A decision is expected in the next 30 days from the Indiana Tax Court to settle a seven-year dispute that could have repercussions for a local nonprofit and the types of affordable housing clients it serves.
Housing Partnerships Inc. has been attempting to regain its charitable purposes property-tax exemption since 2007, when the Bartholomew County Property Tax Board of Appeals ruled it was no longer eligible for the tax relief.
HPI owes $617,751.44 in back property taxes on properties in its portfolio at the time of a 2006 property exemption request, Bartholomew County Assessor Lew Wilson said.
As with all property taxes, the money was due in the year it was billed, but HPI has exercised its right to delay payment until the appeal process is completed. If the appeal is unsuccessful, the nonprofit would be responsible for the back taxes, as well as any penalties incurred for non-payment.
An additional $28,946.95 in property taxes comes due in November.
The Columbus nonprofit has appealed to the Indiana Board of Tax Review and the Indiana Tax Court to regain its charitable purposes exemption on property taxes but has failed so far to get the original decision overturned.
HPI was formed in 1989 to assist low-income residents in finding affordable housing in Bartholomew County. The organization combined with Aging and Community Services in 2013 to become Thrive Alliance, a strategic partnership of agencies under common management.
Mark Lindenlaub, executive director of Thrive Alliance, said that unless overturned, the June 6 Tax Court ruling threatens the viability of HPI as a community service organization.
“Our business model is based on HPI being tax exempt, and the decision to deny the exemption, if it stands, will create serious challenges for us,” Lindenlaub said.
Lindenlaub said HPI focuses on improving the quality of housing and quality of life for residents and develops strategies to create and support good neighborhoods.
HPI renovates and builds homes as rental properties and assists residents in buying their first home and to understand the responsibilities associated with
The organization also completes repair projects for elderly or disabled homeowners.
The use of volunteers to assist with upgrades and grants to help fund improvements and subsidize rents allows HPI to offer quality homes to renters and first-time homebuyers, often at below-market prices.
Lindenlaub said it is unlikely HPI would fold without the property tax exemption, but it could require the organization to change its service offerings. He’s not sure at this point what that would entail.
He said the agency has the financial reserves to pay the back taxes, but that it would affect HPI’s ability to provide the same types of programs that it now offers.
“Our backs are against the wall about whether we can carry forward in the program without having our expense side equal to what we predicted it would be with the tax exemption,” Lindenlaub said.
Tax court’s findings
In its June 6 decision, the Indiana Tax Court noted it gives great deference to the tax boards’ conclusions and stated an adequate reason
to overturn that ruling was not provided.
The court determined that HPI failed to demonstrate that the properties in its portfolio are owned, occupied and used for a charitable purpose as described in the Indiana Code.
In the eyes of the court, HPI also failed to present evidence outlining any conditions applied to the grants it received that would indicate it relieved a burden of the government.
HPI has asked the Indiana Tax Court to reconsider its decision and, if the June 6 ruling stands, the next recourse for the nonprofit is to appeal to the Indiana Supreme Court.
HPI presented testimony from tenants, former tenants, the executive director of the Columbus Housing Authority and others, attesting to its value in the county, but to no avail.
Lindenlaub said the agency is taking matters one step at a time and has not yet decided if it would pursue the case to the high court if the upcoming decision goes against HPI.
Wilson said it is important to recognize that HPI’s reasonable rents and nonprofit status do not automatically qualify it for a property tax exemption.
“The courts have continually concluded that just because a nonprofit corporation charges low-income individuals below-market rents for its apartments, that is not enough to show that the property is being used for a charitable purpose,” Wilson said.
HPI was, however, granted a property tax exemption from 2002 to 2006 and its long-term business model has been based on that decision.
HPI’s business model
Lindenlaub said when HPI does housing projects, it puts together a budget to purchase, renovate and manage those properties over a 15- to 30-year period.
“When we do that, we have to project our expenses, one of which would be property taxes — and we didn’t plan to have to pay for taxes,” Lindenlaub said.
The value of providing affordable housing to low-
income Bartholomew County residents exceeds the tax revenue that would be lost by giving HPI an exemption, Lindenlaub said.
A study last year by the city’s Department of Community Development pointed to a need for affordable housing in Columbus.
HPI has not paid taxes on property it had received an exemption for prior to 2006, but has paid the bills on projects that were in the pipeline or were completed after that decision.
If HPI were to eventually regain its property tax exemption, not only would it not have to pay the outstanding taxes, it would be entitled to recoup the roughly $57,000 per year it has paid since 2006.
The numbers are an estimate because HPI has also asked to have its properties’ values reassessed. The assessor’s office is waiting to respond until the eligibility status issue is resolved. If HPI receives an exemption, a reassessment would not be necessary.
Wilson said HPI has been able to charge below-market rates because of the subsidies it receives in the form of grants, and should attempt to gain additional funds in that manner.
“If HPI’s business model was developed dependent upon a property tax exemption, the business model should be changed to include property taxes on their rental properties like other landlords,” Wilson said. “This could be done by applying for more grants or by petitioning our state representatives to change the exemption laws.”
Lindenlaub said there is a lot of competition for housing grants and HPI does not have the same options as for-profit landlords.
“We have rent controls that are published by the federal government and rent limits that we can charge,” Lindenlaub said. “Plus we’ve got commitments to serve people at low and very low income levels. We can’t just say if it costs us an extra thousand dollars a year, well just raise rent a hundred bucks a month to cover it.”
Deborah Holt, executive director of the Columbus Housing Authority, spoke in support of HPI at the Indiana Board of Tax Review hearing in January 2009.
“Because of (HPI’s) commitment to the community and low-income families, I felt it would be nice if the state said they didn’t have to pay taxes and I supported that,” Holt said. “The service they provide is so needed in Columbus. There is a group of working poor and those that are disabled, and they have to have a decent, safe, sanitary place to live.”
Wilson, who was not the county assessor at the time of the original ruling in 2007, said he does not dispute the value of HPI in the community.
“I agree that HPI is engaged in many good works, but I support the local and state boards’ decisions preventing HPI’s tax burden being shifted to other landlords and other property owners,” Wilson said.