Over the years, there have been numerous challenges to the tax-exempt status of real estate owned by Pennsylvania tax-exempt charities. This trend continues, especially in the City of Pittsburgh which has recently stated that the City will audit tax-exempt properties on a parcel-by-parcel basis.
In late January, Pittsburgh Mayor Ed Gainey signed an executive order calling for the review of the tax-exempt status of thousands of properties owned by charitable organizations. As reported by the Pittsburgh Post-Gazette (January 29, 2023), Mayor Gainey’s order came after the City refused an offer from UPMC to enter into a PILOT (payment in lieu of taxes) deal of $40,000,000 over 5 years. In his executive order, Mayor Gainey asked the City’s Finance and Law Departments to begin review of the tax-exempt parcels, with plans to appeal those that do not meet the state constitutional and statutory tests to be considered an “institution of purely public charity”. Mayor Gainey did say that churches and other religious organizations would not be part of this process.
In addition to the City’s tax-exempt status audits, Allegheny County has had to reopen the 2022 tax year for property tax assessment appeals. Allegheny County property owners (including charitable organizations owning taxable properties) now have until March 31, 2023, to file tax assessment appeals for tax years 2022 and 2023. The reopening of the 2022 appeals process is due to a ruling by Judge Alan Hertzberg of the Allegheny County Court of Common Pleas invalidating the “common level ratio”, a factor used to assess the assessed value of property in a given tax year. Judge Hertzberg’s ruling results in lower assessed values and resulting tax bills for taxpayers. Charities owning taxable real estate in Allegheny County may want to consider filing an appeal of their assessed value for the 2022 and/or 2023 tax years.
Given these developments, all Pennsylvania charities are well-advised to stay abreast of property tax developments in Southwestern Pennsylvania. They should also review their compliance with Pennsylvania law, including the Hospital Utilization Project (“HUP”) case, setting out the state constitutional standards for a purely public charity, and Act 55 (The Institutions of Purely Public Charity Act).
In conclusion, Pennsylvania charities need to be vigilant in protecting the tax-exempt status of their real estate. It is critical to document all charitable uses of such property, and be able to prove through the charity’s financial statements that meaningful charitable services are being provided to the community.