Balancing tax exemption and tax subsidies

Municipalities have no say in the Commonwealth’s designation of an organization as tax-exempt. Yet, each and every tax-exempt entity receives services from its host municipality. These services are subsidized by the taxpaying public. For this reason alone, a high level of scrutiny is essential in defining which non-profits deserve tax-exempt status as purely public charities.

What is tax exemption?

Tax-exempt status means an entity is performing a charitable purpose and is not required to pay property taxes. From a taxpayer perspective this means they are not contributing to their share of municipal services, including police, fire, EMS, street lighting, street maintenance, snow plowing. Instead, the property and business owners in a municipality are subsidizing the cost of these services by paying higher property taxes.

Are all tax-exempt entities deserving of their status?

Tax exemption is a privilege. Therefore, the criteria must be set high. It goes without saying that many organizations deserve the tax-exempt designation. Churches, those helping the less fortunate, and educational and cultural entities obviously pass muster.  But should a profit-making entity be tax-exempt?  That’s the question facing Pennsylvanians today, as more profit-making entities seek a tax exemption status.

Is our legislature making sure the law is fair?

We don’t think so. In fact, in February 2015, the PA Senate voted for a Constitutional Amendment to essentially relax the criteria to be considered a purely public charity. Currently, our state’s judiciary has a say and has interpreted state law with a high set of criteria. This Constitutional change is intended to give all determinations over purely public charities and tax exemption to the General Assembly which supports a lower set of criteria. We are very concerned about the implications of this change, especially on already fiscally stressed municipalities.

What can PA citizens do to speak out?

If you don’t want to continue picking up the slack for profit-making entities gaining a tax exemption, make your vote count. A voter referendum will be on the ballot in November 2015 to allow a lower standard. The Pennsylvania Municipal League urges you to vote with us and vote NO.

What if the voters adopt the change?

This will make it easier than ever for profit-making entities to pass the tax exemption test and have no obligation or requirement to contribute to the cost of the services they receive from their host municipality. As local resources become scarcer, your community must make up the difference somewhere and citizens and tax-paying businesses will be on the hook.