Ad Valorem Taxes in Flux: ABA SALT May 2025 Report Tackles Property Tax Exemptions, Assessments, and Ownership

The May 2025 ABA Section of Taxation meeting included a detailed update from the SALT Committee’s Ad Valorem Taxes Subcommittee, which focused on key case developments around valuation, exemptions, beneficial ownership, and due process. With property tax challenges increasing nationwide, the report highlighted how states are reevaluating what qualifies for exemption and who really owns taxable property.

🏛️ Ownership: Beneficial Use and Leaseholds Under the Microscope

One central theme of the report was the ongoing tension between legal title and beneficial ownership. Several recent cases explored whether leaseholders, rather than titleholders, bore the tax burden—especially when public or religious entities were involved.

In New Hampshire, for example, courts reviewed whether a private party leasing a government-owned facility could be taxed when the government claimed immunity. The decision reaffirmed that beneficial use and control—not just legal title—determine liability for ad valorem taxes.

Similarly, New York courts examined the fine line between nonprofit religious use and taxable commercial leasing. If part of a church property is rented out to for-profit users, can the exemption still apply to the whole parcel? Recent rulings have started to say no.

⛪ Religious and Charitable Exemptions: State Lines, Different Standards

Religious and charitable exemptions continue to be a hotbed of litigation:

• In Massachusetts, the court reaffirmed the importance of dominant use rather than ownership alone in determining exemption eligibility.
• Michigan applied a strict reading of “charitable use,” ruling against a nonprofit hospital seeking exemption for off-site administrative buildings.
• New York has narrowed its exemption interpretations when properties are used for dual purposes.

The report suggested a growing national trend toward stricter exemption qualifications—especially when properties blend exempt and commercial activities.

📐 Valuation Methodologies: Still a Battleground

Courts continue to wrestle with valuation of special-purpose properties and how income-based, cost-based, or sales-comparison methods are applied. Disputes often turn on who controls the data—and whether assessors overstate property value by ignoring depreciation or functional obsolescence.

The report did not provide new valuation cases in detail but noted that the trend remains active in industrial and commercial assessment challenges.

⚖️ Procedural Due Process: Challenging the Challenge

The report flagged new concerns around procedural due process in assessment appeals. Specifically, some courts are beginning to require that taxpayers have meaningful pre-deprivation hearings, particularly when assessments increase dramatically or are based on unconventional methods.

This adds a constitutional dimension to routine assessment disputes, especially for residential and small business owners who lack the sophistication to navigate appeals alone.

📍 Why This Matters

Ad valorem tax law is becoming more nuanced and state-specific. As states seek to close budget gaps and modernize property taxation, they are tightening exemption standards and increasing scrutiny of ownership structures.

Multistate property owners, religious institutions, nonprofit hospitals, and public-private partnerships should take note: how property is used may matter far more than who owns it on paper.

Stay tuned for future updates as the SALT Committee tracks additional litigation and pushes for uniformity in how states approach exemptions and valuation practices.