Action Heats Up on Nonprofit Property Tax Legislation

Action Heats Up on Nonprofit Property Tax Legislation

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Every year, states consider scores of bills designed to adjust, restrict, or even expand property tax exemptions of nonprofits and foundations. This session of state legislatures is presenting greater diversity of issues and activity. Seeking to close a $1.7 billion budget deficit, Connecticut’s Governor Malloy is proposing that the state save money by ending its longstanding reimbursements to localities to cover tax revenues they theoretically lose from hospitals being exempt from taxation. But, his budget also seeks to authorize towns and cities to levy property taxes on the land and buildings of nonprofit hospitals. Running counter to this erosion of consistent nonprofit tax law, two bills (HB 6675HB 6934) in Connecticut would permit municipalities to abate property tax for property used for arts or culture, including art galleries, art studios, installation galleries, movie theaters, performance venues, and retailers catering to or relating to the arts.

Oregon has several bills that propose changes to property tax treatment for nonprofits. One affects limited liability companies owned by nonprofits, two (HB2047HB2115) deal with expanding the exemption for health clinics, and other proposals would expand informational filings and create a study on ad valorem property taxationVirginia legislation would expressly authorize local governments to enter into mutually agreeable terms with entities exempt from real property tax for the payment of service charges.

Finally, a Montana bill sought to remove the property tax exemption for any nonprofit that pays compensation greater than $250,000. The bill sponsor reportedly was concerned about competition between hospitals, which pay higher salaries, and small businesses. The legislation was soundly defeated in the State House of Representatives last week, based on arguments in support of nonprofits pursuing their mission and a desire not to enact legislation that interferes with the free market. The defeat of the bill is significant because the linkage between executive compensation and nonprofit property tax exemption has also been made in legislation in Connecticut and elsewhere.

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