Certified Government Financial Manager (CGFM) 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 875

What does the term 'Payment in lieu of taxes' refer to?

Voluntary contributions by citizens

Payments made to government by non-taxable entities

The term 'Payment in lieu of taxes' refers specifically to payments made to the government by non-taxable entities. Such entities, which often include nonprofit organizations or governmental agencies themselves, do not contribute to the local tax base through traditional tax payments. However, to acknowledge their presence and the services they utilize, they may make financial contributions to local governments. These payments serve to help offset the costs associated with public services like police, fire protection, and infrastructure, which are still needed regardless of the tax-exempt status of these entities.

This concept underscores the importance of ensuring that all entities contribute fairly to the funding of public services, even if they are not required to pay taxes in the traditional sense.

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Grants received for specific projects

Payments used to reduce local tax burdens

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