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Non Profit Corporations and Property Tax

written by: randalarias•edited by: Stephanie Mojica•updated: 2/11/2010

Non profit organizations are exempt from paying property tax. The question is, what is considered non profit? How does an organization become non profit and get tax exemption status?

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    Do non profit corporations pay property tax?

    The short answer is no, non profit corporations do not need to pay property tax. The most important thing is first making sure the organization is actually considered non profit. Next the non profit organization needs to check with its state government to make sure it is recognized as a qualifying activity.

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    Getting tax exempt status

    Most states allow non profit corporations to become tax-exempt from property taxes, as well as income and sales tax. The laws of each particular state need to be followed to be considered non profit. The organization is also required to submit an application to their state's taxing committee. Detailed records must be provided to show that the organization makes absolutely no profit from its business, property, or services. The property owned by the organization must not be used in any way for profit, whether it's by the organization itself or not.

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    What are common non profit organizations?

    Nursing homes are one of the most common non profit organizations. Next comes museums, cemeteries, churches, schools, and hospitals. Buildings such as libraries and dance studios are a couple more examples of non profit organizations that are exempt from property tax.

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    How does an organization become non profit?

    To become non profit, an organization must first be recognized by the government as a qualifying activity. Next, they must not make any profit from what they do. No property owned by the organization may be used to make a profit. These guidelines are strict and very important; even if the organization sells its property, the new owner must also submit an application and be approved for tax exemption. To become approved as non profit an organization usually submits an application to the state taxing committee.

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    Limits on non profit corporations

    To continue to be tax-exempt, there are certain conditions a non profit corporation must agree to and activities they cannot involve themselves with. A non profit organization cannot contribute money to political campaigns or distribute profits to their members or directors. They may only be involved in limited lobbying activities, meaning they can't influence legislation significantly. They must also pay taxes on income that comes from unrelated activities. They also cannot make large profits from unrelated activities. If the corporation dissolves, all assets that belonged to it must be transferred to another tax-exempt group.

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    "Protecting Your Nonprofit Corporation's Tax-Exempt Status." 2008. 23 April 2009.

    "Property Taxes and the Non Profit Organization." 25 April 2009.

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