Tax-Exempt Hotel Doesn’t Check Out

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March 4, 2012; Source: New York Post

Given the recent focus of many municipalities on squeezing “voluntary” payments in lieu of taxes (PILOTs) out of nonprofits, this case in New York City may be a good reminder to cities looking to fill budget gaps: begin by making sure your city is not missing out on regular taxes by giving charitable tax exemption to properties that no longer warrant it.

It seems that New York City’s Chatwal Hotel, which is located near Times Square and charges $500 and up for rooms, has been enjoying tax-exempt status for the past five years, effectively robbing the city of $2 million over that time. The hotel, clearly a for-profit venture, managed to scoot by unnoticed as a tax-exempt entity for several years because it is located on grounds where a church formerly stood and NYC never stripped the location of its religion-based tax exemption.

The hotel’s titular owner, Sant Singh Chatwal, apparently saw no reason to go out of his way to let the city know about his lack of taxation or the fact that his property is, as the New York Post notes, “no longer used for a charitable purpose.”

Is this the type of thing that can only go unnoticed in huge metropolitan areas like New York City, or can it happen anywhere? In any case, any city government calling on nonprofits to help fill budget holes with PILOTs would do well to make absolutely sure it’s collecting its fair share from businesses first. –Mike Keefe-Feldman