The Property Tax Exemption for Nonprofits

Abstract

This paper reviews the existing literature on the property tax exemption for nonprofit organizations and identifies gaps to be addressed in future research. We start by examining justifications and existing eligibility criteria for the property tax exemption, followed by studies of the magnitude of the revenue loss from the exemption. We focus on theoretical and empirical studies of the economic effects of the exemption. We consider the effect of the tax advantage on nonprofit decisions about inputs, outputs and organizational form, decisions to rent or own, location decision, market share, and the effect of the exemption on neighboring property values. Finally, we evaluate research about the use of PILOTs and the implications of their possible expansion. We conclude that future studies need to examine further the magnitude of the revenues forgone, the advantages and disadvantages of PILOTs, and other solutions for distributing more evenly the burden of the exemption. Further studies are also needed to understand the economic effects of the property tax exemption, with opportunities for theoretical and empirical contributions.

Predicting Use and Solicitation of Payments in Lieu of Taxes

“…However, legitimate use of PILOTs requires that local administrators and elected officials are knowledgeable and consider the city's interests. In practice, PILOTs are often pursued in a haphazard manner (Kenyon & Langley, 2010, p. 32), but research is beginning to fill the knowledge gap for local government administrators (Kenyon & Langley, 2010; see also, Sjoquist & Stoycheva, 2010). As this knowledge gap is addressed, there may be increased use of PILOTs.…”

“…However, conducting a cost-benefit study for PILOTs is a costly and time-consuming endeavor because there is a paucity of theory and data. For example, the behavior of different types of nonprofit organizations in response to taxation and solicitation of PILOTs is not well understood (Sjoquist & Stoycheva, 2010). The percentage of nonprofits that would dissolve or relocate if they were to face a PILOT request or what size PILOT request might trigger such an outcome are unknowns.…”

“…The majority of research on PILOTs focuses on describing their use in large cities, reviewing arguments for and against PILOTs, and examining legal issues (Kenyon & Langley, 2010; see also, Brody, 2002;Sjoquist & Stoycheva, 2010). The primary purpose of this study is to develop a theoretical framework for predicting which local governments use and/or consider soliciting PILOTs.…”

Property Tax Exemptions for Nonprofit Hospitals: What Are They Worth? Do They Earn Them? Evidence From New York City

“…This brief review highlights a diversity of approaches scholars have taken to estimate the property tax expenditure for NPHs, and variations in methodology as well as data and assumption may explain the sizeable variation in the property tax expenditure estimates themselves (Sjoquist and Stoycheva 2011). Despite the methodological variation, all of the authors acknowledged the near impossibility of obtaining the right sort of data that would allow for a more precise nationwide estimates.…”