City of Lewiston v. Marcotte Congregate Housing, Inc.—
The All or Nothing Property Tax Exemption Rule

Several years ago the Maine Supreme Judicial Court issued its decision in the above-titled case which resulted from an appeal of a tax assessment by the City of Lewiston against property owned by a nonprofit tax exempt organization that was affiliated with St. Mary’s Hospital in Lewiston. 

The basic facts involved were that the building in question had at one time been exclusively used as part of St. Mary’s Hospital’s operations.  However, in recent years, it had ceased to be used for that purpose and had been renovated into multiple uses which included low income subsidized senior housing, market rate senior housing, and offices which were rented to private practice physicians in the community.  The State Board of Property Tax Review found that the property in question was “partially” exempt from real estate taxation by the City of Lewiston since part of the property was used for the benevolent, charitable tax exempt purposes of the owning nonprofit tax exempt organization.  The City of Lewiston appealed this decision which appeal ultimately was decided by the Maine Supreme Judicial Court.

The Maine Supreme Judicial Court ruled that, because a portion of the property in question was not being used for the tax exempt charitable purposes of the owning corporation, the entire property lost its tax exempt status under the applicable Maine statute.  This ruling by the court is often referred to as the “all or nothing rule”, since it is clear under this decision of the court that, if a nonprofit tax exempt organization owns real estate and any portion of it, no matter how small, is not utilized for its tax exempt charitable and benevolent purposes, the entire property is subject to losing its tax exemption under the applicable Maine property tax statutes.

In view of this decision by the Maine Supreme Judicial Court, and because many municipalities today are actively searching for new sources of revenue to meet their budgetary needs without increasing taxes to their existing taxpayers, if a tax exempt organization wants to plan to use, or is using, a portion of a piece of property it owns for non-tax exempt purposes, as a means to minimize the tax impact of that decision, that organization may want to consider such options as converting the entire property in question into a condominium so that only those portions of the property which are being utilized for non-tax exempt purposes and which would be identified as separate units within the condominium development would be subject to taxation.

Doyle & Nelson has successfully utilized this condominium approach which has permitted its tax exempt clients which were either currently utilizing or planned to utilize a portion of property which they owned for non-tax exempt purposes to minimize the tax impact of that decision.  We have also been successful in obtaining recognition from local municipal taxing authorities of this condominium approach to minimizing the tax impact of non-tax exempt partial uses of tax exempt property.

Craig H. Nelson