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    NOTES

    Federal Income and State Property

    Tax Exemption of Commercialized

    Nonprofits: Should Profit-Seeking Art

    Museums Be Tax Exempt

    We might, in other words, discover the soul of a sector that has been lost by

    many contemporary nonprofits, blinded as they are by their quest to be both 1“business-like” and “tax-free.”

    I. INTRODUCTION

    Is it heresy for someone who supports public funding for the arts to ad-vocate that art museums should be taxed? Better yet, is it simply illogical? Why would federal or local taxing authorities tax art museums, just to have those revenues returned in the form of public grants? This Note in part attempts to highlight the transformation art museums have undergone from donative organizations at the turn of the nineteenth century to commercially oriented organizations at the end of the twentieth century, realizing substantial profits from museum shops, blockbuster ex-2hibitions, and loan arrangements. Important tax breaks, like the duty-free

    import of art and the tax deductibility of charitable contributions, helped make American art museums into some of the finest museums in the 3world. Today, federal income tax exemption and state property tax ex-emption laws are helping to transform American art museums into very profitable institutions. Tax-exemption laws do not prohibit nonprofits 4from earning a profit from their charitable activities. Indeed, charities

    should not be required to operate at break-even budgets. Profits allow charities to survive economic downturns and to improve and expand their activities.

    1. Jon Van Til, Tax Exemptions Reconsidered, NONPROFIT TIMES, June

    1993, at 14, 17.

    2. See infra notes 224-75 and accompanying text.

    3. See KARL E. MEYER, THE ART MUSEUM: POWER, MONEY, ETHICS 24

    (1979).

    4. See infra notes 176-97 and accompanying text.

    115

116 NEW ENGLAND LAW REVIEW [Vol. 35:1

    But as charitable deductions have led to abuses, the increasing pressure to maintain profitability has led to the distortion of tax-exemption laws. For many organizations in the nonprofit sector, profitability is no longer an incidental benefit of well-managed charitable activities, but an increa-singly important goal and measure of success. Tax-exemption laws can and should correct this myopic vision, not by freezing the transformation of organizations within the nonprofit sector or contracting the scope of tax-exempt organizations to an overly restrictive group, but simply by exacting a fair price for this transformation, that is, taxing certain profit-5seeking activities of nonprofits.

    Given the beneficial effects of having a strong nonprofit sector, the the-sis of this Note is not that certain nonprofit organizations should be denied tax exemption altogether, but rather that profit-seeking activities of non-profits should not be entirely tax exempt. The question this Note attempts to answer then is not why nonprofits should be tax exempt, but to what 6extent they should be. As an analytical tool, this Note focuses on art mu-7seums to help answer this question.

    5. It is not tax exemption per se that is bad, or exemption for commercial ac-tivities that is bad, since many businesses receive tax benefits. See GLENN W.

    FISHER, THE WORST TAX? A HISTORY OF THE PROPERTY TAX IN AMERICA 191-92

    (1996) (discussing tax incentives for economic development); STEVEN DAVID

    GOLD, PROPERTY TAX RELIEF 130-31 (1979) (discussing tax exemptions for busi-

    nesses); Will S. Myers, Jr., General Appraisal of the Effect of Exemptions on the

    Tax Base, in THE PROPERTY TAX: PROBLEMS AND POTENTIALS 267, 276-82 (1967)

    (surveying state tax exemption schemes for businesses). The problem is that new nonprofit activities are justified based on old law, and thus tax-exemption laws are bent out of shape.

    6. It is difficult to set limits on the scope of tax exemption without offering some rationale for why tax exemption is available to certain organizations in the first place. To this end, Part V surveys some of the justifications for tax exemp-tion. However, this Note does not purport to defend any single, exclusive justifi-cation for tax exemption; at most, it suggests that the manner in which public char-ities operate, and not just the type of goods and services they provide, should be an important factor in determining whether tax exemption is available. Thus, the purpose of this Note is intended in large part to provide an empirical, or descrip-tive, account, rather than a normative account, of how art museums operate, and to highlight how tax-exemption laws affect, and perhaps should affect, art museums. Such an effort is also meant to highlight that debating the merits of tax-exemption laws without adequate data amounts to not much more than empty rhetoric.

    7. A primary reason for employing a case specific study of tax-exemption laws is to illustrate the difficulties with trying to find one comprehensive justifica-tion for making tax exemption available to the nonprofit sector as currently com-prised. In addition, and apart from this author‟s personal interest in art museums,

    art museums provide an interesting case study for studying tax-exemption laws because the debates within the tax field about the proper place of tax-exempt or-ganizations with relation to the business sector are akin to the debates within the museum community about the role and function of art museums in today‟s society.

2000] PROFIT-SEEKING ART MUSEUMS 117

    8Part II of this Note describes early American art museums. This histor-

    ical perspective will serve as a backdrop for illustrating how American art museums have changed over the course of the twentieth century, especial-ly in the last three decades.

    Part III describes and compares the current provisions of the federal in-910come tax-exemption and state property tax-exemption laws. Studying

    tax-exemption laws is important because they constitute the primary rea-son why most qualifying organizations choose to operate as nonprofits. In turn, tax-exemption laws function as the primary regulatory mechanisms of nonprofit organizations. Comparing property tax-exemption laws with their federal counterparts is important for several reasons. First, many large nonprofit organizations, like art museums, are property intensive institutions. As a result, local governments forego substantial amounts of revenue by providing tax exemption to such organizations. Second, while the structure of the federal and local tax-exemption laws are basically the same, the incentives and administrability of the two exemption provisions are different. Third, as property intensive donative organizations trans-form into commercially oriented organizations, generating profits from non-property based sources, the regulatory effect of property tax-exemption laws are diminished. Part III concludes with the suggestion that profit-seeking nonprofits should be subject to taxation to some de-11gree.

    Part IV describes some of the profit-seeking activities of art museums, illustrating how core charitable activities have been turned into primary 12revenue sources. Part V then argues that, though a profit oriented art museum should not be denied tax-exempt status, it should be subject to 13partial taxation. Revocation of an organization‟s tax-exempt status only

    removes that organization from public accountability. In the case of art museums, given the immense cultural and artistic value of their collec-tions, removing them from the public eye would be a mistake. Yet, this does not mean that art museums should not be fairly subject to partial tax-ation for certain activities. Thus, instead of narrowing the type of activi-

    As tax commentators debate where to draw the line between nonprofits and for-profits, between exemption and no exemption, the museum community is debating the transformation of art museums into business savvy cultural entertainment cen-ters. While exemption laws should not have much to say about the merits of an art museum‟s substantive endeavors, exemption laws should have some say about how art museums ought to conduct themselves as organizations enjoying certain tax benefits.

    8. See infra notes 15-43 and accompanying text.

    9. See infra notes 65-145 and accompanying text.

    10. See infra notes 146-97 and accompanying text.

    11. See infra notes 198-223 and accompanying text.

    12. See infra notes 224-75 and accompanying text.

    13. See infra notes 276-334 and accompanying text.

118 NEW ENGLAND LAW REVIEW [Vol. 35:1

    ties nonprofits can undertake, and therefore remitting important revenue sources for funding operating costs, nonprofits should be discouraged from unduly expanding profit-seeking activities by exacting a fair price for conducting those activities. Finally, Part VI presents the author‟s con-14clusion.

    II. HISTORY OF AMERICAN ART MUSEUMS

    A. Theoretical Constructs: What an Art Museum Should Be

    The debate over the mission of American art museums began with two antithetical conceptions of art museums as espoused by museum educators 15John Cotton Dana and Paul J. Sachs. Though both men emphasized the

    role of museums in educating the public about the fine arts, their concep-tion of the relationship between the art museum and the public was mani-festly different.

    Dana‟s ideal art museum embraced its community and educated people about common and approachable objects, rather than becoming a store-16house for precious works of art, culturally inaccessible to the public. 17The museum building itself was a tribute to his ideal of an art museum.

    In contrast to the typical classical façades of many art museums built at 18the time in America, Dana‟s museum was “built on a downtown street,

    14. See infra notes 335-40 and accompanying text.

    15. See MEYER, supra note 3, at 36. After serving as the director of the pub-lic library in Denver, Colorado, and Newark, New Jersey, John Cotton Dana (1856-1929), founded the Newark Museum in New Jersey in 1909. See id. at 36,

    38. Paul J. Sachs (1878-1965) was an investment banker with Goldman Sachs & Company, who, at the age of thirty-seven, became the assistant director of the Fogg Museum at Harvard and “mentor of two generations of museum profession-

    als,” including the directors of some of the greatest museums in the United States. Id. at 40-42.

    16. See id. at 39. One of Dana‟s first exhibits at his newly founded Newark Museum was an exhibition of New Jersey textiles. See id.

    17. See infra notes 18-20 and accompanying text.

    18. The social and political ideologies reflected by museum architecture has been extensively studied. See, e.g., Carol Duncan & Alan Wallach, The Universal

    Survey Museum, 3 ART HIST. 448, 449 (1980) (“The museum‟s physical promi-

    nence and monumental appearance signal its importance. Absorbing more manual and imaginative labour than any other type of architecture, the museum affirms the power and social authority of a patron class.”). For example, many museums built

    in the eighteenth and nineteenth centuries in Europe and America often emulated the architecture of temples, palaces and crypts to evoke a sense of grandeur and to “[draw] upon the complex of interconnected meanings associated with the cere-

    monial architecture of the ancient world.” Id.; see also GERMAIN BAZIN, THE

    MUSEUM AGE 197-99 (Jane van Nuis Cahill trans., Universe Books 1967) (citing examples of Italian, French, British and German museums in the nineteenth cen-tury). Art museums built in the twentieth century also manifest their own ideolog-

2000] PROFIT-SEEKING ART MUSEUMS 119

    rather than on a splendid, isolated site; it was simple and utilitarian in de-19sign.” Dana‟s art museum was a utilitarian institution catering to the 20public need, and useful only as long as it benefited the public.

    Paul Sachs‟ ideas about art museums were the polar opposite of Dana‟s aspirations. Though emphasizing that art museums should function as educational institutions, Sachs‟ art museum was the research center of the 21scholar and the privileged connoisseur. A like-minded professor of fine

    arts at New York University countenanced the importance of scholarship in the study and display of the museum‟s collections and stated, at a mu-

    seum seminar, that “„[a] museum should not be a public playground. It is

    primarily for scholars and when actuated by considerations of the public at 22large it soon loses its force.‟”

    Sachs‟ and his students‟ views on the relationship between art museums 23and the general public could be called “elitist.” Indeed, apart from utili-

    tarians like Dana, American philanthropy in the arts and its emphasis on

ical programmes in their architecture. See generally Helen Searing, The Develop-

    ment of a Museum Typology, MUSEUM NEWS, Apr. 1987, at 20.

    19. MEYER, supra note 3, at 38-39. Dana thoroughly criticized the imposing buildings of traditional art museums: “„[t]hey are large, monumental, obtrusive, make impressive photographs, help to give cities plausible reasons for existence, furnish to donors a refined publicity for unselfish expenditures and endow labo-rious trustees with a sense of duty done and with the immortality of bronze tab-lets.‟” Id. at 39.

    20. Dana succinctly condemned contemporary museums as “„awesome to a few, tiresome to many, and helpful to almost none.‟” STEPHEN E. WEIL,

    RETHINKING THE MUSEUM AND OTHER MEDITATIONS 53 (1990).

    21. See MEYER, supra note 3, at 41. For Sachs the museum professional

    must be a scholar, a generalist trained in the arts and humanities, a specialist “„with wide bibliographical knowledge,‟” and also “„a curator and administrator taught to understand that in the twentieth century in America, a museum should be not only a treasure house but also an educational institution . . . .‟” Id. For a pers-

    pective on what skills contemporary museum professionals must have, see Stephen E. Weil, From Being About Something to Being For Somebody: The Ongoing

    Transformation of the American Museum, DÆDALUS, Summer 1999, at 229, 250-

    51 (stating that “[w]hile museums will still require the expertise of the discipline-

    centered specialists . . . the successful operation of public-service museums will require that those specialists at least share these positions with museum workers of a very different orientation and expertise . . .”) and see also WEIL, supra note 20,

    at 73-104 (discussing the professional skills required of curators and directors).

    22. MEYER, supra note 3, at 42. But cf. Emlyn H. Koster, In Search of Re-

    levance: Science Centers as Innovators in the Evolution of Museums, DÆDALUS,

    Summer 1999, at 277, 287 (stating that “[i]n today‟s wide spectrum of museum philosophies, the two end states seem to be 1) a curator-driven, collection-based museum with a passive stance on public programs, and 2) an audience-driven, educationally-active museum that positions itself as a relevant community re-source”).

    23. See MEYER, supra note 3, at 43.

120 NEW ENGLAND LAW REVIEW [Vol. 35:1

    education and public benefit seems to be nothing more than a “conscious effort by what was called the enlightened class to donate materials for 24public show in order to elevate and educate [the] citizens.” Ultimately,

    most museums embraced and tried to embody Sachs‟ model of art mu-25seums as a public institution.

    B. An Illustrative Example: The Metropolitan Museum of Art, New York Sachs‟ model of the museum as an institution for scholarly activity, yet

    playing a role in educating the public, is manifest in one of the greatest art museums in the United States, the Metropolitan Museum of Art in New 26York (hereinafter Met). The Met also began the conflicting existence of

    24. DILLON RIPLEY, THE SACRED GROVE: ESSAYS ON MUSEUMS 43 (1969).

    The philanthropists believed that it was their moral obligation to cultivate “the educational and cultural development of their fellow citizens.” Id. The democrat-

    ic foundation of the United States also favored philanthropic activities for the pub-lic‟s benefit. See id. “Benefaction, philanthropy, were not only virtues; there was a strong, a zealous missionary desire to uplift, to create cultural equality as one of the fundamental outgrowths of our new democracy.” Id.

    25. Some commentators underscore this development in no uncertain terms:

     Needless to say, Dana‟s vision of the truly public art museum, which had no place for the collector or the art historian, had no effect on the real art museum, whose trustees and curators were content to serve the few, especially since serving the many would entail sharing control of the art museum with elected officials politicians. They were mindful, however, that it would be dangerous for the art museum to let its claim to being a public-service institution lapse; it had always depended on state and local government for support and would like to have had more.

EDWARD C. BANFIELD, THE DEMOCRATIC MUSE: VISUAL ARTS AND THE PUBLIC

    INTEREST 105 (1984). But cf. EDWARD P. ALEXANDER, MUSEUM MASTERS: THEIR

    MUSEUMS AND THEIR INFLUENCE 10 (1983) (stating that “[m]any museums today,

    especially smaller ones and the newer American neighborhood and minority mu-seums, are continuing actively the movement Dana started”).

    26. For the Met, as well as for many other museums, “[t]he basis and justifi-

    cation for the museum‟s existence lay in its educational role.” CALVIN TOMKINS,

    MERCHANTS AND MASTERPIECES: THE STORY OF THE METROPOLITAN MUSEUM OF

    ART 17 (1989). Joseph C. Choate, who authored the Met‟s charter, remarked that the museum‟s founders:

     “believed that the diffusion of a knowledge of art in its higher forms of beauty would tend directly to humanize, to educate and refine a practic-al and laborious people; that though the great masterpieces of painting and sculpture . . . could never be within their reach, yet it might be possible in the progress of time to gather together a collection of works of merit, which should impart some knowledge of art and its history to a people who were yet to take almost their first steps in that department of knowledge.”

Id. at 16-17 (alteration in original).

2000] PROFIT-SEEKING ART MUSEUMS 121

    27art museums in the United States as quasi-public institutions.

    In January 1870, the Metropolitan Museum of Art began its existence 28under the aegis of twenty-seven trustees. The trustees, in order to avoid

    a take-over by the then “reigning political boss, William Marcy Tweed,” made an agreement with the city, whereby the city granted the land and paid for the construction and maintenance of the building, while the mu-29seum kept ownership of the collections. Construction for the new mu-

    seum began in 1874, and was completed in 1880, and expanded in 1888 30and 1902.

    The museum‟s charter invoked the philanthropic ideals of enhancing the public‟s understanding of the arts and culture: “„encouraging and develop-

    ing the study of the fine arts and the application of the arts to manufacture, of advancing the general knowledge of kindred subjects, and, to that end, 31of furnishing popular instruction and recreation.‟” In order to achieve

    these goals the Met needed money for acquisitions and to fund its educa-tional programs. This financial need is where the practical operation of 32the museum parted from the noble ideals espoused in its charter.

    27. See MEYER, supra note 3, at 43. “The chartering of the Metropolitan

    starts a new tradition municipal aid to the art museum.” BAZIN, supra note 18,

    at 247.

    28. See A. Hyatt Mayor, Introduction to THE METROPOLITAN MUSEUM OF

    ART NEW YORK 9, 9 (Newsweek ed., 1978). The trustees, New York‟s social elite, believed that the time was ripe to manifest the great pecuniary wealth of the new nation, and New York as its commercial center, through the “„works left by the world‟s greatest artists.‟” LEO LERMAN, THE MUSEUM: ONE HUNDRED YEARS AND

    THE METROPOLITAN MUSEUM OF ART 14 (1969).

    29. Mayor, supra note 28, at 9; see also BAZIN, supra note 18, at 247. Be-

    fore the trustees of the Met went to see William Marcy Tweed, the Met and the American Museum of Natural History, also based in New York, “planned to erect a building together and secured the signatures of the owners of more than half of the real estate of the city on a petition asking the state legislature to authorize the city to tax itself $500,000 for this purpose.” EDWARD P. ALEXANDER, MUSEUMS IN

    MOTION: AN INTRODUCTION TO THE HISTORY AND FUNCTIONS OF MUSEUMS 32

    (1979).

    30. See BAZIN, supra note 18, at 247.

    31. Mayor, supra note 28, at 9. The organizing committee described the purpose of the museum as providing an opportunity “„to our whole people free and ample means for innocent and refined enjoyment, and also supplying the best facil-ities for practical instruction and for the cultivation of pure taste in all matters connected with the arts.‟” RIPLEY, supra note 24, at 44.

    32. See MEYER, supra note 3, at 44. As quasi-public organizations, Ameri-

    can art museums must serve two masters: the general public on the one hand and the private benefactor on the other hand. See id. at 43-44. “To justify public sup-

    port for new buildings and programs, American art museums invariably invoke the arguments of a John Cotton Dana, emphasizing utilitarian benefits, such as educa-tion. To mobilize support from the private sector, they stress connoisseurship and collection building the interests of a far narrower constituency.” Id.

122 NEW ENGLAND LAW REVIEW [Vol. 35:1

    Consequently, though the city covered the museum‟s building and maintenance costs, a magnificent building without a magnificent collec-tion could not be called an art museum. The trustees clearly understood that the Met‟s acquisition of art would not be financed by the city but by 33“„men of fortune and estate.‟” In 1904, the Rogers Fund, a gift from

    Jacob S. Rogers, a railroad magnate, made nearly $5,000,000 available to the museum “„for the purchase of rare and desirable art objects, and for 34the purchase of books for the library . . . .‟” Undoubtedly, J. P. Morgan

    was another figure in the history of the Met who helped fuel its acquisi-tions and transformed the museum into a powerhouse for collecting the 35great masterpieces of Western art.

    The Met was not free from public controversy. One of the most incisive conflicts in the museum‟s history centered around the issue of Sunday 36openings. Namely, should the museum be open on Sundays for public access on the only day much of the general public was free to visit, or 37should the museum maintain the inviolability of the religious holiday?

    The museum was steeped in internal conflict over this question. The pub-38lic supported Sunday openings, and several trustees argued that the mu-

    seum could not fulfill its educational mission, eloquently penned in its charter, if the public were not admitted on Sundays, the only free day on 39which they could visit the museum. Those who opposed Sunday open-

    ings, for moral or religious purposes, seemed to have forgotten about the museum‟s educational role, and, in fact, seemed to have disavowed the 40ideal of the art museum as an institution for the public benefit. William

    C. Prime, the museum‟s vice-president, who wielded considerable influ-

    33. TOMKINS, supra note 26, at 21.

    34. Mayor, supra note 28, at 10; see also BAZIN, supra note 18, at 247.

    35. See Mayor, supra note 28, at 10; see also TOMKINS, supra note 26, at 99.

    Morgan served as the president of the Met from 1904 until his death in 1913. See

    id. at 99, 179. After Morgan‟s death, due to demands on his estate, only about

    forty percent of his art collection, valued at approximately $60,000,000, ended up in the Met. See id. at 180. It was not until the passage of the Payne-Aldrich Tariff of 1909, which eliminated the tariff duty on original works of art more than twenty years old, that Morgan even began to ship his enormous art collection to the Unit-ed States from England. See MEYER, supra note 3, at 31-32.

    36. See LERMAN, supra note 28, at 69.

    37. See id.; see also TOMKINS, supra note 26, at 75-76.

    38. See LERMAN, supra note 28, at 71. The public, newspapers, and some

    politicians supported Sunday openings, as early as 1881. See TOMKINS, supra note

    26, at 75. In 1885, the Board of Estimate threatened to withhold its annual appro-priation of funds to the museum unless it instituted Sunday openings. See id.

    Meanwhile, other art museums around the country already had Sunday hours; for example, the Museum of Fine Arts in Boston had Sunday openings since its open-ing in 1876. See id.

    39. See TOMKINS, supra note 26, at 76.

    40. See id. at 76-77.

2000] PROFIT-SEEKING ART MUSEUMS 123

    ence among the trustees, not only believed that city funding compromised the museum‟s independence as a private institution, but also wrote: “„[the public] must be forced to think of it as a private institution. . . . They must stop thinking they support the Museum and be compelled to see that we own and support the Museum and give it in pure charity for public educa-41tion.‟”

    Prime‟s notion of the art museum as a “pure charity for public educa-

    tion” was a way to distance the museum from the public. The art museum doled out charity, in the form of art and cultural education, to the public, and the public should accept such charity with gratitude rather than insist-ing on influencing the museum‟s management and activities. The art mu-

    seum‟s schizophrenic nature did not help to appease such ideas. On the one hand, the art museum defined its purpose and justified its existence by reference to the education of the public in culture and the fine arts, but, on the other hand, the museum had to maintain an aura of wealth and privi-42lege to attract donations from the social elite. The dilemma between

    elitism and populism has continued to the present, but it has now been

    41. Id. at 77 (emphasis in original). A similar sentiment was expressed by Thomas Hoving, the Met‟s director from 1967 to 1977, who stated that:

     [b]ecause the city puts monies into keeping this place up, there can be an easy confusion on the part of the general taxpayer that he somehow owns pieces of the art in this institution. The facts are, he doesn‟t. But he believes he does, and it has become a Pirandellian reality. It is as it appears to be.

JOHN L. HESS, THE GRAND ACQUISITORS 172 (1974) (emphasis in original). It was

    largely due to the Met‟s controversial deacessioning policy during his directorship that Hoving made such statements, and insisted that “„every work of art is entirely owned by the trustees.‟” MEYER, supra note 3, at 211. To which Francis T. P.

    Plimpton, a museum trustee, a lawyer, and the head of the city‟s Board of Ethics, unequivocally replied that, “„[i]f Mr. Hoving ever said that the art in the Met be-

    longs to the board of trustees, he‟s out of his mind.‟” Id. Analogizing art mu-

    seums charitable corporations to charitable trusts, the museum‟s trustees

    would be characterized as the legal owners of the museum‟s collections, while the public would be the beneficial owners. See American Ctr. for Educ., Inc. v. Cav-

    nar, 145 Cal. Rptr. 736, 742 (Cal. Ct. App. 1978) (stating that “the assets of cha-

    ritable corporations are deemed to be impressed with a charitable trust by virtue of the declaration of corporate purposes”); see also Stern v. Lucy Webb Hayes Nat‟l

    Training Sch. for Deaconesses and Missionaries (Sibley Hospital), 381 F. Supp. 1003, 1013 (D.D.C. 1974) (stating that “[t]he applicable law is unsettled. The charitable corporation is a relatively new legal entity which does not fit neatly into the established common law categories of corporation and trust”).

    42. When it came to soliciting donations and funding, the Met was a private club managed by the social elite for the social elite. See LERMAN, supra note 28,

    at 71. The trustees arranged for museum memberships, such as the Benefactor which required a $50,000 gift or bequest, because they “knew precisely how much Museum membership could mean culturally and socially.” Id.

124 NEW ENGLAND LAW REVIEW [Vol. 35:1

    43eclipsed by the dilemma between public funding and commercialism.

    III. THE SCOPE OF FEDERAL INCOME TAX EXEMPTION AND

    STATE PROPERTY TAX EXEMPTION OF ART MUSEUMS: A

    COMPARISON

    In a footnote appended to its opinion in Harvard Community Health Plan, Inc. v. Board of Assessors, the Massachusetts Supreme Judicial Court stated that “[t]he requirements for exemption under I.R.C. ? 44501(c)(3) are virtually identical to those under G.L. c. 59, ? 5, Third.”

    The court has since affirmed this view in another footnote but also

    amended its holding by stating that “[t]he structure of the two provisions 45 are the same.” 46The structure of the two tax-exemption provisions is very similar.

    Both provide for similar substantive characterizations of the type of activi-47ties that qualify for exemption; both require that exempt organizations provide services to the general public rather than to a particular limited 48group of individuals; and both make provisions regulating the extent to 49which exempt organizations may undertake non-exempt activities. The

    two provisions are structurally similar, but their incentives and proficiency to regulate commercially oriented activities of exempt organizations are 50sometimes at odds with one another.

    43. See Neil Harris, The Divided House of the American Art Museum,

    DÆDALUS, Summer 1999, at 33, 51 (observing that “[m]useum directors [can] legitimately claim bewilderment at being told, simultaneously, to avoid the public trough and stand on their own two feet, but not to resemble too closely the com-mercial world that, after all, [has] to show a profit”).

    44. 427 N.E.2d 1159, 1160 n.3 (Mass. 1981).

    45. New England Legal Found. v. City of Boston, 670 N.E.2d 152, 158 n.8 (Mass. 1996). Other states have not been so quick to assimilate federal tax-exemption laws. See, e.g., Hospital Utilization Project v. Commonwealth, 487 A.2d 1306, 1316 (Pa. 1985) (stating that federal exemption is “irrelevant” to the determination of exemption from state property taxes).

    46. There is variation among state property tax-exemption statutes. See

    HOWARD L. OLECK & MARTHA E. STEWART, NONPROFIT CORPORATIONS,

    ORGANIZATIONS, & ASSOCIATIONS 93 (6th ed. 1994). This Note focuses on sta-

    tutes from California, Massachusetts, New York and Pennsylvania.

    47. See infra notes 65-70, 146-55 and accompanying text.

    48. See infra notes 79-83, 156-62 and accompanying text.

    49. See infra notes 84-145, 163-97 and accompanying text.

    50. Some commentators have already discussed the divergent interests of the federal and state governments in granting exemption to nonprofit hospitals. See

    Margaret A. Potter & Beaufort B. Longest, Jr., The Divergence of Federal and

    State Policies on the Charitable Tax Exemption of Nonprofit Hospitals, 19 J.

    HEALTH POL. POLY & L. 393 (1994). The authors note that because the federal government bears much of the cost of healthcare for the elderly and indigent, fed-eral tax laws reflect the government‟s interest in encouraging efficiency in opera-

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