Welfare Exemption from Property Taxes for Nonprofit 501(c)(3) Corporations

Welfare Exemption from Property Taxes for Nonprofit 501(c)(3) Corporations

Nonprofit corporations exempt under section 501(c)(3) may qualify for an exemption from property tax for real and personal property owned and operated in California. Section 214 of the California Revenue and Taxation Code creates the “welfare exemption” for properties held by nonprofits meeting the following criteria:

  1. The nonprofit is organized and operated for religious, hospital, charitable or scientific purposes,
  2. The nonprofit owns or holds in trust property used exclusively for those purposes, and
  3. The nonprofit has a current tax exempt letter from the Internal Revenue Service or the Franchise Tax Board.

Not every organization exempt under section 501(c)(3) that holds property in California qualifies for an exemption. For example, California courts require educational organizations to meet the following criteria to be eligible for the welfare exemption:

  • The educational purposes and activities must benefit the community as a whole or an unspecified portion of the community.
  • The educational activities must include the study of relevant information and the distribution of that information to the general public.

Further, a scientific organization will only qualify if it is chartered by the U.S. Congress and the objectives of the scientific organization are to encourage or conduct scientific investigation, research and discovery for the benefit of the community at large.

The welfare exemption is administered by both the California Board of Equalization (BOE) and local county assessor offices. The BOE determines whether the nonprofit is eligible for exemption; the assessor’s office determines whether the property qualifies for exemption. The application process is two-part: first with the BOE, and then with the County Assessor.

How to Apply for the Welfare Exemption

  1. Ensure the Articles of Incorporation include the required language.

To be eligible for the welfare exemption, the organization’s Articles of Incorporation must irrevocably dedicate the property to religious, hospital, scientific or charitable purposes and ensure that upon liquidation, dissolution or abandonment by the owner, the property will not inure to the benefit of any private person except a nonprofit fund, foundation or corporation organized and operated for such purposes. The BOE provides sample clauses in Exhibit C of its publication on the welfare exemption (Pub 149). Nonprofits considering applying for the exemption should ensure that its Articles conform to these requirements.

  1. Apply for an Organizational Clearance Certificate with the BOE.

The nonprofit must file claim form BOE-277, Claim for Organizational Clearance Certificate-Welfare Exemption with the Board of Equalization along with the required attachments, including organizational documents, such as Articles of Incorporation, a tax exemption letter, financial statements, and a description of activities. Securing an Organizational Clearance Certificate (OCC) is a prerequisite to securing the exemption. The BOE often takes a significant period of time to process BOE-277 claims.

  1. Apply for the Welfare Exemption with the County Assessor’s office in the county where the property is located or used.

The nonprofit must file an initial form BOE-267, Claim for Welfare Exemption (First Filing) with the county assessor’s office in the county where the property is located. This must include a description of the activities of the organization as well as financial statements related to the property. Check with the local assessor’s office to secure the proper form. The assessor will make a site visit before processing the claim to ensure that the property is used for exempt purposes. Note that the claim will be denied until the nonprofit has a valid OCC on file.

  1. Reapply for the exemption every year in February.

A claim for the welfare exemption must be filed EVERY YEAR by February 15 of the year to which the claim pertains. For example, the organization must file by February 15, 2017, for an exemption for the 2017-2018 property tax year. Failure to timely file will result in a less than 100% exemption from property taxes. Some county assessor’s offices require the annual filing to be made on form BOE-267 and others on form BOE-267-A.

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Written by Cameron Holland.