Massachusetts Nonprofits Wary Regarding Latest PILOT Efforts

Spurred by the University of Massachusetts-Lowell’s decision to purchase a large apartment complex and turn it into a dormitory, thereby removing it from the property tax rolls, a state representative has proposed a measure that would force tax-exempt institutions to pay property taxes in certain circumstances, the Boston Globe reports.

Included in an economic development bill that was passed by the state’s House of Representatives in July, the measure proposed by State Representative David Nangle, a Lowell Democrat, would require nonprofits that purchase property currently on the tax rolls to pay taxes on that property over four years until the amount is reduced to zero. If the bill fails to pass during the current legislative session, Nangle has pledged to advance a similar measure that would apply only to larger nonprofits. "I'm trying to figure out a way to create some fairness and parity," said Nangle, "and require nonprofits that have substantial assets and large real estate holdings to come to the table and help these cities and towns, which are in dire need of their real estate tax revenue."

In recent years, some nonprofits in Massachusetts have been making so-called "payments in lieu of taxes" (PILOTs) to local communities as a way to compensate them for the public services they provide. Such payments typically are voluntary and nonprofit participation is uneven. In Boston, for example, two-thirds of the city’s colleges paid less than the city requested in fiscal year 2015; some paid nothing. In Lowell, the city's recent appeal to nonprofits for voluntary payments yielded about $17,000; if they were forced to pay property taxes, the collective total would approach $4 million.

Elsewhere, neighboring Connecticut recently enacted a law that would require hospitals and universities to pay taxes on certain properties, and a few years ago in New Jersey a court ordered a medical center to pay property taxes, ruling that “modern nonprofit hospitals are essentially legal fictions” because they operate almost identically to for-profit businesses and typically award their executives lavish compensation packages.

Such efforts have caught the attention of national nonprofit leaders. Indeed, the Massachusetts effort "is of great concern" said David Thompson, vice president of public policy at the National Council of Nonprofits, because it has advanced further than any similar previous legislation in the Bay State. "There used to be one or two or three of these [attempts] every year, usually in the Northeast," a region heavily dependent on property taxes, Thompson told the Globe. "Now we see dozens of cities raising the question throughout the country."

Sacha Pfeiffer. "Proposal to Tax Nonprofits Alarms Mass. Charities." Boston Globe 07/29/2016.