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Paying for services Governments eye revenue challenge

November 24, 2008

Should nonprofits pay fees

RALPH NARDONE Times Leader Correspondent

SCRANTON -- The debate over whether nonprofit institutions should be required to pay fees for municipal services is heating up, said Austin Burke, president of the Greater Scranton Chamber of Commerce.

Scranton and Wilkes-Barre share a challenge common with cities all over the country, Burke said. They are hubs for hospitals, universities and religious organizations that gobble up municipal services, but the cities cannot collect any real estate taxes to help cover the increasing costs.

“It‘s a very complicated issue,” Burke said. Attempts to challenge the tax exemption for nonprofits have failed in court and will probably continue to fail, he added.

Burke said it is chamber of commerce policy not to seek tax-exempt status, although it could probably qualify. Local municipalities receive their regular payments, he added.

In March 2008, state Sen. Wayne Fontana, from Pittsburgh, introduced a bill that would allow municipalities to enact an “essential services fee” of $100 for every 1,000 square feet for facilities over 5,000 square feet. The bill died, according to Amie Downs, chief of staff for Fontana. It may be reintroduced early next year after some revisions.

Downs said the bill was intended to target large nonprofits but ended up penalizing small groups, such as the Boys and Girls Club, where square footage may be significant due to playground space.

The new bill’s language will be a lot “less onerous” to small nonprofits, she said. The original bill did make it to the Senate finance committee, although it never came up for a vote, she added.

James Redmond, senior vice president for the Hospital and Health System Association of Pennsylvania, said the argument over fees from hospitals has gone on for 25 years.

The association opposes any taxes or fees and will continue to do so, he said. “We advocate voluntary contributions,” he said.

Hospitals offer a valuable public service, Redmond said, often without compensation. The health-care industry is unique in that if it didn’t provide the service it would have to become a government-provided service, Redmond said.

Robert Kelly, a Scranton attorney who specializes in tax codes for nonprofits, said school boards, county boards and municipalities have become “more aggressive” in challenging the exempt status of charitable organizations. They usually fail because they run up against “strong constitutional and statutory protection” because the exempt status is “wholly justified.”

“As tax revenues decline, many taxing bodies will inevitably scrutinize the activities of charitable organizations,” he said.

He adds some nonprofits are evolving into highly complex organizations that resemble for-profit businesses, raising the eyebrows of taxing bodies. A fee based on square footage is “doomed to fail” because of the complexity.

For example, a college book store or hospital garage are considered taxable, even though part of the larger organizations, Burke said.

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