Nonprofits and Property Tax Exemption--Tips and Resources

The Helen Bader Institute for Nonprofit Management at UWM sponsors an ongoing series of community Forums on the Nonprofit Sector that focus on nonprofit finance. In June 2010, local and national experts explored the property tax exemption for nonprofit organizations in partnership with Marquette University's Legal Initiative for Nonprofit Corporations (M-LINC). Panelists included

• Margaret M. Derus, Attorney, Reinhart Boerner Van Deuren S.C.
• Kevin Kearns, Professor of Public Policy, University of Pittsburgh
• Timothy J. Radelet, General Counsel, Wisconsin Housing and Economic Development Authority
• Peter Weissenfluh, Chief Assessor, City of Milwaukee Assessor's Office

[Listen to the Audio] (mp3 file, 138MB) [View the Power Point Slides]

The summary below is based on the presentations. It provides a basic overview of real property tax exemption for nonprofits in Wisconsin, but it is not intended as legal advice. Property tax exemption is a complex issue that is evolving locally, statewide and nationally. Nonprofit leaders should inform themselves and seek guidance from trusted advisors.

PRINCIPLES

Property tax exemption in Wisconsin is defined by the legislature through statute at the state level and applied and interpreted by the assessor's office at the municipal level. Note that the criteria for property tax exemption differ from the criteria for 501(c)(3) status and attendant exemption from federal income tax liability and deductibility of charitable donations.

Four principles apply to property tax exemption in Wisconsin:

• Presumption: Property is taxable unless proven otherwise.
• Burden: The burden of proof is on the property owner claiming eligibility for exemption.
• Strict but reasonable: The assessor is bound by a "strict but reasonable" interpretation of the law: in other words, the exemption needs to be a good fit.
• Public policy: In case of ambiguity, public policy dictates that the decision will be made in favor of taxability.

RECOMMENDATIONS

Familiarize yourself with the property tax exemption statutes and how they relate to your organization.

• Wisconsin has a patchwork of statutes pertaining to property tax exemption, reflecting history, politics, public policy and lobbying, and they vary considerably. (See state statute section 70.11.)
• Know your organization's basis for exemption in detail. While many nonprofit organizations fall under the general benevolent exemption (s. 70.11(4)), the language in this category is vague, and there may be others that provide a more specific and defensible basis for exemption for your organization.
• As you review the statutes, play close attention to how key words such as benevolent, charitable and good are defined, and what they are applied to. They may refer to property ownership, use of the property or a combination of the two.

Be vigilant. Be aware of events or activities that can trigger a change in exempt status for property tax purposes: change in ownership or use, commercial activities, leasing activity, etc.

Communicate accountability. Be prepared to "calculate and communicate" the public benefit--the social return on investment--that your organization provides, and make sure that your communication is aligned with practice.

• Assessors look at websites; make sure yours accurately conveys your mission and your community contribution.
• Avoid financial doublespeak: "we have a charitable mission, but we operate like a business."
• Look to different fields for ways that nonprofits are communicating public benefit. Devise alternative ways to make community contributions.

Stay abreast of local, state and national trends relating to tax exemption.

• In Wisconsin the trend is toward increased scrutiny. Some municipalities are reviewing all tax exempt properties, and others are reviewing certain categories of exempt property on a rotating basis. Nonprofit hospitals and universities are undergoing increased scrutiny, especially around commercial activities (residence halls, clinics).
• Some statutes are relatively dormant, while others are undergoing changes, reflecting ambiguity or challenges that have resulted in litigation and judicial interpretation or revisions by the legislature.
• Recently there has been significant activity around exemptions in the area of benevolent retirement housing and low-income housing. Even if your organization's exemption does not fall into these categories, pay attention to the issues around these contested areas, as their resolution and clarification may influence other categories of property tax exemption over time.

IF YOU PLAN TO PURCHASE PROPERTY

Familiarize yourself with the exemption application process and timeline.

• In Wisconsin, submit your application for exemption before the March 1 deadline. The application should be filled in completely and should include all information and attachments that are requested.
• Tax assessment forms are mailed out in April. If you wait to contact your assessor until you receive the assessment, it is too late to apply for exemption in that calendar year.
• Once an exemption is granted, it is generally not necessary to reapply for exemption each year, although some municipalities may vary in this regard.

Remember, property is considered taxable until exemption is granted.

Get to know your assessor. If possible, meet with the assessor to ask questions before you purchase property. Most will give you a preliminary idea of exemption status if you provide enough information beforehand and come prepared.

• There are 1,800 individual assessors in the state. Some municipalities use contract assessors, who may not be named until late December or early January.
• The assessor's workload will be lightest early in the calendar year, before assessment notices have been mailed.
• Be aware of challenges that assessors face: fairness concerns for all constituents, undefined terms or lack of clarity in the statutes, and political and resource realities.

RESOURCES

Online Resources

State of Wisconsin Property Tax Exemption Request, Form PR-230
For organizations requesting exemption from property tax for the first time, Department of Revenue form PR-230 must be submitted along with supporting documents to the municipal assessor by March 1 of the year for which exemption is sought.

Wisconsin Association of Assessing Officers
Frequently asked questions about property tax exemption in Wisconsin.

Wisconsin Statutes

Section 70.11, Wisconsin Statutes. Detailed information on different categories of exemption.

Books, Chapters and Manuals

Anderson, Brian, Ed. 2010. A Guide for Wisconsin Nonprofit Organizations (3rd Edition). State Bar of Wisconsin CLE Books. See Chapter 2, "Tax Treatment," by Evelyn Brody, John Yentz, Paul W. Seidenstricker, and Lynette M. Zigman. Available at the Marquette University Law Library and Greenfield Public Library.

Brody, Evelyn, Ed. 2002. Property-Tax Exemption for Charities: Mapping the Battlefield. Washington, DC: The Urban Institute Press. A comprehensive overview by nonprofit scholars of the legal, social, economic and political issues surrounding property-tax exemption for charities.

Sjoquist, David L. and Rayna Stoycheva. 2010. "The Property Tax Exemption for Nonprofits." In Seaman, Bruce and Dennis R. Young, Nonprofit Economics and Management: The State of Research. Edward Elgar. Reviews the scholarly literature on property tax exemption for nonprofit organizations and identifies gaps. Available as a working paper.

Wisconsin Department of Revenue. 2009. Wisconsin Property Assessment Manual. Madison: Wisconsin Department of Revenue. See Chapter 22, "Guide to Property Exempt from General Property Tax."

Articles and Reports

Kearns, Kevin, Jonathan Livingston and Christine Waller. 2009. "The Charitable Property Tax-Exemption Debate." Nonprofit Quarterly, Winter 2009.

Steinberg, Richard and Marc Bilodeau. "Should Nonprofit Organizations Pay Sales and Property Taxes?" A "debater's guide" to the nonprofit tax exemption prepared for the National Council on Nonprofit Associations (NCNA).