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January 21, 2010

State legislators propose nonprofit property tax formula

Just as a proposed local tax on student tuition was being put on the back burner, two state legislators have introduced similar bills allowing municipalities to impose an “essential services fee” on nonprofit organizations’ properties, which under state law are property tax-exempt.

In Pitt’s case, passage of the legislation could mean a huge chunk  of change in new taxes, said John Fedele, Pitt associate director of news. “Pitt currently owns approximately 10 million gross square feet of property,” he said. Under the legislation’s formula, Pitt could stand to be charged on the order of $1 million annually. “We remain opposed to any efforts to undermine the University’s nonprofit status,” Fedele said of the proposed legislation.

In a Jan. 5 press release from the offices of State Sen. Wayne D. Fontana (D-Brookline) and Rep. Timothy J. Solobay (D-Canonsburg), the legislators acknowledge the likelihood of stiff opposition to the bills by both legislators and the nonprofits themselves.

The lawmakers said Senate Bill 1175 and House Bill 2191 “likely would be amended considerably before passage,” but that the legislation was “a good starting point” for a dialogue at the state level about the impact of tax-exempt property on the fiscal health of municipalities.

“Communities across the state continue to struggle with this issue,” Fontana said. “While we do not want to harm the nonprofits, we also need to ensure that their growing property ownership doesn’t harm the municipality or its taxpayers. This bill is far from perfect, but it is a starting place to talk with all parties about how to address this growing issue.”

Under the proposed legislation, municipalities at their option could continue to rely on existing voluntary agreements of payments in lieu of taxes, but also would have the authority to impose a fee based on total square footage of properties, and/or to establish a limited real estate tax for properties owned by nonprofit institutions within the municipality.

The bills call for tax levies of up to $100 for 1,000 square feet, except the first 5,000 square feet, of property owned by a nonprofit. When nonprofits purchase property they could be taxed 10 percent of the property’s assessed value, a percentage that could rise to 50 percent beginning in the fifth year of ownership.

Solobay said, “These two bills would allow cities and municipalities to generate revenues from tax-exempt real properties, which would help keep property taxes down for all residents. I understand that charitable organizations are struggling with declining revenue, but so are their host communities. And as the number of tax-exempt properties continues to grow — as is happening in the city of Washington (Pa.) and Washington County — the burden is falling more and more on homeowners and for-profit businesses to fund municipal important local services such as police and fire protection that are available to all.”

—Peter Hart

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