OAR 150-307-0120: Review Required in Determining Exempt Status of Property for Charitable Institutions

The following criteria shall be used in determining the qualification for property tax exemption under ORS 307.130 when an application is made by a charitable organization as required in 307.162, 307.112, or 307.166: (1) Purpose. The purpose of this rule is to set forth, as a guide for assessors, those tests that are commonly applied by the Oregon courts in determining whether property qualifies for exemption under ORS 307.130. This rule does not include all of the principles that have been used by the courts. The assessor must recognize that evaluation of an application for charitable exemption must be made on a case-by-case basis in light of the specific fact situation presented. (2) Organization: (a) Applicant must be an incorporated institution; (b) The corporation must be organized as a nonprofit corporation. This is a mandatory first step for an organization; however the status of an institution as a nonprofit corporation does not conclusively endow it with the attributes of a charity. For example, an organization is recognized by the Internal Revenue Service as income tax exempt within IRC (1954) Section 501(c)(3). However, the standards for determining whether the income of an organization is subject to federal income taxes and the question of whether property is exempt from property taxes are separate and distinct. Thus, whether a corporation is a charity is to be determined not only from its charter, but also from the manner in which it conducts its activities; (c) The organization must separately account for funds and donations committed to charitable use; (d) The organization must not operate for the profit or private advantage of the organization’s founders and officials; and (e) The organization’s articles of incorporation or bylaws must require that its assets be used for charitable purposes when the organization dissolves. (3) Property Interest: (a) If application is made under ORS 307.162 the organization must be the owner or purchaser of the property. (b) If application is made under ORS 307.112 the organization must be the lessee. (c) If application is made under ORS 307.166 the organization must be the lessee or entity in possession. (d) Any organization claiming the benefit of property tax exemption in subsection (3)(a), (b), or (c) under ORS 307.130, must have possession of and be using the property for the stated exempt purpose by June 30 of the year in which the exemption is claimed. (4) Purpose and Activity: (a) Any organization claiming the benefit of property tax exemption under ORS 307.130, as a charitable institution, must have charity as its primary, if not sole, object and must be performing in a manner that furthers that object. (b) The activity conducted by the charitable institution must be for the direct good or benefit of the public or community at large. Public benefits must be the primary purpose rather than a by-product. An organization that is established primarily for the benefit of its members, is not a qualifying charity. For example, a rifle club formed primarily for the pleasure of its members also provides safety information and instruction. Since the club’s primary purpose is not to provide a direct benefit to the public, its property is not exempt. An organization that performs a service to a professional organization of private persons (example: teachers, physicians or architects) is not a charity. (c) If the activity of the charitable institution relieves a government burden, it is an indicator that the institution may be charitable. Failure to relieve a government burden will not disqualify an organization as charitable. (d) An element of gift and giving must be present in the organization’s activities, relating to those it serves. This element of gift and giving is giving something of value to a recipient with no expectation of compensation or remuneration. Often, a charitable organization’s product or service is delivered to recipients at no cost or at a price below the market price or price to the organization of the product or service. Declarations of worthwhile purpose and charitable endeavors must be manifested in concrete endeavors and tangible reality which benefits the recipient. Unless this element of a gift or giving is present promises of future worthy endeavors are meaningless by inaction, and give the applicant no preferred status. (A) Forgiveness of uncollectible accounts does not by itself constitute a gift or giving. (B) The fact that a business activity actually operates at a loss does not make it charitable. (C) The fact that an organization charges a fee for its services does not necessarily invalidate its claimed status as charitable. It is a factor to be considered in the context of the organization’s manner of operation. In determining whether a fee-charging operation is charitable, it is relevant to consider the following: (i) Whether the receipts are applied to the upkeep, maintenance and equipment of the institution or are otherwise employed; (ii) Whether patients or patrons receive the same treatment irrespective of their ability to pay; (iii) Whether the doors are open to rich and poor alike and without discrimination as to race, color or creed; (iv) Whether charges are made to all and, if made, are lesser charges made to the poor or are any charges made to the indigent. (D) The fact that individuals provide volunteer labor to assist the organization in performing its activities may indicate that the organization is charitable. However, it is not a standard in determining whether an organization is charitable per se. (E) An institution shall not be denied exemption solely because: (i) Its primary source of funding is from one or more government entities; or (ii) The purpose or use of the property is not limited to relieving pain, alleviating disease or removing constraints. (5) Use. The property must be used primarily for charitable purposes. (a) There must be an actual charitable use of the property rather than just a charitable use of the income derived from the operation of the property. “Destination of income” theory does not qualify the property for exemption. For example, use of property by a charitable organization as a bingo parlor to raise money for a charitable activity is not an actual charitable use of the property, and does not qualify the property for exemption. (b) A retail store operated by volunteers of a qualified organization may receive exemption if at least one-half of the inventory is donated and consigned. One-half of the inventory refers to the number of items. The total number of donated and consigned items must be at least equal to the total number items that constitutes new merchandise. (c) To be eligible for a property tax exemption as a charitable institution, the applicant must be primarily eleemosynary in nature. Such an institution will demonstrate two elements of charity. First, the institution must perform a function or act which is good or beneficial for humans and other living things. The second part entails a gift or act of giving. The words “gift” and “giving” imply a voluntary act. While an institution shall not be deprived of an exemption as a charitable organization solely because its primary source of funding is one or more governmental agencies. (d) The property shall be actually used or occupied for the benevolent and charitable work carried on by the organization. (A) The use of the property must substantially contribute to the furtherance of the charitable purpose and goal of the organization. For example, a gift shop is located in a hospital qualifying for exemption as a benevolent and charitable institution. The gift shop sells candy and flowers and may be subject to ad valorem taxation, unless it furthers the charitable purpose and goal of the organization. As another example, a cafeteria is located in a hospital qualifying for exemption as a benevolent and charitable institution. The cafeteria is operated primarily for the use of the hospital staff and is incidentally used by the general public. The cafeteria is being used to contribute to the charitable goal of the hospital, and is exempt from ad valorem taxation. (B) Only the portion of a property used for literary, benevolent, charitable or scientific purposes shall be granted exemption from ad valorem taxation under ORS 307.130. Property may be in part taxable and exempt. For example, a property otherwise qualifying for exemption, has a barber shop operating within the facility. The portion of the building in which the barber shop is located is subject to ad valorem taxation, unless the barbershop furthers the charitable purpose and goal of the organization.