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Tax Exemptions to Nonprofits in Maine Argued

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The U.S. Supreme Court heard oral arguments last week in a case challenging a Maine law that denies tax exemptions to nonprofit groups that mainly serve out-of-state residents.

The lawsuit involving an arcane provision of Maine's tax code has attracted attention from colleges, independent boarding schools, and other nonprofit institutions nationwide.

They fear that a ruling upholding the state's disparate treatment of such organizations could lead other states to eliminate tax exemptions for, say, colleges or boarding schools that take in many out-of-state students. ("Districts Keep Watchful Eye on New Court Team," Oct. 9, 1996.)

A Christian Science summer camp that mostly serves children from outside Maine challenged the law as an unconstitutional barrier to interstate commerce. The town of Harrison denied the nonprofit camp a property-tax exemption, meaning it must pay about $22,000 a year.

Maine's highest court upheld the tax-code provision, but the U.S. Supreme Court agreed to hear the camp's appeal in the case of Camps Newfound/Owatonna Inc. v. Town of Harrison (Case No. 94-1988).

Oral arguments in the case came during the first week of the high court's new term, and several justices appeared skeptical of the Maine law.

Also last week, the court turned down a case dealing with sexual harassment among students. ("Supreme Court Declines To Accept Student Sexual-Harassment Case," This Week's News.)

It also rejected appeals involving mandatory community service for students and special education.

In the Maine tax case, several groups, including the National Association of Independent Schools and the National Association of Independent Colleges and Universities, filed a friend-of-the-court brief. It argues that most nonprofit organizations are engaged in interstate commerce and therefore fall under the protection of the U.S. Constitution's commerce clause.

Subsidizing Charities

These groups fear that other states, to boost their budgets, may follow Maine's lead and eliminate tax exemptions for institutions that do not primarily aid state residents. This would require them to pay taxes or limit their out-of-state residents to maintain any exemptions.

During the oral arguments Oct. 9, Justice Antonin Scalia suggested that these groups' fears were overblown and that states could already eliminate tax exemptions for nonprofits without violating the commerce clause.

"Why should the taxpayers of Maine subsidize charities serving people from other states?" he asked. "I don't see why they should be compelled to do that."

But other justices sharply questioned the Maine scheme. Justice David H. Souter suggested that if the law is upheld, Maine could then eliminate tax exemptions for private colleges and universities that have large proportions of out-of-state students.

Justice Sandra Day O'Connor said the law "appears to be facially discriminatory against interstate commerce."

A ruling is expected by July.

Appeals Denied

Separately last week, the high court turned down more than 1,500 appeals that had piled up over the summer, including several education cases:

  • Immediato v. Rye Neck School District (No. 95-1861). The high court declined for the second time to review a challenge to a school district's community-service requirement.

In this case, the U.S. Court of Appeals for the 2nd Circuit rejected a family's challenge to a New York state district's requirement that high school students perform 40 hours of community service over four years. The appeals court rejected challenges based on the 13th Amendment's prohibition against slavery and 14th Amendment rights of privacy and parental control. ("Court Holds Service Rule Does Not Violate Rights," Jan. 10, 1996.)

The Supreme Court declined in 1993 to review a Pennsylvania district's service requirement, which had also been upheld by a federal appeals court. It appears unlikely the justices will step into the issue unless a split develops among federal appeals courts.

  • Central Regional School District v. M.C. (No. 96-97). The court rejected a New Jersey district's appeal of an appeals court ruling. That ruling had awarded a mentally retarded student additional educational services beyond age 21 to make up for an insufficient individualized education plan.

The school district had argued that the U.S. Court of Appeals for the 3rd Circuit set a standard for determining when students can continue to get an education beyond age 21 that differed from that of other federal appeals courts.

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