- D.C.’s Less Charitable Approach to Property Tax Exemptions for Non-Profits
- April 2, 2014 | Author: Andrew J. Alberg
- Law Firm: Sheppard, Mullin, Richter & Hampton LLP - Washington Office
Under District of Columbia law, organizations that own buildings in D.C. used for purposes of public charity principally in the District are entitled to property tax exemptions. (D.C. Code § 47-1002(8)). However, in light of recent actions by the District of Columbia Office of Tax and Revenue (OTR), non-profit organizations currently benefiting from the exemption should periodically evaluate how their buildings are being used to ensure that they continue to qualify for the exemption.
Meridian International Center is an organization that “promotes international understanding through professional exchange, educational and arts programs” and endeavors to unite the global community through cross-cultural exposure and other programs. Pursuant to Section 47-1002(8), Meridian benefitted from a property tax exemption for its offices located at 1630 Crescent Place NW for more than fifty years. But last October, the OTR revoked Meridian’s exemption, saying Meridian’s work mainly “focus[es] on international affairs and strengthening international understanding,” and not on “public charity principally in the District of Columbia,” as required by the Code. As a result of the revocation and based on the assessed value of Meridian’s buildings, Meridian will have to pay an estimated $516,000 in real property taxes for the 2014 tax year.
This sort of revocation is not without precedent. In District of Columbia v. Cato Institute, 829 A.2d 237 (D.C. 2003), the D.C. Court of Appeals denied a property tax exemption under Section 47-1002(8) to the Cato Institute because its work was only tangentially, not principally, related to the District. In Cato Institute, the court determined that “the sharing and dissemination of information to people in or of the District of Columbia does not by itself demonstrate an impact within the District of Columbia; it is simply an activity that occurs within the District. . . . The residents of the District are clearly not principally impacted by Cato’s work.”
While OTR says it does not actively seek organizations from which to remove exemptions, when one considers that so much of the District’s land is owned by exempt entities such as non-profits, universities, and the government, the city may look to reap the revenue benefits that come from more strict enforcement of the relevant sections of the Code. Meridian’s case serves as a reminder of the requirements under sub-paragraph (8) of the statute, which is intended to benefit organizations that “contribute” to the District of Columbia in ways other than taxes, such as education, spiritual leadership, or artistic merit. Under Cato Institute, it is insufficient for an entity to merely have the same positive influence on the District as it does other communities. Rather, it must have a special, targeted relationship with the city and its residents, such that one could say Washingtonians are the principal beneficiaries of its work. Though there is no hard and fast rule on what would meet the subjective standard, non-profits benefitting from a tax exemption pursuant to Section 47-1002(8) should periodically assess their mission in light of the exemption to determine whether they will be able to continue to rely upon the exemption in the future.