A Fairer Approach to Nonprofit Taxation in Philadelphia
Philadelphia prides itself on being a hub for world-class hospitals, universities, and cultural institutions. These nonprofits fuel the city’s economy, educate our workforce, and provide essential services. Their tax-exempt status for mission-related properties reflects their role in serving the public good. But not all nonprofits benefit equally from this system — and that’s a problem. This imbalance raises an important question: How can Philadelphia create a fairer tax policy that supports all nonprofits, not just the wealthiest ones?
A recent article in The Philadelphia Inquirer inspired me to take a stand.
It’s time for a common-sense solution — one that ensures large institutions contribute to city services while keeping tax exemptions intact for truly mission-driven nonprofits.
A view of City Hall from North Broad Street.
Let’s break it down. ⬇️
Philadelphia’s nonprofit sector — especially its “eds and meds” institutions — plays a crucial role in the city’s economy and community well-being. Universities, hospitals, and cultural organizations create jobs, educate our workforce, and provide essential services. The city’s longstanding tax exemption for nonprofits that use their real estate for mission-related purposes is rooted in good policy: these institutions contribute to the public good and should not be taxed the same way as for-profit businesses.
But the reality is that this exemption is deeply unequal in its application.
Only nonprofits that own their buildings benefit, while those that lease space — often smaller, community-based organizations — are still paying real estate taxes indirectly through their rent. Meanwhile, many of the city’s largest nonprofit institutions monetize their properties in ways that resemble for-profit enterprises, such as dormitories, event rentals, and parking garages, all while enjoying tax-free status.
The Problem: An Unequal Playing Field
The current system benefits well-established institutions that have the financial resources to own real estate. Smaller nonprofits — who are just as mission-driven — often lease their spaces and must pay property taxes through rent pass-throughs. This creates an uneven playing field:
Large, asset-rich nonprofits avoid real estate taxes entirely.
Small nonprofits pay taxes indirectly through their rent.
Many large institutions generate significant revenue from real estate uses that function like businesses.
Nonprofits without existing real estate assets struggle to access affordable financing terms to purchase property and benefit from tax exemptions.
A Common-Sense Solution: A Minimum Tax Based on Assets
Rather than a blanket tax exemption, Philadelphia should consider a minimum nonprofit tax based on assets, determined by IRS Form 990 filings. This would ensure that the wealthiest institutions contribute to city services without jeopardizing truly mission-driven nonprofits that lack significant assets.
Here’s how this could work:
✅ Set a Reasonable Minimum Tax — Nonprofits with assets over a certain threshold (e.g., $100 million) would pay a modest tax, ensuring major institutions contribute to city infrastructure. Unlike the optional Payment in Lieu of Taxes (PILOT) programs with the city and its neighborhood associations, which rely on voluntary contributions and often result in inconsistent or inadequate funding, a structured minimum tax would create a predictable, fair revenue stream. Many large nonprofits opt out of PILOT programs altogether or only make contributions in “good” years, leaving the city scrambling for funding while continuing to benefit from public services. A standardized approach would eliminate this uncertainty and ensure that all large institutions contribute equitably.
✅ Exclude Small & Community-Based Nonprofits — Organizations below the asset threshold would remain fully exempt, protecting nonprofits that genuinely need the relief.
✅ Provide a Leasing Tax Credit — Nonprofits that lease space could receive a partial rebate or credit for real estate taxes passed through their rent, leveling the playing field between owners and tenants.
✅ Earmark Funds for Education & Healthcare — To ensure this tax is reinvested in the public good, Philadelphia could guarantee that all revenue generated from the minimum nonprofit tax is dedicated to education and healthcare initiatives. This would create a direct and meaningful impact on the same communities that nonprofits serve, reinforcing their mission while supporting essential city services.
Fairness, Not Punishment
This isn’t about penalizing nonprofits. It’s about fairness. Philadelphia should support the sector while ensuring that tax policy does not disproportionately favor wealthy institutions at the expense of smaller organizations and the city itself. A modest, asset-based minimum tax, with funds earmarked for education and healthcare, would bring in revenue while maintaining the nonprofit sector’s vital contributions.
It’s time for a nonprofit tax policy that works for all nonprofits — not just the ones lucky enough to own real estate.
