San Jose lawmakers support exempting nonprofits from Measure E

San Jose Mayor Sam Liccardo, who has been leading the effort on Measure E, a real property transfer tax on properties valued at $2 million or more, wants to ensure the measure doesn’t impact nonprofits.

San Jose lawmakers during a council committee meeting Wednesday unanimously approved the mayor’s proposal, which calls for exempting 501(c)3 nonprofit organizations from the tax, as long as the organization acquires land from a property transfer that will be used for affordable housing.

In response to feedback from nonprofit and community leaders, the mayor said the transfers should be exempted if the land is used for “philanthropic” purposes, as an additional incentive to create more or preserve existing affordable housing.

“I have heard community support for exempting nonprofit organizations that will use the land for such philanthropic purposes as building affordable housing,” Liccardo wrote in a memo.

While nonprofit organizations are already exempt from paying property taxes on donated properties, city officials Wednesday discussed potentially exempting certain foundations and nonprofits from the city’s proposed real property transfer tax — even if those organizations buy a property valued at $2 million or more.

“We’d like to be able to sit down with foundations to understand, is that an issue? Is that a barrier?” Liccardo added during the meeting, referring to whether nonprofits and foundations should have to pay the tax. “Let’s come back to council and talk about how to make that barrier go away.”

Unless the City Council decides otherwise, if Measure E passes, 501(c)3 organizations would have to pay the proposed real property transfer tax on the sale or transfer of properties valued at $2 million or more, just like other property sales in San Jose.

“Value is what’s going to determine whether there’s a tax,” said Assistant City Attorney Ed Moran on Wednesday “If it’s totally donated, which means there’s no value, there’s no exchange — then it’s not transferred. There are some cases where it’s donated, but somebody takes over a mortgage — that’s a value — so that part of it would be taxed.”

Later this month or in early February, the City Council will make a final decision on exempting foundations and nonprofits from the proposed tax. In addition to the mayor’s suggested condition that the land be used for affordable housing, he’s also proposing that the property serve a purpose in “improving economic equity and access” or other city-led objectives.

The tax, which needs a simple majority to pass, is expected to generate at least $73 million in annual revenue for affordable housing projects and homeless prevention programs.

To ensure the money, which will be pooled into the city’s general fund, is spent on affordable housing, the mayor outlined a strict spending plan that calls for strong accountability and transparency measures, requiring a 60-day notice and at least two public hearings before any funds can be shifted from the city’s annual spending plan.

Contact Nadia Lopez at [email protected] or follow @n_llopez on Twitter.