PA History Shows the Wisdom of SB 4 and Nonprofit Tax Exemptions

March 13, 2015

Nonprofit tax exemptions and Senate Bill 4, which calls for a change to the Pennsylvania constitution, have prompted much discussion, including some misleading claims and assertions.

The hospital community offers this brief history of related state laws and court actions to help separate fact from fiction and suggest a sensible way forward.

In short, we’ve been here before—and we can learn from that experience.

15 years of clear, consistent rules

For 15 years (1997–2012), Pennsylvania state law (Act 55 of 1997) governed whether a charitable nonprofit qualified for tax exemption. The law worked. The same clear, consistent standards for tax exemption applied to nonprofits across the entire state. Legal disputes about whether an organization should be tax exempt were few. Nonprofits (along with tax payers) were spared the uncertainty and legal costs of lengthy court battles and appeals processes.

Before that: inconsistency, uncertainty, and confusion

Act 55 came about as a legislative solution to bring fairness, clarity, and consistency to conflicting court rulings about which nonprofits should be tax exempt and which should not.

For more than a decade before Act 55 became law during 1997, confusion reigned. Different courts in different parts of the state ruled differently about the issue of tax exemption. Prior to Act 55, Pennsylvania courts presided over at least 20–25 ongoing legal challenges between hospitals and political subdivisions. After Act 55, very few such challenges were brought to court. 

Why it’s time to make tax exemption a matter of state law—again

During 2012, a court decision in northeast Pennsylvania undermined Act 55, implied that the courts—not state lawmakers—had the authority to set the rules for tax exemption, and brought confusion and uncertainty to charitable nonprofits across the state.

In response, a broad coalition of nonprofits has worked together for the past three years to return to state lawmakers the authority to establish the standards for tax exemption. The coalition includes associations representing food banks, homeless shelters, and help lines, as well as free clinics, nursing homes, independent colleges and universities, religious organizations, hospitals and health systems, and businesses.

The coalition thanks the Pennsylvania Senate for passing Senate Bill 4, a simple one-and-a-half page law [link] that takes the first step toward setting clear, consistent statewide standards for tax exemption. The coalition urges the House to do the same.

Ultimately, Pennsylvania voters will have the last say. They will have the opportunity to vote “yes” or “no” on making a change to the state constitution that returns authority to state lawmakers for establishing the standards for nonprofit tax exemption in Pennsylvania.

The change will be significant to Pennsylvanians and their communities, including many of our state’s most vulnerable, and the nonprofits that serve them.

Let’s take a break from deja vu all over again. Let’s return to state lawmakers the authority to bring clarity and consistency to this crucial issue.

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