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 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.
But assessors in each of the state’s 58 counties make the final decision on exemptions, after determining whether that property is used in a way that is of “primary benefit” to California.
The meaning of “primary,” however, is widely interpreted. “Although there has to be a primary benefit in California or to Californians, the way we look at primary is not a straight 50 percent test,” said Anita Gore, spokeswoman for the Board of Equalization. “Some activities and things nonprofit organizations do can’t be quantified in that sort of easy way.”
In Los Angeles County, for example, two properties owned by World Vision International, a Christian relief and development organization whose work is largely done overseas, are exempt from property taxes.
Similarly, Direct Relief International, which supplies medical supplies, drugs and equipment to countries around the world, does not pay property taxes on the office building and warehouse it owns in Santa Barbara. “In the current environment, I can imagine why local assessors would be looking for revenue and scrutinizing all the organizations exempted from local property taxes to see if they’ve complied with all the requirements and basically met their end of the policy bargain,” Thomas Tighe, chief executive of Direct Relief, said in an e-mail.
In San Mateo County, the William and Flora Hewlett Foundation has had a property tax exemption for decades, said Terry Flinn, special assistant to the county assessor.
So far this year, the Hewlett foundation has granted $14.2 million, or about 27 percent of its total gifts of roughly $52 million, to groups working in California. The rest went out of state and around the globe.
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