State Taxation Issues

Unifying the voice of nonprofits to leverage their power

Senate Bill 4 and the Determination of Purely Public Charity for PA Nonprofits

The Pennsylvania Legislature and Supreme Court are currently engaged in a back-and-forth fight over what determines charitable status: Pennsylvania’s constitution or legislation passed by the General Assembly. A change to the Pennsylvania state constitution defined in SB4 has been proposed and successfully passed the 2013-2014 legislative session. Under the rules of the General Assembly, the resolution does not go to the Governor for approval, but is filed with the Secretary of the Commonwealth. It must also be passed again during the next two year session of the legislature. Finally, it must be added to the general election ballot as a referendum, and approved by the voters of Pennsylvania. Click here to download information about SB 4's evolution and key considerations.

On January 22, 2015, the Senate Finance Committee referred SB 4 to the full Senate. However, the bill returned to the Senate Finance Committee for a public hearing on February 4, 2015. The hearing featured Auditor General Eugene DePasquale, distinguished law professors Nicholas Cafardi and Katherine Pearson, and National Council of Nonprofits Vice President for Public Policy David Thompson. The Pittsburgh Post-Gazette's summary of the hearing is available here; the full video of the hearing and the written testimony of participants are available here. GPNP submitted its statement on SB 4 into the official record for the hearing. After the hearing, Senate Finance Committee Chair John Eichelberger said that the referendum on the bill would likely be held in the fall of 2015, not the spring. WITF's coverage of Senator Eichelberger's comments is available here

SB 4 cleared the Senate on February 17, 2015 by a vote of 30-19. The next step is for the House of Representatives to consider the bill. The bill is currently in the House Finance Committee. GPNP's statement on SB 4 is below, and available here as a pdf.

However, SB 4 is not the only piece of legislation under consideration by the General Assembly. On February 23, 2015, Senator Mario Scavello (R-Monroe/Northampton) introduced Senate Resolution 28, which would establish a Joint Select Committee on Institutions of Purely Public Charity. The Senate Finance Committee unanimously approved the resolution, and it was adopted unanimously by the Senate on March 4, 2015. It is now under consideration by the House Rules Committee. Senator Scavello also introduced SB 446 on February 17, 2015, which “establish[es] a special legislative committee to study and make recommendations to address the definition and treatment of ‘Purely Public Charities’ in the Commonwealth.” SB 446 has been referred to the Senate Finance Committee, and no action has been taken. 

Greater Pittsburgh Nonprofit Partnership Statement on Senate Bill 4

Senate Bill 4 is a proposed constitutional amendment that will have deep and significant impact on the nonprofit sector and the delivery of important services to our communities.

GPNP believes that:

1)   Act 55 is a good basis for determining purely public charity status. The nonprofit sector relieves the burden of the government, provides charitable services, and advances charitable missions. Nonprofits exist on a compilation of varied revenue sources, one of which includes significant public dollars and as such, many nonprofits are appropriately eligible for property tax exemption as a purely public charity under the Act 55 definitions.

2)   If the intention of the bill is to reinstate Act 55, there is there no need to transfer the power from the judiciary to the general assembly. This transfer of power raises the question of why? The transfer of power from the courts to the general assembly is concerning and seems to offer:

a.     Higher degree of uncertainty from one legislative session to the next,

b.   Increased possibility for government overreach.

3)   Nonprofit organizations as a whole function best when in partnership with the public sector as community problem solvers.

GPNP: The Greater Pittsburgh Nonprofit Partnership is a committed advocate for the nonprofit sector in its entirety. The nonprofit sector represents large scale service providers to small grassroots organizations. The sector provides invaluable services in the community that otherwise would not be available or affordable through the private or public sectors.

Auditor General's Public Meetings on SB 4

In December 2014, Pennsylvania’s Auditor General Eugene DePasquale issued A Review of Lost Revenue Due to Property Tax Exemptions. The report states that there is $1.5 billion in “potential lost revenue” from property tax exemptions in a ten county sample from across Pennsylvania. This figure has been repeatedly cited as the amount of nonprofit owned property despite the fact that the total includes government-owned property -- which is clearly stated in the Auditor General’s report.

The Auditor General is holding a series of public meetings across Pennsylvania, and the first meeting was held in Pittsburgh on March 12, 2015. Information about the meetings is available here.

In advance of the Pittsburgh meeting, GPNP sent a letter to the Auditor General that is available here; and issued a press release to the media. The press release is available here and below.

Nonprofits and Our Communities: A Valuable Partnership

Today a public meeting is being held in Pittsburgh by the Auditor General of Pennsylvania to discuss a proposed constitutional amendment called SB4. The amendment addresses property tax exemption for nonprofits that meet the state’s definition of a purely public charity and whether the judicial or the legislative branch should hold ultimate authority over defining what constitutes a purely public charity.  It’s an age old debate and a classic authority struggle between the legislature and the courts dating back to the 19th century.

The debate, which is often rooted around the issue of taxes is of great concern for not only municipalities and nonprofits but for the people of Pennsylvania as it impacts our quality of life.  Tax bases have eroded over decades and nonprofits that own property are being sought after to close the tax gap.  The Auditor General’s reports in A Review of Potential Lost Revenue Due to Property Tax (December 2014) that there is $1.5 billion in “potential lost revenue” from property tax exemption in a sample of ten counties in Pennsylvania.  This figure has been repeatedly cited as the amount of nonprofit owned property despite the fact that this $1.5 billion includes government-owned propertyThis is clearly stated on the Auditor General’s website but regularly is taken out of context to the detriment of the nonprofit community.  “The public and the nonprofit community must first have accurate information to understand the context and scale of this issue”, stated GPNP Executive Director, Samantha Balbier. The issue can be particularly acute in transportation centers such as cities because exempt property is concentrated here, where people can use it, and the national, state and county governments do not compensate the municipality for their exempt property.

Senate Bill 4 does not directly address the issue.  It seeks to give the legislature the authority over the courts in deciding which nonprofits meet the test of a purely public charity. “This will once again introduce litigation and legal costs for both nonprofits and local government redefining what fits the new definition of a purely public charity every time the legislature amends its definition”, said John Lydon, CEO of Auberle and Chair of the GPNP Advisory team.  Lydon noted that the Pa Supreme Court recently pointed out that the people of Pennsylvania amended the state constitution in 1874 because the constant amendments “had grown into a great abuse.”  “We all need consistency in definitions.  GPNP prefers the Act 55 definition of a purely public charity which is easier to understand and implement but there is no guarantee that this amendment will give that result, so GPNP is not in favor of it,” said Lydon.

“I worry that people in Pittsburgh have started thinking ill of the nonprofit community because of this debate,” said Susan Rauscher, CEO of Catholic Charities of the Diocese of Pittsburgh and Chair of the GPNP Public Policy Committee.  “This conversation needs to be turned on its head.  If we began the conversation by first asking the question of the important role the sector plays in the region you will find that nonprofits are integral parts of our communities and neighborhoods and the value they bring  far surpasses that which could be collected in taxes”, added Rauscher. 

“The health and vitality of the region is central to the work of nonprofits”, said Balbier.  “We need to assure that as this particular political process unfolds the public is thoughtfully reminded about the entirety of whom and what is being discussed.  Nonprofits meet essential community needs while largely operating on very thin margins and annually challenged to break even.  Adding property taxes to already strained budgets would have dramatic impacts on an organization’s ability to deliver services that are in very high demand”.

According to Kate Dewey, President of the Forbes Funds “The nonprofit sector employs hundreds of thousands of individuals across the state. Most importantly, nonprofits attend to work that is largely cost-prohibitive to government; it is important that the sector be able to continue this important work to the benefit of our residents”. Nonprofits feed the hungry and shelter the homeless, care for abused and neglected children, provide health services to the poor, the mentally ill, and the addicted. The sector cares for our seniors, promotes literacy, and revitalizes lower income communities.  They educate and prepare Pennsylvania’s workforce, teach environmental stewardship, inspire creativity and fight for social justice.

Susan Rauscher reminds us that we are talking about people when we talk about nonprofits, “Cassie, formerly homeless and with little direction and hope for her life, turned to the Team HOPE staff at Catholic Charities who enrolled her in the MOST program (Modern Office Systems Training) offered at our downtown location in partnership with Community College of Allegheny County (CCAC). Cassie has attended classes faithfully for the last several months where she has learned so much. Soon, she will receive her program certification and plans to pursue an Associate Degree at CCAC.  Her life now has both direction and hope.”