Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Monday, February 16, 2015

Pennsylvania has a stricter interpretation of the justification of nonprofit property tax exemptions

If you read the section of the Internal Revenue Code about the justification for a nonprofit tax exemption, one of the key elements is "reducing the burden on government."  For example, a hospital provides uncompensated health care to indigents, saving money for the social welfare system.  A commercial district revitalization organization helps improve the building stock, economic success of property owners and business proprietors, and generates more property tax revenue for the city, etc.

But for the most part, groups engaged in activities "serving the public" don't necessarily have to simultaneously "reduce the burden on government" to be able to get a federal tax exemption.

Generally, local governments follow this interpretation, although I have noticed in DC that nonprofits engaged in national activities with no local service elements tend to not get property tax exemptions, although they might be eligible for sales tax exemptions.

In Pennsylvania, there is a five-part test that organizations must meet to justify a tax exemption, and it is focused on providing services to the indigent, not to the general public.  According to an article on the legal case, Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985) ("HUP"):
The institution must: (i) advance a charitable purpose; (ii) donate or render gratuitously a substantial portion of its services; (iii) benefit a substantial and indefinite class of persons who are legitimate subjects of charity; (iv) relieve the government of some of its burden; and (v) operate entirely free from private profit motive.
As a result, more Pennsylvania nonprofits are losing property tax exemptions because the primary beneficiaries are not the indigent.  See "Small non-profit groups losing property-tax exemptions in first wave of county's review," from the Pittsburgh Post-Gazette.

-- previous entry, "Proposal to eliminate nonprofit property tax exclusion in Maine"
-- interesting paper, PILOTs and SILOTs Revisited, National Association of Independent Schools

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