But before the state passed Act 55 in 1997, many nonprofits paid the city “payments in lieu of taxes,” or PILOTs. Christine Bak, an attorney in the city’s Law Department, says Act 55 stripped away the city’s power in negotiating PILOTs. The law spelled out what nonprofits must do to qualify as a charity, effectively making it easier to be qualified as tax-exempt. Since the city could no longer threaten to sue to take away their tax-exempt status, it couldn’t twist their arm into paying the voluntary PILOTs, either.
Legal experts say that last week’s ruling in the case of Mesivtah Eitz Chaim of Bobov v. Pike County Board of Assessment Appeals makes it more difficult for nonprofits to become tax-exempt. The state Supreme Court decided that the Mesivtah Eitz Chaim summer camp was taxable because it didn’t relieve the government of some of its burden.
“PILOTs are back,” said Nicholas Cafardi, a charity-law expert at Duquesne University’s Law School.
In 1995, before Act 55 passed, the city took in more than $9 million annually from PILOT agreements. Nine nonprofits paid only $383,700 last year.
Cafardi says that cities now have the power to challenge nonprofits that don’t pass the court’s strict test, which requires that they operate entirely free from private profit motive, among other things. He says this could disqualify well-heeled institutions whose executives make big salaries.
Bak says the city will look into tax-exempt nonprofits to see if they are in fact taxable under the new ruling. According to mayoral spokesman Mark McDonald, there are 4,072 properties that are either partially or totally tax-exempt.
“We hope that perhaps out of this process, we will grow our PILOT program,” said Bak.
In March, Jeffrey Cooper, Penn’s vice president of government and community affairs, stressed that many nonprofits benefit the city by providing services like police support.
Holly Otterbein writes for It’s Our Money, a joint project of the Daily News and WHYY funded by the William Penn Foundation, that works to shed light on where your tax dollars are going.