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  PANO
  777 East Park Drive, Suite 300
  Harrisburg, PA 17111

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Property Taxes, PILOTS, and other Local Taxation Issues

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PANO Updates

Action Alert: http://www.capwiz.com/pano/issues/alert/?alertid=1439027. 
Contact your state legislators today! Tell them to not cosponsor the Fontanta/Solobay bills. Ask them to send a strong message of support for the charitable nonprofit organizations in their Legislative District.

Articles 

PANO Updates

3/30/10 Update PANO is remaining vigilant on attempts to preserve property tax exemption for charities that meet the Act 55 criteria.  The Governor was quoted in the news paper recently saying Cities could profit from nonprofits (Lancasteronline.com  3/19/10).  There are well-intended legislators that would like to have nonprofits that look more like for-profits start to pay property taxes.  PANO’s position is that we will not throw anyone under the bus.  If the organization meets the criteria – they should be exempt.  If they do not meet the criteria – they should pay the tax. 

While these bills may be well meaning, they fail to consider the value of nonprofit services to their communities, nor the consequences of depleting these funds.  Instead, the bill would deplete precious charitable resources at a time when the need is greatest. 

Many charities are already contributing to their local communities through services, payments, contributions, and even taxes.  According to a 2009 State Legislative Budget and Finance Committee (LB&FC) report, nonprofit hospitals and public and private universities already substantially contribute to their local municipalities.  It also found that the vast majority of tax-exempt property in Pennsylvania is actually held by government and religious organizations. 

Joe Geiger will be meeting with the bill sponsors to determine their intent and explore options.  There will be more to report on this issue.

1/19/10 Pittsburgh Post-Gazette Endorses Taxing Charities. In a recent opinion article from the Pittsburgh Post-Gazette Editorial Board entitled Fair share: Nonprofits should chip in for public services, the Pittsburgh’s Post-Gazette endorses the Fontana and Solobay bills to tax charities. Fontana and Solobay bills for an "essential services fee" would let local governments tax exempt entities $100 for every 1,000 square feet of building space or property they own. The first 5,000 square feet would be exempt. The Post-Gazette argues that tax-exempt institutions that pay exorbitant executive salaries should not be receiving property tax exemptions, and that this bill would allow municipalities to opt whether to impose the tax. One problem with this reasoning is the State’s uniformity clause would cause any state law to impact large and small nonprofits equally. So if the municipality opted to tax their charities, then all charities within that municipality would be subject to the tax.

1/14/10 PA House Hears Mayors’ Requests to Tax Nonprofits. On January 14, newly elected of Harrisburg, Mayor Linda Thompson, Lancaster’s Mayor Rick Gray, and Reading’s Mayor Thomas McMahon, testified before the PA House Majority Policy Committee at York’s new minor league baseball stadium, at a hearing on economic survival of Pennsylvania’s third-class cities. York, Lancaster and Harrisburg (like so many other PA cities) face the prospect of filing for Act 47 distressed status under the State’s Municipalities Financial Recovery Act. Act 47’s state oversight and belt-tightening measures may prevent municipalities from slipping into bankruptcy, but the state’s help comes at a steep price— austerity, tax increases, and layoffs. Reading has already filed for Act 47 distressed status. Harrisburg just joined Lancaster in the State’s Early Intervention Program. According to Lancaster’s Mayor Gray, the Early Intervention Program did not prevent them from laying-off police officers and raising taxes by 25%. For years, Lancaster’s Mayor has called upon its charities (albeit unsuccessfully) to make payments in-lieu-of taxes (PILOTS) of up to 25% of what they would otherwise owe in property taxes but for their exemption. York’s new Mayor Kim Bracey testified that Pennsylvania’s 3rd class cities need more options to increase revenue such as a local sales tax, a local alcoholic beverage tax (which proved unpopular in Pittsburgh), a commuter tax, (earned income tax revenue sharing between a person’s hometown and their work town so commuters would contribute where they work), and an essential services fee so nonprofits would have to pay taxes on a part of the assessed value of their properties.

Mayors ask state to allow cities more tax options, by Sharon Smith, The Patriot-News (Harrisburg). 1/15/10 
Pittsburgh Mayor Ravenstahl backs statewide effort to tax nonprofits, by Tim Puko Pittsburgh Tribune-Review 1/12/10

1/12/10 PA Senate Committee Hears Testimony to Tax Nonprofit Property: Forbes Funds Respond for Nonprofits. On January 12, 2010 the Pennsylvania Senate Democratic Policy Committee held a hearing in Pittsburgh to discuss proposed legislation from Senator Fontana (SB1175) and Representative Solobay (HB2191) that would tax nonprofit property. The legislation if passed, would allow municipalities the option of imposing an “essential services fee” on tax-exempt property. http://www.senatorfontana.com/media/Releases/2010/Jan4.htm  
http://www.observer-reporter.com/or/localnews/01-10-2010-tax-exempt-bill

Fees would be based on total square footage of the organization’s property. These bills, which are identical to bills introduced in the last legislative session, would create a limited real estate tax for exempt properties owned by nonprofits. Municipalities that choose not to exercise their option to tax charities could continue to rely on existing voluntary agreements (PILOTs) with tax-exempt organizations.

Testifying at the Pittsburgh hearing was Pittsburgh Mayor Luke Ravenstahl; Allegheny County Executive, Dan Onorato; Forbes Funds President, Diana Bucco; Forbes Funds Board Chair, John Harmon; Pittsburgh Controller, Michael Lamb; Carnegie Mellon University President, Dr. Jared Cohon: Pittsburgh Theological Seminary President, Dr. William Carl; City of Washington Mayor, L. Anthony Spossey; and Allegheny County Council President, Richard Fitzgerald. The hearing was streamed live on the Senate Democrat Caucus website www.pasenate.com. A press release is posted at http://www.pasenate.com/PressReleases/senators/kasunic/2010/01-12-10_%20hearing_stream.htm.  Senator Fontana’s audio press release is posted at http://www.senatorfontana.com/media/Audio/2010/PolicyHearingJan5.mp3. 

In 1997 Pennsylvania enacted the Act 55, the State’s Purely Public Charities Law which standardized the criteria by which charities may request and receive local property tax exemptions. For 13 years, this law helped Pennsylvania’s diverse and dynamic nonprofit sector serve their communities and build capacity to meet tomorrow’s needs. After more than a decade, Pennsylvania’s 2500 local governments are still having trouble balancing their budgets. Instead of addressing the root cause— the need for mergers and revenue sharing between municipalities – many local governments are following Pittsburgh’s lead, looking to charities as cash-cows to cover their pension shortages or to back-fill budget holes.

PANO has been fighting essential services fees since Senator Fontana first introduced his bill in 2008. At that time, the press paid it little attention. As the recession continues, local governments are running out of alternative funding sources. Unfortunately, taxing the community-based organizations that are struggling to fix the problems caused by blight, only exacerbates the social and economic conditions that caused the community’s distress in the first place.

12/11/09 Pittsburgh Shakes Down Its Nonprofits for Property Taxes.  On Friday, December 11, Pittsburgh’s Mayor Luke Ravenstahl stated that unless the city’s nonprofits agree to pay $5 million per year for 5 years (totaling $25 million) he will pursue his proposed 1% tuition tax on Pittsburgh college students. The City is looking to its nonprofits (specifically its 10 major colleges and universities) to backfill part of a $16 million hole in the City budget.  The City’s pension fund is some $600 million short of the $900 million it needs to be considered fully funded. According to City Councilwoman Theresa Smith, Pittsburgh’s Universities have until 2 p.m. on Monday, December 14, to agree to these terms.  If the Fair Share Tax offer is not accepted, City Council members are scheduled to vote on the tuition tax on Wednesday, December 16.  A majority of Council members support the tuition tax, whether or not the tax is ultimately determined to be legal.  According to Ravenstahl, if the City’s nonprofit community agrees to his $5 million offer, he would ask them to help the City lobby state legislators to come up with the remaining $10 million. To put the Fair Share Tax into perspective, this $5 million annual “contribution” is still less than the annual $6 million that universities pledged to the city in 2004.  However, that pledge was coerced from nonprofits by the City threatening to impose a payroll tax on nonprofit workers.  The $5 million “contribution” is nearly $2 million more than nonprofits pledged to the City in 2008.   

Pittsburgh’s nonprofits already provide significant benefits to the city including prestige, revenue, employment and quality of life and even taxes. Over 100 tax-exempt organizations (including universities) in Pittsburgh even created the Pittsburgh Public Service Fund which contributed $14 million to the city over three years from 2005-2007.  Unfortunately, the recession hit these charities hard.  In 2009, the Fund told the City that they could only afford to give to $1.6 million this year. 

After 12 years of Act 55’s protections of nonprofits property tax exemptions, Pittsburgh’s nonprofits are again facing extortion by their own local government.  This fight has escalated to the state level where State Senator Wayne Fontana and Representative Tim Solobay plan to introduce legislation imposing Essential Services Fees on nonprofit’s exempt property. PANO has opposed this legislation since 2008 and continues it’s strong opposition. 

Also last week, State Rep. State Rep. Paul Costa (D-Allegheny has proposed state legislation to ban the 1% tuition Tax.  Costa serves on the Board of Pittsburgh’s Point Park College.

For more information read:

12/11/09 Rich Lord’s news article in the Pittsburgh Post-Gazette, http://www.post-gazette.com/pg/09345/1020132-53.stm#ixzz0Zc8eplUK.

12/11/09 Adam Brandolph’s news article in the Pittsburgh Tribune-Review, http://www.pittsburghlive.com/x/pittsburghtrib/news/cityregion/s_657273.html.

Read below to see what led up to this: 

11/25/09 Urge PA Lawmakers to Oppose Bill Taxing Charities Contact Your State Legislators Today.

Urge them to NOT COSPONSOR the Fontana / Solobay bill to tax charities. On December 7, 2009, PA Senator Wayne Fontana (D-Allegheny) and PA Representative Tim Solobay (D- Washington) plan to introduce legislation in both the State Senate and State House to impose partial property taxes on Pennsylvania's charities.

This new bill would amend the State's Purely Public Charities Act (Act 55 of 1997) to allow municipalities the option of imposing "Essential Services Fees" on real estate owned by charities. The tax would be based on the square footage of the property (most likely a fee of up to $100 per 1,000 square feet of tax exempt property, with the first 5,000 square feet exempt.) Municipalities that choose NOT to exercise their "local option" may still impose "voluntary" agreements on charities for payments in-lieu of taxes. Voluntary agreements are currently permissible under Act 55. *This bill is based on a 2007 bill (SB1328) that died in committee.

This bill poses a major problem for thousands of 501(c)(3) nonprofit organizations in Pennsylvania that own property or will acquire property to further their charitable mission. The reality is that many nonprofits are already contributing to their local municipalities through "voluntary" payments-in-lieu of taxes or fair share agreements. A 2009 State Legislative Budget and Finance Committee (LB&FC) study found that nonprofit hospitals and public and private universities are already substantially contributing to their local municipalities. The same study found that the vast majority of tax-exempt property in Pennsylvania is actually held by government and religious organizations.

Taxing charities is just wrong-headed. It diverts precious charitable resources at a time when the need is greatest. It also fails to consider the value of nonprofit services to the communities they serve.

Please contact your State Representative and State Senator. Urge them to NOT COSPONSOR the Fontana / Solobay bill to tax charities. Ask them to send a strong message of support for charities by not co-sponsoring the bill and opposing it when it comes up for a vote.

Take Action! Email your legislator

Resources:
Statewide fee-for-services bill pushed for nonprofits, By Rich Lord, Pittsburgh Post-Gazette.
Fontana/ Solobay Press Release
LB&FC Report on property tax exemptions

11/19/09 Rich Lord’s news article in the Pittsburgh Post-Gazette, http://www.post-gazette.com/pg/09323/1014638-53.stm#ixzz0XKHgyGTP (details how Pittsburgh’s proposed City zoning ordinances could give City Council almost total veto power over any new construction by tax-exempt organizations.  The situation is reminiscent of pre-Act 55 days when municipalities forced nonprofits to pay payments in-lieu-of taxes if the nonprofit wanted approval of a building permit.  

11/17/09 Allegheny County Considers Taxing Nonprofit Property. On November 7, Allegheny County Executive, Dan Onorato, vetoed Allegheny County Council’s plan to raise $13 million each year by taxing nonprofit property. He cited a possible conflict with the current state law (Act 55 of 1997) which ensures property tax exemptions for nonprofit. Instead, Onorato (possible gubernatorial candidate) expressed his desire to negotiate with nonprofits for a $4 million annual contribution. This is slightly larger than the current annual “Fair Share Agreement” negotiated with the Charities participating with the Pittsburgh Public Service Fund.

The ordinance asserts that 25,000 tax exempt properties within Allegheny County consume essential county government services and utilize county facilities; yet they are exempt from the real property tax which in many instances provides substantial savings to the owners of tax exempt properties. The county therefore finds it necessary for the continued viability of certain essential services such as public transportation, public safety and public works, which benefit the owners and occupiers of tax-exempt properties as well as all county residents and property owners, that organizations that own tax exempt properties pay a partial contribution to offset the county’s costs for those services. To deal with what the county perceive as the problem, this ordinance would impose a $200 fee for every 1,000 square feet of any and all structures on a parcel of land that is listed as exempt from property taxes (the first 1,000 square feet… are free). Churches; K-12 schools; police, fire, public works or emergency services; places used solely to provide, free of charge, good, clothing, temporary shelter or medical services for the poor, the disabled, the unemployed or the homeless; or free libraries open to the public were to be exempt from the tax. Unfortunately, few nonprofits with exempt properties can actually afford this tax without being forced to reduce services.

Allegheny County Council is considering overriding Onorato’s veto. The Greater Pittsburgh Nonprofit Partnership is gathering information about property owned by nonprofits in Pittsburgh and Allegheny County, square footage of that property, and the possible impact of the tax. Read the 11/7/09 TRIBUNE-REVIEW news article  http://www.pittsburghlive.com/x/pittsburghtrib/news/pittsburgh/s_652013.html. 

11/17/09 Pittsburgh City Council Loses Bid to Tax College Students. The five-member state-appointed Intergovernmental Cooperation Authority (ICA) met in Pittsburgh this morning and rejected the City’s $453.8 million budget which included a proposed 1% tax on all college students in Pittsburgh. The tuition tax would have generated $16 million from the City’s nonprofits – in this case, student tuition -- in order to cover the City’s cash-strapped pension fund. $1 million of this revenue would have gone to Pittsburgh’s Carnegie Library. According to Pittsburgh’s Mayor Ravenstahl, the alternative to the tax is significant service cuts, job cuts for police and other municipal employees, and recreational centers closings. According to the ICA, Pittsburgh should try cutting its costs, identify efficiencies, and sharing services before it tries to create a new tax—which is a pretty good rule regardless of where you live. Read the 11/17/09 Pittsburgh Post-gazette news article by Rich Lord at http://www.post-gazette.com/pg/09321/1014053-53.stm.

9/24/09 Sales Tax on Nonprofit Arts Tickets:  By now you have heard about the proposed sales tax on arts tickets being considered to balance the state budget.  Tickets to nonprofit arts events, museums, theatres and zoos would be taxed at 6 or 7%.  Yet tickets to movies and sports events would not be taxed.  Taxing nonprofits in any form is just a bad idea, especially for nonprofits like the arts where funding and public contributions are way down. Together, PANO and the Philadelphia Cultural Alliance have opposed sales tax expansion since 2005.  This time it’s the arts. Next time it could be your nonprofit.  We urge you to take action. www.philaculture.org/action/legislator. 

Taxing Small Games of Chance: Just announced this week, is a new proposal to tax small games of chance.  Many organizations supplement their revenue with punch boards, raffle tickets and pull tabs.  The Legislature’s intent is to not tax churches, church-related functions, or Bingo. Instead, all private clubs and veterans organizations that operate these games and have liquor licenses, would be subject to a 6% tax on the net profits from these games. Whether the bill will tax only organizations with liquor licensees, is still being debated. We will not know the result until the bill comes out of committee.  Some private clubs, also devastated by the economy are counting on this much needed expanded gaming revenue to help maintain their facilities.  For others, it’s a matter of survival. http://www.pennlive.com/midstate/index.ssf/2009/09/organizations_eye_increase_in.html. 

7/1/09 Pittsburgh Taxes Charities to Cover City Pensions. Yesterday, the City of Pittsburgh approved a new payroll tax on nonprofits in order to cover a huge pension fund shortfall. The City approved a variety of new taxes including a 0.55% payroll tax on nonprofits that operate in the City. This new tax is expected to raise $6 million annually but from organizations that are struggling to serve the community’s most needy. Money that was previously used to feed the poor or shelter the homeless will now be used to cover City employee pensions. The new tax was added as an amendment to the City’s Act 47 plan for fiscal management of distressed communities. After decades of decline and mismanagement, the City is once again in the black, but $650 million short on its pension fund. Because the plan is part of Act 47 (a state Statute) the new tax plan requires state approval.

Although nonprofits may be exempt from property tax, sales tax and business income tax ( under Act 55 and the IRS Code), they pay a variety of other taxes, including payroll taxes, federal and state unemployment taxes, and unrelated business income tax (UBIT). In this economic climate, most nonprofits are struggling to maintain operations at their current levels of service- and not lay-off staff. The new Pittsburgh Tax would redirect much funds that would otherwise pay for services to Pittsburgh’s most needy.

PANO strongly opposes levying additional taxes on nonprofit organizations. We support the position of the Greater Pittsburgh Nonprofit Partnership, and oppose this practice. We had hoped that Pittsburgh's City Council would consider the unintended consequences of further taxing nonprofit employees who are already carrying their weight, and substantially contributing to the local economy. Because the proposal must be approved by the State we hope the state would exercise some discretion.

The Pittsburgh payroll tax is important for another reason. Soon many other distressed municipalities in PA will be considering similar solutions. It is the responsibility of every nonprofit to share with their elected officials the importance of our work. And taxing nonprofits sends the wrong message.

Nonprofit employment provides a significant benefit to a region’s economy. In 2004, Pittsburgh’s nonprofits employed 24.3% of the total workforce in the City of Pittsburgh (74,274 of the City’s 305,923 jobs). In 2006, nonprofits paid over $6 billion in total compensation, but purchased over $16 billion in goods and services within the City. (including purchases of medical and office supplies, professional services, printing, and wages and compensation paid to workers and any additional economic activity in other sectors (public and private), including the taxes paid on these activities. While nonprofits are a significant force in Pittsburgh’s economy, the majority of Pittsburgh’s 3,187 nonprofits are small with total expense of less than $25,000 per year, and two-thirds of the remaining nonprofits have annual expenses of less than $100,000. (Source: GPNP)

See news story Read these for background:

5/6/09 The LB&FC Property Tax Hearing. The Hospital and Healthsystem Association of Pennsylvania, Pennsylvania League of Cities and Municipalities, and the University of Pittsburgh testified at the May 6 Legislative Budget & Finance Committee hearing on Tax Exempt Property and Municipal Fiscal Status. While PANO did not testify, it did submit a statement addressing some of its concerns. Statements will be posted on the Committee’s website. Last month, the Committee issued a report concluding that property held by government and religious organizations comprises the vast majority of tax exempt property in Pennsylvania, and that nonprofit hospitals and public and private universities already contribute to the local tax base. The Committee proposed 4 solutions including mandating PILOTs from public and other tax-exempt organizations, and requiring payment of a fee for essential municipal services. During the hearing however, Senator Pippy (LB&FC Chair) stated that it was unlikely that the State will mandate PILOTs. View the Committee hearing at http://nova.pasenategop.com/Pippy/2009/0509/050609.wmv.  Read the Report Highlights.or the full report at http://lbfc.legis.state.pa.us/reports/2009/26.PDF. 

4/22/09 State to Hear Comments about Impact of Property Tax Exemptions on Municipalities. Pennsylvania’s Joint Legislative Budget and Finance Committee (LB&FC) will hold a hearing at the State Capitol on May 6 at 9:30am in Hearing Room #3, Ground Floor, North Office Building, Harrisburg. The Committee will hear reaction from a panel of municipal and nonprofit organizations regarding the Committee's previously released report entitled: Tax Exempt Property and Municipal Fiscal Status. The report found that nonprofits hospitals and public and private universities already contribute to their local municipalities and that property held by government and religious organizations comprises the vast majority of tax exempt property in Pennsylvania. LB&FC proposed 4 solutions that include mandating PILOTs from public and other tax-exempt organizations, and requiring payment of a fee for essential municipal services. While aspects of this report capture the value of nonprofit services to their local communities and to those we serve, other parts of the study are not as favorable. We urge you to read report at http://lbfc.legis.state.pa.us/reports/2009/26.PDF. 

4/1/09 State Releases Report on Impact of Property Tax exemptions on Municipalities LB&FC Report. The long anticipated report on the impact of property tax exemptions on the health of local municipalities was released by the State Legislative Budget & Finance Committee (LB&FC). This is a significant report for the nonprofit sector. LB&FC researched this issue in depth for over 9 months, consulted directly with many local governments, associations and charitable nonprofit organizations.

The report was authorized by Pennsylvania Senate Resolution 363 (approved by the Senate on July 4, 2008). LB&FC was directed to collaborate with the PA Department of Community and Economic Development and the State Local Government Commission, to study the impact of tax-exempt real property on the fiscal health of Pennsylvania municipalities. The report identifies (1) the value of tax-exempt property in individual municipalities (by property type such as federal, state, or local governments; government designated instrumentalities; churches; hospitals; private colleges and universities; parks and recreations; museums; and other federal 501(c)(3) entities holding tax-exempt real property); (2) payments in lieu of taxes, services in lieu of taxes, and other taxes, fees, and grants provided to individual municipalities by those with tax-exempt real property, including federal, state, and local governments and government affiliates; (3) effect of a disproportionate share of tax-exempt properties on the fiscal status of the Commonwealth’s municipalities; (4) Commonwealth programs designed to address the disproportionate impact of tax-exempt real properties on local government; (5) approaches taken by the federal government and other states to address the disproportionate impact of exempt real property on municipal government and their options for replication in the Commonwealth.

PANO and members of this Pennsylvania Charitable Nonprofit Caucus Advisory Committee have shared information with LB&FC for the study from the beginning and remained involved throughout the process. From the start we were concerned that this report would fail to accurately capture the reality that nonprofits are substantially contributing resources to municipalities directly while also improving the quality of life in their communities through their charitable missions. Whether through services, payments, contributions, or taxes, nonprofits’ contributions to the health of our communities must not be overlooked.

Some excerpts of the report include…

  • “An analysis of the underlying causes of municipal fiscal distress and the approaches to remedy such causes is outside of the scope of this study.” (S-2 - footnote 4)
  • “The fragile fiscal status of many municipalities that host the Commonwealth’s hospitals and universities is often mirrored by the fiscal status of many of their institutions:” (S-3)
  • “Host municipalities, hospitals and public and private colleges and universities have developed a variety of approaches to strengthen their community and, in the words of the state-owned universities’ [] governing board, “minimize, to the extent practicable, the burden of municipal services provided to the university.” (S-3)
  • “The Department of Community and Economic Development (DCED) municipal reporting system does not identify PILOTs and contributions by tax-exempt organizations. Absent a standard source of reliable data, LB&FC staff, therefore, contacted the institutions directly.” (S-3 - footnote 7)

While aspects of this report capture the value of nonprofit services to their local communities and to those we serve, other parts of the study might not. Read the report at http://lbfc.legis.state.pa.us/reports/2009/26.PDF.  Also, read the letter highlighting the LB&FC's report on the fiscal impact of property tax exemptions on municipalities

The study does however underscore the importance of nonprofit collaboration with the legislature and with each other. Collaboration projects like the Pennsylvania Charitable Nonprofit Caucus provide a possible solution. Learn more about the Pennsylvania Charitable Nonprofit Caucus at http://www.pano.org/publicpolicy/publicpolicy-caucus.php.

2/18/09 Pittsburgh Charities Agree to Pay City PILOTS. The City of Pittsburgh announced a three year agreement with the Pittsburgh Public Service Fund (PPSF) to receive nearly $13 million in payments in-lieu-of taxes (PILOTs) from Pittsburgh’s nonprofits. This $4.3 million annual payment is slightly less than payments under the PPSF $14 million agreement in 2005 through 2007. The City does not feel that the drop in contribution will cause it a serious budget problem, but it wants the payments to continue. The University of Pittsburgh Medical Center (UPMC), one of the PPSF nonprofits paying into the fund, plans to participate this year, but will reconsider its participation annually. For more information see the news article in the 2/18/09 Pittsburgh Post-Gazette http://www.post-gazette.com/pg/09049/949791-52.stm.

2/13/09 PANO & Greater Philadelphia Cultural Alliance Testify Against Philadelphia Tax on Nonprofits. On Friday, February 13, David Ross of PANO and Peggy Amsterdam of the Greater Philadelphia Cultural Alliance along with a dozen other organizations and firms representing nonprofits testified against a proposed Philadelphia City tax regulation change.

The proposed Amendment would extend Philadelphia’s Business Privilege Tax (BPT) to nonprofit organizations’ 1) unrelated business income; 2) unrelated real estate rental income; and 3) real estate rental income related to the organization’s charitable mission. The proposed tax would exceed the IRS definition of unrelated business income (UBIT). This would make complying with the tax costly for the City to administer and enforce, and costly for nonprofits to comply with as well. The most contentious issue deals with rental income. Extending the BPT to nonprofits’ business rental income that is “related” to the charitable mission would hurt many nonprofits that receive revenue from leases and lease-back agreements (for liability protection), as well as university dorm fees, and some performing-arts theater concession-stands.

Taxing nonprofits would hurt the very institutions that are struggling to serve the needs of the community, and at a time when the City should be working more closely with the nonprofit sector to meet the publics’ need. While these regulations taxing nonprofits are limited to Philadelphia, there is reasonable concern that this trend will spread as the recession deepens.

As a result of the nonprofits’ coordinated response, the City of Philadelphia may reconsider taxing “related rental income” BUT not likely “unrelated business income” (UBIT consistent with the Federal rules). We will continue to participate actively and collaboratively in this debate, and share information with you as it becomes available.

PANO Official Comments on Philadelphia Business Privilege Tax Hearing

Philadelphia Inquirer news article 

2/1//09 Philadelphia to Tax Nonprofits to Balance Budget. Philadelphia Department of Revenue has proposed a regulation which would extend the City’s Business Privilege Tax to nonprofit’s unrelated business income. The city’s definition of unrelated business activities differs with the IRS definition by taxing rental property. A hearing on this proposal is being held at Municipal Services Building (1401 John F. Kennedy Blvd.), 16th Floor, Conference Room Y. on Friday, February 13 at 1 pm. PANO and the Greater Philadelphia Cultural Alliance will represent nonprofits at the hearing. http://www.phila.gov/revenue/Proposed_Tax_Regulat.html. 

1/23/09 Philadelphia considers eliminating sewer and water rate discounts for charities. Philadelphia City Councilman DiCicco proposed at a recent City Council meeting a bill to end the discounted water and sewer rates for nonprofit organizations. The city currently provides a 25% discount to nonprofit organizations that use these services.   

The City of Philadelphia is facing a $2 billion, six-year budget deficits. By eliminating the discount on water and sewer bills for nonprofit organizations and the Philadelphia Housing Authority, the City could save an estimated $8.5 million annually. City leaders are aggressively searching for ways to balance the budget without drastically cutting human services. 

While the proposal is directed at hospitals, colleges and museums, it would impact all Philadelphia nonprofits.  It could also open-up a much broader dialogue. Today it’s the sewer bill, tomorrow it’s essential services, PILOTs, Fair Share Agreements and property taxes. According to City Councilman DiCicco, “this may be the first of many bills that will look to nonprofits to help fill in the gap of state and local budget deficits.” 

Since the passage of Pennsylvania’s Act 55 in 1997 which formalized the requirements for charities to qualify for and receive property tax exemptions and sales tax exemptions, local governments have steady increased alternative revenue generators such as parking lot taxes, local impact fees, gross revenue taxes, and rate structures for essential services like water and sewer. Charities are protected from none of these.  As the recession deepens, and Pennsylvania’s 2500 local governments diversify their revenue portfolios, some anticipate an increase in these nuisance taxes beyond the protection of Act 55.  

The next Philadelphia City Hall Public Meeting is scheduled for Thursday, January 29, 2009. For more information go to http://www.philly.com/philly/news/politics/city/20090123_Council_hears_two_bills_to_fend_off_recession.html.

8/8/08 Bill to Amend Pennsylvania’s Purely Public Charities Act. A bill (SB1328) to Amend Act 55 (Pennsylvania’s Purely Public Charities Act) was introduced in the State Senate. The bill would impose an essential services fee on tax exempt property of $100 per 1000 square feet of space, and limit property tax exemptions by as much as 50% on all real estate acquired after 2008. If you thought charitable resources were scarce last year, don’t wait until this bill passes.

7/4/08 PA Senate Adopts Resolution to Study Impact of Exempt Property. On July 4, 2008, the House adopted a Resolution SR363 calling for the State Legislative Budget and Finance Committee to study to impact of tax exempt property on the fiscal health of Pennsylvania’s 2500 municipalities. The report will be complete by November 30, 2008. The Resolution is intended to identify potential State funding sources and provide factual support for HB2018. HR2018 would provide state funding to Pennsylvania’s distressed municipalities. About 700 municipalities with greater than 15% of the property in their district being property tax exempt, could qualify for a share of the $240 million that the State’s liquor excise tax revenues. PANO supports HB2018 because it offers municipalities a revenue source other than pinching charities for payments-in-lieu of taxes (PILOTs). PANO continues to work with the LBFC fair and balanced report.

7/2/08 HR459 - A Resolution directing the Legislature to study the fiscal impact of tax-exempt properties on the finances of municipalities; to review the policies of other states in addressing the burden of limited tax bases as a result of tax-exempt properties; and to make recommendations on ways to assist tax authorities with a high concentration of tax-exempt properties.  On 6/4/08 the Resolution was amended to also require measurement of nonprofit PILOTs & loss of local property tax revenue.  The bill fails to measure corporate owned exempt property, or the value of services provided by nonprofits to their community.  The Resolution remains on the house Calendar.  Click here for more.  

6/08 URGENT ! PA House Resolution 459 measuring tax exempt property has been amended. Bill now to measure nonprofit PILOTs & loss of local property tax revenue.

HR459 (PN3864) - A Resolution directing the Legislative Budget and Finance Committee to study the fiscal impact of tax-exempt properties on the finances of municipalities and school districts; to review the policies of other states in addressing the burden of limited tax bases as a result of tax-exempt properties; and to make recommendations on ways to assist tax authorities with a high concentration of tax-exempt properties. (Representatives Curry, Argall, Brennan and others)

The bill was amended on June 4 and reported out of the House Finance Committee.  This bill fails to measure the value of corporate owned exempt property, other nuisance taxes imposed to tax nonprofit activities. It also fails to measure the value of services provided by nonprofits to their community—which is the reason why they receive tax exemptions in the first place. What would the State or local community pay for the services provided by nonprofits if the nonprofit did not provide them?

This Study by itself will not produce positive results. Data must be weighed contextually --against the community benefit of nonprofits. We acknowledge that data collection is the first step toward addressing the problem. But if the scope of the study is to be limited by the bill language, then the bill language must be amended to require measurement of the social and cultural contributions of nonprofit organizations that receive those property tax exemptions.

3/7/08 Public Hearing: The PA House Local Government Committee will hold a public hearing on Friday, March 7, 2008, 10:00 am in Pittsburgh to discuss House Bill 2018 to create the Tax-exempt Property Municipal Assistance Fund (the State-paid PILOTs bill) that would create an annual revenue sharing program for distressed municipalities with high levels of tax-exempt property.  The hearing will be held at the City-Council Building, 5th Floor, City Council Chambers, 414 Grant Street, Pittsburgh, PA.  Testimony will be heard from Scott Kunka, of the City of Pittsburgh, Curtis Davis of the City of Johnstown, Rich Herman and Nancy Freenock of Clarion Borough, Robert Lucas of City of Sharon, James Nowalk  of the Pennsylvania State Mayors' Association; and from the Committee,  Rep. Robert  Freeman (Chair) and Rep. Don Walko. 

3/7/08 The Pittsburgh Public Service Fund is a group of over a hundred Pittsburgh nonprofits who for the past three years, have been paying $13.57 million in voluntary contributions in-lieu-of property taxes to assist the City of Pittsburgh with its fiscal crisis. Last month’s final payment of that three year agreement exceeded the Fund’s promise by $411,000, bringing the total paid to $13.98 million in PILOTs (payment in-lieu-of taxes). See Tax-exempt groups exceed 3-year pledge to city, offer more, Pittsburgh Post Gazette, March 1, 2008, by Rich Lord. http://www.post-gazette.com/pg/08061/861722-53.stm. 

Currently, the Public Service Fund is reconstituting its board and will resume negotiations on a new voluntary PILOTs agreement with the City. With UPMC contributing $10 million annually to the Pittsburgh Promise scholarship program, some are concerned that smaller charities will be asked to make-up the difference. According to the Pittsburgh Post-Gazette, “The alternative is state legislation that sets a formula for real payments in lieu of taxes. While Pennsylvania cities bogged down by the inability to tax wealthy "nonprofits" would love to go there, we suspect the nonprofits would not.” Measure of help: The city deserves more support from tax-exempts, Pittsburgh Post-Gazette online Opinion, March 6, 2008. http://www.post-gazette.com/pg/08066/862815-192.stm. 

2/20/08 PANO testifies at State Legislative Hearing in support of State-Paid PILOTs bill. This bill would enable to State to compensate hundreds of distressed municipalities that have greater than 17% tax exempt property within their borders. David Ross, PANO Public Policy Officer, testified that this bill would encourage cooperation between charities and their local communities by relieving tensions over PILOT (payments in-lieu-of taxes) agreements.

2/19/08 House Committee to Hold Public Hearings on State–Paid PILOTS Bill. On February 19 and 20, the House Local Government Committee will hold hearings on legislation to establish the Tax Exempt Property Municipal Assistance Fund. Representative Freeman’s bill (HB2018) would provide for an annual revenue sharing program for municipalities that have high percentages of tax–exempt property.

11/14/07 Freeman Bill Introduced; State Would Cover Costs for Tax-Exempt Property. On November 14, 2007, Rep. Freeman introduced HB2018 to compensate municipalities with high concentrations of tax exempt properties. The Freeman bill would tap into the State’s $240 million annual revenue stream from the 1936 Johnstown flood liquor tax. This money would compensate municipalities with at least 17% of the land not on the tax rolls for as much as $36 million a year. For the bill history go to http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB2018.HTM. 

11/14/07 Rep. Freeman (D-136) bill offers a remedy to Act 47 municipalities. HB2018 (PN2846) provides $240 million from old State liquor tax to compensate any municipality with 17 percent or more of its total assessed property value exempt from property taxes. Bill text posted at http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB2018.HTM. 

11/13/07 Press release & analysis of HB2018

11/12/07
Rep. Freeman- (D-Northampton, Easton)- plans to unveil legislation he will be introducing next week (Nov 13, 2007) that would provide funding to municipalities with high levels of tax-exempt property. http://www.pahouse.com/PR/136110907.asp. 

Rep. Curry-(H.R.459) - Resolution directing the Legislative Budget and Finance Committee to study the fiscal impact of tax-exempt properties on the finances of municipalities and school districts; to review the policies of other states in addressing the burden of limited tax bases as a result of tax-exempt properties; and to make recommendations on ways to assist tax authorities with a high concentration of tax-exempt properties. Introduced in the House on October 18, 2007 and referred to House FINANCE Committee. 

11/7/07 Senate to Hold Act 47 Hearing in Pittsburgh Nov 8 On Fiscal health of Distressed Cities in PA. On Thursday, November 8, 2007 at 9:00 am, the Pennsylvania Senate Urban Affairs & Housing Committee will hold a public hearing to examine Pennsylvania Act 47 of 1987 and the fiscal health of distressed cities in Pennsylvania. Hearing will begin at 9am in the City Council Chambers of the City-County Bldg, Pittsburgh.

State Senator John Pippy (R-37 Allegheny and Washington Counties), chairman of the Senate Urban Affairs and Housing Committee is hosting a series of public hearings on the fiscal health of Pennsylvania's cities and Act 47 of 1987, the Municipalities Financial Recovery Act and the fiscal health of distressed cities in Pennsylvania. Act 47 is the 20-year-old state law designed to help stabilize the finances of Pennsylvania’s distressed cities. These hearings are designed to identify causes, and offer solutions. While the Committee has not targeted charities tax exemptions, the Committee will address the role of nonprofit tax exemptions a it related to a diminished urban property tax base.

The Brookings Institution, the Pennsylvania Economy League and Penn State University recently issued a joint report citing the shortcomings of Act 47 and the need to examine challenges faced by Pennsylvania's cities. The Committee’s first public hearing was held in Harrisburg on May 23, 2007. For the Senate Urban Affairs & Housing Committee go to http://www.senatorpippy.com/urbanaffairs.htm.  For transcripts of the September. 20, 2007 Allentown hearing go to http://www.senatorpippy.com/UACnews/9-20-2007-Allentown.htm. 

8/30/07 PANO Testifies at State Senate Hearing on Act 55, Charities Contribution. On August 30, 2007, Pittsburgh attorney and former PANO Board Member, Jack Owen, testified on behalf of PANO before the Pennsylvania Senate Finance Committee public hearing on Act 55 of 1997, Pennsylvania's Institutions of Purely Public Charity Act. The Pittsburgh hearing is part of a statewide fact-finding tour to review the impact and adequacy of Act 55 after 10 years of the law being in effect relatively unchanged. Jack Owen testified that Act 55 helped to build Pennsylvania’s dynamic community of 61,000 charities employing over 650,000 full-time workers (1 of every 9 in Pennsylvania’s workforce). The Act was designed to reduce costly litigation and provide uniform and clear rules by which charities could receive property and sales tax exemptions. It is PANO’s position that Act 55 works, continues to help charities promote the quality of life in our communities. For a copy of the August 30, 2007 Pittsburgh hearing Agenda and the testimony, go to http://www.senatorbrowne.com/finance/083007/083007-agenda.htm.   For the March 14, 2007, Harrisburg public hearing Agenda and testimony, go to  http://www.senatorbrowne.com/finance/031407/031407-agenda.htm.

6/21/06 House Passes Property Tax Reform Bill; Senate Approved; goes to Governor for Signature. June 14- House adopts [Special Session HB 39] Conference Committee Report reducing property taxes for low-income senior citizen homeowners. The Senate signed the Report on June 19. The bill moves to the Governor for signature. The Governor has stated publicly that he intends to sign it. Pennsylvanian’s can expect sharper reductions in their property tax through a shift to local earned income and personal income tax increases.

While proponents argue that the bill is a significant step toward real property tax reform in PA, opponents argue that the bill is misses a significant opportunity to achieve real tax reform. For a copy of the bill go to http://www.legis.state.pa.us/WU01/LI/BI/BT/2005/1/HB0039P0093.HTM.

3/24/06 Local Governments seeking PILOTS from Charities. Last week, Erie City Council Approved a proposed 3% Amusement tax on Admission fees on all events including Nonprofit Arts events.  Museums and symphonies will face decreased revenues, increased operating costs, and decreased attendance. 

Scranton city Council President Gatelli pushes for nonprofits to make payments in leis of taxes. In 2005, Scranton collected $166,200 from non-profits, but most of it came from the University of Scranton.  While, nonprofits are property tax exempt in PA, some municipalities have looked to nonprofits for voluntary payments to the communities where they are based.  Unfortunately, this can adversely effect charities' ability to provide programming.  Scranton Council president Gatelli said that she intends to ask every nonprofit in the city to make some voluntary payments. 

The City of Pittsburgh has been requiring payments in lieu of taxes from nonprofits because they have received distressed city status.  The City of Pittsburgh is finally in the black again, but is still requiring PILOTS.

Click here for our index of legislative issues.

2/13/09 PANO Official Comments on Philadelphia Business Privilege Tax Hearing

PANO testifies on PA H2018 regarding PILOTS

Also see:
Act 55 of 1997
Amusement Taxes
State Sales Tax

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