Non- Profit Charitable 501(c)(3) Exemption
The Legislature has the authority to exempt property (1) used exclusively for religious, hospital, or charitable purposes, and (2) owned or held in trust by nonprofit organizations operating for those purposes. This exemption is popularly known as the welfare exemption and was first adopted by voters as a constitutional amendment on November 7, 1944. When the Legislature enacted section 214 of the Revenue and Taxation Code to implement the Constitutional provision in 1945, a fourth purpose scientific, was added to the three mentioned in the Constitution.
The Marin County Assessor co-administers these exemptions with the State Board of Equalization, and both the organization and the property must qualify under the State requirements.
Applications for these exemptions must be received by February 15. Claim forms for registered organizations are mailed on January 1.
Property Eligible for the Welfare Exemption
In general, the Welfare Exemption from local property taxes is available for property of organizations:
- Formed and operated exclusively for qualifying purposes (religious, scientific, hospital, or charitable),
- That use their property exclusively for those qualifying purposes, and
- That has a current tax exempt letter from the Internal Revenue Service or the Franchise Tax Board.
The above requirements, along with others, must be met for the exemption to be granted. The nonprofit organization must be a 501 (c)(3) corporation or eligible limited liability company.
Administration of the Welfare Exemption
The Welfare Exemption is unique in that it is co-administered by Marin County and the California State Board of Equalization. The California State Board of Equalization determines whether the organization itself is eligible for the exemption (that is, is the organization organized and operated exclusively for one or more of the qualifying purposes—religious, scientific, hospital or charitable?). The Marin County Assessor determines whether an organization’s specific property qualifies for the exemption based on the property’s use (that is, is the property used exclusively for religious, scientific, hospital, or charitable purposes?).
California property tax law has its own requirements that may differ from other state and federal laws. One of these differences affects organizations applying for the Welfare Exemption. California property tax law requires that, in order to qualify for the Welfare Exemption, the organization must be organized and operated exclusively for one or more of the following purposes:
California law further requires the organization’s start-up (formation) documents to contain a statement that the organization’s property is irrevocably dedicated to one or more of the above qualifying purposes, and that in the event the organization stops operating, that the assets will be transferred to another fund, foundation, or corporation organized and operated for similar purposes
Since tax-exempt status under the Internal Revenue Code includes organizations operated for a wider scope of purpose than what is allowed under California tax laws, not every organization with a §501(c)(3) Internal Revenue Code exemption will qualify for the Welfare Exemption. For example, nonprofit organizations exempt under §501(c)(3) include organizations operated for literary purposes and public purposes. These are examples of organizations that would not qualify for the Welfare Exemption.
Under the Welfare Exemption, an organization’s primary operating purpose must be religious, hospital, scientific, or charitable. A qualifying organization’s property may be exempted fully or partially from property taxes, depending on how much of the property is used for a qualifying purpose and activity.
General Filing Requirements
Claims for the Welfare Exemption must be filed annually with the Marin County Assessor for organization’s property located or being used in Marin County. The claim form and any required supplemental affidavits may be obtained from the Marin County Assessor. The Marin County Assessor determines whether the property qualifies for the Welfare Exemption based on “how the property is used.” However, the Marin County Assessor may not grant the exemption unless the organization already has a valid Organizational Clearance Certificate issued by the State Board of Equalization. In the case of some low-income housing property, the organization must also have a Supplemental Clearance Certificate for Limited Partnership, Low-Income Housing Property – Welfare Exemption.
Therefore, an organization seeking exemption for the first time must:
- File a claim for an Organizational Clearance Certificate and, where applicable, a Supplemental Clearance Certificate for Limited Partnership, Low-Income Housing Property – Welfare Exemption, with the Board; and
- File a claim for the Welfare Exemption with the Marin County Assessor for a property located or being used in Marin County. The Marin County Assessor’s office will provide the forms to the organizations to file for the Welfare Exemption.
If you need additional information or have more questions, please contact us. Our office is located at the Marin County Civic Center, 3501 Civic Center Drive room 208, San Rafael, CA. You can also contact a member of the Exemptions staff via phone at (415) 473-3794 or via email. Office hours are from 9:00 AM to 4:00 PM Monday through Friday (closed major holidays).
You may also visit the Non Profit Exemptions FAQ section for additional information.