Applying benefits theory to rationalize property tax exemptions for nonprofit organizations

Abstract Current public policy grants nonprofits property tax exemptions simply because of their status, often assuming they are “charitable,” “educational,” or “health‐related.” This research note argues exemptions should be based on the public or private benefits provided, and not be given to all nonprofits. According to benefits theory, public funds should not finance private benefits; beneficiaries should cover those costs. Property tax exemptions should be reserved for organizations offering public goods or services. In New York City, these exemptions are costly, yet only a small portion supports nonprofits that produce public goods or services.