Peace on the PILOT Front?

April 2013Advisories

Decades ago, the City of Boston began collecting payments in lieu of taxes (PILOTs) from major charitable institutions, usually in connection with municipal approval of a major construction project or purchase of formerly taxable property. Some institutions, despite their size, might never have been requested to make a PILOT payment, whereas others that regularly engaged in expansion would be asked many times. Ground rules for PILOTs were unclear, and they occasioned spirited debate.

In response, Mayor Menino established a task force in 2009 to make recommendations regarding the City’s PILOT program. They recommended the following program: 

  • All property of each institution over a minimum size will be assessed and a provisional PILOT payment of 25% of the institution’s assessed property tax will be established. 
  • Community benefits provided by the charitable institution to the City and its residents can offset up to 50% of the PILOT payment. 
  • This program will be phased in over a five-year period. 
  • PILOT payments are voluntary.

The Boston Municipal Research Bureau recently reported on PILOT payments by the City’s 48 largest (by assessed value) tax-exempt institutions during the program’s first year. The City received $19.5 million in PILOT payments, an increase of $4.3 million over the prior year, and more than 90% of what had been requested. 

Is PILOT peace at hand? The answer isn’t clear since there remain several open questions: Are assessments of charitable properties set with the same rigor as for taxable property? What community benefits count – anything the institution does related to its core mission, or only programs or services that replace or reduce the burden on city services? We’ll have a better idea next year, when several institutions will be expected to substantially increase their PILOT payments.

This advisory was authored by Jack Eiferman and Matthew Kiefer, Directors in the firm's Medical, Educational and Cultural Institutions group. For questions or additional information on this topic, please contact Jack at [email protected] or Matthew at [email protected].

This advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

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