PRIOR PRINTER'S NO. 274 PRINTER'S NO. 2688
No. 246 Session of 1989
INTRODUCED BY CAPPABIANCA, GALLEN, MANDERINO, F. TAYLOR,
SERAFINI, SCHULER, DISTLER, MERRY, VAN HORNE, PETRARCA,
BOWLEY, HERMAN, VEON, HALUSKA, ROBINSON, LEVDANSKY, COLAIZZO,
DeLUCA, D. W. SNYDER, LASHINGER, TIGUE, SCRIMENTI, McHALE,
WOZNIAK, MICHLOVIC, RITTER, OLASZ, PRESTON, BELARDI,
CALTAGIRONE, GRUPPO, BATTISTO, CAWLEY, PHILLIPS AND
TANGRETTI, FEBRUARY 6, 1989
AS RE-REPORTED FROM COMMITTEE ON APPROPRIATIONS, HOUSE OF
REPRESENTATIVES, AS AMENDED, OCTOBER 24, 1989
AN ACT
1 Amending Title 15 (Corporations and Unincorporated Associations)
2 of the Pennsylvania Consolidated Statutes, requiring
3 nonprofit corporations to supply information as to
4 affiliation, activities and tax status to the Commonwealth;
5 providing for powers and duties of the Department of State
6 and the Department of Revenue; AND providing for penalties; <--
7 and making appropriations.
8 The General Assembly of the Commonwealth of Pennsylvania
9 hereby enacts as follows:
10 Section 1. Title 15 of the Pennsylvania Consolidated
11 Statutes is amended by adding a chapter to read:
12 CHAPTER 58
13 ACCOUNTABILITY
14 Sec.
15 5801. Legislative intent.
16 5802. Definitions.
17 5803. Department of Revenue.
1 5804. Reports.
2 5805. Exemption.
3 5806. Individual responsibility.
4 5807. Assignment of code numbers.
5 5808. Audit authorized.
6 5809. Duties of Department of State.
7 5810. Exchange of information and confidentiality.
8 5811. Regulations.
9 5812. Sanctions.
10 5813. Evidence of violation.
11 5814. Annual report.
12 § 5801. Legislative intent.
13 In enacting this chapter, it is the intent of the General
14 Assembly to require the Department of Revenue to:
15 (1) Establish a data base on nonprofit corporations
16 incorporated in Pennsylvania.
17 (2) Determine the extent to which affiliations exist
18 between nonprofit and for-profit entities.
19 (3) Determine the level of commercial activity of
20 nonprofit corporations and their affiliates.
21 (4) Determine the fiscal impact of such activities on
22 Commonwealth revenue.
23 (5) Determine the number of nonprofit corporations and
24 their affiliates operating on a tax-exempt basis in
25 Pennsylvania but not operating on a tax-exempt basis on the
26 Federal level.
27 § 5802. Definitions.
28 The following words and phrases when used in this chapter
29 shall have the meanings given to them in this section unless the
30 context clearly indicates otherwise:
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1 "Affiliation." The relationship between corporations or
2 unincorporated associations, or both, when:
3 (1) a corporation or unincorporated association is
4 controlled by or controls another corporation or
5 unincorporated association;
6 (2) a corporation or unincorporated association, or
7 both, are controlled by the same corporation or
8 unincorporated association; or
9 (3) a corporation or unincorporated association has a
10 contractual relationship with another corporation or
11 unincorporated association where the contract provides for
12 the distribution of profits among the parties to the
13 contract.
14 "Annual return." Annual return as defined by the Internal
15 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.)
16 and the regulations issued thereunder.
17 "Commercial activity." Any activity which provides a product
18 or service for a fee which could be obtained from a for-profit
19 business or any unrelated business and retail activities of
20 nonprofit corporations.
21 "Control." A corporation or unincorporated association has
22 control over another corporation or unincorporated association
23 if:
24 (1) the corporation or unincorporated association
25 directly or indirectly or acting through one or more persons
26 owns, controls or has power to vote 25% or more of any class
27 of voting securities of the other corporation or
28 unincorporated association;
29 (2) the corporation or unincorporated association
30 controls in any manner the election of a majority of the
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1 directors or trustees of the other corporation or
2 unincorporated association; or
3 (3) the Department of Revenue determines, after notice
4 and opportunity for hearing, that the corporation or
5 unincorporated association directly or indirectly exercises a
6 controlling influence over the management or policies of the
7 other corporation or unincorporated association.
8 However, there shall be a presumption that any corporation or
9 unincorporated association which directly or indirectly owns,
10 controls or has power to vote less than 5% of any class of
11 voting securities of a given corporation or unincorporated
12 association does not have control over that corporation or
13 unincorporated association.
14 "Corporation." A corporation for profit or not-for-profit.
15 "Organizational structure." The control structure within
16 which a corporation or unincorporated association exists. The
17 term includes the corporation or unincorporated association, its
18 affiliates and, if applicable, its parent, its subsidiaries and
19 all stockholders owning 5% or more of its outstanding stock.
20 "Parent." A corporation which owns more than 50% of the
21 voting stock of another corporation.
22 "Secretary." The Secretary of Revenue of the Commonwealth.
23 "Subsidiary." A corporation of which more than 50% of the
24 voting shares are owned by another corporation.
25 "Unincorporated association." The act of two or more persons
26 in uniting together for any of the purposes set forth in section
27 7311 (relating to purposes) which does not contemplate pecuniary
28 gain or profit, incidental or otherwise, and which is not
29 incorporated under the laws of this Commonwealth or any other
30 state.
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1 § 5803. Department of Revenue.
2 The Department of Revenue shall receive the reports required
3 by this chapter from nonprofit corporations and shall compile
4 information based on those reports.
5 § 5804. Reports.
6 (a) Initial.--A Pennsylvania nonprofit corporation which
7 files a 1988 annual return with the Internal Revenue Service
8 under the Internal Revenue Code of 1986 (Public Law 99-514, 26
9 U.S.C. § 1 et seq.) shall file with the Department of Revenue,
10 no later than the date it is required to file a 1988 annual
11 return with the Internal Revenue Service, including any
12 extension granted by the Internal Revenue Service, a copy of its
13 1988 annual return as filed with the Internal Revenue Service
14 and the following information if not included in such annual
15 return:
16 (1) The date when it was incorporated and a reference to
17 any determination of its tax-exempt status under the Internal
18 Revenue Code of 1986, including, if applicable, its Internal
19 Revenue tax exemption code number or other documentation
20 certified by the Internal Revenue Service and the tax-exempt
21 purposes as established with the Internal Revenue Service.
22 (2) The names of all corporations, unincorporated
23 associations or other affiliates within its organizational
24 structure, whether each corporation, unincorporated
25 association or other affiliate is organized on a for-profit
26 or not-for-profit basis and whether each corporation,
27 unincorporated association or other affiliate is organized as
28 a corporation or unincorporated association together with the
29 relationship of each corporation, unincorporated association
30 or other affiliate within the organizational structure,
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1 including the relationship of the filing nonprofit
2 corporation to the other corporations, unincorporated
3 associations or other affiliates within the organizational
4 structure.
5 (3) Its relationship with any national nonprofit
6 corporation or unincorporated association.
7 (4) Whether any contracts exist, on the date of filing
8 the report, between members of the organizational structure
9 and, if so, a description of the nature of each contract and
10 the members which are parties to it.
11 (b) Annual.--A Pennsylvania nonprofit corporation which
12 files an annual return with the Internal Revenue Service under
13 the Internal Revenue Code of 1986 shall file, with the
14 Department of Revenue on an annual basis, a copy of its annual
15 return for the given tax year as filed with the Internal Revenue
16 Service, any change in its tax status with the Internal Revenue
17 Service and, if not included in the annual return, the
18 information required in subsection (a). The information required
19 by this subsection shall be filed with the Department of Revenue
20 no later than the date the nonprofit corporation is required to
21 file its annual return with the Internal Revenue Service,
22 including any extension granted in accordance with the Internal
23 Revenue Code of 1986.
24 (c) Amendment.--Any nonprofit corporation filing an annual
25 return under this chapter which, thereafter, files an amended
26 return with the Internal Revenue Service shall file a copy of
27 the amended return with the Department of Revenue within ten
28 days of its filing with the Internal Revenue Service.
29 (d) Unincorporated associations.--An unincorporated
30 association which is a member of the organizational structure of
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1 or affiliated with a nonprofit corporation shall not be required
2 to file any report required by this section.
3 § 5805. Exemption.
4 A Pennsylvania nonprofit corporation which is related to a
5 national nonprofit corporation or unincorporated association and
6 which does not file a separate annual return with the Internal
7 Revenue Service but is included in a consolidated return filed
8 by the national nonprofit corporation or unincorporated
9 association shall be exempted from the reporting requirements of
10 this chapter for any year in which the consolidated return is
11 filed upon the filing of a notarized statement to such effect
12 with the Department of Revenue, including the name of the
13 national nonprofit corporation or unincorporated association
14 with which it is affiliated.
15 § 5806. Individual responsibility.
16 If more than one nonprofit corporation subject to the
17 reporting requirements of this chapter exists within the same
18 organizational structure, each nonprofit corporation shall be
19 individually responsible for complying with the reporting
20 requirements of this chapter.
21 § 5807. Assignment of code numbers.
22 The Department of Revenue shall assign a common code number
23 to the filing nonprofit corporation and to each member of its
24 organizational structure, together with alphabetical identifiers
25 to differentiate each member of the organizational structure.
26 § 5808. Audit authorized.
27 The secretary shall conduct a random annual audit of 1% of
28 the filing nonprofit corporations and the members of each of
29 their organizational structures to verify the information
30 contained in their annual reports. The secretary is further
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1 empowered to conduct an audit of any filing nonprofit
2 corporation and the members of its organizational structure
3 whenever he considers it necessary to carry out the purposes of
4 this chapter.
5 § 5809. Duties of Department of State.
6 (a) Notification of existing nonprofit corporations.--Within
7 90 days of the effective date of this chapter, the Department of
8 State shall notify each Pennsylvania nonprofit corporation of
9 the requirements of this chapter by certified mail, return
10 receipt requested, and include therein any forms necessary to
11 comply with the reporting requirements of this chapter.
12 (b) Notification of newly incorporated nonprofit
13 corporations.--The Department of State shall notify each
14 Pennsylvania nonprofit corporation incorporated after the
15 effective date of this chapter of the requirements of this
16 chapter at the time of its incorporation and provide the
17 nonprofit corporations any forms necessary to comply with the
18 reporting requirements of this chapter at that time.
19 (c) Providing of list.--The Department of State shall
20 provide a list to the Department of Revenue of all Pennsylvania
21 nonprofit corporations for which verification of notification
22 has been received under subsection (a) and shall thereafter
23 provide, on an annual basis, a list of all newly incorporated
24 Pennsylvania nonprofit corporations.
25 § 5810. Exchange of information and confidentiality.
26 The Department of State and the Department of Revenue are
27 authorized to enter into cooperative agreements for the exchange
28 of information with State and Federal agencies for the purpose
29 of implementation of this chapter. Any information obtained
30 under this chapter or as a result of any exchange of information
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1 authorized by this section shall be subject to the same
2 requirements of confidentiality as exist for annual returns
3 filed under the Internal Revenue Code of 1986 (Public Law 99-
4 514, 26 U.S.C. § 1 et seq.) and tax returns filed under the act
5 of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of
6 1971.
7 § 5811. Regulations.
8 The Department of State and the Department of Revenue may
9 promulgate either joint or separate regulations necessary and
10 appropriate to carry out the purposes of this chapter.
11 § 5812. Sanctions.
12 A nonprofit corporation which fails to comply with the
13 provisions of section 5804 (relating to reports) shall be
14 subject to a fine of $10 a day for each day the report is late
15 up to a maximum of $5,000 unless reasonable cause can be shown
16 for the late filing. Levying of the penalty shall be in
17 accordance with the provisions of 2 Pa.C.S. Ch. 5 Subch. A
18 (relating to practice and procedure of Commonwealth agencies).
19 § 5813. Evidence of violation.
20 If, in the course of performing its duties under this
21 chapter, the Department of Revenue believes a violation
22 enumerated in section 7990 (relating to actions to revoke
23 corporate franchises) has occurred, it shall so inform the
24 Attorney General, who shall determine whether to institute
25 proceedings under that section.
26 § 5814. Annual report.
27 Within 90 days after the end of the calendar year, the
28 secretary shall submit to the General Assembly a summary of the
29 annual reports filed under this chapter during the prior year,
30 which shall contain information on the subjects set forth in
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1 section 5801 (relating to legislative intent) and on the number
2 of referrals under section 5813 (relating to evidence of
3 violation).
4 Section 2. (a) The sum of $250,000, or as much thereof as <--
5 may be necessary, is hereby appropriated to the Department of
6 Revenue to carry out the purposes of this act.
7 (b) The sum of $100,000, or as much thereof as may be
8 necessary, is hereby appropriated to the Department of State to
9 carry out the purposes of this act.
10 Section 3 2. The provisions of this chapter shall expire <--
11 five years from the effective date of this amendatory act unless
12 sooner reenacted by the General Assembly.
13 Section 4 3. This act shall take effect in 90 days. <--
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