With the city budget projected to run a deficit, the council spent a one-hour work session Monday looking at ways to increase tax revenue. After much debate, the council agreed to move forward with a draft ordinance removing sales tax exemptions from nonprofits and churches.
City Finance Director Julie Liew estimates the move could bring in about $300,000 a year. Nome is a regional hub city of about 3,800 people.
Council member Matt Culley said he’s in favor of removing all the exemptions, with the possibility that nonprofits could be given the tax money back in years when the city’s bottom line is in the black.
All of the proposed tax changes are far from law, however; the City Council is still several meetings away from a vote, and the public will have an opportunity to weigh in before the council takes any final action.
Of course the churches will be quick to file a lawsuit because they have got used to being given a totally undeserved benefit, so the city had better line up some good pro bono lawyers if they decide to go ahead.
They will still have a tough time. The controlling precedent is the 1970 US Supreme Court decision in Walz v. Tax Commission of City of New York that I discussed back in 2012 that allowed property tax exemptions for churches. I think it was a bad decision but it will be used against the city of Nome here.
What is different here, if the city goes ahead with the move, is that it is eliminating all charitable institutions, not just churches. While the exemptions to churches can be challenged in Establishment Clause grounds, it is not clear what the basis would be to challenge the exemptions for secular non-profits and charities.
Another wrinkle may be that they are not challenging the right of the federal and state governments to give tax exemptions but are saying that local communities have the right to set their own tax policies.
This would make for an interesting case if Nome goes forward with this.