Non-profit bill goes to Corbett
The Pennsylvania General Assembly is working to redefine how the state determines whether charities receive tax exempt status.
Senate Bill 4, introduced by Sen. Mike Brubaker and co-sponsored by Sen. Joseph Scarnati, would only add a single line to Pennsylvania law, but that one line could have a big impact.
The measure would amend the state constitution to grant the General Assembly the power to “establish uniform standards and qualifications which shall be criteria to determine qualifications as institutions of purely public charity.”
The state Senate passed the measure in a 30-20 vote in March.
On Wednesday, the Pennsylvania House of Representatives passed the bill in a 118-82 vote.
Rep. Kathy Rapp, R-Warren, voted for the bill.
“The Senate took the first step of passing this important measure in March, and I commend the House for furthering the effort by advancing this legislation,” Scarnati said in a press release after the House vote. “It is vital that we make sure that essential charitable organizations within our local communities are able to continue to receive the status of public charities.”
In a memorandum attached to the bill, Brubaker cites a 2012 court case as the impetus behind the action.
The wording of the memorandum outlines the action as a measure to assert the power of the legislative branch over that of the judicial branch.
“By elevating its own judgment above the will of the General Assembly, the court has created uncertainty as to the qualifications for public charities in Pennsylvania,” the memorandum reads. “Charitable organizations statewide could have their public charity status called into question based on this decision.”
The memorandum points to cases in which tax exempt status is being disputed. All of the specific entities Brubaker cites as examples are located in Warren County and part of ongoing tax exempt status litigation here.
Specifically, the memorandum cites Warren General Hospital (WGH), the Warren County YMCA and Warren County Habitat for Humanity.
“Since the Supreme Court ruling, tax exempt statuses for organizations in my senatorial district and across the state such as Warren Hospital and Warren County YMCA, Habitat for Humanity and other non-profit organizations have already been revoked,” Scarnati noted in his press release.
The memorandum also cites tax exempt issues in Allegheny County, including an ongoing dispute over the University of Pittsburgh Medical Center’s (UPMC) status.
Under current Pennsylvania law, entities are evaluated for tax exempt status under the criteria of both Act 55 of 1997, the “Institutions of Purely Public Charities Act”, and under the criteria set forth in the 1985 Pennsylvania Supreme Court decision in the Hospital Utilization Project (HUP) case, commonly referred to as the HUP test.
The split one court-based constitutional set of criteria and another legislative defined statutory criteria has roots in the way the state set forth tax exemption in the first place.
The General County Assessment Law of 1933, which is a part of the state constitution, authorized the General Assembly to provide for the exemption from taxation by law of, “institutions of purely public charity, but in the case of any real property tax exemptions, only that portion of real property of such institution which is actually and regularly used for the purposes of the institution.”
What the 1933 provision did not do is define what a “purely public charity” actually is.
In the HUP case, the Supreme Court set out criteria to define the term under the constitution. Under the HUP criteria, a “purely public charity” must possess five characteristics:
“It advances a charitable purpose.”
“It donates or renders gratuitously a substantial portion of its services.”
“It benefits a substantial and indefinite class of persons who are legitimate subjects of charity.”
“It relieves the government of some of its burden.”
“It operates entirely free from private profit motive.”
The HUP criteria remained the sole guide for what constituted a “purely public charity” until 1997, when Act 55 was passed providing a statutory definition of the term. Prior to the act, the HUP criteria were being applied inconsistently across the state.
Act 55 largely followed the HUP criteria, but provided specific legal guidelines for determinations of which entities qualified as “purely public charities” down to the percentage of total services required to be rendered as charity.
Despite Act 55’s basis for criteria stemming largely from the HUP decision, courts and assessment bodies have been using both criteria in determining tax exempt statuses as the court decision is a constitutional ruling predating the law.
In April of last year, the state Supreme Court issued a ruling in Mesivtah v Pike County that, although Camp Mesivtah, an Orthodox Jewish Summer Camp, met all criteria as a “purely public charity” under Act 55 it did not meet the standards of the HUP criteria and therefore did not qualify for tax exempt status.
As the HUP decision was a ruling defining a constitutional term, only an amendment to the Pennsylvania Constitution granting the power to determine what constitutes a “purely public charity” to the General Assembly can give statutes set forth by the legislative branch precedence over the ruling by the judicial branch.
An amendment to the Pennsylvania Constitution must pass both houses of the General Assembly in consecutive legislative sessions and pass a public referendum vote to become law.