Each of the 50 states and the District of Columbia exempts eligible property owned by nonprofit organizations from local property taxation.  As a general rule, although formal legal status as a nonprofit organization is one of several attributes that an organization must have in order to qualify for the exemption, typically the property owner must be a charity and must use the property for charitable purposes.

As local governments have faced increased fiscal pressures, the exemption has come under greater scrutiny, and jurisdictions have sought ways of either limiting its scope and/or its fiscal impact. State and local governments have re-examined the concept of charity, and have sought to tighten eligibility for the exemption by setting more stringent standards. In addition, there has been renewed interest in “clawing back” some of the tax savings from the exemption by implementing PILOT (Payment in Lieu of Taxes) programs under which nonprofits agree to make “voluntary” payments to localities.

The proposed paper would focus on three issues prompted by these developments.

(1)   We will use data from the most recent IRS informational returns filed by nonprofits to refine current estimates of the financial impact of the exemption on eligible nonprofits and its fiscal impact on local jurisdictions.

(2)   We will discuss the state-level developments in defining charity for property-tax exemption purposes. 

(3)   We will examine recent efforts, most notably in Boston, to provide a more systematic and transparent framework for requesting PILOTS.

The analysis will conclude with a policy analysis of the pluses and minuses of reducing the fiscal impact of the nonprofit property tax exemption, by means of narrower and more targeted definition of charity and/or implementation of PILOT programs structured along the lines of the Boston model.