is a payment in lieu of taxes
(also sometimes abbreviated "PILT"), made to compensate a local government for some or all of the tax
revenue that it loses because of the nature of the ownership or use of a particular piece of real property
. Usually it relates to the foregone property tax
In the United States
, the occasion for such a payment can arise in several different ways:
- Land owned by the federal government is generally not subject to taxation by state or local governments. Under Public Law 94-565, enacted in 1976, the federal government began a program of making payments in lieu of taxation to local governments affected by this reduction in their tax bases.
- In some states where land owned by colleges and universities is not subject to local property taxes, the state government reimburses the local governments for part of the tax revenue that the local government would otherwise have collected.
- PILOTs may be negotiated in specific circumstances, as when an arrangement is made for a corporation or institution to build a facility on public land without assuming ownership of the land. For example, there is such a program in New York state. In conjunction with the proposal to build a West Side Stadium in New York City for use by the New York Jets, there was controversy over the proposal by the Mayor, Michael Bloomberg, to use PILOT money from the Jets to help finance the project rather than applying it to other municipal expenses. The Port Authority of New York and New Jersey, a bi-state public authority, makes payments in lieu of taxes to New York City under an agreement relating to its ownership of the World Trade Center site.
- Similarly, where a non-profit organization may be exempt from property taxes and sales taxes, its mission may permit payment of an agreed PILOT to the local tax authorities, to offset the impact upon local services funded by town residents. The size of such payments can be controversial, especially where the organization appears to have local income from taxable activities. For example, the tax-exempt Appalachian Mountain Club operates a modern hotel for its members in Carroll, New Hampshire, paying a negotiated PILOT amount to the town. A competing commercial hotel would also pay "meals and rooms" taxes.
- As an incentive for investment in taxable infrastructure or other facilities that create a public benefit, a PILOT may be negotiated to limit or defer the property taxes on a developer, striking a balance between public and private economic needs. In effect, the local taxpayers are subsidizing the commercial development, which might otherwise have gone elsewhere. This has occurred in poor rural areas where large wind energy systems are often placed, providing cost relief to the owner and a limited tax payment to the locals.
The federal government of Canada
also has a program for federal payments in lieu of taxes to local governmental entities (including First Nations
) in areas where the federal government owns property.