South Portland Takes Exemption to Court
(from Maine Townsman, February 2001)
by Geoff Herman, MMA Director of State & Federal Relations
Municipalities have long held that the standards of eligibility in Maine law that govern whether a property owner can avoid taxation as a "benevolent and charitable" organization fall somewhere between the ephemeral and the nonexistent. Since the statutes offer little guidance, the body of law in this state regarding the charitable property tax exemption has been developed, somewhat unevenly, by the courts.
On the basis of what little guidance can be gleaned from case law, South Portland's City Assessor, Elizabeth Sawyer, decided that the property belonging to Credit Counseling Centers, Inc. (known best perhaps by its "CCCS" television advertising jingle) did not qualify for the charitable property tax exemption. Sawyer believes the organization simply doesn't serve a truly charitable function. CCCS has appealed the denial of tax exempt status, and on two successive Wednesdays in January, a trial on the issue was held in Cumberland County Superior Court.
According to the city's submissions to the Superior Court, the following is a summary of CCCS's operations.
CCCS is an affiliate of the National Foundation for Credit Counseling, and its central headquarters for its statewide operations are located in a South Portland facility with an assessed value of $821,600. CCCS's primary business activity is assisting debtor clients with repayment plans to creditors. Approximately one-third of the potential client base does not have the financial means to repay their debt. Those people are therefore not assisted by CCCS. Approximately one-third of the potential client base receives counseling services only, on a sliding-scale fee. And approximately one-third of the potential client base is placed into Debt Management Programs, whereby CCCS negotiates a debt-payment plan between the creditors and the debtor. The debtor pays a monthly fee averaging $15-$18 for this service, and CCCS receives voluntary "fair share contributions" from most creditors. The "fair share" contribution amounts to a percentage of the debt paid to the creditors, and the current average contribution is 8% of repaid debt.
The CCCS budget in 1999 was approximately $2.5 million, $1.5 million of which was funded from the "fair share" contribution, and $873,000 of which came from direct client fees. The two largest lines on the expenditure side in 1999 were salaries ($1.14 million) and advertising ($452,000).
None of CCCS's services or activities is funded by charitable gifts or donations to CCCS. Funding comes from member organizations, creditors and the debtor clients of CCCS. The 15-member Board of Directors of CCCS includes representatives of Fleet Bank, Peoples Bank, Key Bank, Saco Biddeford Savings, the Maine Bankers' Association, Infinity Federal Credit Union, Rainbow Federal Credit Union, Blue Cross Blue Shield, McDonald Investments, Saunders Brothers, Portland Water District, and two CCCS employees.
The status of Maine law governing the charitable property tax exemption is a matter of extraordinary concern to the Maine Municipal Association. The CCCS v. South Portland litigation represents an important opportunity, from the municipal perspective, to get a glimpse of what "charity" really is and really isn't. As part of an ongoing effort to determine what the state's actual public policy is with respect to this enormous and ever-growing type of exemption, MMA's Executive Committee appropriated up to $5,000 in December from a reserve fund that MMA maintains for judicial advocacy efforts. With those resources, and in cooperation with the city, William Plouffe, Esq., of the Portland law firm Drummond, Woodsum and MacMahon was retained to assist South Portland's Corporation Counsel, Mary Kahl, in defending this appeal. Municipal officials will remember Bill Plouffe as the attorney that represented the town of Falmouth in the Falmouth v. Maine Medical Center litigation that took place before the State Board of Property Tax Review in the summer of 2000, and which is described in a separate article in this issue of the TOWNSMAN.