Taking Down Words has a post that flags an article by Karen Eschbacher in the Indy Star. The two discuss tax abatements and TIF districts and juxtapose them against 501(c)(3) exemptions. The tension between the types of exemptions had not really occurred to me before.
During the latest property tax brouhaha, there has been a fair amount of railing against tax exemptions for businesses and mechanisms such as TIF districts. Generally speaking, tax exemptions or abatements are mechanisms by which taxes on businesses are eliminated or lowered as a means to lure the business to the area or as an incentive for expansion of a business. TIF districts are mechanisms by which the businesses are still taxed, but the taxes are used for projects in the district — for example a business wants to move into an area, a locality creates a TIF district and takes bonds out to improve infrastructure in the district, and tax revenue from the TIF district businesses are used to pay off the bonds. Consequently, tax revenue from the businesses in the TIF district do not serve to lower the tax burden for other citizens in the locality. 501(c)(3) organizations are tax exempt non-profits. Churches are one of the most common of these organizations.
Apparently the folks grousing about business exemptions, Eric Miller as a primary example, are not grousing about 501(c)(3) exemptions. So, which type of exemption benefits a community most? Obviously there is not going to be any hard and fast rules. Some churches bring more to a community than some businesses; and vice versa. But, according to the Star report, the business exemptions “don’t take as many tax dollars off the books as tax exemptions given to churches and other nonprofits.” So, at the least, the non-profit exemption is more expensive for the community than the business exemption.
[tags]property tax, religion[/tags]
A friend pointed out that many non-profits provide services to the community (soup kitchen comes to mind) that might otherwise have to be provided by governmental agencies using tax $. And because many of the work is performed by volunteers, the non-profits typically have a higher bang to the buck than governmental agencies.
It’s something to think about, anyway.
In theory, they are supposed to pay taxes on any properties they have that *are* involved in making money.
Certainly looking at the cost of the “lost” property tax revenue is only part of the picture. You have to look at what these preferred taxpayers give back in return for the benefit they receive. Some businesses bring jobs and additional income to the community. Some non-profits do charity work.
Correct Brenda, that is the theory. Any organization that requests 501(c)(3) status is required to file Form 1023 with the IRS documenting its reasons for requesting nonprofit status. There are a lot of hoops that have to be jumped through to get this request approved by the IRS. In addition, any non-related business income generated by the nonprofit is subject to income tax. Also, the IRS has more stringent requirements for filing Form 990 (the nonprofit return). Form 990 is due 4 1/2 months after the end of the year. If the organization can’t file by the due date they can request an automatic 3 month extension, if they can’t get the Form 990 filed by the extended due date, they can request an additional 3 month extension. The additional extension isn’t automatically approved, a reason must be given for the additional extension. Our firm got involved in an interesting case here. A client of ours, a fire district, which is a taxing district here in Kentucky had not updated their records with the IRS from the time they were organized as a volunteer fire department in 1958 (the year I was born!) to reflect the fact that they became a taxing district in Bullitt County, KY (just south of Louisville). As a result, the IRS was hounding them due to the fact that the IRS was expecting a Form 990 to be filed when in fact they hadn’t been a nonprofit since 1968, when the voters in that district of Bullitt County voted to approve a referendum to change the fire department from a nonprofit to a taxing district, in effect giving the fire district authority to levy property taxes on homeowners in that district. In addition, since nonprofits involve public funds, they are open to inspection by the general public, of course taxing districts audited financial statements are also a matter of public record which isn’t a problem the problem is the IRS charges $20 a day for every day a Form 990 is late, and we didn’t realize there was a problem until 2000. (Our firm didn’t start doing the audit until 1995). Also, due to the fact that the records weren’t correct, the employees of that fire district were subject to Federal Unemployment Tax, which should not have been the case had the records been correct. We wrote to the IRS through a private letter ruling and got their status corrected. It took about eighteen months to get it fixed. The fire district’s attorney and I worked closely together to get the problem fixed. The IRS agreed that they were a taxing district and not a nonprofit. I believe that we finally wound up with about a 25 page document to prove our case. This problem finally got resolved in the spring of 2002. Still, I have to agree that the TIF districts are a good motivator for businesses to invest in economically depressed areas.