The purpose of this alert is to advise you of proposed amendments to the Philadelphia Business Privilege Tax Regulations that, if finally approved as currently written, would affect nonprofit organizations. A hearing regarding these regulations is scheduled for Friday, February 13, 2009, at 1:00 P.M. at the Municipal Services Building, 16th floor, 1401 John F. Kennedy Boulevard.
The proposed amendment to Section 101(D)(1) of the Philadelphia Business Privilege Tax Regulations would allow the City of Philadelphia to tax the unrelated business activities of a nonprofit organization, which it has not previously done. Although the proposed amendment is similar to the existing Unrelated Business Income Tax (UBIT) provisions under federal law, the proposed regulation would ultimately tax a wider range of unrelated business activity than is currently subject to tax by the federal government. Similar to federal UBIT provisions, the proposed amendment would allow the City of Philadelphia to impose a tax upon the trade or business of any nonprofit where the trade or business is not substantially related to the purposes of the organization and is pursued "in a manner similar to competing nonexempt organizations." This amendment does not require the nonprofit's activity to produce a profit for it to be categorized as a taxable business.
The proposed regulations are broader than the federal UBIT provisions in that, unlike the federal provisions, which carve out certain exceptions for rental income, the proposed amendment seeks to specifically impose tax upon all rental activity of a nonprofit as taxable unrelated business activity. This tax would be imposed even if the rental activity is related to the nonprofit's purpose. Therefore, organizations operating, for example, low-income rental housing would be subject to city tax despite the operation of low-income rental housing being integral to achieving the organization's charitable purpose.
We will keep you updated as the hearings and the proposed regulations progress. If you have any concerns or questions, please do not hesitate to contact Stewart Weintraub or Morgen Cheshire. The Philadelphia Department of Revenue is accepting both written and oral testimony at the hearing. Anyone wishing to testify in person should notify the Department of Revenue by e-mail to Marisa.Waxman@Phila.Gov. Written testimony should be sent to The Honorable Keith Richardson, Revenue Commissioner, City of Philadelphia Department of Revenue, 630 Municipal Services Building, 1401 John F. Kennedy Boulevard, Philadelphia, PA19102.
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