TAX NEWS - June 2010

Indiana Tax: Lafayette Tax exemptions abound in county

Schools, government buildings, churches and nonprofits -- they mean different things to different people but represent one thing to county tax coffers.

Not much, if any, tax revenue.

In Tippecanoe County, 5.9 percent -- or $583.4 million -- of the county's $9.86 billion in total assessed value of real property is tax exempt this year. That's higher than the Indiana average.

The largest single source of tax-exempt property in the county is Purdue University, but churches and nonprofits also account for major shares.

Purdue's tax-exempt parcels include Ross-Ade Stadium -- valued at more than $52.4 million and owned by the Ross-Ade Foundation -- and Mackey Arena, assessed at $20.5 million.

If a property is owned by Purdue and used for causes related to its mission, such as education, outreach or research, it's tax exempt, said James Almond, the university's senior vice president for business services and assistant treasurer.

"If we own farmland and we were renting that out to someone, then we'd have to pay taxes on that," Almond said.

Much of Purdue's real estate, including the main campus buildings, is not assessed for tax purposes, so the exact dollar amount exempt from taxes is not available. Purdue officials, however, put a value of $1.37 billion on land and buildings on the main campus.

Under state law, government-owned property is automatically tax exempt. Likewise, nonprofit and charitable organizations, properties used for educational and religious purposes, hospitals and a list of other uses qualify for exempt status.

Nonprofits must file for tax-exemption status every two years with the county assessor's office.

One top-valued, tax-exempt property belongs to Clarian Arnett Health, which owns a hospital and outpatient surgery complex on McCarty Lane.

The hospital qualified for tax-exempt status after Clarian Arnett Health's for-profit partner, Arnett Clinic, merged with Clarian Health Partners, a tax exempt nonprofit, said Al Gatmaitan, chief executive officer of Clarian Arnett Health.

The hospital this tax year is assessed at $35.5 million, all but $637,900 of which is tax exempt.

The difference between for-profit and not-for-profit hospitals is that the former pay dividends to investors, while the latter must fulfill a charitable obligation to the community, including treating patients who can't pay, said Doug Leonard, president of Indiana Hospital Association.

Gatmaitan said that this year, Clarian Arnett Health anticipates it will provide $10 million worth of care without any expectation of payment. And $30 million in services likely will be rendered on bad debt, he said.

"As a not-for-profit organization now fully, we have no dividends, no owners who personally profit like you would (as) an owner of a business," Gatmaitan said.

"So any excess revenue we have stays within the organization and gets reinvested."

If all tax-exempt property suddenly were to appear on the tax rolls, the burden on all property owners would be proportionally lighter.

Because governmental units are allowed a maximum property tax levy, any taxable addition to the tax base doesn't result in a windfall of new taxes. Instead, it lowers the tax rate for all.

Because exempt properties comprise about 6 percent of the tax base, the addition of that much property to the tax base would reduce the tax rate by 6 percent. Someone who pays $1,000 a year might see a $60 savings.

West Lafayette resident and taxpayer Paul Radecki sees the system of tax exemption as giving special treatment to some property owners.

"The whole system of exemption, at least for churches and schools, goes back to a time when everybody went to church and everybody had kids," he said.

"Nowadays that's not necessarily the case. Not everybody goes to church, and not everybody has kids in school. So not everybody gets that benefit."

Lafayette city controller Mike Jones and others say it's important to take into consideration the give-and-take nature of tax exemptions.

Exempt organizations don't pay their full share of property taxes, but they do contribute in other ways, such as providing jobs and much-needed services.

For example, Almond said, Purdue brings in thousands of students who spend money off campus and employs thousands of individuals.

"There's just a lot of things -- the sporting events, the arts," Almond said. "There's a lot of activity that's brought to the community through the university."

For many local nonprofit organizations, tax exemption is the difference between thriving and scaling back services -- or closing up shop for good.

Tippecanoe nonprofits include organizations such as Wabash Center and the Community and Family Resource Center.

"Not-for-profits are missionable," said Arvid Olson, director of development at Faith Ministries, one of the county's largest tax-exempt nonprofits.

"Their goal is not to make money -- their goal is to right a wrong, to fix a problem, to help people. Without them, the fabric of a community comes apart."

The Faith campus on Indiana 26 includes a counseling ministry, a community center, a school and other facilities. The Faith property's gross assessed value, including land owned off its main campus, is $20 million, Olson said.

Most of that property is tax exempt, though a portion of Faith-owned farmland near Americus is not because it is rented to farmers.

Faith provides free services such as counseling and a residential treatment center for at-risk women, he said.

Although Faith offers gym memberships and rental space, it expects to produce a net revenue of $10,000, which is a fraction of annual expenses near $1 million, he said. That excess revenue will be funneled back into facility or program improvements.


Uneven impact

West Lafayette has a high concentration of the county's tax-exempt property, said Judy Rhodes, the city's clerk-treasurer.

About 30 percent of the tax-exempt property assessed in Tippecanoe is in West Lafayette, according to a Journal & Courier analysis of parcel records. Lafayette is home to 36.8 percent, and the remainder lies in unincorporated areas, including the Purdue campus.

Four tax-exempt retirement communities -- University Place, Westminster Village, Friendship House and Greentree -- boost tax exempt rolls in West Lafayette by a combined $62.2 million. In all, 10 percent of West Lafayette's real estate is tax exempt, according to county tax records.

One challenge for communities with a high percentage of exempt property is that property taxes aren't collected from all those who use them. Emergency medical calls to retirement communities, for example, are commonplace.

Recognizing that, Westminster Village gives the city a flat payment in lieu of taxes, said Executive Director Vicki Gregory. That amount, $45,000, is paid voluntarily, she said.

"We certainly understand and appreciate the fact that we receive a lot of services from the city," she said. "We feel it's important that we provide that money to them, just as our contribution of what they do for us."

Taxpayers in areas with a high percentage of tax-exempt property likewise bear a proportionally higher burden through higher tax rates.

However, not all object to the status quo.

John Basham, a commercial apartment owner with significant holdings in West Lafayette, owns about 40 properties in the county and pays about $700,000 in property taxes annually, he said.

But even though he doesn't get a break on his taxes, he said he thinks tax exemptions for nonprofits and other worthy purposes are positive for the community.

Tax exemptions give nonprofits, churches and other entities that operate on shoestring budgets a surviving chance, he said, without which much good would not get done in the community.

"I go to church and I know ... churches run tight as it is," he said. "We're all in this pot together, and it's a tough balancing act."