Wednesday, December 16, 2009

Hill Street Blues: Pittsburgh Set to Tax Tuition as End Run Around University Tax Exemptions

Local government's have often played hard ball with large tax exempt entites within their jurisdictions.  Payments in Lieu of Taxes, or PILOTS, are often thinly disguised extortion payments extracted from tax exempt organizations, in my opinion.  In essence, a city or county government will "suggest" that a university or hospital make a so called "voluntary" payment to the local government to help with municipal services.  Usually implicit in the request is that if the PILOT is not made, the local government may challenge the college or university's tax exemption in court.  Pennsylvania has been particularly aggressive in extracting taxes by another name from tax exempt organizations.  Large tax exempt organizations in Pittsburgh have been equally vociferous in exposing what amounts to a protection racket.  For example in The Hospital Council of Western Pennsylvania v. Pittsburgh, 949 F.2d 83 (W.D. PA, 1991) a group of nonprofits complained that: 

the defendant governmental units had attempted and were attempting to "coerce" or "force" tax-exempt member hospitals to make payments in lieu of taxes by "indicating that those [hospitals] which [did] not agree to such payments and/or agreements 'in lieu of taxes' [would] have their tax exempt status challenged, [would] be likely to run into difficulties in [**3]  obtaining zoning approvals, and [would] not be offered the opportunity to provide services to the taxing authority.

The City of Pittsburgh, home of my beloved yet beleagured Steelers, has stooped to a new low in my opinion.  It recently asked local universities to pony up $5 million annually and if they didn't, the City would impose a 1 percent "tuition tax" on students attending one of the city's many tax exempt colleges and universities.  PILOT extortion demands are usualy accompanied by negative PR designed to shame large local nonprofits into forking over the cash.  For example, Pittsburgh Mayor Ravenstahl is quoted in the New York Times as stating: 

“Our colleges and universities are giving less and less while they increase tuition and executive pay and expand their campuses, removing high-value land from the tax rolls. The cost to provide public safety and public works services continues to increase, but our revenue continues to decrease.”

Colleges, universities and large nonprofit hospitals are being far too passive in this debate, not realizing that what happens in Pittsburgh is unlikely to stay in Pittsburgh:

Pittsburgh’s plan to adopt the nation’s first tuition tax on college students was postponed Wednesday, with the mayor holding out hope that the city’s 10 colleges and universities will agree to provide economic help voluntarily.

For more on Pittsburgh's efforts to surreptitiously repeal state granted tax exemptions see this December 16, 2009 New York Times article.

dkj

 

http://lawprofessors.typepad.com/nonprofit/2009/12/hill-street-blues-pittsburgh-set-to-tax-tuition-as-end-run-around-university-tax-exemptions.html

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Comments

I'd actually look forward to a principled discussion of how, if at all, nonprofits should be "ponying up" to help fund public investments at the state/local level. The Pittsburgh proposal is pretty clearly not a principled approach, nor a universal one.
So, if we all agree that the Pittsburgh plan is a money grab, what's the correct answer? Should nonprofits be paying (for example) property taxes? If the PILOTS these guys currently pay aren't rationally designed to cover the cost of public services, should we be thinking about how to make them more rational? And is there any sensible reason why these answers to these questions should be different for educational institutions than for other nonprofits?

Posted by: Matthew Gardner | Dec 16, 2009 4:57:17 PM

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