In my home state of Minnesota, nonprofits can apply for property tax exemption if they use their real estate for mission delivery. Usually this is a faceless process, the nonprofit applies on paper and has to send in its 990s and other materials to the county tax assessor.
The assessor reads the application materials and decides if the nonprofit is the kind of charity that qualifies for property tax exemption.
Now, of course, the county doesn't want to give up its tax revenue, so if the application isn't done well, then the county is likely to reject the application and keep collecting the tax money.
AKA, if the 990s Aren’t Done Well, You Might Get Rejected.
I've said many times, the Form 990 is not just a government document that goes into an IRS database. It's a communication tool. Sometimes we're using it to communicate to donors or grant makers. And occasionally, we might need to tell our story to get real estate tax exemption.
One of the first sections of the 990 has a place for the nonprofit to state its mission. There's plenty of space on the form, but many nonprofits provide only a cursory mission statement…or even worse, sometimes the tax preparer straight up gets it wrong.
Fix #1 for Property Tax Emption
For the love of Pete, take the time to fill this in with an accurate and complete mission statement! You need to educate potential donors, grant makers and the county assessor about how the organization’s services provide a public good.
Fix #2 for Property Tax Exemption
Make sure you fully spell out the nonprofit programs – in detail! The 990 has a section where nonprofits can describe its major programs. Use this space to its full potential. Filling this section in well is critical to communicating the right things in a property tax exemption application.
Here's an example. Say you're a fully-fledged academic preschool in MN, but your tax preparer puts “provide daycare” as a mission and leaves the rest blank. Your tax exemption application will fail because fee-for-service ‘daycare' doesn't qualify for property tax exemption here.
Bottom line: Always be Communicating in Your 990 – Don't Sleep On It.
Related post: What if Somebody Asks to See Our 990s?