Acting on constitutional authority, the Tennessee General Assembly authorized certain property tax exemptions for Tennessee’s religious, charitable, scientific, literary and nonprofit educational organizations. With limited exception, no organization is automatically exempt from the payment of property taxes, but rather must apply to and be approved by the Tennessee State Board of Equalization.
Applicants must comply with the applicable requirements of Tenn. Code Ann. § 67-5-201 through 227 in order to qualify for exemption. Once an application is properly filed with our office an exemption designee will review the application and make an Initial Determination as to eligibility.
SBOE Public Portal
The SBOE Public Portal provides information regarding the status of Exemption Applications reviewed by the board.
It is extremely important that any organization seeking a Tennessee property tax exemption apply for every parcel of property upon which an exemption is sought. In the case of an exemption for tangible personal property, an applicant should identify any taxing identification information received from the county assessor of property and identify the personal property being applied for.
Once an application is submitted, our office will review the application to ensure it includes all the required information and documentation to be considered properly filed with the board. This includes, but is not limited to, ensuring all required fields on the application have been completed and all required documentation is present.
Properly filed applications are then forwarded to an attorney for review who will issue an Initial Determination or send a request for additional information. There is currently no established time-frame for how long the review process may last. Although our office aspires to process every application in a professional and expedient manner, applicants should allow a maximum of approximately six (6) months for processing. Applicants may check the status of their application by using the SBOE Public Portal.
Under general exemption law, property owned by a religious, charitable, scientific, or non-profit educational institution and used for an exempt purpose may qualify for exemption. Other types of property might also be exempt, like non-profit theaters, community art centers, or non-profit museums and may be subject to more specific requirements.
State law sets out some basic requirements:
The organization applying for tax exemption must own the property that is the subject of the application.
The State Board of Equalization will look at the documents that govern the organization to determine whether it is a qualifying religious, charitable, scientific, or non-profit educational institution. Most often these documents will be a charter, articles of incorporation, by-laws, or articles of faith. These documents help verify the organization will not make a profit for any of its owners, officers, members, or parishioners. They also help ensure that should the organization dissolve, it will give any assets it has left to another not-for-profit organization. The State Board will also review the organization’s financial information. This may be an IRS Form 990, budget, or income and expense statement.
The property must be used for an exempt purpose. “Use for an exempt purpose” means the property is used for a purpose for which the applying organization was created or exists or a use that is necessary to support the applying organization such as parking, storage, or drainage. Use of property must be constant, but it does not have to be daily. A property that is used every other month, but is always used every other month, may still qualify for exemption. Property that is not used often and is only used at random may not qualify.
Vacant, unused land does not qualify for property tax exemption, even if it will be used in the future or construction is planned. However, property that is under construction or major renovation may be eligible for a partial exemption (see below).
The Effective Date is the point in time when the property is taken off of the tax roll. Applications approved for exemption typically only become effective beginning the tax year in which the application is filed. Effective Dates are controlled by Tennessee Statute and may be found in Tenn. Code Ann. § 67-5-212(b)(3).
Approved applications filed before May 20 have an effective date of either January 1 of the tax year, the date ownership began, or the date use of the property began, whichever is later. Approved application filed after May 20 may be effective as of the date the exempt use began so long as the application is filed within thirty (30) days the date the exempt use began; otherwise, approved applications will be effective as of the date the application is submitted to the state board of equalization, assuming use has already begun.
Applications for exemption require the following documentation to be included with an application:
- Proof of ownership of real property (a copy of the warranty or quitclaim deed). In the case of tangible personal property a schedule identifying the property applied for and, if applicable, the identifying taxing information received from the county assessor of property.
- If the organization is incorporated, a copy of the corporate charter and bylaws.
- If the organization is unincorporated, a copy of any document(s) explaining the organization's governing structure.
- Financial information for the last fiscal year (i.e., Form 990 if required by the IRS, a budget for the organization, an income/expense statement, or other similar documentation).
- A non-aerial photograph of the property.
For purposes of the payment of taxes, an exemption application is treated the same as an appeal of a property's value. Tenn. Code Ann. § 67-5-212(b)(1). The law requires that you pay at least the undisputed portion of your taxes prior to the delinquency date to avoid penalties and interest. See Tenn. Code Ann. § 67-5-1512(b). For exemptions, the 'disputed portion' of taxes is often the entire amount owed. If an applicant has a good faith claim to believe a 100% exemption will be approved then an applicant may elect to make no payment of taxes. However, it is best to confirm your claim and non-payment with your collecting official.
Once an Initial Determination is issued, assuming no party has appealed, the taxpayer will owe the amount of any underpayment of taxes or is eligible for a refund of any taxes paid, along with interest at the rate provided by law.
County taxes for the year under appeal may be obtained from the office of county trustee. City taxes (if any) may be obtained from the city collecting official, who may be either the city treasurer, city recorder, or the county trustee, who sometimes also serves as the city tax collector.
The interest rate applicable to taxes under appeal is the composite prime rate published by the Federal Reserve Board, minus two points. (available below).
Property owned by an exempt organization, but which is rented and used by another exempt organization for an exempt purpose may be exempt. The State Board must verify that both the owning organization and leasing organization are exempt and must know what the renting organization uses the property for. If both organizations are exempt and the property is being used for an exempt use, the property may be exempt from property taxes.
Property owned by a private individual or by a for-profit corporation, but leased to an exempt organization is not eligible for a property tax exemption.
Property under construction may be fully exempt if construction is completed and the property is in use within 12 months of the application.
If construction is not completed within 12 months, the underlying land will remain taxable during the construction period, but the value of any constructed improvements may be exempted as of the date of the application or applicable effective date.
The State Board of Equalization will hold an application for 12 months after it is initially processed. When the applying organization shows proof that construction has completed and the property is being used the State Board may fully exempt the property without a new application. If construction lasts more than 12 months the organization may need to submit a new application.
Organizations that are IRS 501(c) (3) exempt are not automatically exempt from Tennessee state property taxes. Qualifying organizations seeking a property tax exemption should file an exemption application with the State Board of Equalization.
Appeal to an administrative law judge:
An organization may appeal an Initial Determination to an Administrative Law Judge by filing an online appeal.
Once an appeal has been properly filed with the office of the State Board of Equalization the exemption application, Initial Determination, and entire application file will be forwarded to an administrative law judge for review and a hearing. While there is no specific timeframe for the scheduling of hearings before an administrative law judge, the taxpayer and county assessor will receive a notice approximately thirty (30) days in advance of any scheduled hearing.
An Initial Decision and Order regarding a taxpayer's appeal will be issued by the administrative judge within ninety (90) days of the hearing. A taxpayer has thirty (30) days from the date of the Initial Decision & Order to appeal to the Assessment Appeals Commission; otherwise the appeal becomes the final decision of the State Board of Equalization.
Should an organization disagree with the Initial Decision and Order of the administrative law judge, the organization may appeal to the Assessment Appeals Commission. The Assessment Appeals Commission is a panel of three or more experienced property tax professionals who may affirm the decision of the administrative law judge or remand the case for further proceedings. The Assessment Appeals Commission may reverse or modify the decision if the rights of the petitioner have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
- In violation of constitutional or statutory provisions;
- Made upon unlawful procedure;
- Arbitrary and capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or
- Unsupported by evidence that is both substantial and material in light of the entire record.
The Assessment Appeals Commission will issue a Final Decision & Order within ninety (90) days of its hearing. If the State Board of Equalization does not elect to review the decision of the commission the decision becomes the final decision of the State Board of Equalization forty-five (45) days after it is entered.
The State Board of Equalization:
A party who desires the State Board of Equalization to review a decision of the Assessment Appeals Commission must file a written petition with the Executive Secretary of the State Board within fifteen (15) days from date of the Final Decision & Order. Review by the State Board of Equalization is permissive and not guaranteed. Parties who petition for review by the board will be notified if their petition is granted.
A taxpayer wishing for judicial review of a final action of the State Board of Equalization must file a petition in the county where the disputed assessment was made or in an appropriate chancery court within sixty (60) days from when the order of the State Board of Equalization becomes final.
The purpose of this manual is to educate the reader about property tax exemptions in Tennessee and inform taxpayers and government officials how property tax exemption decisions are made. Property tax exemptions are addressed in the Tennessee Code in Title 67, Chapter 5. The code defines the types of property that may qualify for tax exemption and establishes the requirements for obtaining exemption.
This manual will discuss:
- the categories of exempt property;
- the application process;
- the appeal process;
- how an exemption may be lost; and
- other related topics.
It is anticipated that the manual can be useful to taxpayers, county and city officials, and persons with a general interest in exemptions.