Tax their payrolls: Large nonprofits must support city services
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Pittsburgh has spent more than a decade trying to figure out a way to tap its largest nonprofit organizations for a reasonable share of the cost of services in the city they call home. The efforts always end in frustration.
Now, though, state Sen. Jim Ferlo, a former Pittsburgh city councilman, has come up with a plan that could resolve the issue for good, and it contains a sweetener that might increase its chances for passage in the Legislature.
The Highland Park Democrat plans to introduce a bill that would require nonprofit organizations with more than 250 employees to start paying a payroll preparation tax, a levy that was enacted for the city's for-profit employers in 2004.
Just before the state gave the city the ability to impose the payroll tax, nonprofit organizations -- perhaps eager to avoid it -- agreed to make contributions totalling $6 million a year. However, their support never became that generous and the donations have diminished over time.
The latest voluntary plan, negotiated and approved last summer, said the Pittsburgh Public Service Fund -- made up of about 40 nonprofits -- would pay an estimated $5.2 million to $5.4 million over the next two years. Although some tiny groups, such as the Allentown senior citizens, agreed to participate, some of the city's largest organizations are not part of the effort.
Mr. Ferlo's proposal would require the city's larger nonprofits -- UPMC, Highmark and the University of Pittsburgh among them -- to pay a levy of 0.4 percent on their payrolls. That would provide a predictable source of revenue for Pittsburgh without impacting the organizations' tax-exempt status or imposing real estate taxes on their holdings, which account for $3.3 billion worth of property in the city. Smaller charities that can scarcely afford to keep their doors open would be exempt.
The change that could make Mr. Ferlo's proposal palatable is that he also would cut slightly the rate paid by for-profit firms, from 0.55 percent to 0.50 percent.
One obstacle could be the state requirement for uniformity in taxation, which means the same tax rates must be applied to like entities. But here's why Mr. Ferlo's measure might succeed: Pennsylvania long has recognized nonprofits as a different class than for-profit companies, and that should hold true on taxation.
Likewise, the state makes lots of distinctions in taxing authority based on size: A small borough or township has different options at its disposal than a bigger city, for instance, and Philadelphia has taxing power that's different from any other municipality in the state. Why can't there be different rules for small nonprofits and their larger counterparts?
These are questions that state lawmakers will face, and that's where this issue rightly belongs. Years of negotiating and pleading on the local level have failed to deliver adequate contributions from large nonprofits to support city services.
First Published January 22, 2013 12:00 am