Working Paper: NBER ID: w21088
Authors: Fan Fei; James R. Hines Jr.; Jill R. Horwitz
Abstract: Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of PILOTs to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percent higher property tax rate is associated with a 0.2 percent higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percent higher PILOT rate is associated with 0.8 percent reduced real property ownership by local nonprofits, 0.2 percent reduced total assets, and 0.2 percent lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.
Keywords: PILOTs; Nonprofits; Property Taxes; Municipal Finance
JEL Codes: H25; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher property tax rates (H29) | Higher PILOT rates (H79) |
| Higher PILOT rates (H79) | Decrease in real property ownership by local nonprofits (L39) |
| Higher PILOT rates (H79) | Decrease in total assets and revenues of local nonprofits (L31) |