Property Tax Welfare and Institutional Exemptions FAQ

The Legislature has the authority to exempt property (1) used exclusively for religious, hospital, or charitable purposes, and (2) owned or held in trust by nonprofit organizations operating for those purposes. This exemption is popularly known as the welfare exemption and was first adopted by voters as a constitutional amendment on November 7, 1944. When the Legislature enacted section 214 of the Revenue and Taxation Code to implement the Constitutional provision in 1945, a fourth purpose scientific, was added to the three mentioned in the Constitution.

In general, the welfare exemption from local property tax is available to property of organizations formed and operated exclusively for qualifying purposes (religious, scientific, hospital or charitable), which use their property exclusively for those purposes. Both the organizational and property use requirements must be met for the exemption to be granted.

The Welfare and Veterans’ Organization Exemptions are jointly administered by the Board of Equalization (BOE) and the county assessor. The BOE determines whether the organization is eligible to receive the welfare or veterans’ organization exemption and the county assessor determines whether the use of the property is eligible for the exemption.

If the BOE determines that an organization is eligible, the BOE issues an Organizational Clearance Certificate for the claimant to provide with exemption claim forms filed in any of the 58 counties.

The county assessor reviews claims for the welfare exemption, and the assessor’s determination of whether an organization’s property use satisfies the requirements of section 214 will be made by the county assessor without review by the BOE staff. However, the assessor may not grant a claim unless the organization holds a valid Organizational Clearance Certificate issued by the BOE. The assessor may deny an exemption claim, based on non-qualifying use of the property, notwithstanding the claimant’s organizational clearance certificate granted by the BOE.

Section 215.1 provides for the exemption of all buildings, and the real property required for the convenient use and occupation of the exempt buildings, owned by a veterans’ organization which has been chartered by the Congress of the United States and is organized and operated for charitable purposes, when such premises are used and operated exclusively for charitable purposes by such organization and are not being conducted for profit and no part of the net earnings of the operation inures to the benefit of any private individual or member of the organization. This exemption is popularly known as the veterans’ organization exemption.

Personal property of veterans’ organizations is exempt under Revenue and Taxation Code section 215; it is not necessary to file a claim form requesting exemption on personal property.

A county assessor may not grant a claim for the welfare exemption unless the organization holds a valid Organizational Clearance Certificate issued by the BOE. Claim form BOE-277, Claim for Organizational Clearance Certificate-Welfare Exemption, and claim form BOE-279, Claim for Organizational Clearance Certificate-Veterans’ Organization Exemption, are available on the BOE’s website. You may also request a copy of a claim form by contacting the BOE’s Property Tax Exemption Section at 1-916-274-3430.

Claims to obtain an Organizational Clearance Certificate may be filed with the BOE at any time throughout the year. Claims for the welfare exemption must be filed annually with the county assessor, generally by February 15. If a claim is filed after February 15, a partial exemption may still be granted. The assessor may not grant a claim unless the organization holds a valid Organizational Clearance Certificate issued by the BOE.

The law recognizes mid-year acquisitions of real property by qualified organizations. The property will be eligible for exemption from the supplemental assessment if the organization claiming the exemption is a qualified organization and meets the qualifications for the exemption no later than 180 days after the date of the change in ownership or the completion of new construction. A claim for exemption from supplemental assessment must be made on or before the 30^th day following the notice of supplemental assessment sent by the county assessor. If a claim is filed after the 30-day period, a partial exemption is available.

Claims are filed on the following forms:

BOE-267: Claim for Welfare Exemption (First Filing), (claim form for initial request of welfare exemption for a specific property when the claimant is a new filing in the county or requesting exemption for a new location in the county)

BOE-267-A: Claim for Welfare Exemption (Annual Filing), (claim form filed on an annual basis after initial “been met” finding. May be filed on properties that were granted exemption in the prior year)

BOE-269-AH: Claim for Veterans’ Organization Exemption, (claim form filed for request for Veterans’ Organization Exemption)

Supplemental affidavits are also required for certain property types:

BOE-267-H: Welfare Exemption Supplemental Affidavit, Housing-Elderly or Handicapped Families, (claim form filed for properties used for housing for elderly or handicapped families)

BOE-267-L: Welfare Exemption Supplemental Affidavit, Housing-Lower-Income Households, (claim form filed for properties used for low income households)

BOE-267-L1: Welfare Exemption Supplemental Affidavit, Low-Income Housing Property of (Limited Partnership), (claim form filed for properties used for low income households owned by limited partnerships)

BOE-267-R: Welfare Exemption Supplemental Affidavit, Rehabilitation-Living Quarters, (claim form filed for properties used for rehabilitation and associated living quarters)

An organization may, subject to a late-filing penalty, file a claim for the Welfare Exemption without limitation. However, the law limits refunds of taxes paid to four years from the date the payment was made. Thus, if an organization were to qualify for the Welfare Exemption in December of 2008 for years 2002 through 2008, had paid taxes on its real property timely for all those years, and filed claims for refund of taxes paid, it could expect a refund of taxes paid for the first installment due November 1, 2008, for both installments due in 2005, 2006, and 2007, and possibly for the first installment due November 1, 2004. No refund would be possible for taxes paid timely for 2002 or 2003, since these years were beyond the four-year statute of limitations (section 5097(a)(2), Revenue and Taxation Code).

Organizations that intend to claim the welfare or veterans’ organization exemption and are not currently eligible for these exemptions in any county in the state (i.e., new to state) must file a claim form requesting the certificate (BOE-277, Claim for Organizational Clearance Certificate-Welfare Exemption, orBOE-279, Claim for Organizational Clearance Certificate-Veterans’ Organization Exemption).

Additional information that should be included with the claim (as indicated on the claim form) include the following organizational documents:

Articles of incorporation and amendments (or equivalent formative document)

Tax exemption letter

Financial statements of organization

Documentation supporting/describing the activities of the organization

Other information (as requested from Board staff)

California property tax law has its own requirements that may differ from other state and federal law. One of these differences affects organizations applying for the Welfare Exemption. Our law requires an explicit statement that an exempt organization’s property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes (sections 214(a)(6) and 214.01, Revenue and Taxation Code) also see Property Tax Rule 143, and that upon dissolution of the organization the assets will go to another fund, foundation, or corporation organized and operated for similar purposes and having federal section 501(c)(3) status.

The following language would satisfy California property tax law requirements for domestic (incorporated in California) corporations:

“The property of this [legal entity] is irrevocably dedicated to [religious/charitable/scientific/hospital purposes or charitable and educational purposes meeting the requirements for exemption provided by section 214 of the Revenue and Taxation Code] and no part of the net income or assets of this organization shall inure to the benefit of any private persons. Upon the dissolution or winding up of the [legal entity] its assets remaining after payment, or provision for payment, of all debts and liabilities of this [legal entity], shall be distributed to a nonprofit fund, foundation, or corporation which is organized and operated exclusively for [religious/ charitable/scientific/hospital purposes or charitable and educational purposes meeting the requirements for exemption provided by section 214 of the Revenue and Taxation Code] and which has established its tax exempt status under section 501(c)(3) of the Internal Revenue Code.”

You are not required to file a form annually with the BOE to retain an Organizational Clearance Certificate. However, you are required to file form BOE-278-OCC upon request of the BOE. This claim form requests information required to ensure that the organization continues to qualify for exemption. (Please note that you are required to file claim forms annually with the county assessor where the property is located.)

No. The income tax exemption does not automatically confer property tax exemption to a nonprofit organization. Both ownership and use of the property drive the Welfare Exemption.

Mere ownership of property by a nonprofit corporation does not satisfy the requirements for property tax exemption. The property must also be used exclusively for an exempt (religious, scientific, hospital, or charitable) purpose and activity. Certain uses of property will not qualify for exemption even though conducted by the nonprofit owner:

Fundraising

Unrelated business

Allowing other unqualified individuals or organizations to use the property for private benefit

In general, the organization must demonstrate that it is in receipt of substantial donations from outside sources. Those donations, in turn must be passed on to a segment of the public that is sufficiently large that a gift to the organization may be viewed as benefiting the community as a whole.

Although an organization’s receipt of donations is an important criteria by which its charitable purpose can be demonstrated, the absence of donations, by itself, will not result in a determination that a charitable purpose does not exist if it can be shown that the organization is providing a benefit or gift to the community. (Stockton Civic Theatre v. Board of Supervisors (1967) 66 Cal.2d. 20)

In addition, the organization must meet ALL of the following criteria:

It must not be organized or operated for profit.

No part of the net earnings of the organization may benefit any private person.

The organization’s property (1) must be irrevocably dedicated to religious, hospital, scientific, or charitable purposes, and (2) may not benefit any private person upon liquidation, or abandonment except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.

The organization must qualify as an exempt organization for state or federal income tax purposes.

The charitable activities must be found to primarily benefit persons within the geographical boundaries of the State of California.

If you disagree with the assessor’s determination of ineligibility for the welfare or veterans’ organization exemption, you may seek a refund of property taxes paid by filing a claim for refund with the county board of supervisors. If the refund claim is denied, you may file a refund action in superior court.