "It's pretty clear-cut discrimination on the face of it - no matter what the Maine court says."

But in recent years the court has been "framing" many of its cases to benefit states' rights claims. Two years ago in a Texas case (Lopez), the high court struck down a federal "gun-free zone" around schools that used the commerce clause as a basis for the law.

Most constitutional scholars feel there is little question the Maine statute violates something called the "dormant commerce clause" of the Constitution. That clause gives Congress the power to affirm that there are some actions states may not take - if those actions either impede free and fair economic trade, or establish such inequalities among the residents of different states that the resulting stir is unhealthy for the political unity of the country.

Hence, "if the court decides for Harrison, that will represent a significant turning point in US law. It will create new law," says Dr. Jackson.

The 180-acre camps, located on the last undeveloped land on a stunning lakefront in tiny Harrison, serve the children of Christian Scientists (though they are not affiliated with the Christian Science Church).

The camps, one for girls and one for boys, are only open nine weeks a year, and attract about 400 to 500 campers.

Until the mid-80s the camps, which operate at a slight deficit, paid an average $5,000 to $8,000 a year in taxes. But when the town of Harrison suddenly reassessed the camps' value - tripling the property tax to $20,000 to $24,000 based on the commercial value of lakefront property - trustees felt the increase was extreme and sought relief.

In meetings with Harrison town council members in 1989, camp trustees say they were advised to put the land in a conservation easement. The camp did so, placing it in a 25-year trust that forbade the land to be developed or sold. Yet when the trustees went to the town with a new appraisal - $575,000 instead of the $2.1 million Harrison had assessed - the town assessor disagreed and shaved only $1,000 off the annual taxes.

"I was stunned," says Bonnie Bower, a trustee at the time. " I truly expected we would be given our old rate. I mean, we could have condominiumized, but we didn't. We thought we were acting in good faith."

"They thought the easement would reduce the value of the land. But the town said no," says William Plouffe, lawyer for Harrison. "It wasn't 'til they lost on the question of the assessment that they decided to claim an exemption."

Some two-dozen nonprofit groups, representing $35 billion in assets, including the American Council on Education and United Way of America, have filed "friend of the court" petitions with Camps Newfound/Owatonna.

Current camps trustee Lindsey Gorman says even if the camps win the case, they will continue to make contributions to the town.