The November 2012 Governing magazine edition provided a very rough overview of the extent of nontaxable real property in major American cities.
What properties are most often exempt? Generally property owned by charitable organizations (Code section 501(c)(3)), Public charities, Private foundations, Social welfare organizations (section 501(c)(4)), Agricultural/horticultural organizations (section 501(c)(5)), Labororganizations (section 501(c)(5)) and Business leagues (trade associations) (section501(c)(6)) and all lands and other property owned by the town, states and the United States Government.
Remember, each individual State determines what is permanently exempt, or temporarily abated. Cities may also make these determinations when they are not clearly subject to Dillon's Rule.
Because of Dillon, the state may impose exemption statutes that are demonstrably ruinous to localities particularly larger conurbations; the more tax exemption, the smaller the tax base.
This can force cities into several less than desirable options:
Raising wage or business taxes making these areas less competitive -
Increasing homeowner and for-profit business property taxes to support the lost revenue from exempt properties makes the exempt areas less competitive and attractive-
Over-reliance on sales taxes can have a negative impact on retailand are well-known as regressive (the State of Delaware boasts of its sales-taxfree retail climate) -
Other ways to maintain revenue in a city with much tax exemptionis to introduce or increase “Fee-for Services” such as trash collection, sewerage, orneighborhood improvement districts; often a regressive move for businesses andresidents. Finally, PILOT (Payment In Lieu Of Taxes) programs which “request” the exempt properties to pay for city services and the loss of taxable land is not a strategy with a successful track record.
So, how can a jurisdiction realize vital revenues from exempt properties without drastically changing constitutions, laws or relationships with those exempt entities? The Center for the Study of Economics would suggest a logical and moderate implementation of the property tax that would not affect the charitable purpose of Universities, Hospitals not-for-profits,etc.
For example, a University building is indeed carrying out aneducational/charitable purpose. The land underneath is not. It is a place forthe charity to stand. Its value is created by location and community-purchasedservices and infrastructure. From Harrisburg to Hartford, UrbanTools has created a tool to permit exempt properties to fulfill their purpose while at the same time contributing to the community in which it prospers.