Renting Kitchen Space From Non-Profit/church May Jeopardize

Business By Kayakado Updated 7 Dec 2010 , 4:07am by Ellyane

Kayakado Posted 9 Jun 2010 , 12:37pm
post #1 of 7

There is a court case being heard in GA Supreme Court that may set a precedent. A non-profit may not be able to rent space in its facility and maintain it status as tax-exempt from property taxes. The Nuci Foundation in Atlanta may be the test case that sets precedent. This could be a devastating ruling and effect churches renting kitchen space, universities renting auditoriums, etc for outside people to use them for other activities whether they are for profit or not. Property tax exemption could be just the first straw.

Here's an edited excerpt:
the way (an organization) raises income led the court to conclude Nuci's isnt eligible for the non-profit tax exemption status from property taxes for its buildings.

The foundation rents rooms to bands needing rehearsal halls, to private individuals hosting weddings and birthday parties... The money from these endeavors goes to the foundations coffers.

Justice David Nahmias told foundation attorney James Warnes one problem is Nucis doesnt fit the definition within the tax-exemption law based on these for profit activities.

If Nuci's is relying on the legal precedent of the 'purely public test according to the GA Court of Appeals decision, Nuci's loses. Nuci's is no longer a purely public charity and loses it non-profit status.

6 replies
DerrellC Posted 12 Jun 2010 , 4:34am
post #2 of 7

This is the reason we were turned down when we approched our church about renting kitchen space.They mentioned something about IRS looking into tax exempt enities "making " money using tax exempt properties

myslady Posted 12 Jun 2010 , 4:45am
post #3 of 7

Are they actually including this part: outside people to use them for other activities when they are NOT for profit.

I can understand the basis behind the precedent; if owned a banquet hall and I had to pay taxes on my space and they didn't because they are classified as non profit, I would be upset and it would be better to become a non-profit business.

Ellyane Posted 7 Dec 2010 , 3:00am
post #4 of 7

Does anyone know what the outcome of this case was?

cownsj Posted 7 Dec 2010 , 3:36am
post #5 of 7

The Supreme Court made their ruling on Nov. 8, 2010. Here is a link to the entire ruling:

http://www.gcn.org/files/Nuci_Supreme_Court_decision.pdf

It's long and I didn't read the entire ruling, but it appears that a charitable group may rent out space as long as the money is used exclusively for their charitable use, however, in this case they had problems because they provided a venue for a private birthday party and that was not consistent with the charitable organization. So it was the free stuff that did them in. I'd copy and paste some of the passages, but it won't let me do that.

Ellyane Posted 7 Dec 2010 , 4:06am
post #6 of 7

It looks like they are ok!

One quote from near the end, explaining why the court ok'd the non-profit status: "Although the organization periodically rents out part of its building to third parties, the primary purpose of the building is not to raise income but to provide services for those seeking mental health assistance.
Any income raised is incidental to the primary use of the property, and the
purpose of raising the income is to help fund the organizations charitable
services, including..." (goes on to tell what the org. does)

So as long as the church/non-profit is using our kitchen rental fee towards its regular non-profit activities, or toward the upkeep of their building, they don't lose their tax exempt status. That's my interpretation, anyway.

Ellyane Posted 7 Dec 2010 , 4:07am
post #7 of 7

and thanks for the link!

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