Fordham Law Review, Vol. 76, No. 2 (November 2007), pp. 833-856


This essay examines the question of how state and local government officials should consider federal tax law principles, like the commerciality doctrine, when they challenge state and local property tax exemptions that rely, at least in part, on tax-exempt charitable status for federal income tax purposes. In particular, this essay uses the example of CCRCs [continuing care retirement communities] to consider tax-exempt law's commerciality doctrine in an attempt to discern distinctions between “homes for the aged” that are “charitable,” and thus entitled to exemption, and those that are too commercial, and thus not entitled to exemption. In fact, one might say that this issue of the tax-exemption eligibility of CCRCs is a version of John Colombo's quandary about the commerciality doctrine in general -- “when . . . commercial activity will be considered in furtherance of an exempt purpose as opposed to simply primarily an unrelated business.” Ideally, these distinctions between exempt and nonexempt homes for the aged should be helpful to state and local tax officials who, in the face of shrinking revenues and increasing expenses, seek to deny tax-exempt status to “homes for the aged” that are charitable primarily because they look commercialized and do not necessarily serve the poor.

This essay will proceed by first describing the context. That is, Part I describes the growth of the elderly population which has spawned the increased demand for, and supply of, elder care facilities. Part I also explains how the increased demand for elder care facilities coincides with state and local tax officials' increased need for tax revenue, resulting in a wide-ranging assault on property tax exemptions for elder care facilities nationwide. Part II outlines the federal law that permits facilities that provide housing and care for the elderly to be exempt despite the fact that they do not necessarily serve the poor. Part III explains tax exempt law's commerciality doctrine and how that doctrine permits CCRCs to operate in a commercial environment, yet maintain eligibility for federal tax exemption. Finally, Part IV lists various “lessons learned” that should be helpful to state and local property tax officials in the coming years as the demand for elder care housing facilities increases and the pressure on limited state and local property tax revenues becomes even more pronounced.