Colorado State and Local Tax Exemptions for Charitable Organizations-part I

• Jurisdiction: Colorado,United States
• Citation: Vol. 28 No. 11 Pg. 57
• Pages: 57
• Publication year: 1999

28 Colo.Law. 57 Colorado Lawyer 1999.

1999, November, Pg. 57. Colorado State and Local Tax Exemptions for Charitable Organizations-Part I

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57

Vol. 28, No. 11, Pg. 57

The Colorado Lawyer
November 1999
Vol. 28, No. 11 [Page 57]

Specialty Law Columns
Advising Nonprofit Organizations
Colorado State and Local Tax Exemptions for Charitable Organizations - Part I
by James D. Butler
C 1999 James D. Butler

"Charitable" organizations1 have long enjoyed exemption from most types of federal, state, and local taxes Colorado governments at both the state and local level generally follow this tax policy, granting exemption to charitable organizations from the principal types of taxes imposed in this state (income, property, and sales and use) However, the requirements for obtaining a charitable exemption vary substantially from tax to tax

Most charitable organizations seek initial confirmation of their "charitableness" in the form of an application to the federal government for recognition of "501(c)(3)" status. Many organizations erroneously assume that a 501(c)(3) designation confirms their tax-exempt status for all tax purposes. In fact, a 501(c)(3) designation conclusively establishes tax-exempt status for only one Colorado tax—the state income tax.2 For the other Colorado state and local taxes, different procedural requirements apply and, to varying degrees, different substantive requirements apply as well. Part I of this article describes the requirements that apply to charitable exemption from the property tax. Part II (which will appear in a subsequent issue of The Colorado Lawyer) extends the discussion to state and local sales and use taxes.

Charitable Exemption from The Property Tax

An annual tax is levied in Colorado on virtually all real property (land and improvements) and most business tangible personal property.3 The tax is levied by local governments pursuant to procedural and substantive rules set forth in a comprehensive state statute.4 To secure a charitable exemption from the property tax, an organization must apply for and obtain an exemption determination from the state Property Tax Administrator ("PTA"). In that process, the organization must demonstrate that it satisfies the requirements of the property tax definition of "charitable"—requirements that can be quite different from the requirements of § 501(c)(3).

Procedural Rules

The exemption determination process is initiated by filing an application for exemption with the PTA.5 Exemptions are property-specific—a separate exemption application must be filed for each property for which exemption is sought.6 Exemptions also are owner-specific—if a property changes hands, even from one charitable owner to another, the new owner must apply for a new exemption determination.7

Procedurally, the earliest effective date for which an exemption may be sought is January 1 of the year prior to the year in which the application is filed.8 Substantively (for reasons explained below), an exemption cannot be effective prior to the date on which the applicant both acquired ownership and commenced the qualifying charitable use of the property. Once an application is filed, property taxes for this retroactive period and for the period during which the application is pending are suspended.9

If the PTA rules favorably on an application, the county in which the property is located or any taxpayer within that county may appeal the PTA's decision to the Board of Assessment Appeals ("BAA").10 If the PTA rules unfavorably, the property owner may appeal to the BAA.11 Once a property has been found exempt, annual reports must be filed with the PTA to retain the exemption.12

The property tax statute directs the PTA to promulgate rules and regulations to implement the exemption determination process, and she has done so.13 Like the statute, the PTA's regulations are both procedural and substantive. The PTA also has an internal "memo manual" that addresses a number of exemption determination issues.14

Substantive Rules

Legislative Definition of Charitable

The statutory rules that govern the substance of charitable exemptions follow one basic premise—property must be both owned and used for strictly charitable purposes in order to be exempt.15 Ownership by a charity without devotion to charitable use, and charitable use without charitable ownership, is each insufficient by itself to establish entitlement to a charitable exemption.16 Property that is owned by a charitable organization and used partly for charitable and partly for noncharitable uses may qualify for partial exemption.17 Property that is owned by a charitable organization and simply not used at all (such as idle, vacant land) cannot qualify as exempt.18 Property that is leased from a charitable owner to another charitable user and used by the latter for charitable purposes may be exempt (but if and only if the rental charged does not exceed operating expense reimbursement plus one dollar per year).19

The property tax statute authorizes exemption for ten different types of properties under the heading of "charitable."20 Nine of the listed property types are specific; one is general. The nine specific property types are: (1) licensed health care facilities; (2) property used as an integral part of nonprofit domestic water companies; (3) nonresidential property of certain amateur sports organizations; (4) nonprofit community correctional facilities; (5) certain residential facilities associated with churches, schools, hospitals, and other exempt organizations; (6) certain nonprofit child care facilities; (7) certain property of fraternal and veterans' organizations; (8) certain physician and dentist offices owned by nonprofit organizations, where services are offered without regard to ability to pay; and (9) certain specified types of low-income or "refuge" housing. The tenth property type is quite general, encompassing all charitable uses that are "nonresidential."21

The statutory grant of exemption to eight of the nine specific charitable uses and to the general nonresidential use starts with the same phrase: "Property, real and personal, which is owned and used solely and exclusively for strictly charitable purposes and not for private gain or corporate profit shall be exempt from the levy and collection of property tax if. . . ." This language appears to invite inquiry into whether property that is used for one of these eight specific charitable uses is also used "for strictly charitable purposes." On the other hand, making such an inquiry...