New General Property Tax Exemption for Benevolent Low Income Housing Organizations

July 2, 2009

UPDATED: New Requirements for 2009 Low-Income Housing from the Wisconsin Department of Revenue

On June 29, 2009, Governor Doyle signed into law, 2009 Wisconsin Act 28, creating Sec. 70.11(4a) Wis. Stats., the Low-Income Housing Exemption. This new law is retroactive to January 1, 2009.

The new law requires that certain forms be filled out and submitted to assessors by March 1 of the assessment year. Given the law’s late adoption, in order to implement the clear legislative intent that the law apply to the 2009 assessment year, the Department has determined that taxpayers who believe they have a qualifying Low Income Housing property for 2009 will be given an opportunity to file these forms by October 16, 2009.

For more information, please visit the Wisconsin Department of Revenue’s Web site.

The State of Wisconsin in 2009 Wisconsin Act 28 created a specific property tax exemption for property owned by a nonprofit entity that is a benevolent association and used as low-income housing. Section 70.11(4a) of the Wisconsin Statutes provides that a benevolent nonprofit entity that uses its property to provide low-income housing is exempt from general property taxes.

Previously, nonprofit low-income housing providers fell under the general “benevolent association” exemption set forth in Section 70.11(4) of the Wisconsin Statutes. This created a difficulty for nonprofit low-income housing providers because they had to rely on Wisconsin case law to establish that they fell within the general property tax exemption of Section 70.11(4).

Under the new law, “low-income housing” is defined as either (1) a housing project that is owned by an organization described under Section 501(c)(3) of the Internal Revenue Code, financed by the Wisconsin Housing and Economic Development Authority (“WHEDA”) under Section 234.03(13), and which WHEDA holds a first mortgage lien; or (2) any residential unit within a low-income housing project that is occupied by a low-income or very low-income person or is vacant and is only available to such persons.
A “low-income housing project” is a residential housing project where:

  1. At least 75 percent of the residential units are only available to low-income or very low-income persons; and
  2. At least 20 percent of the residential units are available to persons who are very low-income or at least 40 percent of the residential units are available to persons who are low-income.

The definition of low-income and very low-income shall be determined by the income limits published by the U.S. Department of Housing and Urban Development under the National Housing Act of 1937.

A key element to the new statute is that it removes benevolent nonprofit low-income housing providers from the rent use requirement contained in the preamble of Section 70.11 of the Wisconsin Statutes. Recent court decisions and a Wisconsin Department of Revenue opinion determined that benevolent nonprofit low-income housing providers were required to satisfy the rent use requirement-using all of their leasehold income for maintenance of the leased property, construction debt retirement of the leased property, or both. This created several problems such as what is meant by “maintenance” and is permanent financing different than “construction debt”?

Section 70.11(4a)(f) now permits the benevolent low-income housing providers to use the leasehold income for any purpose. This change will permit nonprofit organizations to better manage their financial planning since under the rent use requirement, the nonprofit organization either had to break even or lose money in order to satisfy the rent use requirement.

The new law also increases the acreage limit of exempt property owned by benevolent nonprofit low-income housing providers. Under the old law, an owner could only own ten acres of tax exempt property in a municipality. The new law has increased the amount to thirty acres; provided, however, no more than ten acres can be contiguous. Nonprofit owners must annually file with the municipal assessor information necessary to establish the existence of the low-income housing project. Failure to do so can result in the imposition of fines.