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Maine Supreme Court Upholds Hebron Academy's Tax Exempt Status
02/06/2013   Reported By: Susan Sharon

In a case closely watched by private schools, municipalities and non-profits, Maine's highest court has upheld a lower court ruling that exempts certain properties at Hebron Academy from property taxes. At issue was whether the private boarding school's practice of renting out some facilities for private use compromised its tax exempt status.

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Under Maine law, most real estate is subject to taxation. There is a tax exemption for property "owned and occupied" or used by literary and scientific institutions "solely for their own purposes." As a private, nonprofit prep school, Hebron Academy sought a tax abatement. The town of Hebron objected, arguing that the school property is not "occupied or used solely for its own purposes." That's because the Academy generates about $130,000 per year by renting out its ice arena and other facilities on a short-term basis to outside groups. But the Maine Supreme Court found that the rental activity amounted to a "de minimis incidental use," accounting for about one percent of the school's operation budget and therefore did not interfere with its tax-exempt purpose.

"Because it clarified, we hope, once and for all, this issue of tax exemption for these educational institutions under the umbrella of the phrase 'literally and scientific' and further clarified the practice that many of us have followed that incidental and occasional usage of our facilities by outside users does not run counter to our educational mission or our tax exempt status as educational institutions," said John King, Hebron Academy Head of School.

In its briefs filed with the Maine Supreme Court, the town of Hebron challenged Hebron Academy's designation as a "literary and scientific institution." In writing the opinion for the Court, Justice Jon Levy acknowledged that "reasonable minds can differ as to whether that term is broad enough to encompass a preparatory school like Hebron Academy." He noted that case law does not provide a definitive standard for determining what qualifies, Instead, the Court turned to legislative history, going all the way back to the 1800s to find a tax exemption for literary institutions that includes academy and college buildings. "An academy is an institution, like Hebron Academy," Justice Levy wrote, "whose primary purpose is to provide for and promote the education of high school students."

"I thought that was a reasonable analysis and I think, in fairness to the court, what it said on that issue was reasonable," said Bryan Dench, an attorney for the town of Hebron.

"The part of the case that I am more concerned about, if that's the right term, is the creation of this ill-defined de minimis exception where the statute says the use must be 'solely' for charitable purposes," Dench said. "Now the Court is saying well, it doesn't have to be soley as long as non-charitable things are de minimus and I'm not sure what that's going to mean going forward."

Nonprofit organizations and private schools and colleges, meanwhile, are welcoming the decision. Dan Walker, an attorney for the Maine Independent Colleges Association, said if the Maine Supreme Court had ruled in favor of the town of Hebron, it could have opened up the flood gates for challenges to tax exemptions.

"The court and others and municipalities could have looked to this decision to go after the property tax exemptions of various nonprofits" said Walker. "In this case it reaffirmed what we already knew that academies, colleges and universities are literary and scientific institutions and therefore deserve this property tax exemption."

John King of Hebron Academy pointed out that despite the disagreement over the tax exempt status of some of the school's property, other residential buildings on the campus are subject to property taxes that are paid to the town.

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