Charitable Organizations Advocate for Property Tax Exemptions
In the 2011 session of the Indiana General Assembly, IACED championed legislation to clarify the charitable status of non-profits and cement property tax exemption for non-profit owned affordable housing. In the summer and fall of 2010, IACED worked closely with Representative Milo Smith (R-Columbus) to craft House Bill (HB) 1285, which as introduced clarified that property is eligible for the property tax exemption if it is owned by an organization that is exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code. HB 1285 did not pass.
Instead, language charging the State Tax and Financing Policy Commission to study the issue of “differences between the eligibility of nonprofit entities for federal income tax exemptions and the eligibility of nonprofit entities for Indiana property tax exemptions” did become law.
On October 12, 2012, IACED continued its advocacy to clarify the charitable status of non-profits and cement property tax exemption for non-profit owned affordable housing at a hearing of the Commission.
IACED’s testimony discussed the challenges facing affordable housing and human service providers in this time of economic recession. The current economic crisis has heightened the need for strong, vital community development organizations with critical capacity to address both the technical challenges of development and the adaptive challenges of community change. Instead of investing in this critical infrastructure, members are being forced to defend their charitable purposes to receive property tax exemption.
Under Indiana law, a charitable purpose is deemed to be present if (1) there is evidence of relief of human want manifested by obviously charitable acts different from everyday purposes of man in general, and (2) there is an expectation that a benefit will inure to the public sufficient to justify the loss of tax revenue. The Indiana courts have stated time and again that charity as used in Indiana’s property tax exemption statutes, is favored with the broadest constitutional definition allowable. The reason for a broad construction is apparent and aimed at fostering the operations of charitable enterprises by allowing a tax exemption for engaging in conduct beneficial to the general public. This broad charitable standard has been extended to affordable housing through case law and affirmed recently in the the 2009 case of Hebron- Vision, LLC v, Porter County Assessor.
A reading of Indiana statutes relating to affordable housing, as a whole, illustrates the General Assembly’s support of the proposition that providing low-income housing is both a government burden and public purpose. Accordingly, the undertaking of such activities, is strong evidence of its charitable nature. As merely one example, IC 5-20-1-1 speaks to the need for public subsidy and the relief of government’s burden provided by the development of affordable housing.
Despite the law, IACED members are experiencing a disconcerting trend of receiving a property tax bill for properties which have until that time been treated as exempt.
Mark Lindenlaub with Housing Partnerships, Inc. (HPI) was on hand to tell his organization’s story of dealing with the property tax assessment and appeals system’s impact on his Columbus-based charity.
Mark shared HPI’s story of frustration and inaction since his organization’s charitable status was questioned. It has resulted in a 5½ year ordeal which is still unresolved and challenging the organization’s ability to exist and serve its mission. As a result of a local assessor changing his opinion on the worth of this charitable organization, HPI is struggling to keep clients served, properties out of foreclosure, neighborhoods out of further decline, and the agency solvent through the fallout from the granting and then reversal of its property tax exemption.
Specifically:
- HPI has paid $150,000 to cover unbudgeted property tax payments on properties they purchased and placed in service assuming the exemptions, previously granted would continue.
- HPI has spent more $30,000 in legal costs, with more to come. The county has also incurred considerable legal costs to defend the assessor’s decision to deny our exemption. Both parties could have better used this money to serve local needs.
- HPI has had to raise rents significantly to cover just a portion of these unexpected costs, making housing unaffordable to many of the very families they aim to serve.
- The appeals process has taken so long that the previously-exempted properties have been put on the local tax sale list twice, resulting in considerable negative publicity, plus extra legal costs to get them removed from the sales.
- HPI has been declared ineligible to bid on tax sale properties until the appeal is resolved, and as a result there remain vacant, boarded-up properties dragging down the same neighborhoods where HPI has invested considerable amounts of public and private funding in neighborhood improvements.
- HPI has been denied credit by 2 local banks due to the uncertainty of its future property tax status.
- HPI has delayed receiving grant funding from the Indiana Housing and Community Development Authority for the same reason.
As a result of this advocacy, IACED asked the Commission to consider all available legislative and administrative remedies to ensure the charitable and exempt status of Indiana non-profit affordable housing producers is protected.
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