Nonprofits exempt under 501(c)(3) of the Internal Revenue Code are not automatically exempt from property taxes. In California, depending upon ownership and use of the property, eligible nonprofit organizations may separately apply and receive an exemption from local property taxes. There are three common exemptions for nonprofits owning property in California: the Church exemption, the Religious exemption, and the Welfare exemption.

Very generally, the Welfare exemption is available for property of organizations that are organized and operated exclusively for qualifying religious, scientific, hospital, or charitable purposes, and that use the property exclusively for those qualifying purposes. While “educational” is not one of the enumerated qualifying purposes, “charitable” includes certain educational purposes and activities, and educational nonprofits owning property may qualify for the Welfare exemption if they have the proper references to California Revenue and Taxation Code Section 214 in their organizing document. (See Page 17 of BOE’s Publication 149 for more information.)

An organization seeking exemption for the first time must take the following two-step application process for the Welfare exemption:

• File a claim for an Organizational Clearance Certificate with the California Board of Equalization (the “BOE”)
• File a claim for the Welfare exemption with the county assessor in the county where the property is located or used

The BOE is charged with determining whether the organization itself is eligible for the exemption (i.e., whether the organization is organized and operated exclusively for religious, scientific, hospital, or charitable purposes). The assessor determines whether an organization’s property qualifies for the exemption based on the use of the property (i.e., whether the property is used exclusively for religious, scientific, hospital, or charitable purposes).

Step 1: Organizational Clearance Certificate (“OCC”)

Organizations must apply for an OCC by submitting Form BOE-277 and the following documents to the BOE:

• Organizing Documents. For corporations, Articles of Incorporation and each amendment (if any), or for non-corporations, Constitution, trust instrument, etc., and each amendment (if any)
  • **Note: To be eligible for the welfare exemption, Revenue and Taxation Code section 214(a)(6) requires both that (1) property is irrevocably dedicated to religious, hospital, scientific, or charitable purposes, and (2) upon liquidation, dissolution or abandonment by the owner, property will not inure to the benefit of any private person except a nonprofit fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes. The organization’s organizational document must contain such statements in order to qualify. See Exhibit C in the BOE’s Publication 149 for more information.
• Tax-exempt Status Letter. Copy of letter(s) evidencing exemption from federal income tax under Section 501(c)(3) of the Internal Revenue Code), and/or a copy of the letter evidencing exemption from state franchise or income tax under Section 23701d of the California Revenue and Taxation Code
• Financial Statements. Operating statement (income and expenses), balance sheet (assets and liabilities), and any notes to financial statements for the calendar or fiscal year immediately preceding the claim year and each subsequent year to date;
• Activities. Documentation supporting/describing the activities of the organization (for example, pamphlets, brochures, and web pages are acceptable forms of documentation).

Form BOE-277 may be filed at any time during the year. The organization should complete all parts of the form with sufficient detail to allow the BOE reviewer to understand the organization’s structure and purpose. Failure to submit all the necessary information may result in long delays or denial of the OCC.

Please note that additional steps, forms, and documentation may apply to a claim related to low-income housing.

Step 2: Claim for the Welfare Exemption

The county assessor where the property is located is responsible for reviewing claims for the Welfare exemption to determine whether the property of an organization qualifies for exemption based on its use. While it is best to apply after receiving an OCC from the BOE, some county assessors’ offices permit organizations to submit the Claim for the Welfare Exemption while the OCC is pending. This can be helpful because an organization must complete the exemption claim form and return it to the county assessor on or before Febru­ary 15 of each year to be eligible for the 100 percent exemption. Filing after February 15 may result in some taxes, fees, or penalties coming due instead of receiving the 100 percent exemption.

Claims for the Welfare exemptions may be made using the following forms which are generally available on each county assessor’s website (the following links are to the San Francisco County Assessor’s forms):

• BOE-267, Claim for Welfare Exemption (First Filing), if the claimant is a new filer in a county or is seeking exemption on a new location in the county
• BOE-267-A, Claim for Welfare Exemption (Annual Filing), if the claimant is requesting exemption on an annual basis after initial exemption was granted for that property location

It is important the read the instructions to the forms carefully and to provide all of the requested information to avoid delays in processing or a denial of the claim. For first time filers, the organization will need to attach a copy of its OCC, or note that it is pending and will be forwarded to the county assessor upon receipt. Financial statements are also required for each claim. The forms request copies of the organization’s operating statement (income and expenses) and balance sheet (assets and liabilities) for the calendar or fiscal year preceding the claim year, which relate exclusively to the operation of the property listed on the claim form. A claimant filing a timely claim in February 2017 would enter “2017-2018” at the top of the form, and would submit financial statements for its last calendar or fiscal year.

Additional information, including a supplemental claim form, may be required if the property:

• Is used to operate a store, thrift shop, or other facility;
• Is used as a rehabilitation program (See BOE 267-R);
• Is used as low-income housing (See BOE 267-L);
• Is used as a facility for the elderly or handicapped (See BOE 267-H);
• Is leased, rented, or used by others (See BOE 267-O and more information below, this is new as of January 2017); and/or
• Is used for activities that produce income that is unrelated business taxable income.

Organizations And Persons Using Claimant’s Real Property, Form BOE 267-O

While owners and operators are often one in the same, sometimes, a nonprofit property owner will allow another person or organization to use the property. An “operator” is a user of the property on a regular basis, with or without a lease agreement. If the operator is not an exempt organization, the portion of the owner’s property used by such operator is not eligible for exemption. However, if the operator is an exempt organization, the property may still receive the benefit of the Welfare Exemption.

In the past, in order to receive the Welfare Exemption on the entire property used for qualifying purposes, both the owner and any operator(s) had to apply for the Welfare Exemption by each obtaining an OCC from the BOE and then submitting a BOE-267 claim form to the county assessor. However, a recent court case (Jewish Community Centers Development Corp. v. County of Los Angeles, 243 Cal.App.4th 700 (2016)) held that only the owner of the property is required to file, and that the operator of the property is not required to obtain an OCC.

As a result of the case, the BOE developed form BOE 267-O, which must be filed by an owner when another organization or person uses the property. Since this process is fairly new, there are varying instructions regarding what information is required to be submitted along with BOE 267-O, and the form itself is not clear. According to the San Francisco County Assessor’s website, the BOE 267-O form instructions, and a presentation by the LA County Assessor to the Nonprofit Organizations Standing Committee of the Business Law Section of the State Bar of California, certain additional documentation about the operator may be required, depending on the operator’s use:

If the property is used by an operator once per week or less, the owner must file:

• BOE 267 or 267A (along with owner financials and the other required information specific to the owner);
• BOE 267-O;
• Copy of the operator’s IRS and/or FTB tax exempt letter; and
• Copy of lease or agreement (unless submitted with a previous filing).

If the property is used by an operator more than once per week, the owner must file:

• BOE 267 or 267A (along with owner financials and the other required information specific to the owner);
• BOE 267-O;
• Copy of operator’s IRS and/or FTB tax exempt letter;
• Copy of lease or agreement (unless submitted with a previous filing);
• Copy of operator’s Articles of Incorporation or Bylaws; and
• Copy of operator’s operating statement (income and expenses) and balance sheet (assets and liabilities) for the calendar or fiscal year preceding the claim year.

Even still, the county assessor may ask for additional information about each operator of the property. The assessor may also conduct a field inspection of the property to verify the accuracy of information provided on the claim forms. It may be best to contact the county assessor where the property is located to make sure you are submitting all the necessary documentation for a complete claim for the Welfare Exemption.

Further Reading*:

BOE Publication 149: Property Tax Welfare Exemption

BOE Publication 48: Property Tax Exemptions for Religious Organizations

Assessors’ Handbook Section 267: Welfare, Church and Religious Exemptions

*These publications have not been updated since BOE 267-O was introduced.