Exemptions

A "nonprofit organization" is defined by U.S.C. 59-2-1101(1)(g)(i) in the following way.

• that is organized on a nonprofit basis, that dedicates the entity's property to the entity's nonprofit purpose, and that makes no dividend or other form of financial benefit available to a private interest;
• for which, upon dissolution, the entity's assets are distributable only for exempt purposes under state law or to the government for a public purpose;
• that does not receive income from any source, including gifts, donations, or payments from recipients of products or services, that produces a profit to the entity in the sense that the income exceeds operating and long-term maintenance expenses; and
• for which none of the net earnings or donations made to the entity inure to the benefit of private shareholders or other individuals, as the private inurement standard has been interpreted under Section 501(c)(3), Internal Revenue Code.

"Nonprofit organization" also includes the following as defined by U.S.C. 59-2-1101(1)(g)(ii).

• An organization that is treated as a disregarded entity for federal income tax purposes and wholly owned by, and controlled under the direction of, a nonprofit entity; AND
• Which none of the net earnings and profits of the entity inure to the benefit of any person other than a nonprofit entity.

In addition, a nonprofit organization must meet one of the three criteria listed below.

• "Charitable purpose" defined as:
  • Property used as a nonprofit hospital or a nursing home, the standards outlined in Howell v. County Board of Cache County ex rel. IHC Hospitals, Inc., 881 P.2d 880 (Utah 1994); AND
  • Property other than property described in Subsection (1)(a)(i), providing a gift to the community.
• "Educational purposes" means purposes carried on by an educational organization that normally:
  • Maintaining a regular faculty and curriculum; AND
  • Has a regularly enrolled body of pupils and students.
  "Educational purposes" also includes:
  • the physical or mental teaching, training, or conditioning of competitive athletes by a national governing body of sport recognized by the United States Olympic Committee that qualifies as being tax exempt under Section 501(c)(3), Internal Revenue Code; AND
  • an activity in support of or incidental to the teaching, training, or conditioning described above.
• Religious organization defined as:
  • Any organization that has a religious exemption under IRS 501(c)(3) guidelines.

As defined by U.S.C. 59-2-1101(1)(c) any property owned by a nonprofit organization that is used exclusively for a charitable, educational, or religious purpose may be eligible for exemption from property tax.

Qualification for an exemption is contiquent upon ownership AND use. A property that is owned by an individual or for-profit business, but leased or, in some other way, used by a non-profit organization cannot be exempted. Also, property owned by a nonprofit organization but leased or, in some other way, used by an individual or for-profit organization may be subject to taxation.

The Utah Supreme Court has determined that although exclusivity should be strictly construed, minor deviations from “exclusive use” should not automatically defeat an exemption. Clearly defined sections of a property can also qualify for an exemption even if other sections are used for profit, or another non-qualifying purpose. [Loyal Order of Moose 259 v. Salt Lake County Board of Equalization (657 P2d 257), 1982].

When a non-profit entity acquires property on or after January 1 that may qualify for an exclusive use exemption, that entity may apply for the exclusive use exemption on or before the later of MARCH 1ST (or the next business day if the 1st falls on a weekend) or 120 days after the property is acquired (§§ 59-2-1101 and 59-2-1102). If an exemption is not applied for timely, they will be required to apply during the next application period starting January 1st through March 1st of the next year.

If an organzation is not able to file an applation by March 1st, an extension can be granted by including a late petition with the completed application. Both the petition and application must be submitted to the County Tax Administration office by no later than March 31st. This extension can only be granted for applications that are required to be submitted by March 1st. No extensions can be granted to organizations that fail to file on or before the expiration of 120 days for newly acquired property. Organizations that submit an application after the expiration of 120 days will have their application considered for the following tax year only.

After the Board of Equalization initially grants an organization a property tax exemption, the organization is required to file an "ANNUAL STATEMENT FOR CONTINUED PROPERTY TAX EXEMPTION" each subsequent year. This statement confirms their continued non-profit status and exclusive use of the property to maintain the property's tax exemption (§ 59-2-1102).

The annual statement is required to be filed with the county by MARCH 1ST or by MARCH 31ST WITH A LATE PETITION each year. If the 1st or 31st falls on weekend, then the next business day becomes the deadline. If the form is not timely received, the organization will be notified by First Class and Certified Mail of the Board's intention to revoke the exemption on or before May 1 (§ 59-2-1102).

The following criteria for determining charitable purpose were established by the Utah Supreme Court in Utah County v. Intermountain Health Care Inc (709 P2d 265), 1985. These criteria are used by the Board of Equalization to determine if a property is being used exclusively for a charitable purpose.

• Whether the stated purpose of the entity is to provide a significant service to others without immediate expectation of material reward.
• Whether the entity is supported, and to what extent, by donations and gifts.
• Whether the recipients of the charity are required to pay for the assistance received, in whole or in part; whether there is “material reciprocity”.
• Whether the income received from all sources (gifts, donations, and payment from recipients) produces a profit to the entity in the sense that the income exceeds operating and long-term maintenance expenses.
• Whether the beneficiaries of the charity are restricted or unrestricted and, if restricted, whether the restriction bears a reasonable relationship to the entity’s charitable objectives.
• Whether dividends or some other form of financial benefit, or assets upon dissolution, are available to private interests, and whether the entity is organized and operated so that any commercial activities are subordinate or incidental to charitable ones.

This set of criteria does not apply to property being used exclusively by a religious or educational organization unless the organization is also applying for an exemption as charitable organization also.

Providing a common good and the act of giving is a necessary element in charitable purpose. Use the following questions as a guide when completing a new exemption application.

• Does an individual or group sacrifice for the welfare of the community, i.e. the act of giving itself?
• It is a service or gift provided by public agencies federally or in other states?
• It is a service or gift provided by other charitable groups, suggesting widespread recognition?
• Or is a gift provided that could not otherwise be obtained by the beneficiaries without assistance from a nonprofit entity? [Salt Lake County v. TAX COMMISSION, ETC., 596 P.2d 641 (Utah 1979)], [Yorgason v. County Bd. of Equalization,714 P.2d 653 (Utah 1986)] and [Petitioner v. County Board of Equalization of County 1 (UTC Appeal No. 15-1)]

If the answers is yes to one of the above 4 questions, the use would be considered contributing something of value to the common good which is required to meet the exemption for charitable purposes.

Vacant Land which is not actively used by the religious, charitable, or educational organization, is not deemed to be devoted exclusively to exempt purposes, and therefore not exempt from property taxes. If the vacant land is being held for future development or utilization by an organization, it is deemed not exclusively used for exempt purposes, and therefore not tax exempt. The vacant land will remain taxable until either construction commences or a building permit is issued for construction of improvements that are intended for exclusive use.

Utah State Code 59-2-1102(3)(a)(ii) states the County Board of Equalization cannot grant and exemption unless the party affected or the party’s agent "appears before the county board of equalization and shows facts upon which it is claimed the reduction should be made, or exemption granted."

Typically the Board only requires organizations applying for an exemption for the first time to send a representative to appear and answer questions. This would apply to organizations that have never been granted an exemption and organizations requesting an exemption for newly acquired property for the first time. Organizations that are submitting the Annual Statement for renewal of their exemption do not need to plan on appearing unless requested to do by the Board.