Can nonprofit organizations obtain property tax exemptions for facilities used partially for profit? Sports Medicine v. Bd. of Equalization of Salt Lake County Explained

The Utah Supreme Court’s decision in Sports Medicine Research and Testing Laboratory v. Board of Equalization of Salt Lake County provides important guidance on when nonprofit organizations can obtain charitable property tax exemptions under the Utah Constitution.

Background and Facts

Sports Medicine Research and Testing Laboratory, a nonprofit organization, sought a property tax exemption for its South Jordan facility. The laboratory performed drug testing services for two distinct groups: government agencies and charitable organizations (at discounted or free rates) and professional sports organizations like the NFL and Major League Baseball (at market rates). Each group represented approximately half of the laboratory’s usage. Sports Medicine argued that its market-rate testing was necessary to generate revenue to support its charitable mission and to maintain the high volume of tests needed for research purposes.

Key Legal Issues

The central issue was whether property used partially for market-rate testing qualifies for the constitutional charitable exemption, which requires that property be “used exclusively for charitable purposes.” The court also addressed whether vacant space held for future expansion could qualify for exemption and clarified the proper analytical framework for charitable exemption cases.

Court’s Analysis and Holding

The Utah Supreme Court established a three-step analysis for charitable exemptions: (1) identify all uses of the property, (2) determine which uses serve charitable purposes, and (3) assess whether non-charitable uses exceed de minimis levels. The court held that charging market rates to generate profit is not a charitable use, even when profits support charitable activities. The court distinguished between charging below-market rates to charitable recipients versus charging market rates to commercial clients. Because Sports Medicine’s market-rate testing represented approximately half of its usage—far exceeding de minimis—the property did not qualify for exemption.

Practice Implications

This decision clarifies that Utah courts apply strict construction to charitable property tax exemptions. Nonprofit organizations cannot obtain exemptions for facilities that generate substantial commercial revenue, even when supporting charitable missions. The ruling reinforces that the “exclusively for charitable purposes” requirement means any more than de minimis commercial use defeats the exemption. Organizations seeking exemptions should structure their operations to ensure all facility use serves charitable purposes through below-market pricing or free services.