PRIOR PRINTER'S NOS. 64, 994 PRINTER'S NO. 1071
No. 55 Session of 1997
INTRODUCED BY BOYES, TRELLO, KENNEY, TIGUE, ITKIN, BROWNE, NAILOR, CAWLEY, DENT, DeLUCA, DEMPSEY, COY, FLICK, READSHAW, GANNON, PRESTON, BOSCOLA, BROWN, CURRY, GRUPPO, BELARDI, ARMSTRONG, ROONEY, LAWLESS, COLAIZZO, LYNCH, ROBERTS, GODSHALL, OLASZ, TRAVAGLIO, MUNDY, MELIO, WOJNAROSKI, C. WILLIAMS, GIGLIOTTI, YOUNGBLOOD, SAYLOR, L. I. COHEN, STEVENSON, WILT, BELFANTI, O'BRIEN, ZUG, BUNT, ADOLPH, GLADECK, LESCOVITZ, E. Z. TAYLOR, EACHUS, LaGROTTA, HASAY, LEH AND ROSS, JANUARY 28, 1997
AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES, MARCH 18, 1997
AN ACT
1 Providing for the tax exemption of institutions of purely public
2 charity; exempting real property owned by State-related
3 universities or Federal Government instrumentalities from
4 taxation; and providing for unfair competition.
5 TABLE OF CONTENTS
6 Section 1. Short title.
7 Section 2. Legislative intent.
8 Section 3. State-related universities.
9 Section 4. Definitions.
10 Section 5. Criteria.
11 Section 6. Multiple jurisdictions.
12 Section 7. Existing agreements.
13 Section 8. Unfair competition with small businesses.
14 Section 9. Accountability and disclosure.
15 Section 10. Litigation reduction. <--
1 Section 11 10. Exemption for Federal Government <-- 2 instrumentality. 3 Section 12 11. Repeals. <-- 4 Section 13 12. Applicability. <-- 5 Section 14 13. Effective date. <-- 6 The General Assembly of the Commonwealth of Pennsylvania 7 hereby enacts as follows: 8 Section 1. Short title. 9 This act shall be known and may be cited as the Institutions 10 of Purely Public Charity Act. 11 Section 2. Legislative intent. 12 (a) Findings.--The General Assembly finds and declares as 13 follows: 14 (1) It is in the best interest of this Commonwealth and 15 its citizens that the recognition of tax-exempt status be 16 accomplished in an orderly, uniform and economical manner. 17 (2) For more than 100 years, it has been the policy of 18 this Commonwealth to foster the organization and operation of 19 charitable organizations by exempting charitable 20 organizations from taxation. 21 (3) Because charitable organizations contribute to the 22 common good or lessen the burdens of government, the historic 23 policy of exempting charitable institutions from taxation 24 should be continued. 25 (4) The General Assembly recognizes that it is 26 unrealistic today to expect charitable organizations to rely 27 completely upon private philanthropy and that there is an 28 appropriate role and responsibility for government support 29 with respect to activities historically recognized as 30 charitable. 19970H0055B1071 - 2 -
1 (5) The General Assembly recognizes that the lack of 2 specific legislative standards defining the term 3 "institutions of purely public charity" has led to increasing 4 confusion and confrontation among traditionally tax-exempt 5 organizations and local governments to the detriment of the 6 public. 7 (6) There is increasing concern that the eligibility 8 standards for charitable tax exemptions are being applied 9 inconsistently, which may violate the uniformity provision of 10 the Constitution of Pennsylvania. 11 (b) Intent.--It is the intent of the General Assembly to 12 eliminate inconsistent application of eligibility standards for 13 charitable tax exemptions, reduce confusion and confrontation 14 among traditionally tax-exempt organizations and local 15 governments and insure that charitable and public funds are not 16 unnecessarily diverted from the public good to litigate 17 eligibility for tax-exempt status by providing standards to be 18 applied uniformly in all proceedings throughout this 19 Commonwealth for determining eligibility for exemption from 20 State and local taxation which are consistent with traditional 21 legislative and judicial applications of the constitutional term 22 "institutions of purely public charity." 23 Section 3. State-related universities. 24 (a) General rule.--It is the intent of the General Assembly 25 to recognize that the State-related universities provide a 26 direct public benefit and serve the public purposes of this 27 Commonwealth by declaring the real property of State-related 28 universities to be public property for purposes of exemption 29 from State and local taxation when the property is actually and 30 regularly used for public purposes, provided that nothing in 19970H0055B1071 - 3 -
1 this section is intended or shall be construed to affect the 2 title to real property of State-related universities or the 3 power and authority of the governing bodies of State-related 4 universities with respect to such real property. Further, 5 nothing in this section is intended or shall be construed to 6 affect, impair or terminate any contract or agreement in effect 7 on or before the effective date of this act by and between a 8 State-related university and any county, city, borough, township 9 or school district wherein the State-related university pays 10 real estate taxes, amounts in lieu of real estate taxes or other 11 charges, fees or contributions for municipal services. 12 (b) Real property.--All real property owned by State-related 13 universities, or owned by the Commonwealth and used by a State- 14 related university, is and shall be deemed public property for 15 purposes of the Constitution of Pennsylvania and the laws of 16 this Commonwealth relating to the assessment, taxation and 17 exemption of real estate and shall be exempt from all State and 18 local taxation when actually and regularly used for public 19 purposes. 20 (c) Exemption.--This section shall not include the property 21 of a State-related university the possession and control of 22 which has been transferred to a for-profit entity not otherwise 23 entitled to tax-exempt status, irrespective of whether that 24 entity is affiliated with the university. The execution of a 25 management services contract with a third party entity to 26 provide operational services to the university which would 27 otherwise be provided or conducted directly by the university 28 shall not, however, be considered a transfer of possession and 29 control of real property within the meaning of this section. 30 (d) Definitions.--As used in this section, the following 19970H0055B1071 - 4 -
1 words and phrases shall have the meanings given to them in this 2 subsection: 3 "Public purposes." All activities relating to the 4 educational mission of State-related universities, including, <-- 5 without limitation, teaching, research, service and activities 6 incident or ancillary thereto which provide services to or for 7 students, employees or the public. 8 "State-related universities." The Pennsylvania State 9 University and its affiliate, the Pennsylvania College of 10 Technology, the University of Pittsburgh, Temple University and 11 its subsidiaries Temple University Hospital, Inc., and Temple 12 University Children's Hospital, Inc., and Lincoln University. 13 Section 4. Definitions. 14 The following words and phrases when used in this act shall 15 have the meanings given to them in this section unless the 16 context clearly indicates otherwise: 17 "Commercial business." The sale of products or services that 18 are principally the same as those offered by an existing small 19 business in the same community. 20 "Goods or services." Goods or services which promote any of 21 the six enumerated purposes under section 5(b) and which are 22 valued in accordance with generally accepted accounting 23 principles applicable to the institution. If the institution's 24 purpose is to provide health care services, the term shall 25 include, but not be limited to, medically necessary goods or 26 services in life-threatening situations. 27 "Government agency." Any Commonwealth agency or any 28 political subdivision or municipal or other local authority or 29 any officer or agency of any political subdivision or local 30 authority. 19970H0055B1071 - 5 -
1 "Institution of purely public charity." A domestic or 2 foreign nonprofit corporation, association, trust or other 3 organization which meets the criteria under section 5. 4 "Net operating income." The amount of funds remaining after 5 deducting all operating expenses related to the provision of 6 goods or services associated with the institution's charitable 7 purpose from payments received from providing these goods or 8 services, as determined in accordance with the generally 9 accepted accounting principles applicable to the institution. 10 "Small business." Any self-employed individual, sole 11 proprietorship, firm, corporation, partnership, association or 12 other entity that: 13 (1) has fewer than 101 full-time employees; and 14 (2) is subject to income taxation under the act of March 15 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971. 16 "Tax Reform Code." The act of March 4, 1971 (P.L.6, No.2), 17 known as the Tax Reform Code of 1971. 18 "Total operating expenses." The costs related to the 19 provision of goods or services associated with the institution's 20 charitable purpose, as determined in accordance with generally 21 accepted accounting principles applicable to the institution. 22 Section 5. Criteria. 23 (a) General rule.--An institution of purely public charity 24 is a nonprofit corporation, association, trust or other 25 organization which meets the criteria set forth in this section. 26 A nonprofit parent corporation, together with all of its 27 subsidiary nonprofit corporations, may elect to be considered as 28 a single institution in meeting the criteria set forth in this 29 section as long as all of the following are met: 30 (1) Each subsidiary: 19970H0055B1071 - 6 -
1 (i) is a nonstock corporation of which the nonprofit 2 parent corporation is the only member; and 3 (ii) meets the requirements of subsections (b), (c), 4 (d), (e) and (f). 5 (2) The parent: 6 (i) is a nonstock corporation; 7 (ii) is duly qualified by the Internal Revenue 8 Service as meeting the requirements of section 501(c)(3) 9 of the Internal Revenue Code of 1986 (Public Law 99-514, 10 26 U.S.C. § 501(c)(3)); 11 (iii) meets the requirements of subsections (b) and 12 (c); and 13 (iv) except for services that meet the requirements 14 of subsections (b), (c), (d), (e) and (f), does not 15 render services for a fee to an individual or entity that 16 does not meet the requirements of paragraph (1). 17 An institution of purely public charity shall meet all of the 18 criteria contained in subsections (b), (c), (d), (e) and (f). 19 Institutions of purely public charity which meet the criteria 20 specified in this section shall be considered to be founded, 21 endowed and maintained by public or private charity. 22 (b) Charitable purpose.--The institution shall advance a 23 charitable purpose. This criterion is satisfied if the 24 institution is organized and operated primarily to fulfill any 25 one or combination of the following purposes: 26 (1) Relief of poverty. 27 (2) Advancement of education, including, but not limited 28 to, postsecondary education. 29 (3) Advancement of religion. 30 (4) Prevention and treatment of disease or injury. 19970H0055B1071 - 7 -
1 (5) Government or municipal purposes. 2 (6) Accomplishment of any purpose which is beneficial to <-- 3 the community, including, but not limited to, advancement of 4 the arts and sciences, advancement of the cultural, 5 spiritual, mental, physical, social or emotional welfare or 6 improvement of others. 7 (6) ACCOMPLISHMENT OF A PURPOSE WHICH IS BENEFICIAL TO <-- 8 THE COMMUNITY, INCLUDING ADVANCEMENT OF THE ARTS AND 9 SCIENCES, ADVANCEMENT OF THE CULTURAL, SPIRITUAL, MENTAL, 10 PHYSICAL, SOCIAL OR EMOTIONAL WELFARE OR IMPROVEMENT OF 11 OTHERS. 12 (c) Private profit motive.--The institution shall operate 13 entirely free from private profit motive. Compensation, <-- 14 including benefits of any director, officer or employee, shall 15 not be based primarily upon the financial performance of the 16 organization. Notwithstanding whether the institution's revenues 17 exceed its expenses, this criterion is satisfied if the 18 institution meets ALL OF the following: <-- 19 (1) Neither the institution's net earnings nor donations 20 which it receives inures to the benefit of private 21 shareholders or other individuals, as the private inurement 22 standard is interpreted under section 501(c)(3) of the 23 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 24 501(c)(3)). The purchase of tangible or intangible assets, 25 including professional practices for fair market value, shall 26 not, by itself, be construed to constitute evidence of 27 operation for a private profit motive. 28 (2) The institution applies or reserves any revenue in 29 excess of expenses in furtherance of its charitable purpose 30 or to funding of other charitable organizations which meet 19970H0055B1071 - 8 -
1 the provisions of this subsection. 2 (3) COMPENSATION, INCLUDING BENEFITS, OF ANY DIRECTOR, <-- 3 OFFICER OR EMPLOYEE, IS NOT BASED PRIMARILY UPON THE 4 FINANCIAL PERFORMANCE OF THE ORGANIZATION. 5 (d) Community service.-- 6 (1) The institution shall donate or render gratuitously 7 a substantial portion of its services. This criterion is 8 satisfied if the institution benefits the community by 9 actually providing any of the following: 10 (i) Goods or services to all who seek them without 11 regard to their ability to pay for what they receive if 12 all of the following apply: 13 (A) The institution has a written policy to this 14 effect. 15 (B) The institution has published this policy in 16 a reasonable manner. 17 (C) The institution provides uncompensated goods 18 or services at least equal to 75% of the 19 institution's net operating income but not less than 20 3% of the institution's total operating expenses. 21 (ii) Goods or services for fees that are based upon 22 the recipient's ability to pay for them if all of the 23 following apply: 24 (A) The institution can demonstrate that it has 25 implemented a written policy and a written schedule 26 of fees based on individual or family income. An 27 institution will meet the requirement of this clause 28 if the institution consistently applies a formula to 29 all individuals requesting consideration of reduced 30 fees which is in part based on individual or family 19970H0055B1071 - 9 -
1 income. 2 (B) At least 20% of the individuals receiving 3 goods or services from the institution pay no fee or 4 a fee which is lower than the cost of the goods or 5 services provided by the institution. 6 (C) At least 10% of the individuals receiving 7 goods or services from the institution receive a 8 reduction in fees of at least 10% of the cost of the 9 goods or services provided to them. 10 (D) No individual receiving goods or services 11 from the institution pays a fee which is equal to or 12 greater than the cost of the goods or services 13 provided to them, or the goods or services provided 14 to the individuals described in clause (B) are 15 comparable in quality and quantity to the goods or 16 services provided to those individuals who pay a fee 17 which is equal to or greater than the cost of the 18 goods or services provided to them. 19 (iii) Wholly gratuitous goods or services to at 20 least 5% of those receiving similar goods or services 21 from the institution. 22 (iv) Financial assistance or uncompensated goods or 23 services to at least 20% of those receiving similar goods 24 or services from the institution if at least 10% of the 25 individuals receiving goods or services from the 26 institution either paid no fees or fees which were 90% or 27 less of the cost of the goods or services provided to 28 them, after consideration of any financial assistance 29 provided to them by the institution. 30 (v) Uncompensated goods or services which, in the 19970H0055B1071 - 10 -
1 aggregate, are equal to at least 5% of the institution's 2 costs of providing goods or services. 3 (vi) Goods or services at no fee or reduced fees to 4 government agencies or goods or services to individuals 5 eligible for government programs if one of the following 6 applies: 7 (A) The institution receives 75% or more of its 8 gross operating revenue from grants or fee-for- 9 service payments by government agencies and if the 10 aggregate amount of fee-for-service payments from 11 government agencies does not exceed 95% of the 12 institution's costs of providing goods or services to 13 the individuals for whom the fee-for-services 14 payments are made. 15 (B) The institution provides goods or services 16 to individuals with mental retardation, to 17 individuals who need mental health services, to 18 members of an individual's family or guardian in 19 support of such goods or services or to individuals 20 who are dependent, neglected or delinquent children, 21 as long as the institution performs duties that would 22 otherwise be the responsibility of government and the 23 institution is restricted in its ability to retain 24 revenue over expenses or voluntary contributions by 25 any one of the following statutes or regulations or 26 by contractual limitations with county children and 27 youth offices in this Commonwealth: 28 (I) Sections 1315(c) and 1905(d) of the 29 Social Security Act (49 Stat. 620, 42 U.S.C. §§ 30 1396d(d) and 1396n(c)). 19970H0055B1071 - 11 -
1 (II) 42 CFR 440.150 (relating to 2 intermediate care facility (ICF/MR) services. 3 (III) 42 CFR Pt. 483 Subpt. I (relating to 4 conditions of participation for intermediate care 5 facilities for the mentally retarded). 6 (IV) The act of October 20, 1966 (3rd 7 Sp.Sess., P.L.96, No.6), known as the Mental 8 Health and Mental Retardation Act of 1966. 9 (V) Articles II, VII, IX and X of the act of 10 June 13, 1967 (P.L.31, No.21), known as the 11 Public Welfare Code. 12 (VI) 23 Pa.C.S. Ch. 63 (relating to child 13 protective services). 14 (VII) 42 Pa.C.S. Ch. 63 (relating to 15 juvenile matters). 16 (VIII) 55 Pa. Code Chs. 3170 (relating to 17 allowable costs and procedures for county 18 children and youth), 3680 (relating to 19 administration and operation of a children and 20 youth social service agency) 4300 (relating to 21 county mental health and mental retardation 22 fiscal manual), 6400 (relating to community homes 23 for individuals with mental retardation), 6500 24 (relating to family living homes), 6210 (relating 25 to participation requirements for the 26 intermediate care facilities for the mentally 27 retarded program), 6211 (relating to allowable 28 cost reimbursement for non-State operated 29 intermediate care facilities for the mentally 30 retarded) and 6600 (relating to intermediate care 19970H0055B1071 - 12 -
1 facilities for the mentally retarded). 2 (vii) Funds to corporations, associations, trusts or 3 other organizations which meet the criteria of this 4 section, funds to government agencies or funds to 5 organizations which qualify under section 501(c)(3) of 6 the Internal Revenue Code of 1986 (Public Law 99-514, 26 7 U.S.C. § 501(c)(3)), if the institution providing the 8 funds is primarily engaged in fundraising on behalf of or 9 making grants to such corporations, associations, trusts, 10 such government agencies or such organizations. 11 (2) The institution may elect to average the applicable 12 data for its five most recently completed fiscal years for 13 the purposes of calculating any formula or meeting any 14 quantitative standard in paragraph (1). 15 (3) An institution that does not satisfy the provisions <-- 16 of paragraph (1)(i) through (vii) may meet this criterion by 17 demonstrating that it donates or renders gratuitously a 18 substantial portion of its goods or services. 19 (4) (3) For the purposes of calculating the number of 20 individuals for use in the percentage calculations in this 21 subsection, educational institutions may use full time 22 equivalent students as defined by the Department of 23 Education. 24 (5) (4) As used in this subsection, the term <-- 25 "uncompensated goods or services" shall include all benefits 26 provided to the community the institution serves, including, 27 but not limited to, the following: 28 (i) The full cost of all goods or services provided 29 by the institution for which the institution has not 30 received monetary compensation or the difference between 19970H0055B1071 - 13 -
1 the full cost and any lesser fee received for the goods 2 or services, including the cost of the goods or services 3 provided to individuals unable to pay. 4 (ii) The difference between the full cost of 5 education and research programs provided by or 6 participated in by the institution and the payment made 7 to the institution to support the education and research 8 programs. 9 (iii) The difference between the full cost of 10 providing the goods or services and the payment made to 11 the institution under any government program, including 12 individuals covered by Medicare or Medicaid. 13 (iv) The difference between the full cost of the 14 community services which the institution provides or 15 participates in and the payment made to the institution 16 to support such community services. 17 (v) The reasonable value of any moneys, property, 18 goods or services donated by the primary donor to another 19 institution of purely public charity or to a government 20 agency or the reasonable value of the net donation made 21 by a secondary donor to a primary donor. As used in this 22 subparagraph, the following words and phrases shall have 23 the following meanings: 24 "Net donation." In the case of a donation of money, 25 property or identical goods and services made by a 26 secondary donor, the difference between the value of the 27 donation made by the secondary donor and the value of the 28 donation made by the primary donor, provided such value 29 is positive. 30 "Primary donor." An institution which makes a 19970H0055B1071 - 14 -
1 donation of any money, property, goods or services to 2 another institution of purely public charity. 3 "Secondary donor." An institution which receives a 4 donation of any money, property, goods or services from a 5 primary donor and then makes a donation back to that 6 primary donor within three years of having received such 7 donation. 8 (vi) The reasonable value of volunteer assistance 9 donated by individuals to the institution. The reasonable 10 value of volunteer assistance, computed on an hourly 11 basis, shall not exceed the "Statewide average weekly 12 wage" as defined in section 105.1 of the act of June 2, 13 1915 (P.L.736, No.338), known as the Workers' 14 Compensation Act divided by 40. 15 (vii) The cost of goods or services PROVIDED TO AN <-- 16 INDIVIDUAL by charitable health care facilities licensed 17 by the Department of Health or the Department of Public 18 Welfare, which are bad debts, as determined in accordance 19 with the generally accepted accounting principles 20 applicable to the institution. 21 (VIII) THE REASONABLE VALUE OF ANY MONEYS, PROPERTY, <-- 22 GOODS OR SERVICES DONATED TO A POLITICAL SUBDIVISION. IF 23 THE INSTITUTION OF PURELY PUBLIC CHARITY DONATES TO A 24 POLITICAL SUBDIVISION AN AMOUNT EQUAL TO OR GREATER THAN 25 25% OF THE TAX LIABILITY THE EXEMPT ENTITY WOULD INCUR IF 26 ITS CURRENTLY TAX-EXEMPT PROPERTY WERE TAXABLE, THE 27 INSTITUTION CAN CREDIT THE DONATION AT 200% OF THE ACTUAL 28 VALUE FOR PURPOSES OF MEETING THE REQUIREMENTS OF THIS 29 SUBSECTION. 30 (e) Charity to persons.-- 19970H0055B1071 - 15 -
1 (1) The institution shall benefit a substantial and 2 indefinite class of persons who are legitimate subjects of 3 charity. 4 (2) As used in this subsection, the following words and 5 phrases shall have the meanings given to them in this 6 paragraph: 7 "Legitimate subjects of charity." Those individuals who 8 are unable to provide themselves with what the institution 9 provides for them. 10 "Substantial and indefinite class of persons." Persons 11 not predetermined in number, provided that, where the goods 12 or services are received primarily by members of the 13 institution, membership cannot be predetermined in number and 14 cannot be arbitrarily denied by a vote of the existing 15 members. This section specifically recognizes that the use of 16 admissions criteria and enrollment limitations by educational 17 institutions do not constitute predetermined membership or 18 arbitrary restrictions on membership so as to violate this 19 section and recognizes that an institution may reasonably 20 deny membership based on the types of services it provides, 21 as long as denial is not in violation of Federal or State 22 antidiscrimination laws, such as the Civil Rights Act of 1964 23 (Public Law 88-352, 78 Stat. 241) and the act of October 27, 24 1955 (P.L.744, No.222), known as the Pennsylvania Human 25 Relations Act. 26 (3) An institution shall be considered to benefit a 27 substantial and indefinite class of persons who are 28 legitimate subjects of charity if the institution is 29 primarily engaged in fundraising on behalf of or making 30 grants to: 19970H0055B1071 - 16 -
1 (i) corporations, associations, trusts or other 2 organizations which meet the criteria set forth in this 3 section; 4 (ii) government agencies; or 5 (iii) organizations which qualify under section 6 501(c)(3) of the Internal Revenue Code of 1986 (Public 7 Law 99-514, 26 U.S.C. § 501(c)(3)). 8 (4) AN INSTITUTION SHALL NOT BE CONSIDERED TO BENEFIT A <-- 9 SUBSTANTIAL AND INDEFINITE CLASS OF PERSONS WHO ARE 10 LEGITIMATE SUBJECTS OF CHARITY IF: 11 (I) THE INSTITUTION IS NOT QUALIFIED UNDER SECTION 12 501(C)(3) OF THE INTERNAL REVENUE CODE OF 1986; AND 13 (II) THE INSTITUTION IS QUALIFIED UNDER SECTION 14 501(C)(4), (5), (6), (7), (8) OR (9) OF THE INTERNAL 15 REVENUE CODE OF 1986 AS ANY OF THE FOLLOWING: 16 (A) AN ASSOCIATION OF EMPLOYEES, THE MEMBERSHIP 17 OF WHICH IS LIMITED TO THE EMPLOYEES OF A DESIGNATED 18 PERSON OR PERSONS. 19 (B) A LABOR ORGANIZATION. 20 (C) AN AGRICULTURAL OR HORTICULTURAL 21 ORGANIZATION. 22 (D) A BUSINESS LEAGUE, CHAMBER OF COMMERCE, REAL 23 ESTATE BOARD, BOARD OF TRADE OR PROFESSIONAL SPORTS 24 LEAGUE. 25 (E) A CLUB ORGANIZED FOR PLEASURE OR RECREATION. 26 (F) A FRATERNAL BENEFICIARY SOCIETY, ORDER OR 27 ASSOCIATION. 28 (f) Government service.--The institution shall relieve the 29 government of some of its burden. This criterion is satisfied if 30 the institution meets any of the following: 19970H0055B1071 - 17 -
1 (1) provides a service to the public that the government 2 would otherwise be obliged to fund or to provide directly or 3 indirectly or assure that a similar organization exists to 4 provide the service; 5 (2) provides services in furtherance of its charitable 6 purpose which are either the responsibility of the government 7 by law or which historically have been assumed or offered or 8 funded by the government; 9 (3) receives on a regular basis payments for services 10 rendered under a government program if the payments are less 11 than the full costs incurred by the institution for the 12 rendering of the services or if the institution can 13 demonstrate that comparable services are more expensive when 14 provided by the government; or 15 (4) provides a service which advances important 16 community, public, spiritual, mental, physical, educational, 17 emotional, civic, historical or cultural objectives. 18 (g) Standards.--Nothing contained in this act shall be <-- 19 deemed to prohibit a charitable organization from conducting 20 activities intended to influence legislation. Nothing in this 21 act shall prohibit a political subdivision from filing 22 challenges to or making determinations as to whether a 23 particular parcel of property is being used to advance the 24 charitable purpose of an institution of purely public charity. 25 No additional criteria shall be imposed on any organization in 26 order to be recognized as an institution of purely public 27 charity. 28 (G) STANDARDS.-- <-- 29 (1) EXCEPT AS PROVIDED IN PARAGRAPH (2), NOTHING IN THIS 30 ACT SHALL BE DEEMED TO PROHIBIT A CHARITABLE ORGANIZATION 19970H0055B1071 - 18 -
1 FROM CONDUCTING ACTIVITIES INTENDED TO INFLUENCE LEGISLATION. 2 (2) NO SUBSTANTIAL PART OF THE ACTIVITIES OF AN 3 INSTITUTION OF PURELY PUBLIC CHARITY SHALL CONSIST OF 4 CARRYING ON PROPAGANDA OR OTHERWISE ATTEMPTING TO INFLUENCE 5 LEGISLATION, EXCEPT AS OTHERWISE PROVIDED IN SECTION 501(H) 6 OF THE INTERNAL REVENUE CODE OF 1986 OR PARTICIPATING IN OR 7 INTERVENING IN, INCLUDING THE PUBLISHING OR DISTRIBUTING OF 8 STATEMENTS, ANY POLITICAL CAMPAIGN ON BEHALF OF, OR IN 9 OPPOSITION TO, ANY CANDIDATE FOR PUBLIC OFFICE AS SUCH 10 LIMITATIONS ARE INTERPRETED UNDER SECTION 501 OF THE INTERNAL 11 REVENUE CODE OF 1986. 12 (3) NOTHING IN THIS ACT SHALL AFFECT, IMPAIR OR HINDER 13 THE RESPONSIBILITIES OR PREROGATIVES OF THE POLITICAL 14 SUBDIVISION RESPONSIBLE FOR MAINTAINING REAL PROPERTY 15 ASSESSMENT ROLLS TO MAKE A DETERMINATION WHETHER A PARCEL OF 16 PROPERTY OR A PORTION OF A PARCEL OF PROPERTY IS BEING USED 17 TO ADVANCE THE CHARITABLE PURPOSE OF AN INSTITUTION OF PURELY 18 PUBLIC CHARITY, OR TO ASSESS THE PARCEL OR PART OF THE PARCEL 19 OF PROPERTY AS TAXABLE BASED ON THE USE OF THE PARCEL OR PART 20 OF THE PARCEL FOR PURPOSES OTHER THAN THE CHARITABLE PURPOSE 21 OF THE INSTITUTION. SUCH DETERMINATION AND ASSESSMENT SHALL 22 BE MADE IN ACCORD WITH APPLICABLE STATUS REGARDING THE 23 ASSESSMENT OF REAL PROPERTY FOR TAXATION PURPOSES AND SHALL 24 BE MADE WITHOUT REGARD TO THE CORPORATE STRUCTURE OF THE 25 INSTITUTION, THE SUBSIDIARY NATURE OF THE USE OR THE FORM OR 26 NATURE OF OWNERSHIP OR ACQUISITION OF THE PROPERTY. 27 (4) NOTHING IN THIS ACT SHALL PROHIBIT A POLITICAL 28 SUBDIVISION FROM FILING CHALLENGES TO OR MAKING 29 DETERMINATIONS AS TO WHETHER A PARTICULAR PARCEL OF PROPERTY 30 IS BEING USED TO ADVANCE THE CHARITABLE PURPOSE OF AN 19970H0055B1071 - 19 -
1 INSTITUTION OF PURELY PUBLIC CHARITY. 2 (5) NO ADDITIONAL CRITERIA SHALL BE IMPOSED ON ANY 3 ORGANIZATION IN ORDER TO BE RECOGNIZED AS AN INSTITUTION OF 4 PURELY PUBLIC CHARITY. 5 Section 6. Multiple jurisdictions. 6 (a) Intent.--It is the intent of the General Assembly to <-- 7 (A) INTENT.-- <-- 8 (1) IT IS THE INTENT OF THE GENERAL ASSEMBLY TO foster 9 uniformity in the application of the standards contained 10 within this act for determining status as an institution of 11 purely public charity. The General Assembly recognizes that 12 multiple jurisdictions at different levels of government will 13 be required to determine whether an organization requesting 14 tax exemption meets such standards. Because many 15 organizations will be required to seek and receive approval 16 from different governmental entities, the General Assembly 17 believes that an organization which demonstrates compliance 18 with the standards at the State level shall be entitled to a 19 rebuttable presumption that it has met those standards when 20 determining qualification for local property tax exemptions. 21 Such a presumption is not intended to in any way limit or <-- 22 preclude the ability of a local taxing jurisdiction to 23 challenge a tax exemption based on the use of a particular 24 parcel. 25 (b) Effect of prior qualification.--An organization 26 possessing a valid exemption from the tax imposed by Article II 27 of the Tax Reform Code, pursuant to an administrative or 28 judicial determination that the organization qualifies for 29 exemption under section 204(10) of the Tax Reform Code, shall be 30 presumed to meet the criteria contained in section 5(b), (c), 19970H0055B1071 - 20 -
1 (d), (e) and (f), and any person challenging such presumption 2 before any agency or court shall bear the burden of proving the 3 contrary. Any person challenging such presumption may request 4 from the institution all relevant financial statements, records 5 and documents used to obtain the exemption under section 204(10) 6 of the Tax Reform Code. Failure by the institution to supply 7 such information within 30 days shall remove the presumption 8 with respect to that challenge. 9 (2) THE GENERAL ASSEMBLY, RECOGNIZING THE INTEREST OF <-- 10 THE TAXPAYERS IN A FAIR AND EQUITABLE SYSTEM OF PROPERTY TAX 11 ASSESSMENT AND THE ATTENDANT STATUTORY REQUIREMENTS FOR THE 12 POLITICAL SUBDIVISION RESPONSIBLE FOR MAINTAINING REAL 13 PROPERTY ASSESSMENT ROLES TO ADMINISTER THE SYSTEM OF 14 PROPERTY ASSESSMENT, BELIEVES THAT SUCH A PRESUMPTION SHALL 15 NOT IN ANY WAY LIMIT THE RESPONSIBILITIES, PREROGATIVES OR 16 ABILITIES OF COUNTIES OR LOCAL JURISDICTIONS WITH RESPECT TO 17 THE DETERMINATION OF, OR CHALLENGES TO, THE TAXABLE STATUS OF 18 A PARCEL OR PART OF A PARCEL OF PROPERTY BASED ON THE USE OF 19 THE PARCEL OR PART OF THE PARCEL OF PROPERTY. 20 (B) PRESUMPTION.--AN ORGANIZATION POSSESSING A VALID 21 EXEMPTION FROM THE TAX IMPOSED BY ARTICLE II OF THE TAX REFORM 22 CODE, PURSUANT TO ADMINISTRATIVE OR JUDICIAL DETERMINATION THAT 23 THE ORGANIZATION QUALIFIES FOR EXEMPTION UNDER SECTION 204(10) 24 OF THE TAX REFORM CODE, SHALL BE ENTITLED TO ASSERT A 25 PRESUMPTION THAT IT MEETS THE CRITERIA CONTAINED IN SECTION 26 5(B), (C), (D), (E) AND (F), AND ANY PERSON CHALLENGING SUCH 27 PRESUMPTION BEFORE ANY AGENCY OR COURT SHALL BEAR THE BURDEN, BY 28 THE PREPONDERANCE OF EVIDENCE, OF PROVING THE CONTRARY. THE 29 DEPARTMENT OF REVENUE SHALL FURNISH TO ANY INSTITUTION APPLYING 30 FOR EXEMPTION A WRITTEN DETERMINATION OF THE DEPARTMENT OF 19970H0055B1071 - 21 -
1 REVENUE'S DECISION INCLUDING SPECIFIC INFORMATION CONCERNING HOW 2 THE APPLICANT DOES OR DOES NOT MEET EACH OF THE CRITERIA IN 3 SECTION 5. ANY ORGANIZATION ASSERTING SUCH A PRESUMPTION SHALL 4 BE DEEMED TO HAVE WAIVED ANY RIGHT TO CONFIDENTIALITY AND 5 CONSENTED TO RELEASE OF ANY INFORMATION SUPPORTING THE EXEMPTION 6 FROM THE TAX IMPOSED BY ARTICLE II OF THE TAX REFORM CODE UNDER 7 SECTION 204(10), AND SUCH INFORMATION, ALONG WITH THE WRITTEN 8 DETERMINATION OF THE DEPARTMENT OF REVENUE'S DECISION IN SUPPORT 9 OF THAT EXEMPTION, SHALL BE PUBLIC RECORD WHICH THE DEPARTMENT 10 OF REVENUE SHALL FURNISH TO ANY PERSON UPON REQUEST. ANY PERSON 11 CHALLENGING SUCH PRESUMPTION MAY REQUEST FROM THE INSTITUTION 12 ALL RELEVANT FINANCIAL STATEMENTS, RECORDS AND DOCUMENTS USED TO 13 OBTAIN THE EXEMPTION UNDER SECTION 204(10) OF THE TAX REFORM 14 CODE. FAILURE BY THE INSTITUTION TO SUPPLY, OR AT ITS OPTION, TO 15 PERMIT INSPECTION OF SUCH INFORMATION IN ITS POSSESSION WITHIN 16 30 DAYS SHALL REMOVE THE PRESUMPTION WITH RESPECT TO THAT 17 CHALLENGE. 18 (c) Applicability of presumption.--The provisions of this 19 section shall apply only to sales and use tax exemptions granted 20 or renewed on or after the effective date of this act. 21 Section 7. Existing agreements. 22 Nothing in this act shall be construed to affect, impair, 23 terminate or supersede any contract, agreement or arrangement in 24 effect on or before the effective date of this act which 25 authorizes or requires payment of taxes, amounts in lieu of 26 taxes, or other charges or fees for the services of a political 27 subdivision of this Commonwealth. Further, nothing in this act 28 shall be construed to impair, or otherwise inhibit, the right or 29 ability of any institution or political subdivision to enter 30 into such agreements after the effective date of this act. 19970H0055B1071 - 22 -
1 Section 8. Unfair competition with small businesses. 2 (a) Intent.--It is the policy of this act that institutions 3 of purely public charity shall not use their tax-exempt status 4 to compete unfairly with small business. 5 (b) Rule.--An institution of purely public charity may not 6 fund, capitalize, guarantee the indebtedness of, lease 7 obligations of, or subsidize a commercial business that is 8 unrelated to the institution's charitable purpose as stated in 9 the institution's charter or governing legal documents. 10 (c) Exceptions.--Institutions of purely public charity are 11 not in violation of subsection (b) if any of the following 12 apply: 13 (1) The commercial business is intended only for the use 14 of its employees, staff, alumni, faculty, members, students, 15 clients, volunteers, patients or residents. For purposes of 16 this paragraph, a person shall not be considered an employee, 17 staff, member, alumnus, faculty, student, client, volunteer, 18 patient or resident if the person's only relationship with 19 the institution is to receive products or services resulting 20 from the commercial business. 21 (2) The commercial business results in sales to the 22 general public that are incidental or periodic rather than 23 permanent and ongoing. 24 (d) Support for other charities.--Nothing in this section 25 shall be construed as prohibiting or limiting the ability of an 26 institution of purely public charity to fund, capitalize, 27 guarantee the indebtedness of or otherwise subsidize another 28 institution of purely public charity. 29 (e) Investments.--An institution of purely public charity 30 that invests in publicly traded stocks and bonds; real estate; 19970H0055B1071 - 23 -
1 or other investments is not in violation of subsection (b). 2 (f) Educational functions.--An institution of purely public 3 charity that uses its facilities to host groups for educational 4 purposes only is not in violation of subsection (b). 5 (g) Government functions.--An institution of purely public 6 charity may engage in a new commercial business that may 7 otherwise be in violation of subsection (b) if the institution 8 is formally requested to do so by the Commonwealth or a 9 political subdivision. 10 (h) Existing arrangements.--An institution of purely public 11 charity that prior to the effective date of this act funded, 12 capitalized, guaranteed the indebtedness of, leased obligations 13 of or subsidized a commercial business may continue to own and 14 operate such businesses without violating subsection (b) as long 15 as the institution does not substantially expand the scope of 16 the commercial business. In the event an injunction is issued 17 under subsection (i), the effect of such injunction shall be 18 limited to restraining the substantial expansion of the scope of 19 the commercial business which was initiated after the effective 20 date of this act. 21 (i) Remedies.--Whenever the Attorney General receives a 22 complaint from an aggrieved small business or has reason to 23 believe that any institution of purely public charity is 24 violating this section and the proceedings would be in the 25 public interest, the Attorney General may bring an action in the 26 name of the Commonwealth against that institution to restrain 27 such violation by temporary or permanent injunction. The 28 Attorney General must either bring an action or issue a written 29 determination to the aggrieved small business within 120 days of 30 the filing of a complaint. 19970H0055B1071 - 24 -
1 (1) If the Attorney General fails to bring an action or 2 to issue a written determination to a small business 3 complainant within 120 days of the filing of a complaint, the 4 small business may petition the Commonwealth Court for a writ 5 of mandamus ordering the Attorney General either to bring an 6 action under this section or to provide the reason or reasons 7 why the Attorney General has declined to do so. 8 (2) Nothing in this subsection shall preclude either an 9 aggrieved small business or an institution of purely public 10 charity that has been affected by a decision of the Attorney 11 General from pursuing an appeal of that decision under 2 12 Pa.C.S. Ch. 7 Subch. A (relating to judicial review of 13 Commonwealth agency action). 14 Section 9. Accountability and disclosure. 15 (a) Intent.--An institution which qualifies for a tax 16 exemption by virtue of being designated an institution of purely 17 public charity has a unique responsibility to periodically 18 demonstrate to the public that it is fulfilling the purpose for 19 which the exemption is granted. The citizens of this 20 Commonwealth expect an organization which is granted tax 21 exemption to adhere to a high standard of accountability and 22 public disclosure. Therefore, the institution should make an 23 annual report in which it makes available certain information 24 about its organization and its charitable activities. The report 25 should be made consistent with the desire of the General 26 Assembly to avoid burdensome reporting requirements which unduly 27 distract the organization from its charitable purposes. 28 (b) Report required.--It shall be the duty of the president, 29 chairman or principal officer of an institution which files, or 30 is required to file, an annual return with the Internal Revenue 19970H0055B1071 - 25 -
1 Service under the Internal Revenue Code of 1986 (Public Law 99- 2 514, 26 U.S.C. § 1 et seq.) to file a report with the bureau no 3 later than the date, including any extensions granted by the 4 Internal Revenue Service, the institution files or is required 5 to file an annual return with the Internal Revenue Service. The 6 following information shall be included in the report required 7 by this section and shall be in a format approved by the 8 Secretary of the Commonwealth: 9 (1) A copy of the annual return filed or required to be 10 filed with the Internal Revenue Service. 11 (2) The date the institution was organized under 12 applicable law and a reference to any determination of its 13 tax-exempt status under the Internal Revenue Code of 1986, <-- 14 including, if applicable, its Internal Revenue tax 1986, <-- 15 INCLUDING, IF APPLICABLE: 16 (I) THE INSTITUTION'S INTERNAL REVENUE TAX exemption 17 number and the tax-exempt purposes as established by the 18 Internal Revenue Service. 19 (II) A REVOCATION OF TAX-EXEMPT STATUS BY THE <-- 20 INTERNAL REVENUE SERVICE. 21 (3) The following information on each affiliate of the 22 institution of purely public charity: 23 (i) The name and type of organization. 24 (ii) Whether the affiliate is organized on a for- 25 profit or nonprofit basis. 26 (iii) The relationship of each affiliate to the 27 institution making the report. 28 (4) The institution's relationship with any other 29 nonprofit corporation or unincorporated association if the 30 relationship involves formal governance or the sharing of 19970H0055B1071 - 26 -
1 revenue. 2 (c) Amendments to annual returns.--It shall be the duty of 3 the president, chairman or principal officer of any institution 4 which files an amended annual return with the Internal Revenue 5 Service to file a copy of the amended annual return with the 6 bureau within ten days of its filing with the Internal Revenue 7 Service. 8 (d) Exemption from filing.-- 9 (1) An institution which is not required to file an 10 annual return with the Internal Revenue Service shall be 11 exempt from the requirements of this section. 12 (2) An institution which files a consolidated annual 13 return with the Internal Revenue Service shall not be 14 required to file any report except as otherwise required by 15 this subsection. The institution shall file with the bureau a 16 statement giving the name and tax-exempt number of the 17 organization filing the consolidated annual return. 18 (e) Paperwork reduction.--The Secretary of the Commonwealth 19 shall implement procedures and may modify the reporting 20 requirements of this section in order to reduce or eliminate 21 duplicate filing by institutions subject to this section. The 22 Secretary of the Commonwealth shall allow the president, 23 chairman or principal officer of an institution subject to this 24 section to substitute the registration statement required under 25 section 5 of the act of December 19, 1990 (P.L.1200, No.202), 26 known as the Solicitation of Funds for Charitable Purposes Act, 27 for those portions of the report required under subsection (b) 28 which duplicate the information required under section 5 of the 29 Solicitation of Funds for Charitable Purposes Act. The Secretary 30 of the Commonwealth shall allow the institution to certify that 19970H0055B1071 - 27 -
1 the information required in subsection (b)(2), (3) or (4) has 2 not changed since the prior report in lieu of providing the same 3 information in the report required by subsection (b). The 4 Secretary of the Commonwealth may obtain from the Internal 5 Revenue Service copies of annual returns of institutions which 6 file annual returns with the Internal Revenue Service on 7 computer disk or other electronic or paper media. 8 (f) Retention of records.--The Secretary of the Commonwealth 9 shall retain the reporting information required by this section 10 for three years after the reports are required to be filed. 11 (g) Utilization of reports.--The Secretary of the 12 Commonwealth shall make reports submitted under this section 13 available for public inspection TO THE EXTENT THAT THE <-- 14 INFORMATION IS AVAILABLE FOR PUBLIC INSPECTION UNDER SECTION 15 6104 OF THE INTERNAL REVENUE CODE OF 1986. The Secretary of the 16 Commonwealth shall provide any government agency a copy of the 17 report filed under this section upon request. Nothing in this 18 subsection shall prevent a government agency from requiring any 19 organization seeking exemption as an institution of purely 20 public charity to provide the information described in 21 subsection (b) to that agency as part of a determination of the 22 tax exempt status of the institution. 23 (h) Definitions.--As used in this section, the following 24 words and phrases shall have the meanings given to them in this 25 subsection: 26 "Affiliate." A domestic or foreign corporation, association, 27 trust or other organization which owns a 10% or greater interest 28 in the institution. A domestic or foreign corporation, 29 association, trust or other organization in which the 30 institution owns a 10% or greater interest. 19970H0055B1071 - 28 -
1 "Annual return." The annual information return required to be 2 filed with the Internal Revenue Service by organizations exempt 3 from tax by virtue of section 501(a) of the Internal Revenue 4 Code of 1986 (Public Law 99-514, 26 U.S.C. §1, et seq.). The 5 annual information return consists of Internal Revenue Service 6 Form 990 or Form 990EZ and Schedule A. 7 "Bureau." The Bureau of Charitable Organizations of the 8 Department of State of the Commonwealth. 9 "Institution." A domestic or foreign nonprofit corporation, 10 association, trust or other organization which qualifies as an 11 institution of purely public charity under the provisions of 12 this act and which receives or claims exemption from the real 13 property tax imposed by any political subdivision in this 14 Commonwealth or which receives or claims exemption from the tax 15 imposed by Article II of the Tax Reform Code. 16 Section 10. Litigation reduction. <-- 17 (a) Institutions.--An institution of purely public charity 18 may bring an action against the challenging party or parties for 19 recovery of reasonable litigation expenses and attorney fees on 20 account of any challenge pertaining to the tax-exempt status of 21 any property initiated within three years of the initiation of 22 an earlier challenge involving, in any part, the same property 23 if: 24 (1) the institution successfully defends its tax exempt 25 status as an institution of purely public charity in a court 26 of common pleas, Commonwealth Court or the Pennsylvania 27 Supreme Court; and 28 (2) appeals by the challenging party or parties are 29 exhausted and there has been a final unappealed or 30 unappealable adjudication or judgment. 19970H0055B1071 - 29 -
1 (b) Government agencies.--A government agency may bring an 2 action for recovery of reasonable litigation expenses and 3 attorney fees on account of any application pertaining to the 4 tax-exempt status of any property filed within three years of an 5 earlier application involving, in any part, the same property 6 against an organization claiming tax-exempt status as an 7 institution of purely public charity if: 8 (1) the organization relies on section 5(d)(3) in 9 claiming tax-exempt status as an institution of purely public 10 charity; 11 (2) the organization is determined by a court of common 12 pleas, Commonwealth Court or the Supreme Court not to meet 13 the requirement in section 5(d) that it donate or render 14 gratuitously a substantial portion of its services; and 15 (3) appeals by the organization are exhausted and there 16 has been a final unappealed or unappealable adjudication or 17 judgment. 18 Section 11. Exemption for Federal Government instrumentality. 19 It is the intent of the General Assembly to affirm that, for 20 purposes of the Constitution of Pennsylvania and the laws of 21 this Commonwealth relating to the assessment and taxation of 22 real estate, real property is property of a Federal Government 23 entity and is, thus, exempt from all State and local taxation if 24 the real property is owned by a corporation which is: 25 (1) established by Federal statute; and 26 (2) required to submit to Congress annual reports of 27 its activities, containing itemized accounts of all 28 receipts and expenditures, after being fully audited by 29 the Department of Defense. 30 SECTION 10. EXEMPTION FOR FEDERAL GOVERNMENT INSTRUMENTALITY. <-- 19970H0055B1071 - 30 -
1 IT IS THE INTENT OF THE GENERAL ASSEMBLY TO AFFIRM THAT ALL 2 REAL PROPERTY OWNED BY ANY CORPORATION ESTABLISHED BY AN ACT OF 3 THE CONGRESS OF THE UNITED STATES, THAT IS REQUIRED TO SUBMIT 4 ANNUAL REPORTS OF ITS ACTIVITIES TO CONGRESS CONTAINING ITEMIZED 5 ACCOUNTS OF ALL RECEIPTS AND EXPENDITURES AFTER BEING FULLY 6 AUDITED BY THE DEPARTMENT OF DEFENSE, FOR PURPOSES OF THE 7 CONSTITUTION OF PENNSYLVANIA AND THE LAWS OF THIS COMMONWEALTH 8 RELATING TO THE ASSESSMENT AND TAXATION OF REAL ESTATE, IS 9 PROPERTY OF A FEDERAL GOVERNMENT INSTRUMENTALITY AND THUS EXEMPT 10 FROM ALL STATE AND LOCAL TAXATION. 11 Section 12 11. Repeals. <-- 12 All acts and parts of acts are repealed insofar as they are 13 inconsistent with this act except for section 204(a)(3) of the 14 act of May 22, 1933 (P.L.853, No.155), known as The General 15 County Assessment Law, as it applies to charitable organizations 16 providing residential housing services. 17 Section 13 12. Applicability. <-- 18 This act shall not apply to nor affect 40 Pa.C.S. § 6103 or 19 6301 or the entities subject to those sections. 20 Section 14 13. Effective date. <-- 21 This act shall take effect January 1, next following the date 22 of final enactment. A15L72DGS/19970H0055B1071 - 31 -