Section 375 - Criteria for institutions of purely public charity(a) General rule.-- An institution of purely public charity is an institution which meets the criteria set forth in subsections (b), (c), (d), (e) and (f). An institution which meets the criteria specified in this section shall be considered to be founded, endowed and maintained by public or private charity.(b) Charitable purpose.-- The institution must advance a charitable purpose. This criterion is satisfied if the institution is organized and operated primarily to fulfill any one or combination of the following purposes: (2) Advancement and provision of education. This paragraph includes postsecondary education.(3) Advancement of religion.(4) Prevention and treatment of disease or injury, including mental retardation and mental disorders.(5) Government or municipal purposes.(6) Accomplishment of a purpose which is recognized as important and beneficial to the public and which advances social, moral or physical objectives.(c) Private profit motive.-- The institution must operate entirely free from private profit motive. Notwithstanding whether the institution's revenues exceed its expenses, this criterion is satisfied if the institution meets all of the following: (1) Neither the institution's net earnings nor donations which it receives inures to the benefit of private shareholders or other individuals, as the private inurement standard is interpreted under section 501(c)(3) of the Internal Revenue Code of 1986 ( Public Law 99-514, 26 U.S.C. § 501(c)(3) ).(2) The institution applies or reserves all revenue, including contributions, in excess of expenses in furtherance of its charitable purpose or to funding of other institutions which meet the provisions of this subsection and subsection (b).(3) Compensation, including benefits, of any director, officer or employee is not based primarily upon the financial performance of the institution.(4) The governing body of the institution of purely public charity has adopted as part of its articles of incorporation or, if unincorporated, other governing legal documents a provision that expressly prohibits the use of any surplus funds for private inurement to any person in the event of a sale or dissolution of the institution of purely public charity.(d) Community service.--(1) The institution must donate or render gratuitously a substantial portion of its services. This criterion is satisfied if the institution benefits the community by actually providing any one of the following:(i) Goods or services to all who seek them without regard to their ability to pay for what they receive if all of the following apply: (A) The institution has a written policy to this effect.(B) The institution has published this policy in a reasonable manner.(C) The institution provides uncompensated goods or services at least equal to 75% of the institution's net operating income but not less than 3% of the institution's total operating expenses.(ii) Goods or services for fees that are based upon the recipient's ability to pay for them if all of the following apply:(A) The institution can demonstrate that it has implemented a written policy and a written schedule of fees based on individual or family income. An institution will meet the requirement of this clause if the institution consistently applies a formula to all individuals requesting consideration of reduced fees which is in part based on individual or family income.(B) At least 20% of the individuals receiving goods or services from the institution pay no fee or a fee which is lower than the cost of the goods or services provided by the institution.(C) At least 10% of the individuals receiving goods or services from the institution receive a reduction in fees of at least 10% of the cost of the goods or services provided to them.(D) No individuals receiving goods or services from the institution pay a fee which is equal to or greater than the cost of the goods or services provided to them, or the goods or services provided to the individuals described in clause (B) are comparable in quality and quantity to the goods or services provided to those individuals who pay a fee which is equal to or greater than the cost of the goods or services provided to them.(iii) Wholly gratuitous goods or services to at least 5% of those receiving similar goods or services from the institution.(iv) Financial assistance or uncompensated goods or services to at least 20% of those receiving similar goods or services from the institution if at least 10% of the individuals receiving goods or services from the institution either paid no fees or fees which were 90% or less of the cost of the goods or services provided to them, after consideration of any financial assistance provided to them by the institution.(v) Uncompensated goods or services which in the aggregate are equal to at least 5% of the institution's costs of providing goods or services.(vi) Goods or services at no fee or reduced fees to government agencies or goods or services to individuals eligible for government programs if any one of the following applies:(A) The institution receives 75% or more of its gross operating revenue from grants or fee-for-service payments by government agencies and if the aggregate amount of fee-for-service payments from government agencies does not exceed 95% of the institution's costs of providing goods or services to the individuals for whom the fee-for-services payments are made.(B) The institution provides goods or services to individuals with mental retardation, to individuals who need mental health services, to members of an individual's family or guardian in support of such goods or services or to individuals who are dependent, neglected or delinquent children, as long as the institution performs duties that would otherwise be the responsibility of government and the institution is restricted in its ability to retain revenue over expenses or voluntary contributions by any one of the following statutes or regulations or by contractual limitations with county children and youth offices in this Commonwealth:(I)Sections 1905(d) and 1915(c) of the Social Security Act (49 Stat. 620, 42 U.S.C. §§ 1396d(d) and 1396n(c) ).(II)42 CFR 440.150 (relating to intermediate care facility (ICF/MR) services).(III) 42 CFR Pt. 483 Subpt. I (relating to conditions of participation for intermediate care facilities for the mentally retarded).(IV) The act of October 20, 1966 (3rd Sp.Sess., P.L. 96, No. 6), known as the Mental Health and Mental Retardation Act of 1966.(V) Articles II, VII, IX and X of the act of June 13, 1967 (P.L. 31, No. 21), known as the Public Welfare Code.(VI) 23 Pa.C.S. Ch. 63 (relating to child protective services).(VII) 42 Pa.C.S. Ch. 63 (relating to juvenile matters).(VIII) 55 Pa. Code Chs. 3170 (relating to allowable costs and procedures for county children and youth), 3680 (relating to administration and operation of a children and youth social service agency), 4300 (relating to county mental health and mental retardation fiscal manual), 6400 (relating to community homes for individuals with mental retardation), 6500 (relating to family living homes), 6210 (relating to participation requirements for the intermediate care facilities for the mentally retarded program), 6211 (relating to allowable cost reimbursement for non-State operated intermediate care facilities for the mentally retarded) and 6600 (relating to intermediate care facilities for the mentally retarded).(vii) Fundraising on behalf of or grants to an institution of purely public charity, an entity similarly recognized by another state or foreign jurisdiction, a qualifying religious organization or a government agency and actual contribution of a substantial portion of the funds raised or contributions received to an institution of purely public charity, an entity similarly recognized by another state or foreign jurisdiction, a qualifying religious organization or a government agency.(2) The institution may elect to average the applicable data for its five most recently completed fiscal years for the purposes of calculating any formula or meeting any quantitative standard in paragraph (1).(3) For the purposes of calculating the number of individuals for use in the percentage calculations in this subsection, educational institutions may use full-time equivalent students as defined by the Department of Education.(4) For purposes of this subsection, the term "uncompensated goods or services" shall be limited to any of the following: (i) The full cost of all goods or services provided by the institution for which the institution has not received monetary compensation or the difference between the full cost and any lesser fee received for the goods or services, including the cost of the goods or services provided to individuals unable to pay.(ii) The difference between the full cost of education and research programs provided by or participated in by the institution and the payment made to the institution to support the education and research programs.(iii) The difference between the full cost of providing the goods or services and the payment made to the institution under any government program, including individuals covered by Medicare or Medicaid.(iv) The difference between the full cost of the community services which the institution provides or participates in and the payment made to the institution to support such community services.(v) The reasonable value of any moneys, property, goods or services donated by a primary donor to an institution of purely public charity or to a government agency or the reasonable value of the net donation made by a secondary donor to a primary donor. As used in this subparagraph, the following words and phrases shall have the following meanings: "Net donation." In the case of a donation of money, property or identical goods and services made by a secondary donor, the difference between the value of the donation made by the secondary donor and the value of the donation made by the primary donor, provided such value is positive.
"Primary donor." An institution which makes a donation of any money, property, goods or services to an institution of purely public charity.
"Secondary donor." An institution which receives a donation of any money, property, goods or services from a primary donor and then makes a donation back to that primary donor within three years of having received such donation.
(vi) The reasonable value of volunteer assistance donated by individuals who are involved or assist in the provision of goods or services by the institution. The reasonable value of volunteer assistance, computed on an hourly basis, shall not exceed the Statewide average weekly wage as defined in section 105.1 of the act of June 2, 1915 (P.L. 736, No. 338), known as the Workers' Compensation Act, divided by 40.(vii) The cost of goods or services provided by an institution licensed by the Department of Health or the Department of Public Welfare to individuals who are unable to pay provided that reasonable and customary collection efforts have been made by the institution.(viii) The value of any voluntary agreement as set forth in section 7(c).(e) Charity to persons.--(1) The institution must benefit a substantial and indefinite class of persons who are legitimate subjects of charity.(2) As used in this subsection, the following words and phrases shall have the meanings given to them in this paragraph: "Legitimate subjects of charity." Those individuals who are unable to provide themselves with what the institution provides for them.
"Substantial and indefinite class of persons." Persons not predetermined in number, provided that, where the goods or services are received primarily by members of the institution, membership cannot be predetermined in number and cannot be arbitrarily denied by a vote of the existing members. This subsection specifically recognizes that the use of admissions criteria and enrollment limitations by educational institutions does not constitute predetermined membership or arbitrary restrictions on membership so as to violate this section and recognizes that an institution may reasonably deny membership based on the types of services it provides, as long as denial is not in violation of Federal or State antidiscrimination laws, such as the Civil Rights Act of 1964 ( Public Law 88-352, 78 Stat. 241) and the act of October 27, 1955 (P.L. 744, No. 222), known as the Pennsylvania Human Relations Act.
(3) An institution shall be considered to benefit a substantial and indefinite class of persons who are legitimate subjects of charity if the institution is primarily engaged in fundraising on behalf of or making grants to an institution of purely public charity, an entity similarly recognized by another state or foreign jurisdiction, a qualifying religious organization or a government agency and there is actual contribution of a substantial portion of the funds raised or contributions received to an institution of purely public charity, an entity similarly recognized by another state or foreign jurisdiction, a qualifying religious organization or a government agency.(4) An institution which operates exclusively on a voluntary basis to provide emergency health and safety services to the community or an institution which provides funds and support exclusively to volunteer institutions which provide emergency health and safety services to the community shall be considered to benefit a substantial and indefinite class of persons who are legitimate subjects of charity.(5) An institution shall not be considered to benefit a substantial and indefinite class of persons who are legitimate subjects of charity if:(i) the institution is not qualified under section 501(c)(3) of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501(c)(3) ); and(ii) the institution is qualified under section 501(c)(4), (5), (6), (7), (8) or (9) of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501(c)(4), (5), (6), (7), (8) or (9) ) as any of the following: (A) An association of employees, the membership of which is limited to the employees of a designated person or persons.(B) A labor organization.(C) An agricultural or horticultural organization.(D) A business league, chamber of commerce, real estate board, board of trade or professional sports league.(E) A club organized for pleasure or recreation.(F) A fraternal beneficiary society, order or association.(f) Government service.-- The institution must relieve the government of some of its burden. This criterion is satisfied if the institution meets any one of the following:(1) Provides a service to the public that the government would otherwise be obliged to fund or to provide directly or indirectly or to assure that a similar institution exists to provide the service.(2) Provides services in furtherance of its charitable purpose which are either the responsibility of the government by law or which historically have been assumed or offered or funded by the government.(3) Receives on a regular basis payments for services rendered under a government program if the payments are less than the full costs incurred by the institution, as determined by generally accepted accounting principles.(4) Provides a service to the public which directly or indirectly reduces dependence on government programs or relieves or lessens the burden borne by government for the advancement of social, moral, educational or physical objectives.(5) Advances or promotes religion and is owned and operated by a corporation or other entity as a religious ministry and otherwise satisfies the criteria set forth in section 5.(6) Has a voluntary agreement under section 7.(g) Other nonprofit entities.-- A nonprofit parent corporation, together with all of its subsidiary nonprofit corporations, may elect to be considered as a single institution in meeting the criteria set forth in this section as long as all of the following are met: (1) Each subsidiary: (i) is a nonstock corporation of which the nonprofit parent corporation is the only member; and(ii) meets the requirements of this section.(2) The parent: (i) is a nonstock corporation;(ii) is qualified by the Internal Revenue Service as meeting the requirements of section 501(c)(3) of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501(c)(3) );(iii) meets the requirements of subsection (b) and (c); and(iv) except for services that meet the requirements of this section, does not render services for a fee to an individual or entity that does not meet the requirements of paragraph (1).(h) Parcel review.--(1) Nothing in this act shall affect, impair or hinder the responsibilities or prerogatives of the political subdivision responsible for maintaining real property assessment rolls to make a determination whether a parcel of property or a portion of a parcel of property is being used to advance the charitable purpose of an institution of purely public charity or to assess the parcel or part of the parcel of property as taxable based on the use of the parcel or part of the parcel for purposes other than the charitable purpose of that institution.(2) Nothing in this act shall prohibit a political subdivision from filing challenges or making determinations as to whether a particular parcel of property is being used to advance the charitable purpose of an institution of purely public charity.(i) Standards.-- An institution of purely public charity may conduct activities intended to influence legislation provided that no substantial part of the activities of an institution of purely public charity shall consist of carrying on propaganda, except as otherwise provided in section 501(h) of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501(h) ), or participating in or intervening in, including the publishing or distributing of statements, any political campaign on behalf of or in opposition to any candidate for public office as such limitations are interpreted under section 501 of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501 ).1997, Nov. 26, P.L. 508, No. 55, § 5, imd. effective.