Tax Analysts Blog

It's Time to End Property Tax Exemptions -- for Everyone

Posted on Feb 11, 2015

Maine Gov. Paul LePage (R) recently riled folks up by proposing to end property tax exemptions for some nonprofit organizations in the state. Organizations with assets of more than $500,000 would lose their exempt status. LePage's proposal is part of a bigger plan that would greatly reduce state aid to local governments. The goal would be to allow the local governments to tax the big nonprofits, and the state would not have to send them as much money.

This is a terrific idea. I know it is, because both the local governments and the nonprofits are opposing it. The local governments fear that they will never get as much money from additional property taxes as they will lose from Augusta. The nonprofits -- who whine every time this issue arises -- just don't want to pay anything.

We have seen this play out before in many states. City governments are usually looking for payments in lieu of taxes rather than ending exemptions. And the nonprofits -- particularly universities and hospitals -- tenaciously oppose paying. To be sure, some municipalities and exempt organizations have reached a compromise on payments in lieu of taxes, particularly in Boston. But in the vast majority of the nation, universities, nonprofit hospitals, and property owned by religious organizations are exempt from tax.

I propose we end those exemptions. First, let's be honest -- if you narrow the tax base by exempting some property, everyone else pays more. So in Brunswick, Maine, people and businesses pay more property taxes because Bowdoin College doesn't. And sometimes they pay a lot more. In Washington, D.C., the real estate owned by Georgetown, George Washington, American, Catholic, and Howard universities is worth billions of dollars. Those universities pay no property taxes, and the folks who live in the city do. There is nothing fair or just about that.

The effects of the exemption are exacerbated by the fact that the nonprofits use local government services. They enjoy the protection of the police and fire departments. They use the roads and transportation systems. They benefit from local schools. They should pay for those services. This should be a bipartisan issue. Liberals should want to tax these entities because the government loses revenue that can be used for good things. Conservatives should be appalled by exemptions because these entities are getting "free" stuff that others -- that is, those people who produce things -- are paying for.

Exempting nonprofits from tax is grounded in the belief that they provide some service to society that, in their absence, would have to be provided by the government. But for most nonprofits, that is not true. In fact, the argument presented by universities across the country when they are asked to contribute is that they are vital to the economy. Big universities do employ thousands of people, and those employees contribute mightily through income and sales taxes. But that is true for large for-profit organizations as well. LePage is on to something. I hope his idea resonates across the country.

This post is an excerpt of a longer article that was published in State Tax Notes. For more information visit www.taxanalysts.com

Read Comments (7)

emsig beobachterFeb 10, 2015

Is an AMEN out of order?

edmund dantesFeb 10, 2015

AMEN!

But why limit your proposal to property taxes? Why should nonprofits be exempt
from income taxes? Think of the simplification if we eliminate non profit as a
tax status!

What's more, why should the gigantic University endowments be tax exempt?
Harvard has $36 billion in tax-free funds. How much is enough? They've just
concluded another capital campaign, in which their alumni coughed up $1
billion, which by itself probably generated a $400 million federal tax
expenditure in the form of allowable charitable deductions.

A wise man said you get more of what you subsidize, less of what you tax. The
nonprofit sector has grown far larger than envisioned, far larger than needed.

travis rechFeb 10, 2015

Agreed! Let universities, charities, churches and any other non-profit pay
their fair share.

david brunoriFeb 11, 2015

A lot of Amens going on here; I feel like I am at a revival meeting. Edmund, I
would be okay with expanding the end of exemptions to other taxes. Same
political issues, though. You will recall that every time there is a tax reform
proposal the first thing taken off the table is the deduction for charitable
giving. The property tax is where I would start.

edmund dantesFeb 12, 2015

travis, i'm glad we can be in agreement, for a change.

JohnFeb 13, 2015

I read that the Maine proposal would not affect the tax exemptions of religious
organizations. I could support the proposal only if religious organizations
have their tax exemptions yanked, as well. I should not have to support
anyone's religion.

BTW, I believe the late Sen. Ted Kennedy once proposed eliminating the
charitable contribution deduction because one taxpayer should not have to
support another's charity.

Martin SullivanFeb 16, 2015

Dare I say it? I agree with John. As at least a matter of academic debate, we
should ask the question: Why should religious organizations be tax exempt? Why
should atheists subsidize churches? And who is the government bureaucrat
(perhaps folks at the exempt org division at the IRS!)that gets to draw the
dividing line between real religion and other organizations?

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