Two readers posted some interesting questions in response to the last post, Podcast--Q&A: Mayor's UPMC Apology. I decided to try combining them here for some conversation.
edheath said...
Ok, now I am confused in a different way, maybe a more coherent way. If UPMC gets a pass from the school board on future, hypothetical taxes on non-profits, and gets a pass from city council on future, hypothetical taxes on non-profits, does that mean UPMC's donation to the Pittsburgh Promise does double duty? In other words, would UPMC be getting two dollars of tax credit for each dollar of donation, one dollar from the school board and one from the city?
(full disclosure, I sent this question to a reporter at one of America's great newspapers)
Ed,
Your question had occurred to me and my first thought was "no"...but then, one can never presume, so I'll try to check. If this were a deduction and not a credit, the answer would be more clear. You can imagine in your own case getting parallel deductions on, say, federal and state tax returns. A deduction would lower the figure of your taxable income, and then you'd apply the percentage tax rate for each taxing body.
Are you suggesting that if there were to be a tax credit, it should be fifty cents on the dollar for the city, and fifty cents on the dollar for the school district? Or are you suggesting instead that only the school district should give a dollar-for-dollar tax credit, and the city should provide none?
char said...
Bob,
I’m confused. Maybe you can help me out.
- Have you actually read the “side deal”, the proposed legislation or both?
- What exactly is UPMC asking for? A tax credit equal to whatever they put into The Promise or a carte blanche exemption from any/all city taxes which might come their way should Act 55 be changed?
- What about Peduto’s point that council cannot legally exempt UPMC from taxes because of charitable giving without offering that same exemption to every other “non-profit”, for-profit or individual tax payer?
Thanks in advance if you know these things.
Char,
-I have not gotten to read the side agreement yet. I've been asking UPMC for it daily, since Tuesday. This afternoon I got an e-mail back from their public relations spokesman saying that he hadn't received it yet himself. The proposed legislation is here, but Mr. Cindrich himself says that he believes City Council will get to see the agreement before voting on it.
-Yes, one way or another, they are seeking a dollar-for-dollar credit for money to be donated to the Pittsburgh Promise, in the event that UPMC is ever subject to city or school district taxation. UPMC and the administration don't like it when you use the word "credit"-- but as the mayor himself noted, that's the language currently in his legislation. The word "credit" also appears in the Pittsburgh Public Service Fund agreement that the mayor cites as a precedent for this proposal.
Advocates do acknowledge, when asked, this difference: what they describe as a PILOT (Payment in Lieu of Taxes) in the Pittsburgh Public Service Fund was money that went to the city. Money pledged to the Pittsburgh Promise would go to a newly created non-profit fund, not the city government, and not the school district. Those advocates suggest that--in the big picture--the community benefits, so the effect is the same.
Do they "want a carte blanche exemption from any/all city taxes which might come their way"? Not exactly. They want:
1) a dollar for dollar "credit" equal to what they put into the Promise, should they be taxed, and
2) assurance that the city and school district will not challenge their tax exempt status for ten years. That's because there's a possible scenario in which the state could give them taxing power over any non-profit which failed to meet standards X, Y, or Z. Proving the X, Y, and Z issues could still take a legal challenge. No legal challenge, no liability.
- As you note, critics seem to suggest that the above argument about "big picture" benefits is rhetoric which attempts to mask a violation of state law. As to whether they would have to offer the same exemption to every other non-profit, for-profit, or individual taxpayer--that raises some interesting questions. We're discussing a taxing power which the legislature hasn't granted. If the legislature granted ever the power, could it grant the tax credit or exemption too? Even if the legislature did so, could the courts overturn them?
State law says that taxes must be applied uniformly. The administration's bill proposes a tax "credit" (their word in the legislation, not mine). However, the public comments of the mayor, UPMC, and others also speak interchangeably of UPMC simply decreasing its contribution to the Pittsburgh Promise if UPMC becomes subject to a tax. I haven't heard anyone explain yet why a hypothetical choice by UPMC not to honor a promise to a private charity would legally require a vote by City Council.
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Posts
6 comments:
Bob,
Thanks for all the clarifications. Wow, for a number of reasons, the biggest eye-opener is the provision whereby we agree not to challenge their tax-exempt status for 10 years. And whereas they haven’t overtly asked for a “carte blanche exemption from any/all city taxes which might come their way” in the next 10 years …… If we agree to not challenge that tax status for that period of time, it amounts to the same thing.
I’m not one to disparage a very generous gift of $100 million, but when you consider Ed’s double-dipping scenario, make it triple-or-more-dipping if they get to deduct this from federal taxes, top it off with an “insurance policy” that says they won’t have to pay a dime for the next 10 years no matter what tax changes come down the pike … Wow. My math skills are not sufficient enough to estimate what it is they actually are giving...!?
But I bet Luke is at the top of his math skill game. I bet none of this shot by his business-savvy brain. Ah, the comforts of Fresh Leadership.
The frustrating part is the promise to not challenge UPMC's tax status for 10 years. IF it was legislated that UPMC did owe property tax and was able to get a credit on PP donations that other city residents/businesses weren't able to get, the deal would be pretty easily beaten in court on the premise that taxes must be enforced uniformly.
Which would either end up giving every citizen/business the same deal (which would undoubtedly greatly benefit the PP and hurt the city...unless God forbid the city reacted by cutting costs...ok back to reality), or end UPMC's deal.
Is there a legal distinction amongst the application of a tax and a subsequent exemption from a tax. Has a court made such a distinction that the application, i.e., imposing the tax differs from exemptions, i.e., deductions and/or credits? Wouldn't this be the threshold legal question to ask first to determine the legality of the proposal?
Yep! I too am totally confused when it comes to taxes.
The University of Pittsburgh Medical Center (UPMC) is technically separate from the University of Pittsburgh, including from the Medical School. And the Pittsburgh Promise is only for undergraduate education anyway, so it will pay for no medical school anywhere. Yes, in fact there are lots of dual appointments and dual use facilities, for teaching and research. But the most you can say is that the Pittsburgh Promise might increase the pool of potential applicants to medical school, particularly poorer applicants.
I thought about that 50 cent thing, splitting the tax credit between the city and the school board. If UPMC volunteered that, it would be great. If council suggested it and UPMC agreed, it would be great. But if UPMC gets away with getting two taxing bodies to give them a special tax credit, and it survives whatever legal challenges, then I say more power to UPMC. As you, they are giving 10 million dollars to the Pittsburgh Promise right off the bat, and an untold amount for nine years following, up to 90 million. In exchange, they are asking the city to find a million and a half somewhere else (for the next ten years), and asking to be protected from a tax that has not materialized, and may never. I suspect that if things do get bad for the city, UPMC (along with other large local corporations) may step forward anyway to help out.
The Mayor’s handling of this issue is another issue, and brings up questions that I think could be addressed (again) by the city’s Ethics Board. Really, this Mayor is no Sharpe James or Vince Fumo; he’s only cost the city a few million so far, but it seems like only a matter of time until he finds a way to cross the line
Generally speaking, aren't tax credits usually capped? I know the state grants tax credits under the Education Improvement Tax Credit program through DCED and I believe there is a dollar limit to the maximum number of tax credits the state can give out under the various arms of the program (there's a pre-k tax credit, one for the private school arm and one for the public school arm). So, say the legislature gives the cities of the second class and whatever the legislative language for PPS (I think it is second class-A school districts) the taxing authority as it relates to non-profit isn't it conceivable that that authority would also include the ability to fashion a tax credit program similar to the state EITC program on a local level?
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