Nonprofit Charitable Tax Exemption

PANO opposes policy that limits or prevents eligible nonprofits from obtaining or maintaining their tax-exempt status. PANO believes that Payments in Lieu of Taxes should be fully voluntary and not be coerced by municipalities.

PANO represents all types of nonprofits in the Commonwealth of Pennsylvania, big and small, east, central, and west—whose interests sometimes conflict with each other. The nonprofit community unites around the following common, mutually desired outcomes.

• We focus on the significant, positive role the nonprofits play in the well-being of communities. We are partners with public institutions in serving public needs. Nonprofits give rather than take resources from our communities.
• Nonprofits should be exempt from certain types of business taxes paid by for-profit companies so they can more efficiently meet their missions.
• The rules for these exemptions should be fair, consistent and predictable and should not vary from town-to-town or year-to-year.

Nonprofits are organized solely to benefit the people they serve and are represented by volunteer boards of directors. Nonprofits give up their rights to profit, political engineering and privacy (e.g. nonprofits are the most transparent sector in the country).

Third-Largest Employer
Many individuals understand the public and community benefits that nonprofits bring to their communities—which provide an economic return on investment. However, they do not necessarily think about the additional economic benefit provided by this sector.

Across the country, nonprofits employ 10.1% of the total private workforce, making the nonprofit sector the third largest sector in the country.

• 18 times more workers than the utility industry
• 15 times more than the mining industry
• 10 times more than agriculture
• 5.5 times more than the real estate industry

In Pennsylvania, the economic impact is even greater, with nonprofits employing 15% of Pennsylvania’s workforce or 727,000 individuals.

Nonprofit Employers and Employees Pay Taxes
Nonprofit employers pay social security and Medicare taxes on the compensation they pay their employees. Their employees pay state and federal income and social security taxes on these earnings, as well as Medicare and unemployment taxes in most cases. These employees further use their earnings to buy goods, on which they also pay state sales tax and homes, on which they pay local real estate tax. Many Pennsylvania-based nonprofits are not exempt from sales tax and thus pay a state sales tax on purchases made.

Not the Only Tax-Exempt Entities
Government entities also play a critical role in community well-being and also do not pay taxes on the government buildings owned and used by the 67 counties, 500 school districts, 2,562 municipalities, and the Commonwealth itself. If each entity owns a minimum of two (2) buildings, these properties encompass a minimum of over 6,200 tax-exempt properties throughout the state. In addition, for-profit developers are given tax breaks to build and bring business to struggling urban areas.

Thus, when the issues of meeting the bottom line arise in local jurisdictions, representatives from the government, for-profit, and nonprofit sectors should all be at the table. We together truly are better at collectively solving problems than any entity is separate.

References: Salamon, L. M., Sokolowski, S.W. & Geller, S. (2012) and Independent Sector (December 2016)