FAQs on state legislation to tax Yale’s academic property
The nontaxation of the academic property of colleges and universities is a common and deeply rooted policy in Connecticut and throughout the nation, as these charitable institutions contribute to the common welfare.
Some state legislative proponents have told the media that they want to “clarify” longstanding Connecticut law and policy with a new bill — SB 414 (text available here) — that targets Yale, and only Yale, now pending at the state legislature.
To clear up any misconceptions about taxation of Yale-owned real estate, here are some frequently asked questions about this matter.
Does Yale University pay property taxes on its commercial properties?
Yes. Yale pays full property taxes on its commercial properties. These properties are held as part of the community investment program to help revitalize New Haven, to build retail businesses that expand the tax base, and to create jobs for the community. They include storefronts on Broadway and Chapel Street, as well as apartments marketed primarily to Yale affiliates.
Yale paid $4.5 million in property taxes on commercial space in 2015 and is consistently one of the city’s top direct taxpayers. Yale’s longstanding community investment program has helped spur growth in New Haven’s population, jobs, and tax base. New Haven is the only Connecticut city to enjoy growth in all these areas over the past decade.
What is the property tax status of Yale’s academic property?
Yale University is a nonprofit educational institution and its academic property — classrooms, dormitories, laboratories, administrative offices, concert halls, libraries, athletic and recreational facilities, among others — is not taxable, as set out in Yale’s charter, a legally binding contract between the state and Yale.
This longstanding public policy is similar in its specifics to that of Connecticut’s other historic colleges and universities, including Connecticut College, Trinity College, and Wesleyan University. Moreover, it is similar in intent and impact to the treatment of academic property of independent colleges and universities throughout the nation. These academic properties support teaching, research, student life, and other aspects of its academic mission. No college or university in the country is taxed according to the rules proposed in SB 414.
What effect would SB 414 have?
Since Yale pays property taxes on all of its commercial property, any additional property taxes would be levied on academic property. SB 414 is targeted at certain campus buildings. In particular, these properties would become taxable under SB 414:
- Any program at Yale that generates more than $6,000 in fees from for-profit entities (see page 2, line 35 of SB 414). The Yale Center for Genome Analysis currently meets this criterion.
- Concert halls, theaters, and athletic facilities if the fees for use by anyone other than faculty, staff, or students exceeds $6,000 (see page 2, line 27 of SB 414) This would affect Woolsey Hall, Ingalls Rink, Payne Whitney Gymnasium, among others.
- Any part of Yale campus, including faculty laboratories, if royalties for goods designed or generated at Yale exceed $6,000 (see page 2, line 33 of SB 414). This seems to affect labs of any faculty member who launched a successful start-up.
What are the estimated property taxes that Yale would owe under SB 414?
The additional property taxes would be high. Based on current municipal assessment data, the annual taxes on Woolsey Hall alone would be nearly $760,000.
What about Yale’s genome analysis center?
Yale does not and will not operate commercial activities on its academic campus. Research programs based in Yale laboratories, such as the Yale Center for Genome Analysis, provide services that support university researchers. The center is one of the world’s leading programs in gene sequencing, and is centrally involved in major research initiatives of the National Institutes of Health. It has made important technical innovations in genome sequencing and provides research services that support university researchers. A very minor share of the services provided by the center supports biotech startups in Connecticut that do not have the capacity in house as a service to them.
Yale reports this incidental use as unrelated business income, which is taxable as corporate income, consistent with federal and state tax law. The availability of this service makes Connecticut more attractive to bioscience companies, but Yale is prepared to terminate the service if the General Assembly believes it is an inappropriately commercial activity in an academic building. Such an outcome would be unfortunate and contrary to the state’s expressed interest in growing the knowledge economy.
Is the educational travel program for alumni a commercial business competing with localcompanies?
Yale Educational Travel — as the name suggests, provides an educational opportunity for Yale alumni to participate in a traveling seminar with Yale faculty. The educational tours that include a structured curriculum related to Yale’s educational mission are considered a tax-exempt activity under federal and state tax law.
What about academic properties used by community groups?
Yale makes some of its academic property available to the public for occasional use, such as youth hockey at Ingalls Rink, or artistic performances during the International Festival of Arts and Ideas. The charges to cover costs are minimal and largely reflect custodial expenses; moreover, the incidental use does not imply that these are commercial properties. The New Haven Symphony has performed in Woolsey Hall for decades and charges its own admission fees.
The current language of SB 414 would require Yale to curtail use of these buildings by those without a Yale affiliation, in order to preserve its freedom from taxation for these buildings. This outcome would be disappointing because Yale seeks to be a good neighbor and to contribute to civic life by making the campus accessible to the community.
What about start-up companies that come from basic scientific research on campus?
No startup businesses based on discoveries or inventions of Yale faculty operate in Yale-owned academic property. All of them are located in commercial space that is subject to property taxes, such as 5 Science Park, 300 George Street, or Alexion’s headquarters, among other locations. These generate jobs and taxes for the community.
Yale, like all of its peer research universities, strives to create jobs by translating university research into actual products in the market. This is how Yale can make a big contribution to adding jobs to the New Haven economy. Sometimes that occurs through nonprofits, but often a for-profit company takes responsibility for developing the discovery into a product. All of the startup companies are organized outside of Yale, and are located in taxable buildings. None of the companies’ work is conducted on campus.
Federal law — the Bayh Dole Act — specifically encourages universities to transfer technology to industry. The General Assembly is currently considering SB 1, a bill to engage universities in promoting innovation and product development. Taxing Yale for launching startup companies conflicts with the Bayh-Dole Act and SB 1.
What happened in the past when the government tried to tax academic property?
Previous generations of city leaders tried in the courts to tax Yale academic properties in 1899, 1935, 1950, 1975, and 1976. Each case was unsuccessful, whether it was about student housing, the Yale Rep, or the hockey rink. Such properties are part of the academic mission, like similar facilities are at other colleges or universities.
In 1990 the city and the university mutually decided that there was a better way and created a true social contract. Yale agreed to make an annual voluntary payment to the city, which now stands at $8.5 million and is the largest such voluntary payment by any university in the nation to any municipal government, even though there are many universities larger in budget or population than Yale and many are located in cities with equal or greater fiscal stress than New Haven. The proposed legislation runs counter to this social contract.
Yale’s voluntary payment is pegged to inflation (CPI) and it grows as if the university’s on-campus population grows. It is worth noting that Connecticut itself is one of only two states in the nation with a PILOT program whereby the state provides revenue to municipalities in recognition of nontaxable college, hospital, and state property, and Connecticut’s is the largest.
Most cities in the nation receive little or no direct revenue because of nontaxable academic property. New Haven stands out in that it receives unusually large direct revenue for its city budget because it is the home of a nontaxable university. Municipal fiscal analysts, when rating New Haven’s financial situation, regularly cite the relationship with Yale University as a positive factor.
What about the claim by legislative advocates that Yale has some sort of “super-exemption”?
Yale operates under rules that are common across all colleges and universities: It pays property taxes on any commercial properties it owns. In addition, it does not owe taxes on its academic properties. Moreover, we are not aware of a college or university that pays property taxes solely because a research program generates a minimal amount of unrelated business income. No university is taxed for making its facilities open to community groups. Finally, no municipality levies property taxes for creating jobs through startup companies.
Section 12-81 has a long list of exemptions — more than 60 in total. This same section has specific exemptions for property of the Red Cross, for houses of clergymen used as dwellings, among many others. It is notable that advocates of SB 414 target Yale, and only Yale, among the many colleges and other nonprofits.
Why is this proposed state legislation unconstitutional?
This legislation, if enacted, would unlawfully impair the nontaxation covenant in Yale’s charter, in violation of the Contracts Clause of the United States Constitution, the Constitution of the State of Connecticut, or both. Yale’s charter has been repeatedly and authoritatively construed by the courts, including at least twice by the Connecticut Supreme Court, to affirm the nontaxation of academic property. The Contracts Clause has been expressly held by the U.S. Supreme Court on multiple occasions to protect such charters from impairment by state legislative action.
The legislature is bound under the Contracts Clause to respect the charter and may not unilaterally alter the language or contours of the charter’s nontaxation covenant by purporting to tax property that the charter covers. Any assertion that the property tax bill simply seeks to interpret the charter is inconsistent with its introduction of new language and terms to modify the charter’s language and disrupt judicial interpretation of the present language.
Yale’s charter, including the covenant of nontaxation, has been adopted and confirmed in Art. VIII, Section 3 of the Connecticut Constitution. The provision was adopted in the 1818 Constitution and retained in the 1955 and 1965 revisions — indicating that this is not some mere “ancient” provision from ancient history, but rather durable policy recognized across generations. Even apart from the protection afforded under the Contracts Clause, a unilateral legislative act purporting to modify or abrogate the covenant of nontaxation in the charter would be invalid as contrary to the Connecticut Constitution.
Why is the legislation being raised now?
The New Haven Register reported on March 15, 2016: “The proposed bill, still in the works, came from Unite HERE and the Center for a New Economy (CCNE), a union advocacy group, according to [Mayor] Harp and state Senate President Pro Tempore Martin M. Looney, D-New Haven. Both groups are supporting Local 33, a new local made up of graduate students who want to unionize.”
A similar bill was considered, and defeated, at the legislature in 2004. It was also promoted by CCNE. Explaining why the legislature rejected the similar legislation promoted by the same advocacy group 12 years ago, State Representative Craig Miner told a reporter, “There was a pretty broad range of concern that Yale was going to be treated differently from some other institutions of its kind. Most of us felt that there has been a good-faith effort through a number of channels by Yale to be a good neighbor.”
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