Non Profit Corporations and Property Tax

Written by: randalarias • Edited by: Stephanie Mojica
Updated Feb 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?

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.

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.

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.

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.

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.

Resources

"Protecting Your Nonprofit Corporation's Tax-Exempt Status." Smallbusiness.findlawyer.com. 2008. 23 April 2009. http://smallbusiness.findlaw.com/business-structures/non-profit/non-profit-running.html

"Property Taxes and the Non Profit Organization." Linkroll.com. 25 April 2009. http://www.linkroll.com/property-taxes/property-taxes-and-the-non-profit-organization.php

Rev. Elsie L. Goshert Jan 13, 2010 10:52 PM

non profit, and home too.

We own the property we live on, and a house on the same property is used for food and clothes distrabution by a "mission" we also own. would it be better for us to go "non-profit" or just stay the way we are?

Lucinda Watrous Nov 2, 2009 3:46 PM

Re: Non-profit and Property Tax Refund

Manny,

Though I am no expert so you shouldn't quote me on this, I think it is okay. Look at it like this, Goodwill is a non-profit, but they make money, and have employees they pay. The point is as long as none of the money they make ends up as a profit, they can still remain a non-profit organization, so if they risk a profit, they can make a donation or something. I would think the same is true for the Church. As long as they invest the money back into the Church or some other charitable organization, it can't be considered profit, therefore allowing them to remain a non-profit. For clarification, ask a tax professional.

Manny Nov 2, 2009 3:34 PM

non-profit and property tax refund

The church I'm attending got a property tax-refund through one of 3 co-owners of the property (land & a single family house-w/c is the church). What I heard is that one of the owners can legally claim a tax refund from that said property. The 3 owners as listed are 2 church members and the corporation (the church). My question would be, is it really legal for a non-profit organization to get that kind of refund?