Last month, the Michigan Court of Appeals issued an opinion in Trinity Health-Warde Lab, LLC v. Township of Pittsfield, 2016 Mich. App. Lexis 2026, Case No. 328092, which disallowed a for-profit laboratory to utilize the tax-exempt status of its charitable parent corporation when it itself is not a nonprofit entity.
The case arose in the Michigan Tax Tribunal when Trinity Health-Warde Lab, LLC sought tax exemption for its Lab in Pittsfield Township by claiming exemption through its parent, Trinity Health Michigan which is a charitable institution under MCL 211.7o. The Lab is a wholly owned subsidiary of Trinity Health, and other nonprofit hospitals used the facilities under a co-tenancy laboratory agreement. The equipment inside the Lab is exempt from taxation because other nonprofit charitable institutions own the equipment.
The Lab filed a petition with the Tax Tribunal alleging its real property was exempt from taxation, making the argument that because its parent, Trinity Health, had complete corporate control over the Lab and it was a charitable institution, it too should be exempt. The Township disagreed claiming the Lab was not eligible for tax-exemption because it was a for-profit entity, and did not meet the requirements of a charitable institution. The Tribunal granted summary disposition to the Lab, concluding it was so dominated by Trinity in its business management; it was proper to ignore the separate entity and entitled to tax-exempt status under MCL 211.7o.
Pittsfield Township appealed. The Appellate court reversed the decision finding the Tribunal made an error of law. The Court citing Wexford Med. Group v. Cadillac, stated “a charitable institution must be a nonprofit institution.” The Court found that the Tribunal misplaced its reliance on case law interpreting a tax-exempt university extending its tax-exempt status to a related nonprofit bookstore. Ann Arbor v. The Univ Cellar, Inc. 401 Mich 279; 248 NW2d 1(1977). The Appellate court found that the Michigan Supreme Court “specifically did not decide ‘whether a tax-exempt organization may extend its exemption to a separate corporation, albeit one organized to carry out the exempt purpose.’”
The Court concluded the Tribunal adopted the wrong principle when it allowed the Lab to utilize the tax-exempt status of its parent corporation when it is not itself a nonprofit entity. Allowing it to do so is contrary to the plain language of the statutes, which requires the property to be owned by the nonprofit organization seeking exemption.
This case illustrates the importance in tax and business planning for non-profit organizations expanding their reach into other related activities. While this case illustrates Michigan property tax law, each state has its own property tax code, which may differ in application. To determine the best way to structure a non-profit’s business holdings and assets, consult with the attorneys at Dalton & Tomich, PLC.