Louis E. Michelson, A Professional Corporation

The following summarizes a recent development in the state law for property tax exemption, otherwise known as the welfare exemption.

General Law.  Properties are exempt from property taxes if two conditions exist.  First, the property must be used exclusively for charitable purposes (the “operated” requirement).  Second, the property must be owned by entities that are organized and operated for exempt purposes (the “organization” requirement).  Revenue and Taxation Code Section 214.

The owner and the operator need not be the same entity.  Christ The Good Shepherd Lutheran Church v. Mathiesen, 81 CA.App.3d 355 (1978)

Recent Development.  Who is required to file a claim for welfare exemption when the operator of a property is not the owner of the property?  Is it only the owner of the property?  Or are both the owner and the operator each required to file an exemption?  The Court of Appeals of California, Second District, in 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; the operator of the property is not required to file a claim for an OCC (see explained below).   To look at this case, please see the following link.

The current welfare administration began in 2004.  Instead of both the County Assessor and the State Board of Equalization (SBE) each being required to look at the same claim and make a decision, the duties were divided between the two agencies.

• The SBE looks at the organization to determine if it is organized and operated for exempt purposes and issues its finding in an Organizational Clearance Certificate (an “OCC”).  This is a one-time determination.
• The Assessor looks at how the property is being used.  This is an annual welfare exemption claim.

The SBE issued advisory guidance in 2004 that required both the owner and operator to file a claim for an OCC and to file an annual welfare exemption claim.

The Court rejected the SBE’s interpretation of Revenue and Taxation Code Section 214.  “The County, in essence, argues that the statutory scheme and/or the Handbook requires both an owner and operator to file a claim for a welfare exemption.  It asks us to simply defer to the SBE’s interpretation and authority. We decline. . . . the SBE’s interpretation of the statutory scheme is clearly erroneous, and its advisory rules are not binding . . .”

Moving Forward.  The operator of the property is still required to be organized and operated for exempt purposes.  The operator of the property is still required to use the property for exempt purposes.

The Assessor now has to verify that the operator satisfies the “organized” requirement.   The Assessor has to ascertain if the activity satisfies the “operated” requirement.  It is assumed that, once it is known that there is a third party operator of the property, the Assessor will question the owner to provide information about the operator’s exempt status and how the property is used.

Assume for example that a charity-owner leases property to a charity-lessee.  This charity-owner of property, in anticipation of an inquiry from the Assessor, may require that the charity-lessee who engages in exempt activities to furnish the charity-owner with information that substantiates the charity-lessee satisfies the “organized” requirement.   Further, this charity-owner of property may require the charity-lessee to represent or furnish evidence that the charity-lessee’s use satisfies the “operated” requirement.