In Oregon, just because an organization has 501(c)(3) income-tax-exempt status does not necessarily mean that the organization will qualify for a property tax exemption. In fact, all real property and personal property is subject to property tax unless a specific exemption applies. Fortunately, many charities are exempt from property taxes under ORS 307.130, which grants an exemption for property owned by “benevolent, charitable and scientific institutions” if the property is “actually and exclusively occupied or used in the literary, benevolent, charitable or scientific work carried on by such institutions.” Any organization seeking a property tax exemption under ORS 307.130, however, must file an application and will have the burden of proving that the exemption is appropriate. Additionally, an organization that has been granted a property tax exemption could lose that exemption (or part of the exemption) if the county assessor believes that the exemption is no longer valid.
County assessors most commonly challenge a charitable organization’s claim to a property tax exemption by arguing that the property is not exclusively used in the charitable work of the organization (e.g., a shed rented to a neighbor) or that the organization is not “charitable.” In September 2011, the Magistrate Division of the Oregon Tax Court addressed the issue whether an organization can be charitable if it charges admission fees to the public and does not have a policy allowing free or reduced-fee admissions based on a person’s ability to pay. Cascade Raptor Center v. Lane County Assessor, No. TC-MD 101269B (Or Tax Ct Sept. 12, 2011).
Cascade Raptor Center (the “Raptor Center”) is an Oregon nonprofit corporation that is exempt from income tax under Section 501(c)(3) of the Internal Revenue Code. The Raptor Center rescues and rehabilitates sick, injured, or orphaned birds and specializes in birds of prey, with the goal of returning the birds to the wild. The Raptor Center also uses nonreleasable birds as ambassadors in nature-education and community-outreach programs. At the Raptor Center headquarters, there is a visitor center, a gift shop, an education pavilion, a clinic, bird enclosures, and a few other buildings. Most of the bird enclosures display nonreleasable birds to the visitors of the center. Additionally, the Raptor Center provides on-site and off-site educational programs.
To qualify for a property tax exemption, the charitable organization’s primary or sole purpose must be for the direct good or benefit of the public, it must operate in a manner that furthers its charitable purpose, and its activities must have “an element of gift and giving.” OAR 150-307.130-(A)(3)(d). In Cascade Raptor Center, the county assessor argued that the Raptor Center’s operations did not include any element of gift and giving because the Raptor Center charged admission fees, regardless of whether a person was able to pay the fees. But, OAR 150 307.130 (A)(3)(d)(C) specifically provides that the fact that an organization charges fees does not, in and of itself, mean that the organization is not charitable.
In Cascade Raptor Center, the court found that even though the Raptor Center charged admission fees and did not have a policy to reduce or eliminate the admission fees based on a person’s ability to pay, the Raptor Center’s activities did involve an element of gift and giving. In arriving at this conclusion, the court evaluated the extent to which volunteers assisted the Raptor Center in its operations, the extent to which it received donations, and the extent to which it provided services at a price lower than its cost to operate the Raptor Center. The court found it favorable that the Raptor Center employed only three staff members and had over 100 volunteers who volunteered over 20,000 hours per year because the volunteer time was significant and it allowed the volunteers, their guests, and the public to receive a beneficial experience. The court also found it favorable that donations and grants to the Raptor Center made up about 71 percent of the Raptor Center’s total revenue and that the strong support of the public through donations of time and money showed that the public believed the organization to be charitable. Finally, the court found it favorable that the admission fees covered only 13 percent of the Raptor Center’s annual expenses, which meant that the admission fees were less than the actual cost to run the Raptor Center. The finding of the court that the Raptor Center’s operations had an element of gift and giving led the court to determine that the Raptor Center was “charitable” and that it was entitled to a property tax exemption.
Although Oregon law does not disqualify an organization from being a “charity” for purposes of a property tax exemption solely because the organization charges fees without a policy reducing or eliminating the fees for the poor or indigent, this can be a factor that draws additional scrutiny from county tax assessors. In Cascade Raptor Center, although the Raptor Center was ultimately found to be charitable, it likely could have avoided the cost and time of litigation by having a written policy to allow low-income people to have free or reduced-cost access to the facility (although this is not required by law), especially since the Raptor Center appears to have granted free and reduced-cost access to the facility upon request.
As a result of the recession, finances are tight across the state of Oregon, and it is to be expected that county tax assessors will be more aggressive in disallowing property tax exemptions (either upon application or after an exemption has been granted, if the assessor believes that the exemption is no longer warranted). At the end of the day, each organization will bear the burden of proof that it is entitled to a property tax exemption if the tax assessor disagrees. Cascade Raptor Center serves as a reminder to nonprofit corporations to be vigilant in monitoring the use of their property to ensure that the property is used “exclusively” for their charitable work and that, if required, they can support their claim that their organizations are “charitable.”