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While most not-for-profits assume they are exempt from property taxation, the mere fact that they have been granted exempt status by the Internal Revenue Service or by a state-level taxing agency such as Missouri’s Department of Revenue does not guarantee exemption from property taxes. The local property tax assessor applies a higher standard in determining whether to grant exempt status. In recent years, as a result of pressure to increase the value of property on the tax rolls, tax assessors have increased their scrutiny of organizations seeking or enjoying exemption from taxation. In Missouri, like most states, the exemption from property taxation is granted by the state constitution.

In Missouri, the exemption is limited to property “not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, for agricultural and horticultural societies, or for veterans’ organizations.”

The Missouri Supreme Court has established a three-part test to define the exemption. The test requires the property:

1) be used exclusively for purposes purely charitable,

2) be owned and operated on a not-for-profit basis, and

3) must be for the benefit of an indefinite number of individuals or society in general.

Assessors have looked at various aspects of property use and the organizations that operate those properties. For example, organizations operating health care facilities must use judgment in the collection of fees charged for services received by patients. Aggressive tactics such as the use of a collection agency to recover unpaid bills have been viewed as lacking the charitable intent of the exemption provisions of the law. Although there is no clear definition of what would cause the revocation of the exemption, clearly an entity that has profits that greatly exceed the value of its charitable acts may not represent a charitable organization. Similarly, a limitation that restricts the general public from using the property creates the circumstance under which an assessor could determine a property is not of benefit to the general public.

If an assessor requests operational data regarding the business that owns or operates exempt property, it is imperative that the request be promptly reviewed and the appropriate response submitted. Exemption from taxation requires the entity requesting the exemption to prove that it qualifies for the exemption. Failure to respond in a timely manner may cause the exemption to be revoked pending proof of qualification for the exemption. It is far easier to convince the assessor before there is a revocation than to undo the revocation before a review panel.

As the legal requirements for exemption from property taxation vary by state, it is recommended that the laws of each state be reviewed with a tax professional rather than assuming the organization automatically qualifies for the exemption.