• Is your Non-Profit Organization Still Exempt from Real Estate Tax?: What your organization needs to know - Now.
  • April 18, 2013
  • Law Firm: MacElree Harvey Ltd. - West Chester Office
  • A challenging economic climate and plummeting real estate values have caused school districts, municipalities, and other local government agencies to address significant declines in tax revenue. Non-profit organizations, historically perceived as exempt from all taxes, are increasingly being identified as potential sources of real estate tax revenue.

    Examples are pervasive, and Pennsylvania non-profits organizations have not been overlooked. The Philadelphia Inquirer recently reported that the Philadelphia City Council is poised to consider legislation that requires each non-profit entity that owns real estate in the City of Philadelphia to establish, or affirm, that it is legally entitled to an exemption from real estate tax.

    In addition, on December 7, 2012, Allegheny County ordered a review of all non-profit owned property with an eye toward possibly challenging the historic real estate tax exemptions. Moody’s Investor Service reported the move as credit negative to non-profits due to the likely financial strain tax payments would have on such organizations.

    So what should non-profits in the Commonwealth be doing to insure that their real estate does not lose its tax-exempt status?

    Here are some of the things we have been advising clients to do:

    • Be prepared to demonstrate, in tangible ways, that the organization is an “institution of purely public charity” entitled to an exemption from real estate taxation. How does a non-profit do that? It must demonstrate, through proper documentation, that it:

      • Has a charitable purpose,

      • Makes substantial donations of services, goods, or money,

      • Benefits those in need of charity,

      • Takes some strain off of the government by the way that it operates, and

      • Does not have any private profit motive.

    • Engage the organization’s board to:

      • Review current operations and current organizational documents;

      • Consider a corporate policy that encourages “charitable” activities consistent with legal requirements;

      • Review and monitor the organizations activities to maintain tax exempt status (for all purposes, including real estate and income tax exemptions).

    • Review real estate holdings and potential expansion projects to make sure that, if the organization is entitled to an exemption, that it obtains one and maintains it.

    We routinely advise non-profit organizations on how to avoid losing real estate tax exemption, and to strengthen the organization’s position on exemption. This process will not only help the organization’s legal position, but may encourages charitable activities can breathe new life into the organization’s mission.