By David Brandon on POSTED IN TAX
It’s tax
season again. Every April, most Americans begrudgingly turn their attention to
their tax obligations. April’s tax significance isn’t limited to one’s federal
income tax return, however. April 1st marks the
deadline for filing an application for exemption from Oregon property tax.
The state of Oregon imposes a
property tax on all real and personal property located in the state. Yet, the
state also grants an exemption from property tax to certain organizations,
including charities. Of course, to qualify for the exemption such charities
must satisfy certain requirements. Specifically, the organization must be a
“charitable institution” under Oregon law.
To be classified as a
charitable institution, the organization must meet three requirements. The
first requirement is that the charity must have a charitable purpose.
Historically, the Oregon Tax Court has found that a charity has a charitable
purpose if its articles of incorporation and bylaws so state. In recent
years, however, that standard has shifted to require that the charity be
organized for a purpose that is something more than “cultural enrichment.” It
is unclear exactly where the line will be drawn to separate cultural enrichment
and charity, or if such a line will be drawn at all. In the meantime,
charities should look closely at the charitable purpose stated in their
articles and bylaws and be prepared to defend such purposes as charitable.
Secondly, the charity must
perform activities in furtherance of its charitable purpose. Most charities
clearly satisfy this element. Indeed, this element is mostly an exhortation to
do the activities that you claim to be doing.
Finally, the charity’s activities
must include an element of giving, such that the public at large receives a
benefit. This element is perhaps the most difficult to substantiate without
forethought and planning. The “giving” conducted by the charity can be thought
of as the amount of benefit derived by the public from the charity’s
operations. The charity’s giving is oftentimes composed of outright grants,
scholarships, pro-bono services, or even the work of its volunteers rendered to
the organization. This giving is often quantified as the ratio of the
organization’s giving to income or giving to revenue. Generally, if the
charity’s giving is less than half of its income, the organization’s status as
a charitable institution may be suspect.
In addition to being
classified as a charitable institution, the organization must actually use the
property in pursuit of a charitable purpose. Although this element does not
present an obstacle for most organizations, there is bad news for organizations
buying and holding real property: real property is not deemed to be used for
charitable purposes until the organization begins constructing improvements!
An additional hurdle for many
deserving organizations arises where the organization leases its property from
a third party. Leased property is still eligible for the property tax
exemption, assuming the charity uses the property in a way consistent with the
exemption. Yet, although leased property is generally eligible for
exemption, the exemption will only apply if the rent charged under the lease is
below market and the benefit of the exemption inures to the charity rather than
the landlord. Proving that rent is, in fact, below market requires more than a
self-serving statement to that effect. Rather, the charity must produce proof,
usually in the form of the property’s rental history or the rent charged at
comparable properties.
Finally, a landlord’s attempt
to wrest the benefit of tax exemption from a charity will not benefit either
party, even if obtained in exchange for reduced rent or some other benefit to
the charity; indeed, such an attempt will only defeat the claim for exemption.
No comments:
Post a Comment