For years, nonprofit organizations have come to California hoping to take advantage of the state’s exemption from property taxes for such groups.
Now that state is cracking down, according to this New York Times story.
An increasing number of nonprofits are being denied the exemption as that state wants evidence that the organizations are actually doing enough to benefit California residents. And with the state struggling like mad to pay its bills, it’s looking for any way to save some dollars.
California isn’t the only state taking a closer look at nonprofits who benefit from tax breaks as the economy continues to limp along. Hawaii failed in its attempt to impose a 1 percent tax on nonprofits in 2010, Boston has asked them to pay a discounted property tax and Chicago wants nonprofits to start paying for water and sewer.
In California, nonprofits benefit from a tax exemption that came from a 1944 ballot initiative, which makes it tougher to contest. The system calls for nonprofits to apply to the Board of Equalization, however it’s up to assessors in the 58 counties to make a final decision on who should be exempt. A nonprofit must use the property in a way that is of “primary benefit” to California, according to the story. Of course, that leaves things wide open to interpretation.
The Times story uses as an example two properties that are owned by World Vision International, which provides relief and development primarily overseas, yet is exempt from property taxes. Also, Direct Relief International, an agency that gives medical supplies to overseas countries, is also exempt. The list goes on of companies whose work is primarily, or at least in large part, done outside of California.
Some clubs that do a large amount of work in California, such as Rotary, is not exempt from property taxes.
A few of the cases are especially interesting, in particular those of nonprofits that support work in Mexico, which obviously has an impact on California. Is that connection enough to grant an exemption? For example, International Community Foundation of San Diego works with nonprofits in Mexico to fight tuberculosis, a disease that has increased in California due to migration. Does that count as benefiting Californians? The Board of Equalization said no.
What do you think? Should all nonprofits be exempt from property taxes? Property taxes support a lot of services, and some of these nonprofits have some pretty large properties that could generate some needed revenue. At the same time, paying high property taxes could put some of them out of business and take away some great work that some of them do. It’s a tricky question that California is tackling.
