The Welfare Exemption
"For The Good Of All"
This pamphlet, produced by the Santa Cruz County Assessor explains how qualifying welfare property may be exempt from taxation.
By what authority is the Welfare Exemption granted?
Article XIII, Section 4(b) of the California Constitution provides that the Legislature may exempt from property taxation in whole or in part:
“Property used exclusively for religious, hospital, or charitable purposes and owned or held in trust by corporations or other entities (1) that are organized and operating for those purposes, (2) that are nonprofit, and (3) no part of whose net earnings inures to the benefit of any private shareholder.”
Article XIII, Section 5:
“Scope of certain exemptions. Exemptions granted or authorized by Sections 3(e), 3(f), and 4(b) apply to buildings under construction, land required for their convenient use, and equipment in them if the intended use would qualify the property for exemption.”
Article XIII, Section 6:
“Failure to claim exemptions to be deemed waiver. The failure in any year to claim, in a manner required by the laws in effect at the time the claim is required to be made, an exemption or classification which reduces a property tax shall be deemed a waiver of the exemption or classification for that year.”
Article XIII, Section 14:
“Property to be assessed where situated. All property taxed by local government shall be assessed in the county, city, and district in which it is situated.”
Article XIII, Section 33:
“The Legislature shall pass all laws necessary to carry out the provisions of this article.”
What property qualifies for the Welfare Exemption?
According to The California Revenue and Taxation Code, Section 214:
“Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes (may be) exempt from taxation.”
This section then lists many of the necessary elements which will qualify such property. Among the most important are:
- The property must be used exclusively for the actual operation of the exempt activity.
- The owner must qualify as an exempt entity with the IRS or the Franchise Tax Board. (Sections 501(c)3 or 501(c)4 of Internal Revenue Code)
- The property must be irrevocably dedicated to religious, charitable, scientific, or hospital purposes.
- The property may not be used for the benefit of any private person or corporation through the distribution of profits, payment of excessive charges or compensation or the more advantageous pursuit of their business or profession.
- Both the owner and the operator must meet specific requirements for qualification.
What constitutes a Religious Purpose?
Please refer to our pamphlet entitled
Property Tax Exemptions for Religious Organizations/ Thou Shall Pay........Unless?
What constitutes a Hospital Purpose?
The courts have defined the word hospital as follows:
A hospital is primarily a service organization. It serves three groups: the patients, its doctors, and the public. It furnishes a place where the patient, whether poor or rich can be treated under ideal conditions. It makes available room, special diet, x-ray, laboratory, surgery, and a multitude of other services and equipment now available through the advances of medical science. Essential to the administration of these techniques is the corps of highly-trained nurses and student nurses who are on duty twenty-four hours per day. In the large hospitals there are the interns and residents whose presence makes it possible for the hospital to do a better job. In addition, the hospital...must have administration to see that its services function properly and are coordinated, and that patients are received and cared for regardless of the hour or the patient’s condition. Nothing can be left to chance because a slip may mean the loss of a life or many lives. These facilities also stand ready to serve the community in time of epidemic or disaster.
What constitutes a Charitable Purpose?
The term charitable has been liberally construed by the courts. Charitable encompasses a wide range of activities beneficial to the community. Many educational activities (but not all) are considered charitable. In order to be charitable, an educational activity must benefit the community as a whole or an unascertainable and indefinite portion thereof. An organization cannot be considered a qualifying charitable organization unless it can demonstrate that it is in receipt of substantial donations from outside sources, which it in turn passes on to beneficiaries selected from an indefinite class for the benefit of the community as a whole.
Who decides what should be exempt and what shouldn't be exempt?
The State Board of Equalization determines if an organization qualifies for a welfare exemption by issuing an Organizational Clearance Certificate. The Assessor determines if the property being used by the organization qualifies for exemption. Many of the most difficult areas related to the Welfare Exemption have been reviewed by the courts and this has provided us with the basic guidelines which are followed. But, as the State Board of Equalization has stated so well:
“The problem in administration is not what is religious or charitable, but what is not.”
What if the property is vacant, unused, or too large?
The Revenue and Taxation Code requires exclusive use of the property for the active operation of an exempt activity - vacant, unused, or excess property on the January 1 lien date is not eligible for exemption.
What about new construction?
An exemption cannot be granted under Sections 206, 207, 214.1 or 214.2, Revenue and Taxation Code, where construction, or demolition or remodeling of an existing structure, has not commenced as of the January 1 lien date. Property acquired after January 1 may qualify under Section 271 provided construction, demolition, or remodeling commences immediately after acquisition and the building is thereafter completed and put to use in an exempt manner without unnecessary delay. The intent to commence construction, demolition, remodeling, and/or use at a later date is not qualifying.
Does the Welfare Exemption preclude all property assessments?
No. The welfare exemption does not grant exemption from special assessments (special levies). In addition there may be portions of the property which will be considered non-exempt. (Hospital Thrift Shop, Museum Gift Shop, etc.)
What are the specific areas of exemption?
The following are the general areas covered by the Welfare Exemption:
- Religious - Only when the property has more than a church and/or religious school (e.g. conference facility, recreation area, campground, etc.)
- Museum, opera, ballet, theater, private educational facilities, etc.
- Low income housing
- Charitable organizations in general
Where can I get a claim form?
First time claimants may request forms from the County Assessor @ 454-2002. After the first filing the Assessor sends on or before January 1 annually the complete claim form for use by the recipient.
When do I file?
Claimants must file annually by February 15. Sections 270 & 271 authorize late filing and give either 90 percent or 85 percent relief. Property acquired during a fiscal year that would have qualified had it been acquired prior to the lien date is eligible for exemption prorated by the number of days in the fiscal year that the property qualified for exemption.
Where do I file?
The claimant should file the completed claim form with the County Assessor. The Assessor makes an inspection of the property and prepares a Field Inspection Report. Based on the report, the Assessor mails a finding to the claimant either granting or denying an exemption.
Should you have any questions, please contact the County Assessor's Exemption facilitator at 454-2002.