Pennsylvania
Updates
What You’ll Learn
If you’re a nonprofit with fundraising or other activities in Pennsylvania, you must understand Pennsylvania’s legal requirements for nonprofits.
So, where should you start?
Start here. This state profile includes the basic requirements nonprofits must consider. Walking through the profile will help you identify the steps you need to take to set your organization up for success in Pennsylvania.
Getting to Know the State Nonprofit Corporation Law
Background
*Important primarily for nonprofits incorporated in Pennsylvania
Emma Woodhouse, handsome, clever, and rich, with a comfortable home and happy disposition, seemed to unite some of the best blessings of existence; and had lived nearly twenty-one years in the world with very little to distress or vex her. She was the youngest of the two daughters of a most affectionate, indulgent father; and had, in consequence of her sister’s marriage, been mistress of his house from a very early period. Her mother had died too long ago for her to have more than an indistinct remembrance of her caresses; and her place had been supplied by an excellent woman as governess, who had fallen little short of a mother in affection.
- Emma, Jane Austen
When reading a novel, we get to know a fictional character by the author’s description. The author tells us about the character’s appearance, purpose, actions, mannerisms, and values.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us the organization’s name, purpose, way of acting, and method of making decisions.
To get to know your own nonprofit, be sure to review the sections below.
State Nonprofit Corporation Law
Corporate Governance
Conflict Transactions: 15 Pa. Stat. § 5728. Need to review the basic best practices for conflicted transactions? See Bylaws Module 14: Conflicts of Interest.
Director Standards of Conduct: 15 Pa. Stat. § 5712. Need a refresher on the role of directors? See Bylaws Module 6: Directors.
Members: Eligibility and Statutory Powers 15 Pa. Stat. § 5751. Not sure what a “member” is? Need to review the basics? See Bylaws Module 5: Members.
Indemnification: 15 Pa. Stat. § 5743. Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.
For Religious Nonprofits
Nonprofit Religious Corporation Act: Pennsylvania’s nonprofit corporation law mentions the option for nonprofit corporations to incorporate for religious purposes. However, the law lacks both: (a) specific provisions to protect the right of nonprofits incorporated for religious purposes to self-government in internal affairs and (b) an option to incorporate expressly as a nonprofit religious corporation. 15 Pa. Stat. § 1501, et. seq. Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Reliance on Religious Guidance in Governance: Pennsylvania law permits a director, in the fulfillment of the director’s fiduciary duties, to rely on the opinion of individuals who can reasonably be assumed to have expertise on a certain matter, but does not expressly allow a director to rely on guidance from religious figures within his or her faith tradition. 15 Pa. Stat. § 5712
Understanding Religious Liberty in this State
Case Study
*Important for all nonprofits doing business in Pennsylvania, whether incorporated in Pennsylvania or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the below laws. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Pennsylvania has enacted a RFRA that requires government burdens on religious exercise to satisfy a standard less than strict scrutiny. 71 Pa. Stat. § 2404. Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
State Constitutional Protection of Free Exercise: The Pennsylvania Constitution follows in lockstep with the federal constitution’s protections, meeting but not exceeding the required minimum protections of the First Amendment. Article I, Section 3
State Blaine Amendment: The Pennsylvania Constitution contains a Blaine Amendment that could prevent the participation of faith-based schools in generally available public benefit programs on the same terms as similarly situated secular schools. This is not as broad as a general Blaine Amendment, which prohibits all aid to faith-based institutions, but is still detrimental to the work of faith-based institutions. Current US Supreme Court precedent has rendered this language ineffective, but it could become effective in the future if Court precedent changes. Article III, Section 15 Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Pennsylvania currently has a statewide public accommodation law. Be sure you understand whether this or any similar local regulations apply to your organization.
Religious Freedom and Public Accommodation Laws: Pennsylvania’s nondiscrimination laws generally restrict religious freedom for religious organizations that offer public programming and facilities and provide no meaningful religious accommodations or exemptions. 43 Pa. Stat. § 955(i). Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Pennsylvania law has no explicit constitutional or statutory protections for religious exercise during a time of emergency.
Key Employment Laws and Regulations
In addition to tracking with the protected classes in the federal anti-discrimination employment law (race, color, religion, sex, and national origin), Title VII of the Civil Rights Act of 1964, Pennsylvania prohibits employers from discriminating on the basis of age, ancestry, age, or non-job related handicap or disability or the use of a guide or support animal because of blindness, deafness or physical handicap. An employer is any person who has four or more employees. Religious corporations are often excluded from the definition of “employers” for purposes of the act. Local governments may also have employment-related regulations. An attorney can help you understand what requirements apply to your organization.
Religious Freedom for Faith-Based Employers: 43 Pa. Stat. § 955; 43 Pa. Stat. § 954. Need to review the basics on religious freedom and employment matters? Walk through a self-audit of best practices here.
Religious Freedom for Employees: Not Present
Conducting Activities or Programs in this State
Understanding the Business Registration Requirement
*Important primarily for nonprofits doing business in Pennsylvania but incorporated elsewhere
If you are fundraising or conducting activities in this state, you must consider whether you need to register as a foreign nonprofit corporation. The state law requires entities that are “conducting a…not-for-profit activity” to register. An attorney can help you decide whether you need to register based on the type and volume of activities you have in this state.
Business Registration Statute
Fundraising and Charitable Registration in This State
How to Know (And What to D0) If You're Fundraising In This State
*Important for all nonprofits doing business in Pennsylvania, whether incorporated in Pennsylvania or elsewhere
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
This state regulates charities under both the Solicitation of Funds for Charitable Purposes Act and the Institutions of Purely Public Charity Act. The Solicitation of Funds Act focuses on the act of soliciting charitable contributions whereas the Institutions Act focuses on organizations seeking state tax exemptions. The Solicitation of Funds for Charitable Purposes Act broadly defines solicitation and does not specify a minimum level of solicitation which triggers the registration requirement. However, state law does provide an exemption for organizations which: (1) receive less than $25,000 annually, and (2) do not pay a professional fundraiser. The statute does not specify whether the $25,000 maximum applies only to solicitations within Pennsylvania or to all solicitations from all sources combined, but the Pennsylvania Department of State has interpreted the $25,000 threshold to apply to gross receipts from all sources.
Religious Exclusion under Solicitation of Funds for Charitable Purposes Act
In this state, organizations are generally required to register prior to soliciting donations under the Solicitation of Funds for Charitable Purposes Act. However, the registration requirement has a religious exclusion. Religious organizations must apply for this exclusion; the religious organization exclusion is not automatic. To qualify for the religious organization exclusion, the organization must: (1) be tax-exempt under the Internal Revenue Code, (2) no part of the organization’s net income can inure to the direct benefit of any individual and (3) the organization’s conduct must be primarily supported by government grants or contracts, funds solicited from its own membership, congregation, or previous donors, and fees charged for services rendered. Religious organizations applying for exclusion must file a BCO-9 Form.
Excluded vs. Exempted Organizations
Charitable organizations may be exempt from the registration requirements of the Solicitation of Funds for Charitable Purposes Act under 10 Pa. Stat. § 162.6 (relating to exemptions from registration) or excluded from the Act under 10 Pa. Stat. § 162.3 (defining charitable organization).
Organizations exempt from registration requirements must still comply with the other provisions of the Solicitation of Funds for Charitable Purposes Act (e.g. must keep true fiscal records as to its activities; may not utilize any unfair or deceptive acts or practices or engage in any fraudulent conduct which creates a likelihood of confusion or of misunderstanding, etc.). If approved, religious organizations that are excluded under the definition of charitable organization, are not considered to be a charitable organization under the Act and none of the provisions of the Solicitation of Funds for Charitable Purposes Act applies to that organization.
Continuing Reporting by Exempt/Excluded Charities
Note that even unregistered charities may have some reporting requirements under 10 Pa. Stat. § 371, unless exempted under 10 Pa. Stat. § 379.
Religious Exemption from Institutions of Purely Public Charity Act
In addition to registering under The Solicitation of Funds for Charitable Purposes Act, organizations are generally further required to file an Institutions of Purely Public Charity Statement under the Institutions of Purely Public Charity Act. This Act provides a religious exemption for “Bona fide duly constituted religious institutions and such separate groups or corporations which form an integral part of a religious institution and re exempt from filing an annual return pursuant to the Internal Revenue Code of 1986 (annual IRS Form 990 Return).”
If You're Fundraising In Multiple States, Make Sure You Understand the URS
In this state, organizations that are required to register have the option of registering through the Unified Registration Statement, which is a standardized charitable registration accepted in many states. Using the URS, rather than a state-specific registration form, has pros and cons. The URS typically must be submitted by mail. This state has an online filing system. Using that system may be more efficient than completing and mailing the URS manually. Additionally, information from the state-specific initial online registration can be used to auto-populate online annual reports, saving an organization time in the future.
Evaluate Whether You'll Need a Registered Agent
If you are fundraising in this state, you must consider completing a foreign not for profit registration and designating a registered agent in the state. More information about this is included below.
Follow the Rules About Communicating with the Public
This state requires organizations to include specific statements whenever an organization is requesting donations (also called “charitable solicitation”). Religious organizations generally are not required to include this statement, but posting the language is often a best practice to build trust with donors and state regulators. Below is sample language to use with charitable solicitations in this state:
This request is made by *ORG*, located at *ADDRESS*, in support of its mission to *PURPOSE*. Inquiries, including requests for a copy of financial statements, regarding *ORG* can be directed to *EMAIL*.
The official registration and financial information of *ORG* may be obtained from the Pennsylvania Department of State by calling toll free, within Pennsylvania, 1 (800) 732-0999. Registration does not imply endorsement.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Audit Requirements: As a condition of maintaining authorization to fundraise in the state, Pennsylvania requires the submission of reviewed or audited financials from organizations with annual contributions of $500,000 or less. 10 Pa. Stat. § 162.5(f)
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
*Important for all nonprofits doing business in Pennsylvania, whether incorporated in Pennsylvania or elsewhere
In this state, organizations that have received federal income tax exemption under IRC Sec. 501(c)(3) are automatically exempt from state income tax. Some organizations may choose to send a copy of their IRS determination letter to the state department of revenue to indicate the organization's position that it qualifies for the exemption. Note that, although an organization may be exempt, if it has unrelated business taxable income (UBTI) that is subject to federal taxation, that UBTI may be subject to state income tax.
It is also important to consider whether your organization might be eligible for sales and use tax or property tax exemption. In this state, federal § 501(c)(3) status does not automatically provide an exemption from sales, use, and property taxes, though some purchases by religious nonprofits may be eligible for a sales tax exemption upon application. More information about the sales and use tax exemptions and applications is available on the Pennsylvania Department of Revenue website and in Pennsylvania administrative rules. An accountant or attorney can provide answers to specific questions regarding your organization’s eligibility for exemption.
Corporate Income Tax Statute
Pennsylvania imposes a corporate income tax but automatically exempts organizations with federal 501(c)(3) exempt status. 72 Pa. Stat. § 7401
Corporate Franchise Tax Statute
Not Present
What You Need to Know About Sales Tax
Sales and Use Tax: Pennsylvania imposes a sales and use tax on religious organizations’ sales and provides no meaningful exemption. Pennsylvania imposes a sales and use tax but a broad and comprehensive, entity-based tax exemption for 501(c)(3) religious organizations’ purchases is generally available upon application. 72 Pa. Stat. § 7204(10); application
State Tax Treatment of Unrelated Business Income: Tax-exempt organizations are the definition of “corporations” subject to taxation under 72 Pa. Stat. § 7401 (1)(iii)(3)-(4).
Property Tax: Pennsylvania imposes property tax and provides only fragmented property tax exemptions that include only a narrow subset of religious organizations or that apply only to a narrow category of religious and/or charitable property uses. 53 Pa. Stat. § 8812; Update on Pennsylvania’s Real Estate Tax “Purely Public Charity” Exemption and PILOTs (from McNees PA Tax Blog)
State-Specific Special Requirements
Miscellaneous
Useful Links
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Legal Disclaimer
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.
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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington