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Subject
Tax Credits to Nonprofit Swim Clubs.
Recommendation
Staff recommends that the Mayor and Council provide certain nonprofit swim clubs with a real property tax credit similar to what Montgomery County is providing.
Change in Law or Policy
A positive action by the Mayor and Council in support of the recommendation would require a change to the City ordinance to allow for tax credit's for certain nonprofit swim clubs.
Discussion
BACKGROUND
The Mayor and Council received the attached letter from the Twinbrook Swimming Pool Corporation Board of Directors on July 4, 2008 (Attachment A), and the attached letter from Potomac Woods Swim Club Inc. dated August 5, 2008 (Attachment B). The letters request that the City provide certain nonprofit swim clubs with a real property tax credit for all nonprofit pools within Rockville, with the rationale of achieving equity between Homeowners Associations cited as tax exempt, and nonprofit owned pools that are subject to property taxes.
If a community (Homeowners Association/HOA) owns a swimming pool, and every member of that community has access to the pool and other associated property, the State Department of Assessments and Taxation (SDAT) does not place an assessed value separately on the pool or parcel of property on which the pool sits. The parcel value of the pool is assumed in the value of each of the properties that has a right to use the pool. Consequently, the parcel of property on which the pool sits shows up on the tax rolls as tax exempt to avoid property owners being taxed twice i.e. the property owner has already been assessed on their own individual property tax bills for the value of the pool.
Unlike swimming pools that are owned by communities, nonprofit swimming clubs as property owners do receive real property tax bills that are taxed at the State, County, and City levels. Due to the organizational structure and purpose of nonprofits, the only mechanism that the City has for capturing the property tax is by assessing the property owned by the nonprofit corporation.
Membership in the swimming clubs is open to the general public subject to capacity, whereas HOA's are not.
STATE AND COUNTY LAW
In June 2006, the State passed a bill, SB 982 (Attachment C), that authorized local governments to grant a property tax credit against the property tax imposed on a nonprofit swim club that uses its facilities exclusively to provide a recreational outlet for a local community.
In August 2006, Montgomery County added Section 52-18P Property tax credit – nonprofit swim clubs to the Montgomery County Code, Chapter 52 (Attachment D). This section gives authority to Montgomery County’s Director of Finance to grant tax credits each year against the general County tax and all special service area taxes imposed on nonprofit swim clubs. The amount of the credit equals the amount of the County property tax due.
DISCUSSION
Staff found two nonprofit swim clubs in Rockville that are currently receiving the County credit. Staff is unaware of any other non-profit swim clubs in Rockville that may meet this criteria. Below is a breakdown of the real property tax bills for fiscal year 2009 / levy year 2008 for Potomac Woods and Twinbrook swimming clubs.
| FY 2009 Real Property Tax Due | Total
Tax Liability |
State of Maryland | Montgomery County | City of Rockville |
| Twinbrook | 2,070 | 15,117 | 5,396 | 22,583 |
| County Tax Credit | 0 | (15,117) | 0 | (15,117) |
| 2,070 | 0 | 5,396 | 7,466 |
| FY 2009 Real Property Tax Due | Total
Tax Liability |
State of Maryland | Montgomery County | City of Rockville |
| Potomac Woods | 864 | 6,308 | 2,252 | 9,423 |
| County Tax Credit | 0 | (6,308) | 0 | (6,308) |
| 864 | 0 | 2,252 | 3,115 |
In the past, the City received requests from other nonprofit organizations for tax credits and exemptions. More specifically, the Montgomery Youth Hockey Association, Inc. (MYHA) asked for the City’s support of special State legislation, which would allow the City and the County to provide tax exemptions for MYHA. In addition, Ring House, a senior living community, approached the City with a request to exempt them from local property taxes. The City denied both of these requests.
Although the City has not provided similar property tax credits to other nonprofits in the past, there are several reasons why the City should consider providing this credit to nonprofit swim clubs starting in FY 2009 and going forward. These reasons include:
- The nonprofit is providing a worthwhile public benefit as an important supplement to the City's own programs.
- The service being provided is one that the City would otherwise have to provide, and this alleviates possible capacity issues with City facilities. The City is in the business of providing recreation swimming to the community.
- The City cannot provide tax credits without enabling legislation from the State. This special interest group was able to get the State legislature to authorize local government agencies to provide the credit.
- The impact on City finances is minimal.
- Montgomery County is providing the credit.
- Membership is open and available to the entire community, subject only to capacity restrictions of the facilities.
SPECIAL CONSIDERATIONS
Should the Mayor and Council wish to grant a property tax exemption for nonprofit pools for FY 2009, staff recommends sending tax reimbursement checks to the two organizations because the FY 2009 tax bills have already been mailed. The entities would provide the City with evidence of payment, and the City would reimburse the entities. A budget amendment would be required to appropriate the necessary funding.
Mayor and Council History
This is the first time this item has been brought before the Mayor and Council.
Public Notification and Engagement
Both the organizations submitting these requests were informed by their neighborhood coordinators of this item on the agenda this evening.
Fiscal Impact
The City would forego approximately $7,700 of annual tax revenue based on the most recent assessments. This could increase if other community swim clubs incorporated as nonprofit entities.
Next Steps
If Mayor and Council decide to provide the tax credits, the City's legal department would draft the required ordinance that would need to be adopted.
The entities involved will be contacted to let them know the outcome of the Mayor and Council's decision.
Attachments
Attachment A – Request for Tax Credit from Twinbrook Swimming Pool Corporation
Attachment B – Request for Tax Credit from Potomac Woods Swim Club Inc.
Attachment C – State of Maryland Department of Legislative Services – Fiscal and Policy Note, Property Tax Credit – Nonprofit Swim Clubs
Attachment D – Montgomery County, Maryland County Council Bill – Section 52-18P Property Tax Credit – Nonprofit Swim Clubs
Attachment E - 2006 Form 990 1st page Twinbrook Swimming Poll Corporation
Attachment F - 2006 Form 990 1st Page Potomac Woods Swim Club Inc.
Department Head:
Gavin Cohen, Director of Finance
Approved on: 09/18/2008
City Manager:
Scott Ullery, City Manager
Approved on: 09/18/2008
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