A Supreme Court ruling in 2012 has prompted the General Assembly to start the process of enacting a constitutional amendment to clarify the qualifications of purely public charity status in Pennsylvania. The first step in that process was the passage of Senate Bill 4 during this spring’s legislative session. 

Why does Pennsylvania need this clarification? The Pennsylvania Constitution Article VIII, Section 2, (a)(v) provides that the General Assembly may, by law, exempt from taxation “institutions of purely public charity, but in the case of any real property tax exemptions only that portion of real property of such institution which is actually and regularly used for the purposes of the intuition.” In the 1985 case Hospital Utilization Project v. Commonwealth, the Pennsylvania Supreme Court created the “HUP” test. The HUP test established five requirements an organization must satisfy to qualify as a purely public charity entitled to a real estate tax exemption. The organization must:

  1. Advance a charitable purpose;
  2. Donate or render gratuitously a substantial portion of its services;
  3. Benefit a substantial and indefinite class of persons who are legitimate subjects of charity;
  4. Relieve the government of some of its burden; and
  5. Operate entirely free from private profit motive.

Over a decade later, the General Assembly passed Act 55 of 1997, known as the “Purely Public Charity Act.” The purpose of Act 55 was to eliminate inconsistent application of eligibility standards for charitable tax exemptions and to provide standards for an organization to meet the court-established HUP test. However in 2012, the Pennsylvania Supreme Court concluded in Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals that an organization must first prove that it meets the requirements set forth in the HUP test before it addresses the requirements of Act 55. Therefore, even if an organization satisfies the requirements laid out in Act 55, it will not qualify for purely public charity status if it fails the HUP test established by the Pennsylvania Supreme Court.

In an attempt to clarify the qualifications for purely public charity real estate tax-exempt status, the General Assembly recently passed Senate Bill 4, a proposed constitutional amendment. This bill amends Section 2 (b) of Article VIII of the Pennsylvania Constitution to provide the General Assembly with the authority to establish uniform standards and qualifications that will be the criteria to determine qualification as an institution of purely public charity under Section 2, (2)(v).

Pursuant to Article XI of the Constitution, this proposed amendment must pass the General Assembly in two consecutive sessions and be approved by the voters in the form of a ballot question before taking effect. Therefore, before taking effect, Senate Bill 4 will have to be introduced and passed in the 2015-2016 session of the General Assembly, and be approved by the voters.