PRINTER'S NO. 1698
No. 1481 Session of 1991
INTRODUCED BY ITKIN, MAY 15, 1991
REFERRED TO COMMITTEE ON FINANCE, MAY 15, 1991
AN ACT
1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2 act relating to tax reform and State taxation by codifying
3 and enumerating certain subjects of taxation and imposing
4 taxes thereon; providing procedures for the payment,
5 collection, administration and enforcement thereof; providing
6 for tax credits in certain cases; conferring powers and
7 imposing duties upon the Department of Revenue, certain
8 employers, fiduciaries, individuals, persons, corporations
9 and other entities; prescribing crimes, offenses and
10 penalties," providing further clarification of the exemption
11 of charitable organizations.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. The General Assembly finds as follows:
15 (1) Those organizations which constitute "institutions
16 of purely public charity," as that term is used in section
17 2(a)(v) of Article VIII of the Constitution of Pennsylvania,
18 have greatly benefited the Commonwealth and its citizens.
19 (2) Organizations providing charitable services relieve
20 the government of some of its burden because their activities
21 benefit their communities and the general public.
22 (3) The continuing exemption of institutions of purely
1 public charity from taxation is in the best interest of the
2 Commonwealth.
3 (4) The lack of specific legislative standards for the
4 charitable exemption has led to increasing confusion on the
5 part of traditionally exempt organizations and the government
6 officials responsible for administration of the tax laws. To
7 the detriment of the people of this Commonwealth, this
8 confusion has resulted in various disputes which have
9 diverted the limited resources of charitable organizations
10 and of State and local governing bodies within this
11 Commonwealth.
12 (5) In order to provide more concrete guidance, reduce
13 the confusion and ensure that charitable and public funds
14 will not be unnecessarily diverted from the public good, it
15 is desirable to provide standards for determining the
16 charitable exemption from taxation which are consistent with
17 traditional judicial interpretations of the constitutional
18 term "institutions of purely public charity."
19 Section 2. Section 201 of the act of March 4, 1971 (P.L.6,
20 No.2), known as the Tax Reform Code of 1971, is amended by
21 adding clauses to read:
22 Section 201. Definitions.--The following words, terms and
23 phrases when used in this Article II shall have the meaning
24 ascribed to them in this section, except where the context
25 clearly indicates a different meaning:
26 * * *
27 (w) "Charitable organization." A non-profit corporation,
28 association, trust or other organization which meets the
29 following criteria:
30 (1) the organization has a charter, bylaws or other
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1 governing document which provides that, in the event of
2 dissolution, its assets will revert or be conveyed to an entity
3 which qualifies as an exempt organization under section
4 501(c)(3) or (4) or (d) of the Internal Revenue Code of 1986
5 (Public Law 99-514, 26 U.S.C. § 501(c)(3) or (4) or (d)), as
6 amended from time to time;
7 (2) the organization operates free of private profit motive
8 and without pecuniary benefit to any officer, member or
9 shareholder, except as reasonable compensation for actual
10 services rendered to the organization or except as reimbursement
11 of actual and reasonable expenses incurred on behalf of the
12 organization;
13 (3) the organization's predominant activity is to provide
14 charitable services or to fund organizations which provide
15 charitable services;
16 (4) the organization is funded in whole or in part by
17 government funding, including fees for services, or by public or
18 private contributions through one or more sources, such as
19 gifts, grants, trusts, bequests, endowment or an annual giving
20 program, to assist in subsidizing capital or operating expenses;
21 (5) the organization's activities relieve the government of
22 some of its burden: Provided, however, That organizations which
23 provide charitable services or whose predominant activity is to
24 fund organizations which provide charitable services, are deemed
25 to relieve the government of some of its burden;
26 (6) the organization applies any revenue in excess of
27 expenses to its maintenance and operation, including capital
28 improvements, in furtherance of charitable services or to the
29 funding of other charitable organizations;
30 (7) the organization donates or renders gratuitously a
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1 substantial portion of its services by meeting one or more of
2 the following criteria:
3 (A) provides charitable services in spite of inability of
4 the recipient to pay the full fee for services rendered;
5 (G) provides charitable services for fees that are set on
6 the basis of the ability of the recipient to pay such fees;
7 (C) provides charitable services for free or at nominal
8 charge to at least ten per cent of the organization's
9 beneficiaries;
10 (D) provides charitable services for fees which, in the
11 aggregate, constitute ninety per cent or less of the cost,
12 including reasonable value for donated labor or services, of
13 providing such charitable services;
14 (E) provides charitable services for fees within the
15 financial reach of a substantial part of the community and
16 provides a reasonable level of financial assistance, taking into
17 account the organization's assets, income and projected future
18 needs;
19 (F) has income (other than income from government funding,
20 including fees for services, and from gifts, grants, trusts,
21 bequests, endowment or an annual giving program) which is
22 generally less than its expenses (including reasonable
23 depreciation) and, if the organization functions within a
24 community in which there are comparable profit-seeking
25 institutions of similar quality, charges fees for charitable
26 services which are less than the fees charged by such comparable
27 profit-seeking institutions of similar quality; or
28 (G) in the case of a fundraising organization, the
29 organization funds organizations which meet one or more of the
30 requirements set forth in paragraph (A), (B), (C), (D), (E) or
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1 (F); and
2 (8) the organization:
3 (A) makes its charitable services available to the public at
4 large or to a class or classes of persons not predetermined in
5 number: Provided, That where services are provided primarily to
6 members of an organization, this requirement shall be met if
7 membership is open to the general public or to a class or
8 classes of persons not predetermined in number and membership
9 cannot be arbitrarily denied by a vote of the existing members
10 or a subgroup thereof; or
11 (B) is principally engaged in fundraising activities and at
12 least seventy per cent of the contributions it receives are
13 distributed within a reasonable period of time to other
14 organizations which qualify for exemption under section
15 501(c)(3) of the Internal Revenue Code of 1986, as amended from
16 time to time, or which qualify as charitable organizations.
17 (x) "Charitable services." Activities advancing the
18 spiritual, mental, physical, social or emotional welfare or
19 improvement of others; promoting the welfare of children or the
20 aged, infirm, disabled or distressed; advancing education;
21 promoting medicine, health and health education; relieving
22 poverty; preserving the family; combating juvenile delinquency,
23 community deterioration or substance abuse; lessening
24 neighborhood tensions; eliminating prejudice and discrimination;
25 defending human and civil rights secured by law; advancing
26 religion; improving the condition of the unemployed or veterans;
27 advancing the arts or sciences; or otherwise serving the public
28 good or promoting a public purpose. Without limiting the
29 foregoing definition, activities carried on by the following
30 organizations shall constitute charitable services unless
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1 established to the contrary by a preponderance of the evidence:
2 hospitals; nursing, intermediate, assisted living, personal or
3 home health care facilities or services; facilities for the
4 mentally ill or the mentally retarded; alcohol and substance
5 abuse services; physical rehabilitation services; universities,
6 colleges and scientific or medical research institutions;
7 seminaries, academies and schools; musical or theater groups and
8 concert musical associations, public television or radio
9 stations; child care centers; providers of children's services;
10 historical societies, art galleries, museums and libraries;
11 youth camps, citizenship and child care organizations; volunteer
12 fire, ambulance and rescue organizations; services to homes,
13 recreational facilities and self-contained communities for the
14 aged, sick, infirm, homeless or indigent; organizations or
15 foundations that fund, support or encourage the causes of
16 learning, benevolence or charity; the Red Cross; Boy Scouts or
17 Girl Scouts and similar youth groups; YMCAs and YWCAs;
18 playground associations; community chests, United Ways, Jewish
19 federations, Catholic charities, councils of churches and
20 similar community fundraising organizations; hospital plan
21 corporations; family counseling services; senior citizen
22 programs and transportation services; counseling services for
23 victims of rape, child abuse or domestic violence; social
24 welfare organizations; and animal welfare organizations.
25 Section 3. The provisions of this act are severable, and, if
26 any word, phrase, clause, sentence, section or provision of the
27 act is for any reason held to be unconstitutional, the decision
28 of the court shall not affect or impair any of the remaining
29 provisions of this act. It is hereby declared as the legislative
30 intent that this act would have been adopted had such
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1 unconstitutional word, phrase, clause, sentence, section or
2 provision thereof not been included herein.
3 Section 4. This act shall apply to taxes due and payable on
4 or after January 1, 1991.
5 Section 5. This act shall take effect in 60 days.
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