Monday, January 21, 2008

Should Non-Profits Pay Property Taxes?

As I mentioned a few days ago, Indiana is in the midst of a property tax crisis. The governor, legislature (at least those legislators who aren't too busy trying to legislate their own religious beliefs), and a blue-ribbon panel have been hard at work looking at ways to resolve Indiana's property tax system. I'm not yet ready to weigh in on any of the various proposals. However, one idea that has received some consideration is to tax the property of non-profit organizations (e.g., churches and synagogues). I've given this a little thought and ... well ... I just don't know.

On one hand, it just seems, somehow, wrong to tax the property of a non-profit organization. Those organizations (whether secular or religious) exist to do some kind of good (at least in theory). More importantly, they generally rely upon charitable contributions to make ends meet. Imposing a property tax upon those organizations would force them to solicit even more funds from their members or contributors. I'm not sure that I like the idea of a charitable organization needing to divert funds away from doing good things in order to pay taxes.

On the other hand, some property owned by a non-profit is not used for non-profit purposes. Take for example, a church that acquires a vacant parcel of real estate with the intent to build a new building some time in the future. That piece of ground is not being used to advance the church's mission, so why shouldn't it be taxed? More importantly, virtually all non-profits rely upon police and fire protection -- services that are usually paid for with property taxes. Should non-profits that benefit from the availability of police and fire protection be absolved of responsibility to pay their fair share?

Then again, if we tax non-profits and they have to cease some of their efforts (e.g. feeding the homeless) because funds would need to be diverted to pay for taxes, then who will shoulder the burden of paying for those services? And where will that money come from? I suppose it might be offset by the taxes received from the non-profits, but that seems a bit circuitous.

But, then, why should people of one faith (or no faith) have to subsidize the existence of private organizations to whom that person does not belong or with whom that person does not agree. Consider that, in some instances, a non-profit can discriminate in who it provides its services to.

One more point that is worth noting (even if only tangentially related): Should the State of Indiana be required to pay property tax on property that it owns? While this sounds like a silly question, it is anything but. Just look at downtown Indianapolis. There are numerous state-owned parcels (the statehouse, monuments, etc.) that occupy very valuable land, require police and fire protection, but do not pay taxes (at least, I don't think they do...). Thus, a city like Indianapolis has to tax the rest of its citizens just a bit more to make up for the untaxed state land. In essence, this means that the taxpayers in Indianapolis are subsidizing the citizens of the rest of the State who own and (at least in theory) benefit from those State-owned properties. Of course, there is another side to this issue, too. After all, those buildings and facilities provide jobs for citizens in Indianapolis (or surrounding communities), which may in turn produce alternate tax revenues.

As you can see, I'm not sure what the best answers are to these issues. For that matter, I'm sure that I've barely scratched the surface of the arguments pro and con.

So, what do you think about the issue? Should the property of non-profits be taxed? Why? Why not? Should the answer depend on whether the non-profit is secular or religious? Let me know.


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At Tuesday, January 22, 2008 1:09:00 AM , Blogger shap said...

If I could trust that all non-profits were truly positive contributors to society, I might feel compelled to give them a tax break such as this.

However, we all know that we cannot make this assumption. Especially when a significant portion of property taxes go towards education. We just can't take this risk.

Non-profits should be taxed on this important issue like the rest of the corporate structure.


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