Is Your North Carolina Nonprofit Paying a Tax It May Not Owe?

A practical overview of the Business Personal Property Tax for nonprofit organizations in Mecklenburg and Gaston counties

For nonprofit organizations, every dollar saved on administrative costs and taxes can potentially be redirected toward advancing the organization's mission. One area that North Carolina nonprofits may overlook is business personal property tax.

Nonprofit organizations operating in Mecklenburg County or Gaston County may be eligible for an exemption from property tax on certain business personal property. However, simply having nonprofit or 501(c)(3) status does not automatically make an organization's property tax-exempt.

Understanding the rules - and filing the appropriate application - can make a meaningful difference for qualifying organizations.

What Is Business Personal Property?

Business personal property generally includes tangible assets used by an organization in its operations rather than real estate. Depending on the organization, this could include items such as:

Computers and computer equipment
Office furniture
Machinery and equipment
Fixtures
Telephone and communications equipment
Certain leasehold improvements
Other tangible property used in operating the organization

North Carolina counties generally require organizations and businesses that own taxable business personal property to report that property annually. However, North Carolina law provides exemptions for certain property owned and used by qualifying nonprofit organizations.

Being a 501(c)(3) Does Not Automatically Create a Property Tax Exemption

Federal income tax exemption under Internal Revenue Code Section 501(c)(3) does not automatically mean that an organization's property is exempt from North Carolina property taxes.

Gaston County specifically advises taxpayers that 501(c)(3) or nonprofit status through the North Carolina Secretary of State does not automatically exempt business personal property from taxation. Organizations seeking an exemption must establish that their property meets North Carolina's exemption requirements and submit the applicable exemption application.

The organization's nonprofit status is important, but the ownership and use of the property are equally important.

North Carolina Law Provides Exemptions for Certain Charitable Property

One of the primary statutes affecting nonprofits is North Carolina General Statute §105-278.7, which addresses real and personal property used for educational, scientific, literary, or charitable purposes.

Under the statute, personal property may qualify for exemption when it is:

Wholly owned by a qualifying organization; and
Wholly and exclusively used for qualifying nonprofit educational, scientific, literary, or charitable purposes.

Organizations potentially covered by the statute include charitable associations or institutions, historical organizations, veterans organizations, scientific and literary organizations, benevolent organizations, and nonprofit community or neighborhood organizations.

Other provisions of North Carolina law provide exemptions for particular types of nonprofit organizations and activities. For example, N.C.G.S. §105-278.6 provides exemptions for certain real and personal property used for charitable purposes, including qualifying property associated with organizations such as homes for the aged, sick or infirm, nonprofit rescue organizations, certain low- and moderate-income housing organizations, and similar charitable organizations.

Religious organizations may also qualify for exemptions under separate provisions of North Carolina law. N.C.G.S. §105-278.3 provides an exemption for qualifying personal property that is wholly owned and wholly and exclusively used for religious purposes, subject to the requirements of the statute.

Mecklenburg County Nonprofit Organizations

The Mecklenburg County Assessor recognizes exemptions and exclusions for both real property and business personal property. The County identifies several types of organizations and property that may potentially qualify, including:

Charitable organizations
Religious organizations
Educational organizations
Veterans organizations
Certain nonprofit housing organizations
YMCA and similar organizations
SPCA organizations
Volunteer fire departments
Charitable hospitals

Mecklenburg County directs taxpayers seeking these exemptions to submit North Carolina Form AV-10, Application for Property Tax Exemption or Exclusion. The County generally identifies the application filing period as January 1 through January 31.

Nonprofits should therefore not assume that an exemption will automatically appear on their business personal property account simply because the organization has received an IRS determination letter.

Gaston County Nonprofit Organizations

Gaston County provides particularly clear guidance regarding nonprofit business personal property. According to the Gaston County Tax Office, 501(c)(3) and nonprofit status do not automatically exempt business owners from property taxation.

Instead, an organization seeking exemption generally must submit the appropriate exemption application and demonstrate that its property qualifies under North Carolina law.

Gaston County also states that organizations with previously exempt business personal property generally do not need to reapply annually for previously exempt assets. However, newly acquired assets require a new exemption application in order to qualify for exemption.

That detail can be particularly important for growing nonprofits. For example, an organization that received an exemption several years ago but subsequently purchased new computers, furniture, equipment, or other assets should not automatically assume those assets were added to the existing exemption.

Form AV-10: The Key Application

The North Carolina Department of Revenue Form AV-10 - Application for Property Tax Exemption or Exclusion - is the primary application used for many North Carolina property tax exemptions. The form identifies numerous statutory exemption categories, including property used for:

Religious purposes
Educational purposes
Charitable purposes
Certain nonprofit housing purposes
Charitable hospital purposes
Veterans organizations
Other qualifying nonprofit activities

The North Carolina Department of Revenue identifies N.C.G.S. §105-278.7 for other charitable, educational, and similar property among the exemption provisions covered by Form AV-10. Applications are submitted to the applicable local taxing authority rather than simply relying upon the organization's IRS nonprofit determination.

What Happens If the January Deadline Is Missed?

Organizations that discover the exemption after the normal filing period may still have options. North Carolina General Statute §105-282.1 allows a late exemption or exclusion application to potentially be approved when an applicant demonstrates good cause for failing to file a timely application.

Gaston County, for example, states that late business personal property exemption applications may be accepted through December 31 but must go before the Board of Equalization and Review for consideration based on good cause. A late filing is therefore not guaranteed to receive approval, making timely review particularly important.

A Practical Example

Consider a North Carolina 501(c)(3) nonprofit that provides educational programs to children and operates from an office in Mecklenburg County. The organization owns:

$18,000 of computers
$12,000 of office furniture
$20,000 of audiovisual and educational equipment

Without an exemption, the organization may report those assets as business personal property subject to local taxation. If the organization qualifies under the applicable North Carolina exemption statute and the property is wholly owned and used for qualifying nonprofit purposes, the organization may be able to apply to have qualifying property exempted from taxation.

The important question is not simply, "Are we a nonprofit?"
It is, "Does our organization and the way we use this property satisfy one of North Carolina's statutory property tax exemptions?"

Nonprofits Should Review Their Property Tax Status Annually

Business personal property taxation can easily be overlooked because nonprofit leadership often focuses primarily on federal and state income tax exemption. Organizations in Mecklenburg and Gaston counties should consider reviewing several items each year:

Whether the organization is currently receiving a business personal property tax exemption.
Which North Carolina statutory exemption applies to the organization.
Whether all qualifying assets are included in the exemption.
Whether new equipment or other assets were purchased during the year.
Whether Form AV-10 or another application needs to be submitted.
Whether the organization's use of any property has changed.
Whether an exemption application should be filed before the annual deadline.

The Bottom Line

North Carolina nonprofit status does not automatically eliminate business personal property taxes.

However, charitable, religious, educational, and certain other nonprofit organizations may qualify for significant property tax exemptions when their property satisfies the ownership and use requirements contained in North Carolina law.

For nonprofits operating in Mecklenburg County and Gaston County, reviewing business personal property tax filings should become part of the organization's annual tax and compliance process.

An organization that has been paying business personal property taxes for years should not assume those taxes are necessarily required simply because they have historically appeared on the tax bill. A review of the organization's activities, assets, and applicable North Carolina exemption provisions may identify an exemption opportunity that has previously been overlooked.

Sources

Disclaimer: This article is intended for general informational purposes only and should not be considered legal or tax advice. Property tax exemptions depend on an organization's particular facts, ownership structure, property use, and applicable North Carolina law. Organizations should consult their tax professional and the appropriate county tax office regarding eligibility.