Tax fight threatens to squeeze 'New Friends' library donations
New Friends of the Beaverton City Library head to court this spring in a fight to continue a property tax exemption for the group's small bookstore across Southwest Fifth Street from the main library.
If the Friends group loses, it could mean less money for Beaverton City Library programs. It could cost the group $4,063.34 in 2016-17 property taxes — possibly similar amounts in future years. And, it might also set an uncomfortable legal precedent for other library friends' fundraising organizations around the state.
The fight is in state Tax Court, where last year the Beaverton nonprofit battled the Washington County assessor to keep a property tax exemption for its bookstore, the Book Corner, housed in an 1,800-square-foot city-owned converted 1950 house at 12470 S.W. Fifth St. The group won a decision on the tax issue in September, but could be headed back into Tax Court because the state Department of Revenue disagrees with the court's ruling that the Friends organization used the property for charitable purposes.
Ray Grant, president of New Friends, said his group was sorting out what a loss in court would mean for its programs and fundraising efforts. "If we lose this case, it will certainly reduce the extent of the benefits we provide to the library and the community," Grant said. "Last year, we were able to provide funding for over $50,000 for special library programs, activities and we recycled used books throughout the county. These are important library programs that are not funded by the city or the county."
Attorney William S. Mann of Miller Nash Graham & Dunn in Portland, who represents the Friends organization, echoed Grant's concerns. "If the court declines to extend a property tax exemption to our client, the decision will increase the cost of pursuing its charitable mission and correspondingly reduce the organization's ability to benefit the library and the community," Mann said.
A Tax Court case management hearing is scheduled in early March. No date has been set for a judge to hear arguments in the case.
Not really a charity
At issue is whether New Friends of Beaverton City Library is recognized by state law as a charitable organization. New Friends is a federal tax-exempt 501(c)(3) nonprofit. State law, however, requires the group to use its property "in any literary, benevolent, charitable or scientific work." Department of Justice lawyers wrote in a mid-November Tax Court compliant that because the group primarily uses the property to sell donated books, and has at least two paid staff members, its mission isn't really a charity.
"Running a bookstore as New Friends' primary objective is not a charitable purpose (under state law)," wrote Department of Justice Senior Assistant Attorney General Darren Weirnick in the Nov. 16, 2017, complaint. "Accordingly, New Friends is not a charitable institution within the meaning of (state law)."
Federal tax records show that New Friends earned about $82,755 from book sales in 2016 (the most recent records available), making a profit of nearly $36,250. The group's total income for that year was $50,506. The organization sells used books at its store for between 50 cents and $5. It also sells books online at www.Amazon.com.
Most of the money New Friends donated to the Beaverton City Library, which operates this year on a $9.9 million budget, went to pay for canvas bags, slatwall fixtures, tech toys for young adults and a subscription to the monthly magazine BookPage.
New Friends reported on its website that 2018 funds have been earmarked for such things as highly visible open/closed signs for the main library, furniture for the Murray Scholls branch library, USB power cubes for charging stations, a light table and toys for the children's area and bean bag chairs for the teen reading room.
Devoted to spread of literature
The legal fight began more than a year ago when the Washington County assessor denied the New Friends' request for a property tax exemption on the Book Corner. For at least 15 years, the group received a property tax exemption on the small house it leases from the city for $1 a year, "a rental payment so far below market value as to render the consideration a sham," wrote New Friends' attorney Ivan Resendiz Gutierrez with Miller Nash Graham & Dunn, in a mid-December answer to the state's complaint.
As it renewed its city lease, New Friends filed to continue the Book Corner property tax exemption. The county assessor's office rejected the request, saying the group failed to meet the state's definition of a charity because there wasn't "actual charitable use of the property, rather than just a charitable use of the income derived from the property."
New Friends challenged the assessor's decision in Tax Court. After a trial in March 2017, Magistrate Poul F. Lundgren sided with New Friends in his mid-September ruling and ordered the county to exempt the property from taxes for 2016-17, saying the group's bookstore "was the characteristic way in which (the group) accomplished its charitable mission."
Gutierrez wrote in defense of the group that New Friends "is an organization devoted to the propagation and spread of literature, study or use of books" and was in fact a charitable organization because it sold books well below market rate, redistributed some of its inventory to local nonprofits like The Salvation Army and the Rotary Club, and gave some to local elementary schools.
"In addition, (the New Friends) used the property to contribute to events promoting the Beaverton City Library and literacy, generally," Gutierrez wrote.
One big argument in its favor, he wrote, was that the city, which doesn't pay taxes, owns the property. Through the library, the city has a large stake in the New Friends' mission. "(New Friends) does not hold an interest in the property sufficient to render the property taxable under (state law)," Gutierrez wrote.
New Friends asked the court to dismiss the justice department complaint, uphold the group's property tax exemption and require the state to pay the group's legal costs.