California Nonprofits & Property Taxes

Some interesting developments reported by this story in the New York Times.

An excerpt.

“A growing number of nonprofit groups in California are being denied exemption from property taxes because the state’s chief tax collector and assessors contend they do not do enough to benefit state residents, according to lawyers representing the groups.

“I have a client who applied for the exemption recently and has been denied on the basis that it would not be doing enough to benefit the citizens of California,” said Ofer Lion, a lawyer. Mr. Lion would not name his client, but said it was a new charity with “a global outlook in its mission.”

“They purchased a building in California because they relied on being able to qualify for property tax exemption,” he said. “If it has to pay the tax, it’s not going to go under, but less money will, of course, be available for its mission.”

“No one knows how many nonprofit groups in California have been affected or why the issue has become contentious now, but the state’s budget woes have been mentioned as a likely motive. “It probably has something to do with the economy,” said Stephanie L. Petit, who has clients dealing with the process. “I think regulators are starting to look more closely at organizations that have the property tax exemption.”

“State and local governments have been taking a hard look at nonprofits and the various tax exemptions they receive for the last couple of years, as tax revenues have fallen and the demand for public services has risen.

“Last year, Hawaii tried — and failed — to impose a 1 percent tax on nonprofit groups. Boston has asked nonprofits to pay the city what is essentially a discounted property tax, and Chicago plans to ask nonprofits to start paying water and sewer fees.

“Not surprisingly, such plans run into stiff opposition from nonprofit groups and their political supporters. But in California, the rules on the property tax exemption for nonprofits evolved out of a 1944 ballot initiative, so they are more grounded than in many other places — if not necessarily applied assiduously by county assessors.

“The state has a two-tiered system, in which nonprofits first apply to the Board of Equalization, which collects state-mandated fees, sales and sin taxes and certifies exemption eligibility.”