PRINTER'S NO. 559
No. 531 Session of 1995
INTRODUCED BY CAPPABIANCA, BEBKO-JONES, OLASZ, RICHARDSON, BELARDI, PETRONE, WOZNIAK, MICHLOVIC, YOUNGBLOOD AND MERRY, FEBRUARY 1, 1995
REFERRED TO COMMITTEE ON FINANCE, FEBRUARY 1, 1995
AN ACT 1 Providing for the tax exemption of institutions of purely public 2 charity; and making repeals. 3 TABLE OF CONTENTS 4 Section 1. Short title. 5 Section 2. Legislative intent. 6 Section 3. Definitions. 7 Section 4. Criteria. 8 Section 5. Certification process. 9 Section 6. Hearing. 10 Section 7. Appeal to court. 11 Section 8. Annual reports. 12 Section 9. Periodic reexamination. 13 Section 10. Revocation of certification. 14 Section 11. Existing institutions. 15 Section 12. Third-party rights. 16 Section 13. Regulations. 17 Section 14. Payments in lieu of taxes.
1 Section 15. Payment date. 2 Section 16. Repeals. 3 Section 17. Effective date. 4 The General Assembly of the Commonwealth of Pennsylvania 5 hereby enacts as follows: 6 Section 1. Short title. 7 This act shall be known and may be cited as the Institutions 8 of Purely Public Charity Act. 9 Section 2. Legislative intent. 10 (a) Findings.--The General Assembly finds and declares as 11 follows: 12 (1) It is in the best interest of this Commonwealth and 13 its citizens that the recognition of tax-exempt status be 14 accomplished in an orderly, uniform and economical manner. 15 (2) For more than 100 years, it has been the policy of 16 this Commonwealth to foster the organization and operation of 17 charitable organizations by exempting charitable 18 organizations from taxation. 19 (3) Because charitable organizations contribute to the 20 common good or lessen the burdens of government, the historic 21 policy of exempting charitable institutions from taxation 22 should be continued. 23 (4) The General Assembly recognizes that it is 24 unrealistic today to expect charitable organizations to rely 25 completely upon private philanthropy and that there is an 26 appropriate role and responsibility for government support 27 with respect to activities historically recognized as 28 charitable. 29 (5) The General Assembly recognizes that the lack of 30 specific legislative standards defining the term 19950H0531B0559 - 2 -
1 "institutions of purely public charity" has led to increasing 2 confusion and confrontation among traditionally tax-exempt 3 organizations and local governments to the detriment of the 4 public. 5 (6) There is increasing concern that the eligibility 6 standards for charitable tax exemptions are being applied 7 inconsistently, which may violate the uniformity provision of 8 the Constitution of Pennsylvania. 9 (b) Intent.--It is the intent of the General Assembly to 10 eliminate inconsistent application of eligibility standards for 11 charitable tax exemptions, reduce confusion and confrontation 12 among traditionally tax-exempt organizations and local 13 governments and insure that charitable and public funds are not 14 unnecessarily diverted from the public good to litigate 15 eligibility for tax-exempt status by: 16 (1) Providing standards to be applied uniformly in all 17 proceedings throughout this Commonwealth for determining 18 eligibility for exemption from State and local taxation which 19 are consistent with traditional legislative and judicial 20 applications of the constitutional term "institutions of 21 purely public charity." 22 (2) Creating a single unified procedure and process 23 throughout this Commonwealth to certify the status of an 24 organization as an institution of purely public charity to 25 establish conclusively entitlement to exemption whenever the 26 General Assembly provides an exemption from taxation. 27 Section 3. Definitions. 28 The following words and phrases when used in this act shall 29 have the meanings given to them in this section unless the 30 context clearly indicates otherwise: 19950H0531B0559 - 3 -
1 "Application." An application for certification by the 2 Secretary of Revenue filed by an organization seeking to be 3 certified as an institution of purely public charity, which 4 shall be in the form the Secretary of Revenue shall prescribe 5 consistent with this act. 6 "Government agency." Any Commonwealth agency or any 7 political subdivision or municipal or other local authority or 8 any officer or agency of any political subdivision or local 9 authority. 10 "Institution of purely public charity." A domestic or 11 foreign nonprofit corporation, association, trust or other 12 organization which meets the criteria under section 4. 13 "Secretary." The Secretary of Revenue of the Commonwealth or 14 his designee. 15 Section 4. Criteria. 16 (a) General rule.--An institution of purely public charity 17 is a nonprofit corporation, association, trust or other 18 organization which meets the criteria set forth in this section 19 or which is principally engaged in fundraising on behalf of or 20 making grants to corporations, associations, trusts or other 21 organizations which meet the criteria set forth in this section. 22 An institution of purely public charity shall meet all of the 23 criteria contained in subsections (b), (c), (d), (e) and (f). 24 The factors specified as sufficient to satisfy each criterion 25 set forth in this section are not the exclusive means by which 26 the criterion can be met. 27 (b) Charitable purpose.--The institution shall advance a 28 charitable purpose. This criterion is satisfied if the 29 institution is organized and operated primarily to fulfill any 30 one or combination of the following purposes: 19950H0531B0559 - 4 -
1 (1) Relief of poverty. 2 (2) Advancement of education. 3 (3) Advancement of religion. 4 (4) Promotion of health. 5 (5) Government or municipal purposes. 6 (6) Accomplishment of any purpose which is beneficial to 7 the community, including, but not limited to, advancement of 8 the arts and sciences, advancement of the cultural, 9 spiritual, mental, physical, social or emotional welfare or 10 improvement of others. 11 (c) Private profit motive.--The institution shall operate 12 entirely free from private profit motive. Compensation, 13 including benefits of any director, officer or employee, shall 14 not be based primarily upon the financial performance of the 15 organization. Notwithstanding whether the institution's revenues 16 exceed its expenses, this criterion is satisfied if the 17 institution meets the following: 18 (1) Neither the institution's net earnings nor donations 19 which it receives inures to the benefit of private 20 shareholders or other individuals, as the private inurement 21 standard is interpreted under section 501(c)(3) of the 22 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 23 501(c)(3)). 24 (2) The institution applies or reserves any revenue in 25 excess of expenses in furtherance of its charitable purpose 26 or to funding of other charitable organizations. 27 (d) Community service.-- 28 (1) The institution shall donate or render gratuitously 29 a substantial portion of its services. This criterion is 30 satisfied if the institution benefits the community by 19950H0531B0559 - 5 -
1 actually providing any of the following: 2 (i) Goods or services to all who seek them without 3 regard to their ability to pay for what they receive. An 4 organization meets this test if it has a written policy 5 to this effect, it has publicized this policy in a 6 reasonable manner and it provides goods and services 7 according to its policy. 8 (ii) Goods or services for fees that are based upon 9 the recipient's ability to pay for them. An organization 10 meets this test if it can demonstrate that it has 11 implemented a written policy and a written schedule of 12 fees based on individual or family income. 13 (iii) Uncompensated goods or services to at least 14 10% of those receiving similar services. 15 (iv) Goods or services for fees which, in total, are 16 90% or less of the cost of providing such services, 17 including the reasonable value of volunteer labor or 18 services. 19 (v) Goods or services for fees within the financial 20 reach of a substantial part of the community and provides 21 a reasonable level of financial assistance, taking into 22 account the institution's assets, income and projected 23 future needs. 24 (vi) Funds to corporations, associations, trusts or 25 other organizations which meet the criteria of this 26 section. 27 (2) As used in this subsection, the following words and 28 phrases shall have the meanings given to them in this 29 paragraph: 30 "Goods or services." Medically necessary goods or 19950H0531B0559 - 6 -
1 services, but not limited to life-threatening situations if 2 the institution's purpose is to provide health care services. 3 "Uncompensated goods or services." Includes all benefits 4 provided by the institution to the community it serves, 5 including, but not limited to, the following: 6 (i) The full cost of all goods and services provided 7 by the institution for which the institution has not 8 received monetary compensation or the difference between 9 the full cost and any lesser fee received for the goods 10 and services, including the cost of the goods and 11 services which are bad debts, as determined in accordance 12 with the generally accepted accounting principles 13 applicable to the institution. 14 (ii) The difference between the full cost of 15 education and research programs provided by or 16 participated in by the institution and the payment made 17 to the institution to support the education and research 18 programs. 19 (iii) The difference between the full cost of 20 providing the goods and services and the payment made to 21 the institution under any government entitlement program. 22 (iv) The difference between the full cost of the 23 community services which the institution provides or 24 participates in and the payment made to the institution 25 to support such community services. 26 (v) The reasonable value of any moneys, property or 27 services donated by the institution to another 28 institution of purely public charity. 29 (vi) The reasonable value of volunteer assistance 30 donated by individuals to the institution. 19950H0531B0559 - 7 -
1 (e) Charity to persons.-- 2 (1) The institution shall benefit a substantial and 3 indefinite class of persons who are legitimate subjects of 4 charity. 5 (2) As used in this subsection, the following words and 6 phrases shall have the meanings given to them in this 7 paragraph: 8 "Legitimate subjects of charity." Those individuals who 9 are unable to provide themselves with what the institution 10 provides for them. 11 "Substantial and indefinite class of persons." Persons 12 not predetermined in number, provided that, where the 13 services are received primarily by members of the 14 institution, membership cannot be predetermined in number and 15 cannot be arbitrarily denied by a vote of the existing 16 members. This section specifically recognizes that the use of 17 admissions criteria and enrollment limitations by educational 18 institutions do not constitute predetermined membership or 19 arbitrary restrictions on membership so as to violate this 20 section. 21 (f) Government service.--The institution shall relieve the 22 government of some of its burden. This criterion is satisfied if 23 the institution meets any of the following: 24 (1) Provides a service to the public that the government 25 would otherwise be obliged to fund or to provide directly or 26 indirectly or assure that a similar organization exists to 27 provide the service. 28 (2) Provides services in furtherance of its charitable 29 purpose which are either the responsibility of the government 30 by law or which traditionally have been assumed or offered or 19950H0531B0559 - 8 -
1 funded by the government. 2 (3) Receives on a regular basis payments for services 3 rendered under a government entitlement program, which 4 payments are less than the full costs incurred by the 5 institution for the rendering of the services. 6 (4) Provides a service which advances important 7 community, public, spiritual, mental, physical, educational, 8 emotional, civic, historical or cultural objectives. 9 (g) Shared service organization.-- 10 (1) A shared service organization shall be treated as an 11 institution of purely public charity without requiring it to 12 qualify under this section if it is a nonprofit corporation, 13 association, trust or other organization comprised of or 14 formed by two or more institutions of purely public charity 15 to provide services to, for or on behalf of two or more 16 institutions of purely public charity or to the beneficiaries 17 of one or more institutions of purely public charity and 18 which meets the following criteria: 19 (i) The organization provides a support service to 20 its member organizations that each member organization 21 could otherwise perform itself. 22 (ii) Each member organization or investor in the 23 shared service organization is itself an institution of 24 purely public charity or a government agency. 25 (iii) If the shared service is made available to a 26 member organization's beneficiaries, the member 27 organization makes the service available regardless of 28 the beneficiaries' ability to pay for the service. 29 (iv) The activity or service performed by the shared 30 service organization is in furtherance of the charitable 19950H0531B0559 - 9 -
1 mission of its member organizations. 2 (v) The member organizations accept or in some 3 fashion underwrite a portion of the financial risk of the 4 shared service organization. 5 (vi) If it provides services to legitimate subjects 6 of charity, the shared service organization shall be 7 compensated solely by the member organizations. 8 (2) The fact that the shared service organization 9 receives all or a portion of its revenue from the sale or 10 provision of services or products to its member 11 organizations, and by so doing does not provide uncompensated 12 or undercompensated services directly to beneficiaries of the 13 member organizations, shall not preclude the shared service 14 organization from designation as an institution of purely 15 public charity if it otherwise meets requirements of 16 paragraph (1). 17 (h) Standards.--Nothing contained in this act shall be 18 deemed to prohibit a charitable organization from conducting 19 activities intended to influence legislation. Nothing in this 20 act shall prohibit a political subdivision from filing 21 challenges to or making determinations as to whether a 22 particular parcel of property is being used to advance the 23 charitable purpose of an institution of purely public charity. 24 No additional criteria shall be imposed on any organization in 25 order to be recognized or certified as an institution of purely 26 public charity. 27 Section 5. Certification process. 28 (a) Application and certification.--The secretary shall 29 certify that organizations which meet the criteria set forth in 30 section 4 and which apply for certification from the secretary 19950H0531B0559 - 10 -
1 are institutions of purely public charity under the application 2 procedure described in subsection (b). Any organization so 3 certified shall be conclusively entitled to any exemption from 4 taxes otherwise available to it by statute. Nothing in this 5 section shall require any organization to seek certification 6 from the secretary. 7 (b) Application procedure.--Any organization seeking 8 certification as an institution of purely public charity shall 9 file an application with the secretary, containing that 10 information as the secretary may require consistent with this 11 act. Notice of the filing of each such application shall be 12 published in the Pennsylvania Bulletin by the secretary within 13 ten days of receipt of the application. The secretary shall also 14 send within ten days of receipt of the application by first 15 class mail written notice of the application to the affected 16 government agencies where the principal offices of the applicant 17 are located. The secretary shall review the information 18 submitted by the applicant with the application and by any 19 person or government agency who chooses to submit information to 20 the secretary regarding the application and shall, within 90 21 days of receipt of the application, certify that the applicant 22 is an institution of purely public charity as established by 23 section 4 or issue a determination that the applicant does not 24 qualify as an institution of purely public charity. Written 25 notice of the secretary's determination, with written evidence 26 of the certification, if granted, shall be mailed to the 27 applicant and the affected government agencies within five days 28 of the determination. The secretary shall not approve an 29 application prior to 45 days following receipt of the 30 application to permit the secretary to consider information 19950H0531B0559 - 11 -
1 submitted by any person or government agency which chooses to 2 submit information regarding such application. The burden of 3 establishing that the organization is an institution of purely 4 public charity as established by section 4 shall rest with the 5 applicant, which shall meet this burden by a preponderance of 6 the evidence. 7 (c) Filing fees.--The secretary may adopt by regulation 8 filing fees not to exceed $400 per application to applicants 9 seeking certification as institutions of purely public charity. 10 If the applicant certifies to the secretary that its annual 11 gross receipts will be less than $200,000 for its next two 12 fiscal years, the filing fee shall not exceed $150 per 13 application. The secretary may adopt lesser fees by regulation. 14 (d) Certification review.--The secretary shall have the 15 primary and exclusive jurisdiction to certify that any 16 organization is an institution of purely public charity under 17 the procedures set forth in this act and to revoke any 18 certification previously granted, subject to review as set forth 19 in sections 6 and 7. 20 (e) Effect of denial of certification.--In the event of a 21 final and unappealed or unappealable adjudication denying 22 certification as an institution of purely public charity, the 23 applicant may not claim the benefit of the status as an 24 institution of purely public charity for the applicant's fiscal 25 year next following the receipt of said adjudication denying 26 certification. Until a final and unappealed or unappealable 27 adjudication is rendered, the applicant may apply for a writ of 28 supersedeas from a court of competent jurisdiction deferring it 29 from the obligation to pay taxes owed to a government agency by 30 virtue of the initial adjudication during the pendency of the 19950H0531B0559 - 12 -
1 appeal. 2 Section 6. Hearing. 3 The applicant and affected government agencies who have 4 participated in the application procedure under section 5 shall 5 have 30 days from the date of mailing of the secretary's 6 determination to request a hearing on the determination by 7 filing written notice of intent to request a hearing. If a 8 hearing is not so requested by the applicant or the affected 9 government agencies, the adjudication of the secretary shall 10 become final and effective. If a hearing is so requested by the 11 applicant or the affected government agencies, it shall be held 12 before an independent hearing officer appointed by the secretary 13 no earlier than 15 days and no later than 60 days following the 14 secretary's receipt of the applicant's request for the hearing 15 unless the applicant consents in writing to a postponement of 16 the hearing. At the request of the applicant or an affected 17 government agency, the secretary shall hold the hearing in the 18 county in which the applicant is located. The procedures at the 19 hearing shall be governed by the provisions of 1 Pa. Code Ch. 35 20 (relating to formal proceedings). As applicable, the applicant 21 and the affected government agencies who have participated in 22 the application procedure under section 5 may intervene and 23 participate in the hearing. The secretary shall render a final 24 adjudication on the application for certification no later than 25 20 days after the receipt of the hearing officer's findings and 26 recommendations following the hearing. 27 Section 7. Appeal to court. 28 The applicant, the Attorney General or an affected government 29 agency who has intervened and participated in the hearing under 30 section 6 may appeal the adjudication of the secretary made 19950H0531B0559 - 13 -
1 under section 6 to court under 2 Pa.C.S. § 702 (relating to 2 appeals). 3 Section 8. Annual reports. 4 Each organization that has been certified as an institution 5 of purely public charity by the secretary shall, no later than 6 five months following the end of the organization's fiscal year, 7 file with the secretary an annual report containing that 8 information as the secretary may require, consistent with this 9 act. In lieu of the report, the organization may elect to file a 10 copy of the Federal tax return of an organization exempt from 11 income tax and related forms required to be filed by the 12 organization with the Internal Revenue Service for the fiscal 13 year in question. The secretary may for good cause shown extend 14 the time for filing of the annual report. Organizations with 15 gross receipts less than $25,000 in a fiscal year in question 16 shall be exempt from the foregoing filing requirement. 17 Section 9. Periodic reexamination. 18 The secretary shall also reexamine the certification of each 19 organization so certified every seven years after initial 20 certification after publishing notice of the reexamination in 21 the Pennsylvania Bulletin and to the affected government 22 agencies where the principal offices of the applicant are 23 located. The organization whose certification is subject to the 24 reexamination and any interested person or government agency may 25 submit written information to the secretary concerning the 26 reexamination. Within 90 days after publication of intent to 27 reexamine, the secretary shall reaffirm the certification in 28 question unless clear and convincing evidence has been presented 29 to the secretary that the organization no longer is organized 30 and operated as an institution of purely public charity as 19950H0531B0559 - 14 -
1 established by section 4. Revocation shall entitle the 2 organization whose certification is revoked to the same hearing 3 and appeal procedures available to applicants for initial 4 certification under sections 6 and 7. The revocation, if 5 sustained, shall only be effective after all available 6 administrative and judicial appeals have been exhausted or 7 waived by the organization. 8 Section 10. Revocation of certification. 9 If a government agency by clear and convincing evidence 10 demonstrates to the secretary that an organization previously 11 certified has changed its mission or lost its Federal tax 12 exemption, the secretary shall reexamine the certified 13 organization and, if warranted by such reexamination, give 14 notice of his intention to revoke the certification previously 15 granted to the organization. If at any time the secretary has 16 reason to believe that an organization previously certified is 17 no longer organized or operated as an institution of purely 18 public charity as established by section 4, the secretary shall 19 give written notice to the organization of his intention to 20 revoke the certification previously granted to the organization. 21 The secretary's notice shall set forth the grounds upon which 22 his conclusion is based. Failure to file the reports required by 23 section 8 shall constitute sufficient grounds to make this 24 preliminary determination. After expiration of the 30-day period 25 for the organization's response, the secretary shall notify the 26 organization that he is withdrawing his prior notice or that he 27 is revoking the organization's certification. If the secretary's 28 decision is to revoke the certification, revocation shall 29 entitle the affected organization to the hearing and appeal 30 rights described in section 9. The revocation shall not be 19950H0531B0559 - 15 -
1 effective until the organization has exhausted or waived all 2 rights to hearings and judicial appeals with respect to the 3 revocation. 4 Section 11. Existing institutions. 5 Nothing in this act shall affect the rights or remedies under 6 existing law or create a presumption regarding any organization 7 that does not seek certification from the secretary as an 8 institution of purely public charity under this act with respect 9 to whether the organization is or should be otherwise recognized 10 as an institution of purely public charity for the purpose of 11 any existing statute. 12 Section 12. Third-party rights. 13 At all administrative and judicial proceedings regarding 14 revocations of certification under this act, the Attorney 15 General shall be the exclusive representative of the interests 16 of the Commonwealth, government agencies, instrumentalities and 17 taxing authorities and citizens and shall possess the same 18 procedural rights as the organization seeking to retain such 19 certification in the proceedings, provided, however, that 20 government agencies shall have the right to participate and be 21 represented by their legal counsel in all judicial and 22 administrative proceedings pertaining thereto. 23 Section 13. Regulations. 24 The secretary may promulgate rules and regulations to 25 administer and enforce this act. 26 Section 14. Payments in lieu of taxes. 27 (a) Levy of payment.--A political subdivision may levy, 28 assess and collect a payment in lieu of tax upon adoption of an 29 ordinance authorizing such in an amount determined pursuant to 30 subsection (b) on all real property within the political 19950H0531B0559 - 16 -
1 subdivision which has been determined to be exempt from real 2 property taxation based on its use by an institution of purely 3 public charity. 4 (b) Computation of payment in lieu of tax.--The payment in 5 lieu of tax authorized under this section shall be levied 6 annually by a political subdivision subject to the following 7 limitations: 8 (1) The payment in lieu of tax shall be expressed and 9 determined as a percentage of the property tax liability of 10 the property if it were otherwise taxable by the political 11 subdivision. 12 (2) The percentage rate shall be specified in the annual 13 levy by the political subdivision, and the rate shall not 14 exceed 15% the first year, 20% the second year and 25% each 15 year thereafter. 16 (3) The rate shall be uniform. 17 (c) Collection.-- 18 (1) Before the payment in paragraph (2) is collected, an 19 institution of purely public charity may arrange with any 20 political subdivision for provision of services or in-kind 21 payments in a dollar-for-dollar setoff of the payment 22 authorized under subsection (b) and shall be accepted by the 23 political subdivision as payment in lieu of taxes. 24 (2) The payment in lieu of tax authorized under this 25 section shall be collected by the treasurer or local tax 26 collector of each political subdivision at the same time and 27 in the same manner as are real property taxes. A person who 28 fails to make a payment in lieu of tax to the appropriate 29 political subdivision shall be subject to all of the same 30 statutory interest, penalties, liens and other remedies which 19950H0531B0559 - 17 -
1 are imposed by or available to political subdivisions for the 2 nonpayment of real property taxes. 3 (d) Assessment and certification.--The county assessor 4 shall, not less frequently than every five years, certify the 5 tax exempt status of each parcel of property for which such 6 status is claimed based on its use by an institution of purely 7 public charity. The burden of proving that the property should 8 remain tax exempt shall be on the property owner. Nothing in 9 this section shall limit the ability of the appropriate board of 10 assessment to review and revise the assessed values assigned to 11 tax exempt property in the same manner as all other taxable real 12 property. 13 (e) Appeal.--A person aggrieved by the county's 14 determination of certification of the tax exempt status of any 15 real property shall have the same right to appeal as any person 16 aggrieved by the determinations of the county as to any taxable 17 property under the applicable assessment law. 18 (f) Effect.--Subsection (b) shall not supersede any existing 19 court orders, contracts, agreements or arrangements which 20 authorize or require a payment in lieu of tax in an amount that 21 is less than 25% of the property tax liability. 22 Section 15. Payment date. 23 Payments required under section 14 shall not be imposed and 24 collected until January 1, 1997. 25 Section 16. Repeals. 26 (a) Absolute.--The following acts and parts of acts are 27 repealed: 28 Section 204(c) of the act of May 22, 1933 (P.L.853, 29 No.155), known as The General County Assessment Law. 30 Section 202(a)(9) of the act of May 21, 1943 (P.L.571, 19950H0531B0559 - 18 -
1 No.254), known as The Fourth to Eighth Class County 2 Assessment Law. 3 (b) General.--All other acts and parts of acts are repealed 4 insofar as they are inconsistent with this act. 5 Section 17. Effective date. 6 This act shall take effect in 60 days. A3L72JAM/19950H0531B0559 - 19 -