Non-profits not a tax cash cow for government

Published: March 9, 2010

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Cash-poor local governments across the country are trying to wring money out of tax-exempt nonprofit institutions, which often are just as strapped as the governments themselves.

It is a particularly acute issue for the Borough of Towanda, where nearly 30 percent of the property in the landlocked, geographically tiny municipality is owned by tax exempt entities. While the borough has access to other revenue sources such as the income tax, or negotiating payments from non-profits to defray the cost of municipal services provided. Yet, it remains a delicate issue of tax fairness in how to raise the money to operate year-in and year-out, because the cost of services continues to increase. If nothing else, the issue brings into focus the even larger problem of tax reform in Pennsylvania and the legislature's complete incompetence in the matter that has lingered for years.

The issue is more complicated than many politicians believe, or would have taxpayers believe. Nonprofit institutions come in all shapes and sizes, from your neighborhood church to Blue Cross of Northeastern Pennsylvania, from a local food pantry to big institutions.

Tax exemptions aren't frivolous. In the case of religious institutions they fulfill a constitutional mandate that government not interfere in the exercise of religion. In other cases exemptions come with a requirement that the institution achieve a public purpose.

Tax-exempt community hospitals, for example, perform services that the government otherwise would have to perform, at far greater costs to taxpayers than the cost of the exemption.

Many nonprofit agencies actually fulfill government contracts for everything from mental health services to specialized transportation. Taxing them at the local level would be adding a cost that, in effect, would have to be covered by the government contract - taxpayers taxing themselves.

In Pittsburgh, Mayor Luke Ravenstahl wants to put a 1 percent tax on college tuition. In addition to singling out a particular type of tax-exempt institution, such a levy would further be unfair by heavily taxing some students while lightly taxing others, based on widely divergent tuition rates among different types of colleges.

And, while based on the valid premise that nonprofit institutions use publicly financed services, the pro-taxation politicians don't account for the public services that nonprofits provide. Nor do they consider that many institutions provide many of their own services, such as universities that have their own police forces.

There may well be abuses of tax exemptions by some nonprofits. And some might expand into areas that should produce tax revenue.

At any rate, the issue can't be left to local political whims. If Pennsylvania entertains the idea of lifting tax exemptions from nonprofit institutions, the Legislature must first ensure that it is on a statewide basis. It must examine the current definition of nonprofit tax exemptions, keeping in mind Chief Justice John Marshall's admonition in 1819 that "the power to tax involves the power to destroy."

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3 posted comments

The constant taxing to support unnecessary programs and bloated government continue to destroy this country and evidently my old home town of Towanda. When will government realize that it is its growth and over regulation that have lead to the budget crises rather than the lack of taxation of the people?
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Daniel (Danny) Gordon,  03/09/10 1:02
Non profits come in many different colors. Some unfortunatley compete directly with tax paying private businesses. I was friends with the owner of a fitness center on main street who could not compete with the Y's tax free, rent free, utility free agreement with the borough. The Y does provide benefits to the community not related to the fitness business, but its primary business is fitness and it uses its unfair tax exempt status as huge business advantage over the private sector in the area. I bet if you asked the owner of the last gym in town other than the Y, that person would also say a very unfair playing field exists because of the Y's non profit status.
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a taxpayer,  03/09/10 9:14
Poor Towanda Borough! Hey, don't they collect $52.00 from every person who works in the Borough? They must have forgotten that minor detail. Let the County move it employees out of the Borough and listen to Fairchild scream.
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Carol East,  03/09/10 8:38