Payments in lieu of taxes

A PILOT is a payment in lieu of taxes (also sometimes abbreviated "PILT"), made to compensate a local government for some or all of the tax revenue lost due to tax exempt ownership or use of a particular piece of real property. Usually it relates to the forgone property tax revenue.

The federal government of Canada also has a program for federal payments in lieu of taxes to local governmental entities (including First Nations) in areas where the federal government owns property.

In the United States, the occasion for such a payment can arise in several different ways:

Economic Concerns During the Recent Recession

Payments in lieu of taxes for nonprofit organizations are voluntary. However, with the recent recession that began in 2008, some cities want this to change. At issue are the vast amounts of land owned by universities, hospitals, churches, and other nonprofit organizations. The tax-exempt status granted to these entities by the IRS means that property taxes that would have been paid to municipalities had this land been owned by private individuals or companies are not collected.

According to a 2010 report by the Lincoln Institute of Land Policy, between 2000 and 2010 PILOTs were used in at least 18 states. Seventeen of those states account for 35 cities and towns with PILOTs. In addition, 82 out of a total of 351 municipalities in Massachusetts have collected PILOTs (Massachusetts Department of Revenue 2003). A map in this report also reveals that although these 18 states can be found scattered across the country, the vast majority of this activity seems to be concentrated in the northeast.

For many municipalities in the United States, property taxes are a primary source of revenue. The amount of forgone tax revenue as a result of these tax-exempt land parcels is significant. The president of the city council of Baltimore, MD, recently estimated that his city loses $120 million annually from these foregone taxes. Taxable values for properties within municipalities that are charged a tax have dropped due to the mortgage crisis, further decreasing local coffers.

At the same time, these entities enjoy the same level of service the rest of the residents of the given city or county enjoy. These services include fire, police, sewer, trash collection, etc. It is argued that asking some, or all, nonprofits to pay taxes, either voluntarily, or via statutory measures, would help offset some of these costs and ease the strain on local budgets. This would be equivalent to increasing the tax base in these areas. Many nonprofits, whose own budgets are dwindling, fear this trend. There is, however, no evidence this trend will have any impact upon the exemptions that nonprofits enjoy from other forms of taxation outside of property taxes.

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