The City of Philadelphia Department of Revenue (the Department) recently issued proposed regulations that would cause nonprofit organizations to pay Philadelphia business privilege tax (BPT) on all income from unrelated business activities and on all rent they earn.

BPT is imposed on persons doing business in the City. A nonprofit organization currently is exempt from BPT on income earned from activities that are directly related to its religious, charitable, or educational purposes. However, BPT is imposed on income earned by a nonprofit organization from any activity not directly related to its exempt function.

The amendments would clarify the Department's position that income a nonprofit organization earns from an activity is subject to BPT if (i) the nonprofit conducts a trade or business, (ii) the trade or business is not substantially related to the nonprofit’s exempt purpose, and (iii) the trade or business is conducted in a manner similar to that of competing nonexempt organizations. In addition, the proposed amendments provide that rent from real estate is deemed income derived from an "unrelated business activity" and therefore is subject to BPT. While this change purports to subject all income earned by nonprofit organizations from the rental of any real estate to tax, it appears that the City is authorized only to tax rent that is unrelated to a nonprofit organization's exempt purpose. Moreover, it is not clear that the City intended to tax rent related to a nonprofit organization’s exempt function (for example, rent earned by a university from students in a university-owned dormitory).

A hearing will be scheduled in the next few months for interested persons to advise the Department of their concerns about these proposed regulations. You may testify at the hearing or submit written comments. Wendi Kotzen from Ballard Spahr's Real Estate Tax Group can assist you with any written submission and testimony. She can be reached at 215.864.8305 or

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