Owners of Tax-Exempt Property in Philadelphia Must Provide Proof of Right to Continued Tax-Exempt Status

Owners of Tax-Exempt Property in Philadelphia Must Provide Proof of Right to Continued Tax-Exempt Status

Summary

The Philadelphia Office of Property Assessment (OPA) has sent letters to all charitable organizations in the city that own property shown as tax-exempt, in whole or in part, in the OPA’s records. Attached to the letter is a form which must be returned to the OPA by March 31, 2015.

Here is what you should know about the letter and the form:

  • Every charitable organization holding property that is wholly or partially exempt from property tax must return the "Application" form by March 31 or the OPA can treat its property as taxable, beginning in 2016. The OPA requires a separate form for each tax-exempt parcel. Even if a charitable organization has not received a form from the OPA, it should still complete and submit a separate form for each property it owns that has been designated as exempt.
  • The letter and form are confusing. The letter says that the purpose of this exercise is to certify continued compliance with the requirements for tax exemption; however, the form is for an original application for tax exemption. This form is meant to be for calendar year 2016 (as stated in the cover letter), not 2015 (as stated in large type on the Application form).
  • The letter and attached form have three different due dates: 30 days from the date of the letter, March 31, 2015 and December 31. The correct date is March 31, 2015.
  • Tax-exempt organizations should be extremely careful in how they describe the use or uses of the property. If any portion of the property is being used by any other person or organization, the owner should seek advice about how to respond.
  • The OPA is asking for a great deal of information about the organization. We have been informed that if the information cannot be collected in time, the owner should submit what it has by March 31, and say that the rest will be forwarded when available. The IRS letter of determination is a key document to provide. An organization with multiple properties only has to send in one set of its organizational documents.
  • This is likely the first step of a longer process. In 2013, City Council mandated that the OPA obtain annual certifications to verify that property treated as exempt from property tax was owned and used by the tax-exempt owner for its exempt purposes and that the owner qualified as a purely public charity under Pennsylvania law. This initial certification process focuses on the ownership and use of exempt property. We anticipate that, in the future, the annual certification form may also ask for a certification that the owner of the property satisfies the five-part "HUP" test for qualifying as an institution of purely public charity under Pennsylvania law. This five-part test is stricter than the rules applied for federal income tax purposes, and a recent Pennsylvania Supreme Court case has made it easier for taxing jurisdictions in Pennsylvania to challenge whether charitable organizations qualify for exemption from Pennsylvania property taxes.

Saul Ewing attorneys are knowledgeable about the letter, the form and the overall approval process. For more information on these matters, please contact the authors or the attorney at the firm with whom you are regularly in contact.

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