Payment in Lieu of Taxes

The payment in lieu of taxes program (PILOT) in the United States compensates state and local governments for losses in property taxes when the federal government owns a piece of land within their jurisdiction. This is particularly important when the federal government declares land a national park, takes land for federal projects or otherwise restricts state and local governments from selling the land to private citizens. The amount of a PILOT program on a property can increase if there is reason for the state or local government to believe similar increases would occur if the land were not owned by the government.

Increase Due to Reassessment

If you own property, you are familiar with the tax assessment that is occasionally required on your property. With this requirement, a federal or federally approved inspector will review the property and state its current market value. For a homeowner, this is a double edged sword. You may be happy your home has increased in value, but you will be unhappy about any subsequent increase in taxes. This same principal applies to federally owned property. If the value has increased, taxes paid by a private citizen would increase, and the federal government may have to pay more through its PILOT program.

Increase Due to Inflation

Over time, regular inflation will increase the monetary value of a piece of land. For example, if you are a renter, you may be familiar with the fact that some landlords increase rent by a flat percentage year after year. This percentage should be equal to the rate of inflation, but it is often an arbitrary amount. The same rate of increase may be applied to a federal land for which the government pays PILOT fees.

Increase Due to Tax Increases

If the state or local government raises property taxes in a specific area, the property held by the federal government represents a larger missed profit to that government. As a result, the federal government may have to increase the PILOT funds it pays on the land. The increase may not be exactly proportional. Typically, the federal government will have an agent reassess a property any time taxes change to assure that the property value is currently at the lowest possible level. This keeps the tax rate low and, in turn, keeps the subsequent PILOT rate low.

Increase Due to Change in Use

When a property changes use, it may fall into a new portion of the tax code. This is particularly true if the federal government converts a property into something of greater monetary value. For example, if the property has been converted into a solar field, wind field or source of hydroelectric power, the income generated on the land would typically be taxed by the state. Instead, the government will issue PILOT. On the other end, if a state or local reserve is taken over by the government and reappropriated from a public space to a restricted area, compensation may be made through the PILOT program.