Monday, May 25, 2009

Tax Exempt Property 101

There are many worthy organizations and businesses that do good works; churches, hospitals, universities and colleges and charitable organizations, all provide humane and important services and are rewarded with tax exempt status.

In such cases the property owned by these organizations and used in the performance of their routine functions are not taxed. Most agree that it is only right to provide support for these worthy organizations and the other businesses and residents, through their property taxes, pay the share of the tax exempts who also receive benefits such as road maintenance, fire and police protection, maintenance of public spaces etc.

Communities obviously vary in population, infrastructure, size, and industrial density.    Because of this, some communities are more attractive to tax exempt organizations. On July 21, 2008, Providence City Council President Peter Mancini, in a special section to the Providence Business News said "We’re almost at 50 percent tax-exempt real estate". This means that just 50% of the property owners are paying 100% of the tax levy - their portion and the portion of the tax exempts.

This is clearly unjust and unfair to the property owners of Providence and other towns with the larger percentages of tax exempt property.

One approach would be to charge fees to various organizations but it will produce ill will and resistance and some groups will always feel they have been unfairly and unreasonably taxed. There is a lot of push back to Mayor Cicillini's efforts to authorize new local taxes on private colleges, universities and hospitals.

And if the extra revenue is used to fill holes in the budget instead of being used to bring relief to beleaguered tax payers, they too will feel betrayed. This piecemeal approach fails to deal with the  underlying problem of unfair distribution of tax burdens.

It is for this reason that the following plan is offered for consideration.

The General Assembly shall determine the *percentage of tax exempt property that any community will be required to support.  For simplicity let's assume that percentage is 10%.  In this case the remaining 90% of the community will pay the 10% tax exempts' share, who pay nothing.

As the percentage of tax exempts increases they will begin to share in funding of the tax levy through a tax on their property according to the following simple formula:  Their property tax shall be a percentage of the standard property tax equal to the difference between the percentage of tax exempt property in the community and the 10% allowed by law.

For example, should a community actually have 16% tax exempt property each tax exempt property will be taxed 6% (16% minus 10%) of the normal tax on said property.  As the percentage of tax exempts increases so shall their contribution to the tax levy. If, as in Providence, the percentage reaches 50%, the tax exempts would pay 40% of the normal property tax an their property (50% minus 10%).

*The actual numbers used shall be determined by careful analysis so as not to be unreasonable to any of the involved parties while standardizing the process for all. The General Assembly can also provide for different rates depending on the nature of the organizations. Some might even remain tax free.

Wouldn't it be better to have a known and transparent system rather than what we have now, individual mayors and town councils working out a variety of different arrangements of PILOTS (payments in lieu of taxes) that vary from town to town, inconsistent and unpredictable? 

The taxes would be levied in a manner that is sensitive to the value tax exempt organizations bring to a community while not unfairly burdening others whose property is not tax exempt.

Maybe It's Just Me