Ruling opens door for cities and towns in Pa. to challenge nonprofits’ tax-exempt status

A ruling by the Pennsylvania Supreme Court may permit cities and towns in the commonwealth to challenge the tax-exempt status of nonprofit organizations. 

The ruling involves an Orthodox Jewish school’s summer camp, but its impact may be far-reaching. The court found most of the school’s 61-acre campus is taxable, and in doing so changed the criteria for deciding what qualifies as a public charity in Pennsylvania.

In the 80s and 90s, many local jurisdictions challenged whether large nonprofits were truly charities and got them to make payments in lieu of taxes to settle the claims.

But Act 55 passed by the legislature in 1997 made it easier for groups get certified as charities, which put an end to the challenges and most of the payments.

The new ruling effectively restores the narrower criteria for charity status. Duquesne law professor Nicholas Cafardi says that’s good news if you’re a mayor or school board president

“It’s wonderful news, especially if you, as most municipalities and school districts in Pennsylvania, are looking for additional sources of revenue,” Cafardi said.

Philadelphia officials say they plan to review the tax-exempt status of some of the city’s largest nonprofits in a wake of the state Supreme Court decision. The city used to get several million dollars a year from nonprofits.

Christine Bak, a senior tax attorney for Philadelphia, says the city will now review the legal status of  organizations such as schools, universities, and hospitals without emergency rooms. “I would hope very much some of those would contact us and want to get into some kind of contribution agreement again,” she said.

The court ruled 4-3 for the narrower criteria. The dissenting side argued the legislature acted reasonably in changing the criteria for charitable status.

Read the majority opinion here. Read the dissenting opinion here.