Tug of war over charities’ tax status deserves taxpayers’ attention

Tug of war over charities’ tax status deserves taxpayers’ attention


By Rep. Mike Hanna

rep. mike hanna 2Perhaps you’ve seen the legal advertising in newspapers for proposed amendments to Pennsylvania’s constitution. Among them is a proposal to change how public charities’ tax-exempt status is determined.

The proposed change won’t be on the Nov. 4 ballot. It still faces another round of approval in the state House and Senate but ostensibly could be before voters as soon as next year.

The fate of the amendment could determine who pays property taxes and who doesn’t.

I believe the amendment would harm property taxpayers because it would sabotage municipalities’ ability to question whether some “charities” are actually acting as charities.

Property tax exemptions should be distributed about as easily as manhole covers are tossed about. If not, more of the tax burden falls on homeowners, who already are shouldering an unfair load of the unfair tax.

In some communities, nonprofits consume two-thirds of the properties, and their tax-exempt status makes it impossible for local governments to levy fair taxes to pay for police and fire protection, schools and infrastructure.

Any proposal to tinker with our constitution should be viewed warily. However, the public charities amendment is advancing without even a single public hearing.

Both the process and the policy are suspect. The amendment, I believe, would uphold an unfair system where large health-care organizations with multi-millions of dollars in revenue are judged by the same standards as the local boys’ and girls’ club.

The dispute has been brewing for a long time.

The state constitution permits the legislature to exempt “institutions of purely public charity” from tax. However, the framers of the constitution neither defined “institutions of purely public charity” nor granted the General Assembly the authority to define public charities, leaving it to state courts under separation-of-powers principles.

These issues set up the turf war between the courts and the legislature that’s been whip-sawing back and forth, leaving battered taxpayers and communities in its wake.

Fast forward to1985 when the state Supreme Court established a five-part test for nonprofits to qualify as a public charity and receive property tax exemptions. Under the court’s “HUP Test” — Hospital Utilization Project v. Commonwealth — nonprofits must:

  • Advance a charitable purpose;
  • Operate free from the private profit motive;
  • Donate a substantial portion of their service;
  • Benefit a substantial class of citizens who are the legitimate subject of charity; and
  • Relieve the government of some of its burden.

While the HUP Test was not implemented perfectly, the legislature compounded the problems in 1997 with passage of Act 55, the Purely Public Charities Act.

Act 55 imposed too-easily-met exemption standards and hamstrung local governments’ abilities to challenge an organization’s standing as a purely public charity.

But the fuse in the latest round of the turf war was lit by a 2012 state Supreme Court ruling that denied tax-exempt status to a religious camp in Pike County. The court ruled that the legislature could pass laws to more clearly define what a charity is, but that it could not pass laws creating a broader definition than outlined in the HUP test.

The legislature responded with all the subtlety of a train wreck, ramming through the proposed constitutional amendment – with no public hearings and little public debate. It would give the legislature ultimate and overly broad authority to determine which institutions are public charities and eligible for tax-exempt status.

As I said, the amendment question – as well as proposed amendments regarding abolishing Philadelphia Traffic Court and increasing the mandatory retirement age for judges — is not on the Nov. 4 ballot. All three proposed amendments would have to be approved by the legislature elected Nov. 4 before they could be placed on a ballot.

Although next month’s election could change the dynamics, I will urge that the charities amendment be defeated if and when it reappears before the legislature next session –and for its defeat if and when appears before voters.

President John F. Kennedy said government is an art and a precious obligation. It also requires balance. In a complicated and important issue like this, reason and compromise are needed.
Lobbing a constitutional amendment grenade into the separation of powers turf war is hardly the answer, and property taxpayers stand to lose from this nuclear option.

Rep. Hanna is Democratic whip of the Pa. House Democratic Caucus.