State Property Tax Exemption - Know Your State's Laws

Religious ministries, educational institutions, and other nonprofit organizations typically are exempt from paying state property taxes, also known as real estate taxes. Many states have specific requirements when applying for, and maintaining, tax-exempt status. To benefit from a state property tax exemption, your organization must be recognized as tax exempt by the Internal Revenue Service. If your organization is not currently recognized as exempt from federal income tax, please refer to IRS publication 557 for complete instructions about federal tax exemption for religious and nonprofit organizations generally. 

Application Process

Most states require a ministry or school to apply or register for its property/real estate tax exemption. The application process typically includes submitting a completed form to the proper state government office. In your state, look for a department of revenue, taxation, or finance. You may be asked to supply supporting documentation such as articles of incorporation, bylaws, title to the property, financial statements, or others. Some states require only initial application and others require an annual registration.

Requirements for maintaining a property tax exemption also vary by state. Some states require the property to be used exclusively for religious, nonprofit, or educational institution activities while other states allow for limited use unrelated to the organization’s purpose. Some states tax parsonages while others do not.

Losing Exempt Status

The causes for loss of a tax-exempt status are also state specific. Depending on state law, it may be possible to lose tax exempt status for failing to file an annual registration, mixing nonprofit and commercial use in a space, participating in political campaigns, and other reasons.

Work with Your Attorney

Ministry, school, and nonprofit leaders should work with a locally licensed attorney to determine their state’s specific requirements for maintaining a property tax exemption.

See below for several examples of state-specific tax exemptions.

Michigan

• Michigan’s tax law and state constitution provide property tax exemptions to non-profit organizations:

  • The General Property Tax Act of 1893 [§ 211.7s] exempts houses of public worship and parsonages.

• State of Michigan Constitution (Article 9, Section 4)

  • Property owned and occupied by a non-profit religious or educational organization and used exclusively for religious or educational purposes will be exempt from real and personal property taxes.

• Exemptions applied for at the city/county level

Pennsylvania

The state’s constitution authorizes the legislature to provide an exemption for places of regularly stated religious worship. PA Constitution § 2.

State law [72 P.S. § 5020-204]

• The following property is exempt from all county, city, borough, town, township, road, poor, and school tax:

  • All churches, meeting-houses, or other actual places of regularly stated religious worship, with the ground thereto annexed necessary for the occupancy and enjoyment of the same;

  • All universities, colleges, seminaries, academies, associations and institutions of learning, benevolence, or charity with the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed, and maintained by public or private charity.

• According to the PA Dept. of State, PA does not require initial or annual filing from a bona fide duly constituted religious institution and such separate groups or corporations that form an integral part of a religious institution are exempt from filing an annual return pursuant to the Internal Revenue Code of 1986. 

Oklahoma

Oklahoma’s constitution specifically exempts property used exclusively for nonprofit schools and colleges, and all property used exclusively for religious and charitable unless otherwise provided by law.  OK Constitution Art. 10, § 6

Oklahoma’s tax law exempts the following types of property from property tax [Okla. Stat. title 68, §2887]

• All property of any college or school, provided such property is devoted exclusively and directly to the appropriate objects of such college or school within this state and all property used exclusively for nonprofit schools and colleges.

• All property used exclusively and directly for fraternal or religious purposes within this state.

  • Tax is likely assessed with respect to the value of a parsonage exceeding $250,000.

  • Nonprofits requesting an exemption pursuant to this section seems to be required to file an application initially with the county assessor of the county in which the property is located.

Ohio

Ohio exempts the following from property taxation: [Ohio Revised Code, Chapter 5709.07]

• Real property used by a school for primary or secondary educational purposes (public or parochial)

  • This exemption does not appear to apply to any portion of the real property not used for school purposes.

• Houses used exclusively for public worship that is not leased or used to generate profit.

• Real property owned and operated by a church that is used primarily for church retreats or camping and is not used as a permanent residence. (It’s likely no exemption applies for a parsonage.)

  • This real property may be made available on a limited basis to charitable and educational institutions if the property is not leased or otherwise made available for profit.

• Real and tangible personal property belonging to institutions that is used exclusively for charitable purposes.

California

Property tax exemptions are generally granted for the following types of property: [Property Tax Exemptions for Religious Organizations]

• Churches

  • Property that is owned, leased, or rented by a religious organization and used exclusively for religious worship services.

• Religious Organizations

  • Property owned by a religious organization and used exclusively for religious worship services or religious worship services, and certain school activities.

• Welfare Operations of a Religious Organization

  • Property owned by a religious organization and used exclusively for any other religious activities. The exemption may also apply to leased property if both the organization and its lessee qualify for an exemption.

• The exemptions apply to property taxes but not to special assessments such as district taxes.

For purposes of these exemptions, the term “used exclusively” means that the property is used exclusively for the stated exempt purpose and excluding any other use. However, uses that are incidental to or reasonably necessary to accomplish the organization’s exempt purpose are also allowed. Incidental uses must be directly connected with the exempt purpose and advance that purpose.

• The Property Tax Exemptions for Religious Organizations alerts churches that, “Caution: Before allowing another organization to use your church property, you should first determine whether the proposed use will disqualify the property from the church exemption. You may want to contact your assessor or the Board to determine whether the proposed use meets the requirements of the exemption.” 

A property owner only needs to apply one-time for the Religious Exemption.  Once it is granted, the exemption remains in effect until it is terminated or the property is no longer eligible.  A notice is sent to the property owners who received the exemption in the prior year. The assessor requests that the property owner return the notice to verify that the property continues to be used for exempt activities or to provide notification to the assessor that the property is no longer eligible for exemption.

For additional information, see: Assessors’ Handbook – Welfare, Church, and Religious Exemptions.

 

The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through Legal Assist, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.