Property Tax Exemption for Charitable Nonprofit Organizations: A Uniform Possibility
Copyright © 2017 Wake Forest Journal of Business & Intellectual Property Law and reprinted with their permission.
Abstract
Under current property tax regimes in this country charitable nonprofit organizations are treated differently not only from state to state and city to city, but also municipality to municipality within each state. For Example, in New Jersey, Princeton University was recently sued by citizens even after entering into an agreement with the local municipality to make payments in lieu of property taxes, and hospitals now question what the property tax exemption law in their state requires since the Governor recently pocket-vetoed legislation that would have made a profound impact on them. Additionally, Boston, Massachusetts and Pittsburgh, Pennsylvania ask charitable organizations to voluntarily enter into payments in lieu of taxes (“PILOTs”) regarding the property that they own, while other cities throughout the United States exempt charitable nonprofit organizations from property tax and do not expect them to enter into PILOT agreements.
While the policies and practices surrounding these laws are complex and multi-layered, it is clearly past time for a resolution that provides a uniform approach to taxing the property owned by charitable nonprofit organizations. The sector has hit a tipping point as reports of conflicting court decisions occur weekly, providing little solace for charitable organizations. The ability of charitable nonprofits to know what is expected so that they may carry out their exempt missions for the good of our communities is at stake. The time they spend defending themselves in court, arguing with municipal leaders, or creating strategies to avoid property tax, is time not spent on furthering their charitable missions and providing for unmet needs. Cases such as Fields v. Trustees of Princeton University, AHS Hospital Corp. v. Town of Morristown, Baruch SLS, Inc. v. Tittabawassee Township, are just the most recent examples.
A uniform solution has been difficult, given the various types and sizes of organizations in this sector. Many charitable nonprofit organizations have continued to morph into large multicorporate structures like hospitals and universities, hybrid organizations including Benefit corporations have flourished, and others like local soup kitchens and after school programs that are small, and often times struggling continue to operate. To date, there are no laws in this country differentiating charitable organizations by size (revenue) with regard to the property taxes being levied. The legal, political, policy and practical complexities of creating a uniform property tax system in this area have been considered for years. Some states, cities, and municipalities have taken action to address this issue, but have not provided a uniform solution. A solution may be found in the U.K. law, which follows a statutory scheme for taxing property owned by charities. Additionally, the PILOT program that has been in place since 2012 in Boston, Massachusetts, might also be worth considering to create a model. However, one thing is certain, a solution is needed.
Charitable nonprofit organizations structured as I.R.C. § 501 (c)(3) organizations, by their very nature and the laws that govern them, are exempt from federal income and other taxes. Traditionally, states have granted these organizations property tax exemption through their constitutions and local legislation. But over the past fifteen years, in light of economic need, it has become increasingly common for local governments to threaten to revoke this exemption, thereby stimulating the rise in PILOTS and other tax schemes.
This Article will discuss the need for a resolution in light of the applicable federal, state, and local laws with a view to the developing case law. It will seek to clarify and define the basis for this trend and all of its intended and unintended consequences. It will attempt to set forth the large differences among groups in this sector. It will ask whether the rise of new nonprofit corporate forms such as the multi-corporate entities that are now our hospitals and universities, and hybrid organizations, have an effect on the latest push for ignoring property tax exemption, and it will discuss whether an approach that acknowledges the differences among these organizations is more appropriate. Lastly, this Article will discuss the policy issues surrounding this matter and ask whether there is a benefit to some consistency that would invoke a Model Act of sorts.