Taxes, Fees, and PILOTs (Payments in Lieu of Taxes)

Every state exempts some or all of the properties owned by charitable nonprofits from property taxes. However, despite a lack of legal authority to do so, some municipalities attempt to impose discriminatory taxes or fees on nonprofits, or demand so-called “voluntary” payments in lieu of taxes (PILOTs). Different jurisdictions call the assessment different terms – taxes, fees, or PILOTs – but the goal is the same, to divert nonprofit resources away from mission and into government coffers.

Why it Matters

The nonprofit community recognizes the budget challenges that state and local governments are facing; nonprofits experience them daily. Like governments, nonprofits are struggling to maintain services to their communities. In doing so, they earn their tax exemptions every day. Governments cannot impose new taxes and fees on nonprofit organizations without diminishing the impact that nonprofits have in their communities. As a nonprofit leader in Minnesota said:

“Nonprofits have tax exemption for a reason — they provide service to the community that lessens the burden on government. We are partners with government and the community. But as these additional fees and assessments get assigned, it comes out of our donated dollars and resources.”

Where We Stand

Charitable nonprofit organizations throughout the United States are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society as a whole. Consistent tax policies at the federal, state, and local levels are critical to the success of charitable nonprofits in pioneering and implementing solutions to community problems and aspirations. The National Council of Nonprofits is committed to preserving the tax-exempt status of organizations contributing to the well-being of their communities. In practice, this commitment means... [o]pposing the imposition of fees, payments in lieu of taxes (PILOTs), and taxes on tax-exempt organizations. 

National Council of Nonprofits Public Policy Agenda 

A Tale of Three Cities

Nothing reveals the challenges tax-exempt nonprofits face at the local level better than their 2011 experiences dealing with policymakers who were so desperate for money that they seized at any justification for grabbing charities’ funds without resort to consistent principles. Boston, without authority of law, demanded payments in lieu of taxes from larger nonprofits. In Chicago, the Mayor declared that while he regarded taxing nonprofits a non-starter, he nonetheless intended to require nonprofits to start paying certain fees to the city. New Orleans’ Mayor rejected PILOTs and fees as unworkable and inappropriate, but called on the Louisiana Legislature to allow the city to directly tax the property of charitable nonprofits. These three Mayors proffered three contradictory rationalizations for filling their budget holes. Their shared similarity was the practical effect each scheme would have on local communities: diverting already committed and vitally needed resources away from nonprofit missions – money contributed to deliver programs and services for individuals and local communities.

Status

The following contain lists of challenges to the work of nonprofits across the US. For even more up-to-date information on taxes, fees, and PILOTs, subscribe to Nonprofit Advocacy Matters.

• Taxes
• Fees
• Payments in Lieu of Taxes (PILOTs)

What Nonprofits Can Do

Find your State Association and get involved to address these and other developing issues in your state.  Share Your Story of Nonprofit Impact and explain the impact that losing your tax exemption would have on your ability to meet your mission.

Additional Resources

• "From the Fault Line on Nonprofit Property-Tax Exemptions," David L. Thompson, National Council of Nonprofits Blog, February 9, 2015.
• The Charitable Property-Tax Exemption and PILOTs, Urban Institute (2012)
• Letter from the Alliance for Nonprofit Excellence (Memphis, TN) regarding Payments in Lieu of Taxes and Nonprofits (2012)