Legislators choose which nonprofit groups will be exempt from property taxes

Matt Bittle
Posted 5/21/16

DOVER — In Delaware, 76 nonprofits are specifically exempt from local property taxes.

Additionally, a potentially undetermined number of other organizations and facilities such as cemeteries, …

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Legislators choose which nonprofit groups will be exempt from property taxes


DOVER — In Delaware, 76 nonprofits are specifically exempt from local property taxes.

Additionally, a potentially undetermined number of other organizations and facilities such as cemeteries, incorporated fraternities and Wilmington public parks do not have to pay at least a portion of their property taxes.

Nationally, many nonprofits are exempt from state and local property taxes. Delaware relieves the charitable organizations from these costs through legislation, typically approving two or three not-for-profit groups at a time by proposing to grant them exemptions in bills introduced in the General Assembly.

In other words, legislators choose which organizations will not have to pay property taxes. A lawmaker can present a proposal to exempt a preferred nonprofit, typically one within his or her district, to col-leagues.

He or she may be approached by the nonprofit or may develop the idea without any prompting. This system means some of the burden, in a way, rests on the nonprofit itself — some similar groups might be exempted, but if administrators of charitable bodies are unaware of Delaware’s provision, their asso-ciation may not be freed from the costs.

Not all proposals pass, but the ones that do typically receive no floor votes against.

Since 2009, lawmakers have exempted eight specific nonprofits, as well as community-run pools in Kent and New Castle and land banks.

The list of exempt organizations dates back to the late 1800s and includes some obviously outdated ones like the Layton Home for Aged Colored Persons Incorporated.

Many are local community groups, although well-known national organizations like the Salvation Army, American Legion and Habitat for Humanity are included.

The nonprofits range from the Jewish B’nai B’rith Lodge 470 to Penn Acres Swim Club Inc. to The Eastern Shore Fox Hunters’ Association to University Drama Group Inc.

A bipartisan bill released from committee earlier this month would add three establishments to the list: Milford Housing Development Corporation, EJB Inc. and Martha and Mary’s Place Inc.

Milford Housing Development Corporation focuses on affordable homes, while EJB is part of the substance-abuse center Serenity Place Inc., which was granted the privilege of not having to pay proper-ty costs in 2014. Martha and Mary’s Place describes itself as a drug treatment facility.

“These are all three involved in housing, public housing, they’re all three nonprofit corporations,” Sen. F. Gary Simpson, R-Milford, said. “They’re not being used as investments. These entities are providing low-cost housing for people throughout the state.”

The main sponsor of the measure to add the three groups to the Delaware Code as exempt charitable associations, he admitted he does have a concern that too many organizations cleared from having to pay property taxes could backfire.

“While there’s a lot of worthwhile organizations, we don’t necessarily want to see it expanded at this time, but housing is a priority for both of us,” he said of co-sponsor Sen. Brian Bushweller, D-Dover, and himself.

According to a fiscal analysis attached to the bill, Milford Housing Development Corporation pays $28,365.71 in property taxes, most of which goes to Appoquinimink School District.

EJB is charged $1,072.94, the majority of which goes to Capital School District. Martha and Mary’s Place has property costs of $99.15 in property taxes, with most going to Caesar Rodney School District.

“These are nonprofit organizations that provide specific services that frankly the state itself would have to provide if they weren’t doing it, and as a result the thought is that if we can help them out in some small ways like exempting them from the property tax it’s a fair thing to do,” Sen. Bushweller said.

Many nonprofits undoubtedly provide valuable services, saving the state and local government from having to spend funds in certain areas, but lifting the tax requirement for too many could create trouble for counties and municipalities by limiting their revenue.

Dr. Jonathan Justice, a professor in the University of Delaware’s School of Public Policy & Admin-istration, said there are different approaches for local governments to try to claim some revenue from tax-exempt groups.

Many cities and towns create with nonprofits agreements known as payments in lieu of taxes, where the nonprofit faces a cost that is smaller than the property tax.

Doing so can foster good will with city hall, Dr. Justice said.

“It’s a way for them to help contribute to the greater good, which is of course exactly what those or-ganizations are about in the first place,” he said.

Municipalities can also impose fees, as Newark does for electricity for the University of Delaware, al-lowing the city to make some money off otherwise-exempt land, Dr. Justice noted.

In Delaware, the state gives a subsidy to Wilmington, Dover and Georgetown, which are home to many government-owned, tax-exempt buildings, Secretary of Finance Tom Cook said.

Jonathan Gallo, executive director of Central Delaware Habitat for Humanity, which was added to the list in 2010, said the exemption helps the nonprofit spend more money on building houses in Kent County.

Because of the legislation passed unanimously six years ago, the organization does not have to pay taxes on the property it buys and then constructs residences on. That privilege ends after the new home-owner takes over the house.

The 48 houses Central Delaware Habitat for Humanity has built over the past 25 years contribute about $35,000 annually in taxes to Kent, Mr. Gallo said.

Nonprofits must be a designated 501(c)(3) under federal law to receive the exemption, though a look at previous associations granted the status by Delaware legislators indicates a wide range of such groups are approved in this way.

“You could argue it all day whether it’s fair or unfair,” Dr. Justice said. “It’s so widespread and broadly accepted that by default we are kind of presuming it’s at least acceptable on average.”


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