The City of Philadelphia Passes Two Bills Affecting Taxes on Nonprofits

The City of Philadelphia (the “City”) recently adopted two bills related to the revenue the City generates from nonprofit organizations. In its summary statement on tax reform regarding nonprofits, the City states that these bills “put the world on notice that all activity of a charitable corporation is not necessarily exempt if it is outside of the defined charitable mission.”

Bill #130009 (the “BIRT Amendment”) impacts the City’s Business Income and Receipts Tax (the “BIRT”). The BIRT historically provided an exception for any “business conducted by a nonprofit corporation or association organized for religious, charitable, or education purposes.” The BIRT Amendment provides that this exception is not available for income and receipts from any “commercial activity that does not directly serve and is not directly connected with the corporation or association’s religious, charitable, or education purposes.” Although this language is similar to the federal income tax rules that impose a tax on unrelated business income, the bill does not utilize or reference any of the federal rules for determining the nature and type of income that is unrelated.

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