TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, January 11, 2019

North Carolina's Nonprofit Property Tax Exemption Conundrum

Thomas A. Kelley (North Carolina) & Christopher B. McLaughlin (North Carolina), North Carolina's Nonprofit Property Tax Exemption Conundrum, 96 N.C. L. Rev. 1769 (2018):

Disputes between nonprofit organizations and local governments over property tax exemptions have been on the increase in North Carolina and beyond. There are two paramount reasons. First, since the Reagan Revolution of the 1980s eliminated block grants and other sources of funding, local governments have struggled to pay their bills and have been compelled to look for new sources of revenue, including stricter application of property tax laws. Second, the nonprofit sector has been transformed by the rise of social entrepreneurship. Responding to the same financial pressures that have squeezed local governments since the 1980s, increasing numbers of nonprofit organizations have adopted feegenerating strategies that, in some cases, make them almost indistinguishable from for-profit enterprises. For local governments, the fact that some nonprofits act like for-profits makes it easier to claim that they do not deserve generous property tax exemptions.

The result is a property tax conundrum in North Carolina and beyond. Is it fair that governments’ financial books should be balanced on the backs of legitimate charities just because their operations include entrepreneurial elements? On the other hand, how are local governments supposed to fund needed services if they cannot collect taxes on property used for seemingly commercial activities?

The authors of this Article approach the property tax conundrum from different angles. Tom supervises a law school-based clinic that sometimes represents entrepreneurial nonprofits that, in his view, are being unfairly and unpredictably hit with property tax bills. Chris, who advises local governments on property tax matters, sympathizes with their need to maximize revenues and their difficulty in distinguishing between entrepreneurial nonprofits and for-profits. However, they agree on the need for greater consistency in the application of North Carolina’s property tax laws. They also agree that entrepreneurial, fee-generating nonprofit organizations should not be forced to pay property taxes in instances where there is a tight nexus between the fee-generating activity and the nonprofit organization’s charitable, educational, or religious purpose.

This Article illustrates North Carolina’s inconsistent treatment of these questions and proposes guidelines that will lead to more consistent and fair application of property tax exemption laws in the future.

https://taxprof.typepad.com/taxprof_blog/2019/01/north-carolinas-nonprofit-property-tax-exemption-conundrum.html

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Comments

"On the other hand, how are local governments supposed to fund needed services"?

North Carolina has a flat state income tax rate of 5.5 percent. Many states (or state / municipality combinations) have progressive tax rates that top out at double that rate or higher for high earners.

North Carolin has an average property tax rate of 0.86%. Again, many state and local governments have property tax rates that are twice as high.

North Carolina's sales taxes aren't too out of line (a bit on the low side), but given the example of Massachusetts, New York, New Jersey, and California, there's plenty of ways North Carolina can fund itself besides raiding churches and schools and libraries and homeless shelters.

Art Pope alone (15th richest billionaire in the country according to Brookings) could probably cover any funding needs the states might have beyond its current holdings if Republicans were more interested in taxing billionaires than robbing school children and priests.

Posted by: Tax charities? | Jan 14, 2019 12:19:37 PM

"On the other hand, how are local governments supposed to fund needed services"?

North Carolina has a flat state income tax rate of 5.5 percent. Many states (or state / municipality combinations) have progressive tax rates that top out at double that rate or higher for high earners.

North Carolin has an average property tax rate of 0.86%. Again, many state and local governments have property tax rates that are twice as high.

North Carolina's sales taxes aren't too out of line (a bit on the low side), but given the example of Massachusetts, New York, New Jersey, and California, there's plenty of ways North Carolina can fund itself besides raiding churches and schools and libraries and homeless shelters.

Art Pope alone (15th richest billionaire in the country according to Brookings) could probably cover any funding needs the state of North Carolina might have beyond its current revenues if Republicans were more interested in taxing billionaires than robbing school children and priests.

Posted by: Tax charities? | Jan 14, 2019 12:20:36 PM