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Definition of Payment in Lieu of Taxes









By Ken Burnside, eHow Contributor





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Payment in lieu of taxes is a mechanism to help compensate municipal governments for nontaxable lands or organizations.
Payment in lieu of taxes (often abbreviated as PILOT or PILT) is a program where a municipality receives a payment in lieu of property or sales tax revenue, either from a nonprofit organization or from another government entity that owns a real asset, such as land, or a valuable right-of-way.

Municipal Tax Base Compensation



Because federally owned land is exempt from municipal, state and county taxes, a PILOT payment compensates the municipality in which the property is located for lost tax revenue. Similar arrangements exist between many state university programs and the municipalities surrounding the campus.


Nonprofit Organizations



Nonprofit organizations are often exempt from sales and equipment taxes, even though they benefit from many city-provided services. A PILOT payment is often negotiated to cover the proportionate costs of the services they benefit from, based on businesses of similar size or cash flow.


Infrastructure Development Tool



PILOT payments are also used as an inducement to get infrastructure improvements done in rural areas. Current examples include PILOT tax abatements to help cut the costs of putting in wind farms and to generate some local revenue for the municipalities they're near.


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