Assembly Q&A: How nonprofit status and property use determine exemption eligibility

Assembly members used examples to probe how the municipality determines whether nonprofit properties qualify for exemptions. Staff repeatedly described a two‑prong approach: (1) the organization must have a qualifying charitable purpose, and (2) the property must be used for that charitable purpose.

As one presenter explained, the municipality may consider IRS filings as helpful evidence but applies its own tests under state law and the state constitution: the assessor’s office examines both the ownership/purpose and the current use. For instance, a nonprofit hospital may be fully exempt for hospital uses but taxable for portions leased to for‑profit entities.

“Sometimes there might be a situation where a property that is categorized as partially exempt might actually be fully exempt,” staff said; they walked members through examples such as low‑income tax credit housing, which courts have historically considered charitable when the use serves low‑income households. At the same time, staff said if a nonprofit leases substantial space to a commercial operator, the leased portion can become taxable and the office typically apportions taxability by square footage.

Members also asked whether political activity by a religious organization could strip an exemption. Staff said municipal code does not expressly specify activity thresholds and that such issues often become “a gray area” that would be resolved by case law or by federal IRS enforcement in the case of tax‑exempt status concerns.

Staff recommended clearer guidance and applicant outreach so nonprofit property owners understand documentation expectations and how mixed uses are treated.