Institutional Property Tax Exemption
Real and personal property used for religious, hospital, scientific or charitable purposes may be eligible for a property tax exemption. These exemptions are available to nonprofit organizations that provide services to the entire community. A partial list of the organizations and/or properties that may qualify are:
- Aircraft - Aerospace Museum*
- Aircraft of Historical Significance*
- Free Public Library*
- Free Museum*
- Public School*
- Consular Exemptions*
*These exemptions are administered locally solely by the Assessor.
- Housing for Qualified Institutional Personnel
- Lessor of Qualifed-Leased Property*
- Low-income Housing
- Elderly/Handicapped Housing
- Charitable Non-Profit Organizations
- Marine Vessels*
- Veterans Organizations
- Multispecialty Clinics
All claimants for exemptions must file annually beginning on January 1 and no later than February 15th. If the 15th falls on a weekend or legal holiday, then the next business day will be the due date. Failure to file during this time period will subject a claimant to a late filing penalty not to exceed $250. First-time claimants may file for prior years, but the number of years is subject to the filing penalty and other statutory requirements.
All properties submitted for exemption must be in exempt usage on the tax lien date, January 1st. In general, property vacant or unused on the lien date is not exempt. Under current State law, property used primarily for fundraising purposes does not qualify for exemption. Occasional fundraising is allowed within certain prescribed requirements. Any exemption granted will only reduce the general tax levy portion of a bill. The bonded indebtedness and direct assessments portion of a tax bill are not exempt under current state legislation. Penalties and fees associated with delinquent tax bills are also not exempt.
Additional inquiries on the welfare exemption can be directed to the California State Board of Equalization at the contacts below:
Phone | 916.274.3430
Website | www.boe.ca.gov
The Assessor's Major Exemptions Section may be reached for questions on any exemption issues at:
Phone | 213.974.3481
Email | firstname.lastname@example.org
Information on Exempt Entities
- Welfare Exemption
- Hospital Property
- Multispecialty Clinics
- Uses of Property
- Cemetery Exemption
- Lessor's Exemption
- Church Exemption
- Religious Exemption
- Historical Aircraft
- College Exemption
- Public School Exemption
- Other Exempt Entities
Under section 4(b) of article XIII of the California Constitution, and section 214 of the California Revenue and Taxation (R&T) Code the Legislature has the authority to exempt property (1) used exclusively for religious, hospital, scientific or charitable purposes and (2) owned or held in trust by charitable nonprofit organizations operating for those purposes.
Under new claim administration guidelines, amended January 1, 2004, by Senate Bill 1059, an organization filing for the first time must submit to the State Board of Equalization (BOE) a claim form that includes the following:
- An IRS 501 (c)(3) or Franchise Tax Board 23701(d) letter of determination.
- Articles of Incorporation and all amendments certified by the California Secretary of State.
- Copies of financial statements for the years claimed.
If the BOE determines that an organization qualifies, the BOE will issue an Organizational Clearance Certificate to the organization. A copy of the Organizational Clearance Certificate can then be filed with claim forms in any of the 58 counties in the state of California.
The BOE will determine whether an organization is eligible for the exemption and the Assessor will determine whether the use of the property is eligible for the exemption.
Exempt Uses of Hospital Property
Hospital property must be used exclusively for hospital purposes and be in such use on the lien date. The California Supreme Court has concluded that property devoted to a nurse's training school, housing for hospital interns, resident doctors, student nurses, certain other essential employees required to be readily available, and recreational facilities used primarily by hospital personnel is incidental and reasonably necessary for the fulfillment of a generally recognized function of a complete modern hospital.
Hospital property is subject to the requirement that the property's use must be for the actual operation of the hospital activity under section 214(a)(3) of the R&T Code. Those portions of a hospital's facilities, which are leased, to a profit making enterprise or not directly contributing to the functioning of the hospital, do not qualify for the hospital purposes exemption. Examples are areas leased to physicians for use as offices for their private medical practices, commercial space leased to retail businesses, and space used for managing a managed health care plan. Thus, portions of hospital property used for other than hospital activities by the nonprofit hospital organization or by another organization, and in some cases vacant and or unused hospital property, are not eligible for the exemption.
Within certain restrictions, hospital gift shops operated in nonprofit hospitals are regarded as within the scope of the exemption because such shops are incidental to and reasonably necessary to a complete modern hospital. If an outside nonprofit organization operates the gift shop, they must file and qualify. Unlike gift shops, hospital thrift shops do not come within the scope of the exemption. The use of hospital property for thrift shops is not considered as incidental to and reasonably necessary to a complete modern hospital.
Section 214.9 of the R&T Code expands the hospital purposes aspect of the exemption to include outpatient clinics of two types; a clinic that provides psychiatric services for emotionally disturbed children, and a nonprofit multispecialty clinic. This section also specifies that it be such a clinic of the type described in section 1206(L) of the Health and Safety Code:
- A clinic operated by a nonprofit corporation granted an IRS 501(c)(3) letter of determination,
- Which conducts medical research and health education and provides health care to its patients,
- Through a group of 40 or more physicians and surgeons,
- Who are independent contractors,
- Representing not less than 10 board-certified specialties, and
- Not less than two-thirds of whom practice on a full-time basis at the clinic.
The multispecialty clinic is also subject to the requirement in section 214.9 that it must not reduce the level of charitable or subsidized activities it provides as a proportion of its total activities.
A clinic that does not qualify under the hospital purposes aspect of the exemption per section 214.9, or is not of the type described in section 1206(L) may still qualify under the charitable purpose aspect of the exemption.
Housing for Qualified Institutional Personnel
This exemption is granted only under the Welfare Exemption. It is typically used to claim employee housing exemptions incidental to and reasonably necessary to the accomplishment of the organization's primary exempt purpose.
Housing for low-income tenants may be exempt if owned by a charitable non-profit organization or a limited partnership with a charitable non-profit organization as managing general partner.
Properties may qualify if they meet one of the following conditions:
- The property is financed with tax-exempt revenue bonds, general obligation bonds, or is financed by local, state, or federal loans or grants. Rent may not exceed the deed restriction or regulatory agreement limits.
- The owner of the property receives low-income housing tax credits.
- Properties owned by charitable non-profit organizations that are occupied by tenants, 90% or more of which qualify as low-income households.
Elderly or Handicapped Housing
Section 214(f) of the R&T Code provides for the exemption of property owned by a charitable nonprofit organization and used for housing for the elderly or handicapped. Additional documents are necessary to file for this exemption. Please contact the BOE or the Major Exemptions Section.
Uses of Property
Contrary to common belief, not all property owned or used by exemption claimants qualifies for property tax exemption. Some of the more common reasons that a property, or portion, does not qualify for exemption are as follows:
- No exempt activity occurred on the property on lien date (January 1).
- Living quarters that are not institutionally necessary are part of the property.
- Vacant, unused, or excess land exists.
- Construction has not begun on the property as of the lien date or the 90-day ownership period.
- Outside groups use the property and do not meet the filing requirements.
- Areas are not exclusively used for exempt activities.
- The property is primarily used for fund raising.
- The property is used as a thrift store (unless it is part of a planned, formal rehabilitation program).
Outside Use of Exempt Property
Qualified exemption claimants allowing outside organizations, referred to as "operators", to use their property need to fulfill certain requirements in order to avoid jeopardizing their exemption. Requirements include:
- Any operator using the property more than once a week must file a complete welfare exemption claim.
- An operator using the property once a week or less must provide an IRS 501 (c)(3) or Franchise Tax Board 23701(d) letter of determination, and the name and telephone number of a contact person.
Where only a portion of a property qualifies for exemption, the value of the property is apportioned according to its exempt and nonexempt uses. The exemption is only allowed on the portion used for exempt purposes and activities.
The Lessor's Exemption is covered under subsections (d), (e), and (f) of section 3 of article XIII, and section 202.2 of the R&T Code. It is available to property owners who lease real or personal property to free public libraries, free museums, public schools, community colleges, State colleges, University of California, non-profit colleges and universities, and churches. Both the owner of the property and the exempt organization are required to sign the claim. The benefit of the exemption must go to the exempt organization in the form of a rent reduction or direct refund of the taxes paid by the exempt organization, unless otherwise stated in the lease. A copy of the current lease is required to be submitted with the first claim.
Church exemptions are available to religious organizations that rent, lease, or own property and conduct worship services on the property. Most religious organizations qualify their property for exemption under the church exemption. Church exemptions are covered under section 3(f), 4(d) and 5 of article XIII as implemented by section 206 of the R&T Code.
The church exemption is most often used for leased real property. The exemption does not apply to areas used for fellowship, or other non-worship activities. Other allowed uses are Sunday school and recreational activities. First-time church exemption claimants that lease property need to submit the Church Exemption Claim form and a copy of the current lease agreement. If another church uses the owner-operated church for worship services, then that church must also file. If any other outside use is conducted on the property, the owner church and the operator will both need to file a welfare exemption claim.
Sections 4(b), 5, and 6 of article XIII and section 207 of the R&T Code allow exemptions to religious organizations that own property and exclusively use it to conduct worship services and other related religious activities (i.e. church operated schools of less than collegiate level, bible studies, weddings, etc.).
If another church uses the owner-operated church for worship services, the outside operator must apply for the religious exemption. If any other outside use is allowed on the property, the owner of the church and the operator will both need to file a welfare exemption claim.
The religious exemption is generally more desirable for church-owned property because of its one-time filing provision. Once the exemption has been granted, it is continuous until the owner of the property notifies the Assessor that the use of the property has changed or a change of ownership has occurred. A "change in eligibility or termination card” is sent annually in January to remind claimants of this obligation. This is a simplified process that eliminates the need for annual filing and the possibility of being assessed a late filing penalty. Penalties of up to $250 apply if a church fails to notify the Assessor that an exemption should be terminated.
Aircraft of Historical Significance
Sometimes referred to as the "antique" aircraft exemption, this exemption is granted under section 2 of article XIII, and section 220.5 of the R&T Code. It was amended by SB 1059, effective January 1, 2004. Prior to this date, if a claimant failed to file by the February 15th due date, no exemption was available thereafter for that year. Beginning with 2004, if a claimant files after the February 15th due date, but before August 1 of the same year, only an 80% exemption is available. After August 1st no exemption is allowed. For further details and requirements, please contact the Assessor’s Major Exemption Section at 213.974.3481 or email@example.com.
The College exemption is available to private nonprofit colleges and universities and may be used for owned or leased real and personal property. It is governed by sections 3(e) and 5 of article XIII and sections 202.2, 203, and 258 of the R&T Code. For further details and requirements, please contact the Assessor’s Major Exemption Section at 213.974.3481 or firstname.lastname@example.org.
Public School Exemption
This exemption is used by public schools, including charter schools. Public schools most often use the exemption for leased and personal property. Section 3(d) of article XIII and sections 202, 202.2, 202.5, 202.6, 254, and 259.10 of the R&T Code cover this exemption. The property may be used for a variety of purposes, including education, administration, and administrative support functions. Charter schools must submit a copy of the charter when applying for this exemption. For further details and requirements, please contact the Assessor’s Major Exemption Section at (213) 974-3481 or email@example.com.