August 16, 2011

California Denies Property Tax Relief to Many Nonprofits

State’s budget woes likely motive, New York Times reports

California nonprofit organizations in increasing numbers are being denied property tax exemptions, The New York Times reported Monday.

California officials are refusing to grant property tax exemptions because they maintain that the nonprofits do not do enough to benefit state residents, The Times said, citing lawyers for the organizations.

In order to be exempt from property taxes, nonprofits must first obtain a certification of exemption eligibility from the state’s Board of Equalization. But the final decision is in the hands of county assessors, who determine whether the applicant is using the property in a way that is of “primary benefit” to the state. Ambiguity surrounds the meaning of “primary.” Some groups whose work is done mainly overseas have property tax exemptions; others such as local service-oriented Rotary clubs do not.

The eminent William and Flora Hewlett Foundation’s longtime exemption from county property taxes is now on the radar of the San Mateo County assessor “as something to look at,” according to the report. Hewlett has granted approximately 27% of its total gifts this year to groups working in the state, the report said.

The Times said no one knows how many California nonprofits have been affected or why the matter has suddenly become contentious, but cited the state’s notorious budget difficulties as a likely culprit.  This seems a safe surmise.

In April, the Johns Hopkins Center for Civil Society Studies released a survey that showed state and local governments across the country, faced with severe fiscal pressure and budget deficits, are increasingly targeting nonprofit organizations as potential sources of needed revenues. Sometimes governments assess special fees that circumvent long-standing nonprofit exemptions from property and other taxes.

The study found tax-exempt groups worried that local governments would hit them with new levies just when they can least afford them, affecting the viability of particular programs or even entire operations.

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