What Qualifies as a Public Charity? Minnesota Enters the National Debate

Abstract

Set against the national backdrop of increased scrutiny of nonprofit governance and community benefit, this article examines two new Minnesota Supreme Court decisions which address a subset of tax exempt nonprofits considered purely public charities and the benefits that accrue to the community in lieu of foregone tax revenue to the federal, state, and local governments. Through the examination of Under the Rainbow Child Care Center, Inc. v. County of Goodhue, the authors conclude that the Minnesota Supreme Court changed the landscape for public charities that charge for their services. Today, the fundamental definition of a charity in Minnesota is not the nature of what is provided but whether what is provided is a gift. This shift in the law leaves many questions which explored by the authors, only a few of which are answered in the second case, Afton Historical Society Press v. County of Washington. In Afton, the Court held that incidental commercial undertaking by institutions does not erode their status as a pure public charity; in other words, charities can engage in commercial activities so long as they are incidental to the mission.

In conclusion, the authors outline considerations for Boards of Directors of public charities to review the provision of benefits offered by their organizations in context of the standards set by the Minnesota Supreme Court. These include assessing the level of goods or services provided free or at discounted rates; making the charity policy of the organization public; tracking bad debt levels and collection policies that meet guidelines; cataloging donations and tabulating the value of volunteer work; and accounting for negative returns and commercial income.

Keywords: Non-profit corporate law, journal article, charity, tax-exempt, non-profit organization