What Is Payment in Lieu of Taxes
A Payment in Lieu of Taxes (PILOT) is a voluntary or negotiated payment made by a tax-exempt entity to a municipality in place of standard property taxes. PILOTs commonly apply to government agencies, nonprofits, colleges, hospitals, and public authorities that hold tax-exempt status under state law. Rather than pay full assessed value-based taxes, these entities make annual payments to offset the revenue the municipality loses from the exemption.
When PILOT Applies in Assessment Appeals
PILOTs matter directly to your assessment appeal because they affect how assessors value properties. When determining comparable sales for your appraisal appeal, you must exclude PILOT-paying properties from your analysis. A hospital or university campus may show a sale price that reflects the PILOT agreement rather than true market value. Including such properties in your comparable sales analysis inflates your assessment baseline and weakens your position at board of review hearings.
Many assessors use flawed comparable sales that include PILOT properties, artificially raising assessment ratios. If your municipality has an assessment ratio of 85 percent of full market value (typical across most counties), PILOT properties skew that calculation upward. Your appraiser must explicitly identify and exclude these properties when preparing your defense.
Identifying PILOT Properties in Your Market
Check your municipality's PILOT agreements through the assessor's office or municipal budget documents. Many larger municipalities publish PILOT lists showing exemption status and payment amounts. For example, a university might pay $500,000 annually in PILOT instead of $2.3 million in full taxes. That gap tells you the property carries reduced assessment weight despite its actual market characteristics.
When reviewing comparable sales data for your appraisal, flag any properties where:
- The seller or buyer is a government entity, nonprofit, or public institution
- The sale price appears significantly below similar commercial or residential properties in the area
- The property has government exemption status in the assessor's records
- The transaction occurred within 18 months of your assessment date
Impact on Assessment Methods
Assessors use three primary appraisal methods: comparable sales, cost approach, and income approach. PILOT arrangements distort comparable sales most severely. A nonprofit clinic selling its parking lot to another nonprofit for $1.2 million may reflect PILOT considerations rather than open market value. The cost approach avoids this issue since it values the building components and land separately. The income approach works only for revenue-generating properties, excluding most tax-exempt uses.
At your board of review hearing, request that the assessor identify which comparable sales involve PILOT-paying entities. Many assessors cannot distinguish these properties from standard market transactions. Pointing out this methodological error strengthens your argument for a lower assessed value.
Common Questions
- Can PILOT properties be used as comparables? Technically yes, but only if adjusted to reflect their reduced payment obligations. Most appraisers simply exclude them to avoid complications. If your assessor used PILOT comparables, demand an explanation of how they adjusted for the exemption difference.
- Does a PILOT agreement change my property's assessed value? No. PILOT status applies only to exempt entities. Your taxable property is assessed at full market value regardless of nearby PILOT properties. However, PILOT properties may artificially inflate the assessment ratio used across the municipality, indirectly raising your assessment.
- Where do I find PILOT payment amounts? Check your municipality's comprehensive annual financial report (CAFR), adopted budget documents, or the assessor's property records. Many cities publish PILOT schedules showing which properties participate and their annual payment obligations.