OUR THOUGHTS ON:

Taxpayer Alert Released

Not-for-Profit

By Amy Fallon

In June 2011, the Allegheny County Controller’s office released a Taxpayer Alert regarding property tax exemptions. The Taxpayer Alert outlined the County’s position for requiring proof of tax-exempt status annually from tax-exempt entities, indicating that stricter enforcement of exemption criteria could potentially yield $95 million dollars in property tax revenues.

The report focuses on nonprofits that “have expanded their roles beyond the traditional definition of a charitable organization, but still maintain tax-exempt status.” The County’s main targets operate in fields of higher education and healthcare. Allegheny County was also identified as a holder of 15% of the tax-exempt properties that could potentially be taxed.

Local taxing jurisdictions believe that their position has been bolstered by a recent Pennsylvania Supreme Court ruling that denied a religious summer camp tax-exempt status. It has been suggested that this decisive ruling opened the door for local taxing jurisdictions, namely, counties, school districts and municipalities, to more aggressively challenge the tax-exempt status of properties owned by nonprofit organizations that fail the “HUP” test set by the Pennsylvania Supreme Court in 1985. The “HUP” test is a five-point test that an institution must pass to be recognized as a “purely public charity.”

The five prongs of the “HUP” test provide that an organization must: 

  1. Advance a charitable purpose;
  2. Donate or render gratuitously a substantial portion of its services;
  3. Benefit a substantial and indefinite class of persons who are legitimate subjects of charity;
  4. Relieve the government of some of its burden; and
  5. Operate entirely free from private profit motive. 

The Taxpayer Alert states that the County seeks to increase transparency and accountability of nonprofits. Included in the Alert are five action steps that the Controller’s office believes will promote stricter enforcement of the exemption criteria:

  1. Require each organization to submit an annual “Charitable Purpose Affidavit” to the Office of Property Assessments.
  2. The County should review each property owned by organizations whose organization’s tax status can be challenged based on the Supreme Court ruling.
  3. The County should work with Municipalities and School Districts to challenge exemptions.
  4. The Office of Property Assessments should improve documentation, classification, and labels of tax-exempt properties in a system that clearly identifies the primary owner and use.
  5. The County should evaluate its own tax-exempt property holdings to decide which properties can be sold and generate property tax revenue.

The full copy of the Taxpayer Alert may be found on Allegheny County's website.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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