It’s tax season: what are you going to do about those 217 acres of land? Getting a nonprofit property tax exemption requires dealing with three government agencies and potentially years of application review, but it might be worth it for multibillion-dollar nonprofits like the University of Chicago.
Link to video is here.
For better or worse, when you file your taxes in April, there are some well defined rules: There’s a clear deadline, specific forms to fill out and ways to calculate your return.
When it comes to tax exemption for nonprofit institutions with property, those rules are a little different.
In Illinois, property tax exemptions for nonprofits are decided on a case-by-case basis, and they involve three different government entities.
In an informal survey conducted by the Illinois Facilities Fund, 40 percent of respondents (all nonprofits who considered applying for nonprofit property tax exemption) saw major challenges in the application process.
But for nonprofit institutions with significant amounts of property, navigating that ambiguity can have a major financial payoff.
Meet the Agencies
There are three major institutions responsible for determining nonprofit exemption from property taxes. They are:
The Cook County Assessor,
The Illinois Department of Revenue,
And the Cook County Board of Review.
The Cook County Assessor is responsible for determining the value of property (and as a result, the taxation of that property) across the county.
The Illinois Department of Revenue which administers and collects taxes for the state. (You’ve probably encountered this agency before every year around April 15th.)
The Cook County Board of Review settles tax disputes across the county and holds exciting ‘quasi-judicial powers’ over taxpayer complaints.
Ready to Apply?
Nonprofits claiming tax exemption on a piece of property for the first time will have their applications reviewed by each one of these agencies.
So let’s say an entity like the University of Chicago is granted a piece of property. In order to avoid paying significant taxes on that piece of property, the University of Chicago would have to apply for a nonprofit property tax exemption -- and its application would be viewed by all three of these bodies. :
Step 1: File an application for exemption application with the Board of Review,
Step 2: Get a recommendation from the Board of Review to either exempt that property from taxation or deny exemption. The Board of Review then sends its recommendation to the Illinois Department of Revenue.
Step 3: The Illinois Department of Revenue then, based on the Board of Review’s recommendation and its own process, either grants or denies tax exempt status for the property.
Both the Board of Review and the Assessor’s Office make their own assessment of the property’s overall value, both in terms of the land’s value and the value of any ‘improvements’ (new buildings, additions, etc.), but the Illinois Department of Revenue is the final decider.
What Happens After:
When a nonprofit is denied exemption for property taxes, it is encouraged to reach out to the Board of Review for feedback, and it can reapply, going through the same process.
Once the property receives the nonprofit tax exemption, there’s no regular review from any of these offices, beyond the filing of an annual ”affidavit of use” w/ the Assessor’s Office. The only follow up on eligibility happens if the status of the property changes (for example, it was sold to a for-profit entity), if a nonprofit wants to appeal the valuation of a property, or if there’s suspicion of fraud. This is also why the Assessor’s Office maintains a field investigation team to occasionally look into certain properties (Law and Order: Property Tax Exemption).
What happens in other places:
The state and county division of labor around this process is notable: across the country, there is a conversation about how nonprofit property tax exemptions deplete county tax revenues. According to a report published by the Urban Institute in 2011, this can be considered an “unbalanced state mandate,” and in states like Rhode Island and Connecticut, the state pays some revenue lost to the county through nonprofit property tax exemptions.
Writing off property taxes as a nonprofit is definitely more complicated than your average individual W-2. For one nonprofit, going through this process took over six years. But for a multibillion-dollar nonprofit with over 217 acres of property like the University of Chicago, this process could mean the institution is exempt from millions in property taxes every year.