HOUSE BILL NO. 516

INTRODUCED BY L. GRINDE, C. SWYSGOOD, J. BARNETT, T. BECK, P. BERGSAGEL, A. BISHOP, M. BRAINARD, R. BROWN, J. COBB, M. COLE, B. DEPRATU, G. DEVLIN, S. FISHER, D. FUCHS, D. GRIMES, M. HANSON, D. HARGROVE, J. HARP, D. HEDGES, J. HERTEL, D. MOOD, P. SLITER, M. SPRAGUE, B. TASH, M. TAYLOR, B. THOMAS, J. WITT

A BILL FOR AN ACT ENTITLED: "AN ACT REQUESTING AN INTERIM STUDY OF THE ADVISABILITY OF RETAINING OR ELIMINATING TAX-EXEMPT STATUS FOR PROPERTY OR INCOME OF NONPROFIT CORPORATIONS OR PURELY PUBLIC CHARITIES THAT IS USED IN OR GENERATED BY A COMMERCIAL ENTERPRISE; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE ."

WHEREAS, there have been allowed, as a matter of public policy, certain tax exemptions to a variety of nonprofit and charitable entities; and

WHEREAS, there may be some tax-exempt nonprofit and charitable entities that are engaged in commercial activities that are in direct or indirect competition with entities that are not exempt from taxation; and

WHEREAS, conversion of portions of material assets of nonprofit health systems into for-profit health systems is a public policy issue that warrants examination in an interim study.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Study of tax-exempt status of nonprofit corporations and purely public charities . (1) The legislative council is requested to assign to an appropriate interim committee a study of the advisability of diverging from the present treatment of taxing the unrelated business taxable income of nonprofit corporations or institutions of purely public charity, as defined in 15-6-201, that engage in a commercial enterprise. The tax-exempt status to be examined are the exemptions provided in 15-6-201(1)(b) through (1)(e), (1)(g), (1)(o), and (1)(q) and 15-31-102(1)(a), (1)(b), (1)(d) through (1)(g), and (1)(j).

(2) For the purposes of the study, "commercial enterprise" means providing products, services, or use of equipment or facilities to the general public:

(a) for payment of a price, fee, or periodic dues;

(b) in direct competition with for-profit businesses;

(c) in a manner that bases prices on pricing formulas commonly used by for-profit businesses;

(d) using common promotional materials and commercial catch phrases to promote sales;

(e) by advertising goods or services;

(f) during the same hours as for-profit businesses; and

(g) using paid staff rather than volunteers.

(3) If a person's primary relationship with a nonprofit corporation or institution of purely public charity is to receive products, services, the use of equipment, or the use of a facility in return for the person's paying a price, fee, or periodic dues, the person is a member of the general public with respect to the nonprofit corporation or institution of purely public charity for the purposes of this section.

(4) In conducting the study, the committee shall review the effects of :

(a) exemptions from unrelated business taxable income provided by the Internal Revenue Code and applicable state and federal regulations;

(b) the use of 15-31-102(3) provisions relating to taxing the income generated by a tax-exempt entity's commercial enterprise;

(c) the taxable status of real or personal property or portions of real or personal property used by a tax-exempt entity in conducting commercial enterprises generating unrelated business taxable income; and

(d) other related items that the committee considers appropriate.

(5) This section does not apply to sales to the general public that are incidental or periodic rather than permanent and ongoing.

(6) The provisions of this section may not be construed as prohibiting or limiting the ability of a public charity to fund, capitalize, guarantee the indebtedness of, or otherwise subsidize another institution that is an institution of purely public charity as defined in 15-6-201.

(7) A public charity that invests in publicly traded stock, bonds, real estate, or other investments, whether directly or indirectly, is not in violation of the provisions of this section.

(8) The committee:

(a) may request assistance from the staff of any division of the legislative branch or from any agency of state government;

(b) may invite dialogue regarding the advisability of exemption from certain taxes with:

(i) tax-exempt nonprofit and charitable entities;

(ii) for-profit entities that are not tax exempt;

(iii) local government officials; or

(iv) any other person, group, or entity believed to have useful information or insights on the subjects within the purview of the committee; and

(c) shall compile its findings and conclusions in a report to the 57th legislature, as provided in 5-11-210. The report may identify options for further legislative consideration and may contain recommendations, including draft legislation, if considered advisable by the committee. The report must be prepared and available for distribution prior to November 1, 2000.

NEW SECTION. Section 2. Effective date. [This act] is effective on passage and approval.

- END -