Can a HOA incorporate as a Non-Profit to avoid paying Real Estate Taxes on Common Areas?
I live in a community, which has a Beach Club. They are a non-profit corporation.
In 2007, they declared themselves and HOA, and own a $2,000,000 piece of land which they don't pay taxes on. The HOA Act of WA State suggests "real property tax" paid by its members for land not under their ownership as a part of being an HOA.
If this organization is LEGALLY an HOA, can they keep non-profit status and forgo property tax?
Most common areas are taxed to the individual unit owners according to their percentage interests in the common areas. If the development was set up properly a percentage of the value of the common areas will be included in the valuation of each unit owner's property, and the HOA will not have any real property tax obligation, whether it is profit or non-profit.
Most HOAs are already incorporated as non-profit corporations. The status of the entity (profit/non-profit/corporation or unincorporated association) will likely have no bearing on the real estate tax obligations of entity. Sometimes the purpose of the organization can affect the obligation to pay real estate taxes. This is typically an issue governed by state law.
When people talk about “non-profits” they are sometimes talking about income tax ramifications at the personal level (can I deduct this payment from my income for federal taxes?), sometimes talking about tax ramifications at the entity level (does this organization taxes on its income?), and sometimes talking about state law which governs the formation and activities of the organization.
The issue of how federal and state laws and regulations will affect a particular HOA are incredibly situation specific, and would require review of the facts involved and the jurisdiction it is located in. Many associations do not have any taxable real estate, because the common areas are all owned jointly by the members of the community.
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.