Alliance Home v. Bd. of Assessment Appeals

• Decision Date: 15 June 2004
• Citation: 852 A.2d 428
• Parties: ALLIANCE HOME OF CARLISLE, Pa. t/a Chapel Pointe, Appellant v. BOARD OF ASSESSMENT APPEALS, Carlisle Area School District, Borough of Carlisle, and Cumberland County.
• Court: Pennsylvania Commonwealth Court

852 A.2d 428

ALLIANCE HOME OF CARLISLE, Pa. t/a Chapel Pointe, Appellant v. BOARD OF ASSESSMENT APPEALS, Carlisle Area School District, Borough of Carlisle, and Cumberland County.

Commonwealth Court of Pennsylvania.

Argued March 31, 2004.

Decided June 15, 2004.

Steven T. Hanford, Harrisburg, for appellant.

Thomas E. Flower, Carlisle, for appellees.

BEFORE: COLINS, President Judge, McGINLEY, Judge, SMITH-RIBNER, Judge, PELLEGRINI, Judge, COHN, Judge, SIMPSON, Judge, and LEAVITT, Judge.

OPINION BY Judge PELLEGRINI.

Alliance Home of Carlisle, Pennsylvania, t/a Chapel Pointe (Chapel Pointe) appeals from an order of the Court of Common Pleas of Cumberland County (trial court) denying its request to extend its charitable real estate tax exemption to the parcel of property on which its independent living section is located.

Chapel Pointe is a non-profit corporation that was formed in 1944 to provide a home and sustenance for aged and infirm people in Carlisle, Pennsylvania. It currently operates as a licensed continuing care retirement community. Located on its property is a 59-bed skilled nursing home, which has been exempted from real estate taxation as a hospital and a 53-bed assisted living compound, which has been exempted as well. Also located on the property and at issue in this case are 93 apartments that function as the independent living component of the Chapel Pointe retirement community. In 1997, the trial court affirmed a decision by the Cumberland County Board of Assessment (Board) denying an extension of the tax exemptions for the skilled nursing home and assisted living areas to the contiguous parcel on which the independent living units are located, finding that Chapel Pointe was not a purely public charity and was not entitled to an exemption from real estate taxes on the apartment units. Chapel Pointe did not appeal this decision.

In 2001, after the enactment of the Institutions of Purely Public Charity Act¹ (more commonly referred to as "Act 55"), Chapel Pointe again petitioned the Board requesting a determination that it was entitled to a presumption under Act 55 that it was an institution of purely public charity, and the parcel consisting of the independent living apartments be exempt from real estate taxes as a purely public charity. It argued that it met both the constitutional and statutory tests for exemption by providing, among other things, uncompensated goods and services to the residents which were in excess of five percent of the cost of providing such goods and services as required. The Board denied the request after concluding that it was res judicata based on the 1997 decision and precluded re-litigation. Chapel Pointe then appealed to the trial court which permitted a hearing on the matter.

At the hearing, Chapel Pointe presented the testimony of H. David Padden (Padden), a certified public accountant, who provided the following information regarding Chapel Pointe's 93² independent living apartments: he stated that the minimum age requirement for a resident in an apartment was 62, and that all the apartments were privately paid for by the residents without any government subsidies. He explained that a perspective resident had to provide Chapel Pointe with a detailed financial statement, and Chapel Pointe did not admit any resident who could not pay the entrance fee up front and whose financial information did not reflect that they could pay the monthly rental fees. One apartment unit was used as a model. The total amount for the entrance fees for the 92 apartments for residents was $5,721,000. As of the date of the hearing, four apartments were vacant. The entrance fee was amortized to income over a period of time.

Padden continued to state that Chapel Pointe placed each apartment on a 40-year depreciation schedule, and the average stay for a resident was three to four years. However, residents could stay in their apartments as long as they were safe and then they could be moved to either the assisted living compound or to the nursing home within Chapel Pointe. He stated that the average stay of a resident was four to five years. He further stated that Chapel Pointe amortized all entrance fees over the life expectancy of the resident. He explained that Chapel Pointe amortized the entrance fee at 20% each year prorated monthly for five years; therefore, if a resident left the apartment within five years, a prorated amount of the entrance fee would be refunded. Nonetheless, all income earned on an entrance fee was retained by Chapel Pointe, and after five years, no portion of the entrance fee was refundable. Padden also stated that a uniform monthly rental fee was charged for each apartment. Regarding uncompensated services, Padden stated that 55% of the apartment residents received some type of uncompensated services such as assistance with the timely taking of medications, participation in some social activities, and advice regarding family or financial problems which amounted to them receiving uncompensated services greater than 10% of the cost of care.

Regarding Chapel Pointe's financial statement, Padden stated that Chapel Pointe allocated its administrative costs on the basis of total operating costs, with 68% of administrative costs allocated to the nursing home, 22% to the assisted living compound, and 9% for the independent living apartments. Although Padden testified that for years 1998, 1999 and 2000, Chapel Pointe realized an operating loss and had relied upon contributions and bequests to make up for that loss, on cross-examination, he admitted that in arriving at the figures that determined the losses, he included depreciation for each year and did not include other contributions and non-operating revenues and gains.

John Hendrickson (Hendrickson), the Executive Director of Chapel Pointe, testified that entrance fees ranged from $37,000 for an efficiency apartment to $73,000 for a two-bedroom apartment, and that Chapel Pointe earned 20% from each entrance fee that was charged. He could not recall ever waiving the entrance fee. Currently, the rent was $599 for one resident and an additional $130 for an additional occupant. Hendrickson indicated that there were a few residents who had trouble meeting their monthly payment and were receiving some financial assistance from Chapel Pointe. Residents whose income had become insufficient to pay the rent were required to immediately apply for financial assistance from their family, church or public welfare agencies. He noted that if the monthly rental fee was not timely paid, Chapel Pointe could terminate the residency, although it had never done so. Residents were required to annually prepare and submit a current financial statement to Chapel Pointe and the failure to do so constitutes grounds for termination/eviction. Hendrickson stated that it was Chapel Pointe's policy for any surplus in revenues that were generated from fees charged or from charitable donations given to remain with Chapel Pointe. To defend the requirement of the entrance fee and a resident's disclosure of his or her assets, Hendrickson explained their importance:

There is a limit to the amount of benevolent care that we can provide. We're not a large facility with a huge endowment that can provide benevolent care without using monies coming in from operations. So we want to look at and be sure that we're going to be able to provide the benevolent care that we've already committed to, and so we have to be sure that there are people who are coming in are private pay. The other reason is that we want to be sure that we have something to compare a disclosure to now should they apply for a different level of living down the road and there is a significant difference in the amount of assets that are there. Again, we do not want to give charity to just anyone. We want to give charity to or financial assistance to people that truly qualify for financial assistance. (Emphasis added.)

(Reproduced Record at 157-158.) Richard Lehmann, Chapel Pointe's director of Financial Services, testified that there were only three residents that were currently receiving direct financial assistance from Chapel Pointe. He explained that that meant that those residents could not cover the rental fee and, although they were billed the full amount, Chapel Pointe wrote off $100 or $150 a month as a benevolent allowance.

Testifying on behalf of the Board and Cumberland County (County) were William Reath (Reath), a real estate assessor with the County and Randy Waggoner (Waggoner), an assessment consultant for Wolfe and Shearer Realtors. Reath testified that the current assessed value of the 93 apartments was $2,593,350 for 100% of the market value in the year 2000. Waggoner testified that he previously worked for 18 years in the Cumberland County Assessment Office, 13 of those years as its Chief Assessor. He stated that he visited the independent living apartments and then conducted a rental survey of rental apartments in the area to compare rental prices. He found that the low-end of the scale for one-bedroom apartments was $325 per month and $425 per month for two-bedrooms while the average was $350 per month and $450 per month for one-bedroom and two-bedroom apartments, respectively.

The trial court initially denied Chapel Pointe's contention that it was entitled to a rebuttable presumption under Act 55 that it was a purely public charity because that was a preliminary question which first had to be answered within the meaning of Article 8, Section 2(a)(v) of the Pennsylvania Constitution. It then denied Chapel Pointe's petition for an exemption from the real estate tax as a purely public charity because it did not prove that it donated or rendered gratuitously a substantial portion of its services to the residents of its apartments, noting that residents had to meet financial requirements before admission; Chapel Pointe received $5,721,000 for 92 units plus...