It is once again that time of the year when nonprofit tax exempt organizations file for their personal and real property tax exemptions. These organizations are accustomed to filing their application for property tax exemption with the County Assessor’s Office. As usual, they will submit a copy of their letter from the Internal Revenue Service (“IRS”) designating the organization as a 501(c)(3) tax exempt entity. As most everyone knows, a 501(c)(3) organization qualifies as an income tax exempt entity because its purpose is deemed to be educational, literary, scientific, religious or charitable. This IRS designation has for years been sufficient to grant the property tax exemption for the organization.
However, times have changed significantly in the past several years. With the amendment of the Indiana Constitution in 2012 placing caps on the property taxes to be paid by Indiana property owners, local governments are struggling to find sufficient funds to provide the services taxpayers have become accustomed to from their government. As such, local Assessors have started scrutinizing and challenging the property tax exemptions of many nonprofit organizations.
Assessors operate under the basic premise that all property located within the State of Indiana is taxable, unless an exemption has been granted by the General Assembly as permitted in the Indiana Constitution. Most property tax exemptions are set out in Indiana Code 6-1.1-10 et seq. The section of the code that is used most often by nonprofit organizations is Indiana Code 6-1.1-10-16, which grants an exemption to organizations organized for educational, literary, scientific, religious or charitable purposes. For all practical purposes, this statute reads the same as the Federal Statute that is the basis for the 501(c)(3) designation by the IRS. Because of this fact, most 501(c)(3) organizations believe that they will automatically qualify for the property tax exemption. Several years ago that was pretty much the case: tax exempt organizations would receive the exemption without providing any additional documentation.
As a result of several recent Court decisions, Assessors are not automatically granting these exemptions. Assessors and the local Property Tax Assessment Board of Appeals (“PTABOA”) are now requiring these organizations to attend a hearing to prove that in fact the organization qualifies for the exemption. Any organization that attends one of these hearings and attempts to argue that they qualify on the basis of their 501(c)(3) designation with nothing further, will likely be disappointed when the exemption is denied by the PTABOA and their property is deemed to be 100% taxable.
Tax exempt organizations cannot take the receipt of a Notice of Hearing before the PTABOA lightly. Preparing for any such hearing should begin even before the application for exemption is filed. Information must be provided that proves the property in question is predominantly owned, used and occupied for one of the purposes set forth in the statute. Organizing documents must state the tax exempt purpose of the organization. Additional information, such as the organization’s funding sources and how those funds are utilized, should be provided. Be prepared to explain how the organization relieves a service or burden of government. Failure to adequately present this information to the local County PTABOA will result in the denial of the exemption.
This article is intended to make tax exempt organizations aware of the changing landscape of the tax exemption process. Even tax exempt organizations that have been granted tax exemption for their property for years are now being called before the PTABOA to justify their entitlement to the exemption. Will you be ready, or will you be one of those organizations that fall into the EXEMPTION DENIED category? Take this time to prepare.
If you have questions regarding the contents of this article, or other similar issues, please contact your HWE relationship attorney or visit us at http://www.hwelaw.com.