Taxes

Short answer: yes, it is legal, and yes, there are options.

Let’s review why it is legal,[1] and then we’ll discuss the options.

For over thirty years, there has been clear guidance that when a municipality or school district collects taxes for a public library, the money should be turned over “as soon as practicable after their receipt.”

For this reason, libraries and their taxing authorities should stay in close communication about the timing of payment(s).

If an “incremental” approach is needed because of delayed payments, this close communication is more critical, because there are a few more details to consider, such as how to know when to demand payment, and how to demand incremental payments efficiently.[2]

Because the district is obligated to keep the library’s moneys in a separate account,[3] the district should be able to provide current information about when there are moneys to be paid.

Proceeding from there, the district and the library should be able to agree on periodic payments, and memorialize the agreement as follows:

RE:        [NAME LIBRARY] [YEAR] Levy

              Agreement regarding payments of [LEVY AMOUNT]

Dear [NAME AT DISTRICT]:

Thank you for meeting with [NAMES] on [DATE] to discuss the manner in which the District will convey the levy.

As we discussed, the District will remit the full amount by [DATE], unless it has not received the full amount, in which case it will remit what it has collected.

In the event the full amount cannot be paid, after [DATE], the District will pay over moneys collected for the Library by [the # day of the month].[4]

The District will consider this letter a standing request for payment of the [YEAR] levy per Education Law Section 259.

In the event the District receives notice of assessment challenges that might result in the need to return funds, the District shall notify the Library as soon as possible via an email to [ADDRESS].

Thank you for your assistance in this matter.

Sincerely,

NAME

President

NAME Library

Going back to the Comptroller’s guidance from 1992, this might not be the only option. In many counties, the county as taxing agent actually fronts anticipated revenue to the entities it collects for. In some places, steady revenue is assured by issuance of “tax anticipation notes,”[5] which are low-interest loans that bridge any gap between the need for funding and the levy collection.[6]

What does this mean?

If a library depends on timely collection of a levy for cash flow (either because that’s just how things are, or because there may be a time of unusual burden on reserve funds, as in the question), it is important for the library to:

• Know how taxes are collected.
• Know if funds are ever advanced prior to full collection.
• Know if there are anticipated “claw backs” due to assessment challenges.
• Know if “tax anticipation notes” are issued.
• If “tax anticipation notes” are not used, but could ensure fiscal stability for the library, work with the taxing agency to explore if they can be used.[7]

This approach could be helpful in a scenario like one described by the member, because the issue is created not only by some special circumstances at the library (construction project) but sudden notification of a change in payment practice.

In a case like the one in the question, being tactical/diplomatic/strategic and involving legal counsel and/or accountants with experience in municipal/school district finance is just as important as knowing the law.[8] Prior to meeting with the district, setting out a plan and confirming it with the library’s board of trustees is the way to go.

Thank you for an important question. Given the pressures on library budgets and taxpayers in 2024, this is likely not going to be a unique situation.

Let’s give short, punchy answers to the questions and then drill down with further information about each answer.

1. Do we need to pay refunds to tax levies received in prior years?

If the library was not a party to the settlement (which it wasn’t), NO.

2. If we’re not obligated to pay the refund, would the school district have to pay it on our behalf as the tax collector?

If the district entered into the settlement without the library being notified, YES.

3. Are we subject to settlements that we weren’t involved in, nor aware of?

There is no case law on this point (yet) but a wise position to adopt is NO (while being ready to be told MAYBE).

Okay, let’s break this down a bit more:

First, let’s remember how we got here: in 2021, the State Assembly amended Real Property Tax Law Section 726, enabling school districts to collect from the library any lost revenue from taxpayer challenges to property assessments. A recap and commentary on that law, which went live in 2022, is posted at https://wnylrc.org/raq/return-school-district-tax-levy-money.

In that earlier answer, I wrote: “There are about fifty more pages I could write on this topic, but that’s the Big Picture, and the Big Takeaways are: 1) it can happen; 2) it is good to prepare for it; and 3) if it happens, review the details before agreeing to it.”[1]

This issue—settlements of assessment challenges covering multiple years, including years before the law was changed—is a big chunk of those fifty pages! But we’ll keep this answer short.

So, to dive in a bit more:

Why do I say there is no obligation to pay refunds for tax levies from prior years (before 2022) if the library was not a party to the settlement?

I say this, because it is a prudent first position to take. Agreeing to pay a settlement when your library wasn’t notified or invited to the table is dicey. Agreeing to pay the money for years when there was no obligation to pay it is even more dicey! It is wise to be circumspect and assess the claim before paying it.

Why do I say that, if a library is not obligated to pay a refund, the school district would still have to pay it? Because the law doesn’t allow the taxpayer to collect the refund from the library directly; it allows the district to collect the money from the library after repayment to the taxpayer. In this case, while the district might only be able to collect part of the payment from the library, it will still owe the full amount of the refund to the taxpayer.

Finally, why did I say it is wise to reject that your library is obligated by a settlement it wasn’t involved in nor made aware of, but that your library “maybe” should be ready to be told otherwise?

Whenever the law changes, there is a period of trying to figure out the new boundaries and implications of the change. While the resolution of an assessment challenge is often a judicial order, with thousands of dollars at stake, it is good to take a hard look at what is being demanded and make sure the district demanding it is clearly entitled to it.

So, when a refund is demanded, it is a good idea to demand ALL the paperwork related to the assessment challenge, the negotiations, the settlement, and the final order, to make sure your library is both following the law and not handing over more than it has to.

And on a final note: all that said, every aspect of a tax assessment challenge and refund must be handled with extreme tact and diplomacy. After all, the library must maintain a positive and collaborative relationship with the people involved in the deliberations, so, when assessing potential refunds and requesting paperwork, feel free to pour as much sugar as you want into the request.

Sample language for this is: “Of course the library wants to issue a refund in any amount required by law. Please provide us with copies of the documentation related to the assessment challenge, any settlement, and the final order, and our treasurer will assess this as soon as possible so we can issue the correct amount.”

When your library has received the documentation, have your local attorney take a look it, and issue a written opinion as to what is owed.

Once the board has the complete picture and any advice it needs, it can vote to issue the refund, and then make sure it is considering the financial implications of the amount.

Thank you for a nuanced and very important question!

This sounds like a lovely service to both the library and community, so I am going to make this answer as positive as possible.

First, it is clear from the question that the instructor (a “community member”) is not a library employee. So, they are either doing this as a volunteer or as an independent contractor.

Either way, before we delve into the financial/tax/deduction questions, I have to say this:

If the instructor is a volunteer, because yoga can involve some risk in injury, it is wise to have a letter in place confirming the terms of the volunteer service. That letter would address logistics, how the class is promoted, liability considerations (“hold harmless,” indemnification, insurance), and address the financial considerations (the donation arrangement).

If the instructor is an independent contractor who is getting paid to offer the class, it is wise to have a letter in place confirming the terms of the independent contractor service. That letter would address when/where the class takes place, how the class is promoted, liability considerations (“hold harmless,” indemnification, insurance), and finances (the donation arrangement).

For any library (and Friends), although incidents of injury are rare, because of the potential cost, addressing these “liability considerations” is critical. As it so happens, they can be addressed in the same letter that addresses the financial aspects.

Okay, now we can discuss the financial aspects.

The good news is that the member is 100% right: Perhaps a simple solution would be to re-word how this is done…

Exactly.

We won’t go over wording for all the combinations,[1] we’ll just deal with this scenario: a free, donation-accepting class conducted by a volunteer, with the donations turned over to the library, to be turned over to the Friends.

The issue here, of course, is: what is the donated income from the class—a direct donation to the Friends (held briefly by the library) or direct payment to the instructor?

This distinction is important.

If money paid by the attendees is a direct donation to the Friends, the instructor cannot claim a deduction for it (since it was never their income, it was only ever a donation).

If, on the other hand, the money paid by the attendees is a direct payment to the instructor, it can then be a donation from the instructor and to the Library/Friends.[2] That shouldn’t be a problem, unless the income is not declared.[3]

There is no scenario where the donations collected can become the value of the service that was volunteered, and thus the credit is for “in-kind” services. The IRS doesn’t work that way.[4]

The issue presented here is not rare or esoteric. In fact, it is so common, the IRS has a fancy name for it: the “assignment of income doctrine,” which basically says that if you earn money and immediately give it away, it is still taxable income. 

To clear this up, the member’s “re-wording” suggestion is spot-on. However, before changing the publicity, it would be good to focus on the arrangement, so there is clarity between the instructor, the library, and the Friends. After that, the advertisements can be updated to fit the agreement.

Where can you get such a letter? It is best for a final version to be reviewed by your lawyer, but as it turns out, we occasionally get questions about yoga here. So, two places to start are Live streaming a chair yoga program and Liability Waivers for Library Fitness Programs.

In closing: Yoga is a beautiful activity and a library hosting it is providing a valuable community resource; the law and the IRS should never get in its way. With a careful arrangement, that can happen.

Thank you for a thoughtful question!

The short answer is yes, it's true. A school district tax levy, even if it’s a separate line on a school district bill in support of a library, can be reduced if a taxpayer challenges their assessment after the tax bills go out, and yes, since 2022, a library may have to refund overpayments.

While taxes supported directly by the voters (and distinctly designated on tax bills as for the library) are the most stable sources of annual revenue, both can be subject to the correcting and refund provisions of New York's Real Property Tax Law (RPTL 554 and 729, respectively).

For this reason (and others), it’s a good idea for a library dependent on such revenues to maintain a fund balance that can help bridge any reductions.

All that said, if your library receives notice that a reduction or refund must be made due to correction, it is wise to ask for the details and underlying documentation (and have your lawyer or accountant review them), to ensure the board is in a position to agree that the reduction or refund was issued properly.

There are about fifty more pages I could write on this topic, but that's the Big Picture, and the Big Takeaways are: 1) it can happen; 2) it is good to prepare for it; and 3) if it happens, review the details before agreeing to it.

A "pass-through" is when a 501(c)(3) organization agrees to let a non-501(c)(3) use its tax status to accept grant money.  It’s a not uncommon arrangement; in fact, some 501(c)(3)’s are actually set up to do it so smaller and less established organizations can benefit from grant money.

Since it can give access where access would otherwise be denied, a pass-through can be a very helpful and equitable thing.  But sharing a tax status is like sharing a milkshake: you can do it—and it's a sweet gesture—but it comes with risks.

What are those risks, and how can they be handled?

At the bare minimum, any public library considering serving as a pass-through must have a written, board-approved policy for doing so, and the policy must include:

• How does serving as a pass-through serve the library's mission and long-range plan, and how do they select pass-through affiliations that stay within that purpose?
• What is the admin fee for serving as a pass-through (usually no more than 10%)?  NOTE: the admin fee is essential for a public library since it cannot offer the accounting and other services associated with being a pass-through without being remunerated at least at cost.
• Does the library have the accounting and administrative capacity to safeguard the money and monitor that all funding requirements have been met before it is disbursed (since failure to meet them can require a claw-back)?
• The contracts for the grant must be kept for 6 years.
• The library's accountant should be consulted before any pass-through is approved, so it can be assured that the library can properly account for the funds.
• The library must keep in mind that a failure to meet the requirements of the grant could impact future funding from state/federal sources AND being associated with funding from a source (even just as a pass-through) could bar the library from obtaining funding from the same source for its own project.

There are risks to both state and federal legal compliance, as well as contract compliance for an individual grant, if these items are not addressed properly.  For this reason, many NFPs just say "NO" to requests to be a pass-through.

A related but separate solution to this type of need is the library serving as the grantee and bringing in the potential "partner" as a subcontractor (or "sub-awardee").  In that scenario, the library applies for the grant and then sub-contracts with the person/org who will do most of the work.  (This relationship is usually written right into the application for the grant).

Bottom line: if the library wants to offer services as a pass-through for mission-aligned organizations, it can, but it should have a written policy and be ready to spend administrative time 1) monitoring the grant terms and 2) accounting for the grant.  Once a policy is in place, requests can be evaluated, and pass-through relationships can be governed in accordance with it.

Still not sure if your library should do that? Here’s a litmus test:

If a library is not prepared to have its staff spend around ten hours of admin time (or more) on it each fiscal year, then the answer should be a "we do not have the policy or capacity to grant this request".  If the library feels like the project is worthy enough, it could then offer "however, the library will consider applying for the grant directly, with your organization as a subcontractor."

I hope this is helpful!

Short answer: You can't find anything to verify that claim because what is claimed is wrong.

Long answer:  The rental business may be wrong, but I can't blame them the way I can blame someone for parking in a "No Parking" zone.[1]

That's because if they are basing their answer on a plain reading of the relevant regulations (N.Y. Comp. Codes R. & Regs. Tit. 20 § 529.7), the exemption applies only to "sales."

Here's the language from the regulations:

(h) Sales to exempt organizations.

(1) Any sale or amusement charge to or any use or occupancy by an exempt organization to which an exempt organization certificate has been issued is exempt from sales and use tax.

So, a literal reading of the regs suggests that the exemption applies only to sales (and amusement charges[2]); there is no reference to renting or leasing or borrowing equipment.[3]

However, a quick check of advisory opinions[4] from the New York Department of Tax & Finance confirms that rental fees are considered exempt, too. Here is an excerpt that confirms this:

When Petitioner, within 90 days of the transaction, accepts in good faith from its customer an appropriate and properly completed exemption document showing that the purchase is exempt from sales tax, Petitioner is relieved of its burden of proving that the transaction is exempt and need not collect tax on sales or rentals to that customer. See section 1132(c) of the Tax Law.

...

When its customer is a building owner that is an organization exempt from sales tax, Petitioner’s rental or sale of equipment will be exempt from tax.

...

The organization claiming exemption from the tax must be the purchaser of record on Petitioner’s bill or invoice and must be the payer of record. See section 529.7(h) of the Sales and Use Tax Regulations. [emphasis added]

So, there you have it: rentals to tax-exempt organizations are exempt just like sales.

I am sorry you are having to put up not only with mold but also with overly literal HVAC vendors.  I hope you can show them the opinion I've linked to and reach a good resolution.  If not, I suggest you have them call their accountant or the helpful folks at the New York State Tax & Finance Information Center: https://www.tax.ny.gov/help/contact/

There's a lot going on in this question, so I am going to be less fun and flowery[1] than usual as I answer it.

I am sorry to report that per NY Tax Law Section 1105(b), an association library must collect sales tax on sales of facsimile services for faxes sent and received within the state.[2]

In part, this is because association libraries, although chartered by State Ed, are regarded by the NYS Department of Taxation & Finance as not-for-profit corporations, not state agencies/instrumentalities.[3]

Now, as a not-for-profit, an association library is exempt from collecting and paying taxes on facsimile services per NY Tax Law Section 186-e--just like any other chartered library or museum would be.  But as the resource cited in the member's question[4] shows, exemption under 186-e doesn't equate to exemption under 1105 (b).[5]

Of course, legal guidance in "Ask the Lawyer" can supplement--but never substitute--guidance from your association library's tax professional or lawyer.  If the accountant or lawyer for your association library finds a way to avoid the obligation to collect tax on sales of intra-state faxes: 1) get that in writing from them before relying on it; and 2) please send us an update!

Thanks for a question that inspired frequent cross-checking of the tax code!  I wish I could offer a more helpful answer.

[1] "Fun and flowery!" is, I am sure, the headline of the upcoming New York Times Book Review covering "Ask the Lawyer: The Novel" (which, to the author's knowledge, is not in the works, but if you know a publisher, tell them I'm open to persuasion).

[2] If the person is faxing to New Jersey, or Russia, or anywhere but within New York, tax under 1105 does not apply.  If you want to read more on that, see NY Tax Opinion TSB-A-96 (70) S from November 25 1995.

[3] I could write a lot about this, but let's just say the commentary in NY Tax Opinion "TSB-A-13(1)R", regarding how the NYS Department of Taxation and Finance regards an association library, is a good summary of this position.

[4] NY Tax Publication 843; the link to the document is in the question.

[5] I'd say this situation isn't fair--but since this is an answer about taxes, such an observation would be redundant.

In Greek mythology, the "chimera" is an intact, functioning animal boasting the features of other animals: the head of a lion, the body of a goat, and the tail of a serpent (or a dragon, depending on your source).

Libraries are legal chimeras.

In fact, not only are libraries legal chimeras, but depending on the "type" of library, they are each their own, special type of chimera.

For instance, a village public library/chimera would have: the head of a village, the body of a not-for-profit corporation with municipal fur, and the tail of an education corporation as chartered by the Regents.  An association public library, on the other hand, would have: the head of group of local library-loving people, a furless not-for-profit body...and more options for the shape of the tail.

Why all this chimera imagery?  Once we take the member's question out of the cold, harsh light of logic and throw it into the dappled sunlight of myth, it is easier to unpack the confusion underlying their question.[1]

Following our "hybrid mythical animal" analogy, a special district library has: the head of a three-headed dog[2], and, if the authorities determine that it has the power to tax, the tail of a scorpion, which could render it unable to be regarded as a 501(c)(3).

This "power to tax" part is at the heart of the question.

As set out on page 10 of the "2018 Library Trustee Handbook" posted at https://www.nysl.nysed.gov/libdev/trustees/handbook/handbook.pdf, the mythical creature that is a non-association public library (of any kind) can choose to register as a 501(c)(3):

"Public libraries (municipal, school district and special legislative district) are, by definition, a government entity under IRS code, and therefore tax exempt and not 501(c) (3) corporations. However, public libraries may receive a confirmation of tax exempt status from the Internal Revenue Service to use with grant makers and businesses."

But if a special district created by legislation has a scorpion's tail and can levy a tax, they might not even qualify for the "confirmation."

Why is that?  I'll let the IRS (mostly) do the talking[3]:

Examples of entities that may be considered "separately organized" [and thus able to qualify as a 501(c)(3)] include colleges and universities; hospital, housing, or development authorities; public library boards; water or park districts; public school athletic associations; charitable trusts; and organizations created by inter-governmental agreement.

...[But]..

Under Rev. Rul. 60-384, a government entity will not qualify for exemption if it has powers beyond the scope of section 501(c)(3). For example, where an instrumentality exercises substantial enforcement or regulatory powers in the public interest (such as health, welfare, or safety regulation), it will not qualify.

...[for example...]

Example (3): W is a public library board organized under a state statute authorizing it to determine the tax rate needed to support its operations within specific maximum and minimum rates. W does not impose or levy taxes, but submits the tax rate to the county auditor who certifies it to the county adjustment board. The library tax is collected in the same manner as other taxes by the county treasurer, who transmits to the library board its share of tax revenues. Since W does not itself have the power to levy taxes, but only to determine tax rates, it does not have a prohibited governmental power and may qualify for exemption under section 501(c)(3). Rev. Rul. 74-15, 1974-1 C.B. 126. [emphasis added]

On the flip side, the guidance quoted above confirms that once a "special district" has a substantial government power (like taxation), it does not qualify for exemption as a 501(c)(3).

Now, here's where I go out on a limb: most[4] special district libraries do not have the power to tax directly.  That said, there certainly are "districts" in New York that have the power to sting--I mean, to tax--or other powers the IRS has determined disqualifies the entity from qualifying as a 501(c)(3), so a library should assess this issue before deciding what it qualifies for.[5] But generally,[6] special district public libraries rely on municipalities and school districts (and perhaps other taxing authorities) to collect their annual levy...and per IRS guidance, that means they can qualify as a 501(c)(3), just like the Handbook says.

What is the magical formula by which a library can assess what type of chimera it is for tax purposes?  As of this writing[7], the IRS posts that at:

https://www.irs.gov/government-entities/federal-state-local-governments/governmental-information-letter

And since this ATL is all about the IRS, we'll give them the last word (taken from the link above):

As a special service to government entities, IRS will issue a “governmental information letter” free of charge. This letter describes government entity exemption from Federal income tax and cites applicable Internal Revenue Code sections pertaining to deductible contributions and income exclusion.  Most organizations and individuals will accept the governmental information letter as the substantiation they need.  

Government entities can request a governmental information letter by calling 877-829-5500.

So, you can call Charon[8]--uh, the IRS--and ask them to ferry you across into 501(c)(3)land, for free. 

Good luck crossing over the Styx...I mean, conferring with the IRS on your tax-exempt status!

[1] I am not saying the member is confused.  In fact, the question shows they are quite lucid; it's the legal picture that is muddy.

[2] Since it is usually comprised of a combination of other districts and/or municipalities.

[3] The full document is here: https://www.irs.gov/pub/irs-tege/eotopice90.pdf.  If you think I am off the rails with this "chimera" stuff, wait until you see how they distinguish an "entity" from an "instrumentality"!

[4] All?? I want to say all.  But I have learned to avoid absolutes in libraryworld.

[5] The IRS guidance cited states "There are three generally acknowledged sovereign powers: the power to tax, the power of eminent domain, and the police power. An entity is a "political subdivision" only if it has a substantial sovereign power. It need not have all three sovereign powers, but possessing only an insubstantial amount of any or all of the sovereign powers is insufficient."

[6] And by generally, I mean, "insofar as I know" because if there is one thing I have learned about libraries, it is to NEVER assume an absolute.

[7] July 6, 2022.

[8] Why yes...I have been re-reading "D'Aulaire's Book of Greek Myths" with my 8-year-old.

There are a few scenarios where a capital project, such as a renovation, could start with a vote of the electorate of a school district library.[1]  If the project is subject to a bond, requires a tax levy increase, or is somehow tied to a referendum, the voters' go-ahead might be needed before work[2] can begin.  In addition, if a municipality or district was deeding over a gift of real property, that could require a public vote, as well.

However, in the scenario described by the member, the money is "in the bank" and is not conditioned on obtaining further funds from the taxpayers and no additional real property needs to be purchased or funds need to be levied or raised.

With that, while in library law I make it a rule to "never say never" in this case, I don't see a need for a public vote.  Just follow the rules of procurement![3]

[1] Which is how the phrase "public vote" is used in the question.

[2] "Work" has a variety of meanings in this context; it could include hiring an architect, or purchasing real property, or putting an actual shovel in the ground.

[3] As with other major purchases by public libraries, compliance with competitive bidding requirements in capital projects is key, even if the library is using donated funds.  For more on this, visit https://www.osc.state.ny.us/files/local-government/publications/pdf/seekingcompetition.pdf.

This question had me on the edge of my seat until the very end.

          WHAT is this 200-year-old document?

          WHO is this mysterious lender?

          WHAT does the original loan agreement look like?

          WHO took the 20-year-old photos?

Sadly, it's possible I'll never know the answers to these questions since none of that information is required to answer the member's question.

Is there any potential legal ramification to us if we decide to accept the item into our collection as a donation with the value he has listed (around $20,000)- i.e. in a situation like a tax audit?

The answer is: maybe, but no big deal.

Uh...

"No big deal"?

Yep.  Here's why:

For a donor to claim a federal income tax deduction based on the fair market value of a donated object, the donor must back up the claimed amount with a recent[1] appraisal.  But the form the donee must sign to acknowledge the gift expressly says:

This acknowledgment does not represent agreement with the claimed fair market value.

So, unless there are enough circumstances to suggest that things are fishy or outright fraudulent, a donee accepting a gift and signing a tax form to enable a donor to claim a deduction puts the risk of inaccuracy on the donor.

That said...

There are other reasons, aside from concerns from the IRS audit, that merit caution in a scenario like the one described by the member.

When a museum that relies solely on the representation of a donor as to the value of a donated object in their collection, the insurance coverage on that object, which should be based on the value of a collection, is based on third-party information. In a worst-case scenario, that could mean an insurance claim is based on what turns out to be inaccurate information. And of course, clear eyes and scrutiny are warranted when part of a donation's value is because of history and/or provenance.

Assessing value might also be part of a museum’s overall evaluation of whether an object fits within the institution's mission and collection management policy. So even if an independent appraisal isn't possible, having a policy of insisting on one for donations in excess of a certain value might be a good policy...and one that, for special circumstances, could be waived.[2]

As with any transaction, there absolutely could be "legal ramifications" for accepting a document[3] worth $20k+, but in and of themselves, those factors shouldn't pose an impediment to accepting such a gift.

Thanks for a great question.

For more information on gift acceptance, income tax deductions, and appraisals, visit the IRS at: https://www.irs.gov/instructions/i8283#en_US_202112_publink62730rd0e827

[1] The appraisal should be done within 6 months of the donation.

[2] Or a donor could be sought to cover the costs

[3] Art and a few other things require the appraisal to be attached.  For more on that, see the IRS guidance linked above.