Nonprofit myths: Many don't pay property taxes -- but for many good reasons
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There has been a great deal of conversation recently regarding nonprofit organizations and property taxes. Much has been written regarding the multitude of benefits that our best regional nonprofits add to our community. But my purpose is to remind us why the government made certain nonprofits exempt from the property tax, and to show why that reasoning is still very applicable.
Prior to becoming the CEO of Auberle -- a nonprofit human service agency serving more than 2,300 children and families in eight southwestern Pennsylvania counties -- I was an attorney who sat on Auberle's board for over 20 years. With experience in both the for-profit and nonprofit world, I understand many of the perspectives surrounding the taxing of nonprofits, but it is clearly incorrect that nonprofits do not pay their "fair share."
A key myth is that simply because a nonprofit organization qualifies as tax-deductible (501c3) with the IRS it is exempt from paying property taxes in Pennsylvania. An agency is exempt only if it is a "purely public charity," which is stated in the Pennsylvania Constitution. To qualify as a "purely public charity" under Pennsylvania law, an organization must:
1) Advance a charitable purpose; 2) donate or render gratuitously a substantial portion of its services; 3) benefit a substantial and indefinite class of persons who are legitimate subjects of charity; 4) relieve the government of some of its burden; and 5) operate entirely free from private profit motive.
Another myth is that an organization is either fully exempt or not exempt from property tax. Actually, the exemption applies only to properties "regularly used" for the defined charitable purposes. So, for example, a for-profit subsidiary, such as a youth entrepreneurial business, is not exempt.
To meet the "purely public charity" test means an agency relieves the government of part of its burden. Nonprofits today provide many government functions in a lean, efficient, high-impact manner. They leverage limited government funds to benefit the people of the commonwealth, particularly the taxpayers. Nonprofits have taken over roles that used to be filled by the government, and they do so in a way that ultimately saves taxpayers money and delivers better results.
For example, the government used to operate emergency shelter services for children who had to be removed from their homes for safety reasons. Today, many children in need of emergency shelter in Allegheny and Washington counties are brought to Auberle, which houses, feeds, educates and cares for them until the government can return them to a safe home environment.
These counties no longer have government facilities to do this work. The government may subsidize a portion of this cost, but it should come as no surprise that over the past several years subsidies have dwindled while needs in our community have mushroomed -- to the extent that Auberle annually spends more than a million dollars to subsidize government services for the people of our region.
Nonprofits also leverage additional resources, which helps relieve taxpayers. Auberle's Employment Institute, for instance, leverages funding and partnerships with the regional business community to train youth for open, skilled jobs while developing their soft skills and work ethic. The institute amasses support from corporations, free of taxpayer dollars, to benefit the community while alleviating the government of part of its burden.
The Employment Institute operates solely on private funding. The impact of this partnership was recently highlighted in the Post-Gazette and other media. It is a clear example of the benefit of property-tax exemption, by which government makes a small gesture to ease the burden on "purely public charities" such as Auberle.
Nonprofits leverage private dollars in a way government cannot. They can deliver higher-impact service by garnering partners, and they take risk away from taxpayers as they operate programs more cost effectively.
Auberle was recently selected the national Agency of the Year by the Alliance for Children and Families -- a testament to the high-quality services it delivers in our region. As a taxpayer, I want organizations like Auberle to continue to deliver cost-effective, high-impact services to all of our citizens.
It is not in the best interest of taxpayers to increase the burden on nonprofit organizations. Consider Auberle's role in helping at-risk youth who are chronically undereducated and unemployed and the staggering statistics that point to the likelihood that these youth will be on life-long government assistance or in correction facilities if there is no intervention. Nonprofits certainly pay their fair share when we compare the cost of a property-tax exemption to the cost of correction facilities at $34,000 per year per inmate.
Nonprofits intervene to change the trajectory of many lives. Let's refocus the conversation and remind ourselves of the facts regarding nonprofits and the property tax -- and recall why some were made tax-exempt in the first place.
First Published March 6, 2013 12:00 am