How Payment In Lieu Of Taxes Works For Tax-Exempt Properties

What Payment In Lieu Of Taxes Actually Is

Payment in lieu of taxes (PILOT) is money a tax-exempt organization pays to a local government instead of property taxes. The organization owns property that would normally be taxed — a hospital, university, nonprofit office, or religious institution — but because of its tax-exempt status, it owes zero property tax. A PILOT is a voluntary or negotiated payment meant to offset some of that lost tax revenue.

The key word is "in lieu of" — meaning "instead of". The organization is not paying property tax itself. It is paying something else, to the same local government, as a substitute. The amount, timing, and terms depend entirely on what the organization and the municipality agree to. There is no federal formula or requirement.

PILOTs exist because tax-exempt properties remove land from the tax roll. A city loses revenue when a large hospital or university campus sits on property that generates no property tax. A PILOT is one way to recover some of that loss without changing the organization's tax-exempt status.

Key Takeaways

• A PILOT is a voluntary payment from a tax-exempt organization to a local government, not a legal tax obligation.
• The amount and terms of a PILOT are negotiated between the organization and the municipality — there is no standard formula.
• PILOTs are common for large nonprofits, hospitals, universities, and religious institutions that own significant property.
• As a property owner or resident, you may see PILOT payments listed in municipal budgets or tax assessor records, but they do not reduce your own property tax bill.
• Some states have PILOT programs with guidelines; others leave it entirely to local negotiation.

Why Municipalities Negotiate PILOTs

When a tax-exempt organization owns property, the municipality loses property tax revenue. That loss can be substantial. A 50-acre university campus or a 200-bed hospital represents millions of dollars in potential tax revenue that the city will never collect. Schools, fire departments, and public services still serve that property and its occupants, but the tax base that funds them shrinks.

A PILOT is a way to recover some of that revenue without forcing the organization to pay full property taxes (which would threaten its tax-exempt status and mission). The municipality negotiates a payment that is less than full property tax but more than zero. The organization agrees because the payment is usually lower than what it would owe in taxes, and because maintaining good relations with the city matters for operations and expansion.

Not all tax-exempt properties have PILOTs. Many small nonprofits, churches, and community organizations pay nothing. Large institutions with significant real estate holdings — universities, major hospitals, large religious institutions — are the ones most likely to negotiate a PILOT.

How Much a PILOT Payment Typically Is

There is no standard amount. A PILOT might be a flat annual fee, a percentage of the organization's revenue, a percentage of what property taxes would be, or a per-square-foot payment. Some are tied to the organization's budget or enrollment. Others are renegotiated every five or ten years.

A university in one state might pay 25 percent of what property taxes would be. A hospital in another state might pay a flat $500,000 per year. A nonprofit in a third state might pay nothing because no agreement exists. The variation depends on local law, the organization's negotiating power, and what the municipality needs.

Some states have PILOT programs with guidelines — for example, Connecticut and New York have state-level PILOT frameworks that suggest payment levels or require certain disclosures. Most states leave it to local negotiation, which means the amount can differ widely even between neighboring towns.

Who Pays and Who Receives a PILOT

The organization that owns the tax-exempt property pays the PILOT. That is usually a nonprofit hospital, university, college, private school, large religious institution, or other 501(c)(3) organization. For-profit businesses do not pay PILOTs because they pay regular property taxes.

The municipality receives the payment. That is the city, town, or county where the property sits. The money typically goes into the general fund and is used like any other municipal revenue — for schools, police, fire, roads, and other services. Some municipalities earmark PILOT revenue for specific purposes, such as schools or infrastructure in the area where the tax-exempt property is located.

The state does not receive PILOT payments. PILOTs are a local arrangement between the organization and the municipality. The state may have guidelines or requirements for disclosure, but the state does not collect the money.

How to learn about a Property Has a PILOT Agreement

If you own property near a large nonprofit or want to know whether a tax-exempt organization is making payments to your municipality, you can search public records. Start with your city or county assessor's office — they maintain records of all properties, including tax-exempt ones, and sometimes note PILOT agreements.

Your municipal budget is another source. Many towns publish their budgets online, and large PILOT payments are often listed as revenue. Search the budget document for "PILOT" or the name of the organization. City council meeting minutes may also discuss PILOT negotiations or payments.

You can also contact your city or county finance department directly and ask whether a specific organization has a PILOT agreement and what the payment amount is. This information is public record in most states. If the organization is a university or hospital, its annual financial statements (often available on its website) may mention PILOT payments as part of its community relations or financial disclosures.

How PILOTs Affect Your Property Taxes

A PILOT payment does not reduce your property tax bill. Your taxes are based on the assessed value of your property and the local tax rate. A PILOT is revenue the municipality receives from a tax-exempt organization; it does not change how your property is taxed or what you owe.

However, a PILOT can indirectly affect your community. If a municipality receives significant PILOT revenue, it may have more money for schools, services, and infrastructure. That can mean better-maintained roads, more robust emergency services, or higher school funding — which may affect property values and community quality of life, though not your tax bill directly.

Conversely, if a large tax-exempt property exists and no PILOT is negotiated, the municipality loses that revenue entirely. That loss may put pressure on the tax rate for other property owners, since the municipality still needs to fund services. Some residents argue that tax-exempt organizations should pay PILOTs to prevent this burden from shifting to homeowners and businesses that do pay property tax.

State PILOT Programs and Local Variation

A few states have formal PILOT programs with rules and guidelines. Connecticut, for example, has a state PILOT program that provides grants to municipalities to offset lost property tax revenue from tax-exempt properties. New York has a PILOT program with suggested payment levels. Other states have no state program and leave all PILOT negotiations to individual municipalities.

This variation means that the same organization might pay very different amounts in different states or even different towns. A hospital in one state might pay 20 percent of property tax value; the same hospital in another state might pay nothing. A university might negotiate a five-year agreement in one town and a ten-year agreement in another.

If you want to know whether your state has a PILOT program, contact your state's Department of Revenue or your city's finance department. They can tell you whether a formal program exists and what the rules are.

Frequently Asked Questions

Can a tax-exempt organization be forced to pay a PILOT?

No. A PILOT is voluntary — the organization and municipality must agree to it. However, some states have laws that encourage or require negotiation. A few states allow municipalities to deny tax exemption or reduce it if an organization refuses to negotiate a PILOT, though this is rare and usually applies only to very large properties.

What happens if a PILOT agreement expires?

The organization and municipality must renegotiate. If they cannot agree, the organization may stop paying, or the municipality may seek a new agreement. Some agreements automatically renew unless one party objects. Others require active renegotiation. The terms depend on what the original agreement says.

Do religious institutions have to pay PILOTs?

No. Religious institutions are tax-exempt, and PILOTs are voluntary. Many churches and religious organizations pay nothing. Some large religious institutions with significant property holdings do negotiate PILOTs, but there is no requirement to do so.

Can I see the PILOT agreement between my city and a nonprofit?

Usually yes. PILOT agreements are public records in most states. You can request a copy from your city or county clerk, finance department, or assessor's office. Some municipalities post them online. If you are denied access, you may have the right to file a public records request under your state's freedom of information law.

Does a PILOT count as property tax for the organization?

No. A PILOT is not a property tax. The organization remains tax-exempt and does not owe property tax. The PILOT is a separate, voluntary payment. This distinction matters because paying property tax would jeopardize the organization's tax-exempt status, but paying a PILOT does not.