Biosciences Information Service v. Com.

• Decision Date: 22 December 1988
• Parties: BIOSCIENCES INFORMATION SERVICE, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Two Cases)
• Court: Pennsylvania Commonwealth Court

Page 672

551 A.2d 672

122 Pa.Cmwlth. 294

BIOSCIENCES INFORMATION SERVICE, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Two Cases)

Commonwealth Court of Pennsylvania.

Argued Sept. 14, 1988.

Decided Dec. 22, 1988.

Morris R. Brooke, Joseph C. Bright, Jr., Drinker Biddle & Reath, Philadelphia, for petitioner.

B.J. DeLuca, Jr., Tax Litigation Unit, Office of Atty. Gen., Harrisburg, for respondent.

Before CRUMLISH, Jr., President Judge, and CRAIG, DOYLE, BARRY, COLINS, PALLADINO, and McGINLEY, JJ.

COLINS, Judge.

Biosciences Information Service (BIOSIS) has filed exceptions to a decision rendered by a panel of this Court in Biosciences Information Service v. Commonwealth, 101 Pa. Commonwealth Ct. 384, 516 A.2d 434 (1986) (BIOSIS III ), which declared that BIOSIS does not fulfill the criteria of a purely public charity and, therefore, is not entitled to the public charity exemption pursuant to Section 204(10) of the Tax Reform Code of 1971 (Code). ¹ Consequently, BIOSIS III affirmed, for the second time, two orders of the Board of Finance (Board) which, likewise, affirmed use tax assessments imposed by the Department of Revenue (Department) for two tax audit periods.

This matter involves two consolidated petitions for review of determinations of the Board. BIOSIS initially petitioned this Court in 1985 following the Board's affirmance of the Department's imposition of use tax assessments against BIOSIS. By an opinion dated July 12, 1985, we affirmed the Board's orders. Subsequently, BIOSIS filed exceptions ² challenging this Court's findings of fact, and its failure to make findings of fact and conclusions of law. On reargument before this Court en banc, BIOSIS' exceptions were sustained and the 1985 order was vacated. Accordingly, a new opinion was ordered, including findings of fact, based upon the record, to resolve the legal issues involved.

The findings of fact which were made by this Court in BIOSIS III were based upon a partial stipulation of facts made by the parties, as well as upon an evidentiary hearing which was held November 14, 1984. These findings of fact are as follows:

1. BIOSIS is a nonprofit corporation organized under the laws of the District of Columbia, with its headquarters located at 21st and Arch Streets, Philadelphia, Pennsylvania.

2. BIOSIS obtains and abstracts biological sciences literature from around the world. The abstracts are compiled and indexed into manuscripts, then bound and delivered to interested institutions and individuals.

3. BIOSIS receives, free of charge, publications from around the world dealing with biological sciences. Many scientists donate their services to BIOSIS.

4. BIOSIS publishes reference data and maintains the data as part of its permanent library. Additionally, BIOSIS performs searches of the library upon request.

5. Subscribers to BIOSIS publications include government agencies, medical schools, research laboratories, hospitals and individual doctors.

6. BIOSIS charges for its publications, and for computerized searches of its library.

7. BIOSIS also conducts meetings and seminars designed to educate the public regarding the availability and use of reference data in the fields of biological science. BIOSIS does not charge for these seminars.

8. BIOSIS does no research or testing of its own, nor does it write any of the articles which it compiles.

9. The fee charged by BIOSIS for its publications is approximate to the actual costs incurred by BIOSIS to compile the periodicals.

10. During three of the four full years BIOSIS was audited, BIOSIS accumulated a profit. In 1974, BIOSIS' excess revenue over expenses was $437,118. In 1976, BIOSIS' excess revenues over expenses was $56,915. In 1977, BIOSIS' excess revenues over expenses was $712,146.

11. The Department audited BIOSIS for the periods from January 1, 1974, through October 31, 1977, and from January 1, 1975, through 1978. As a result, BIOSIS was issued tax assessments in the amounts of $196,278.05 and $97,888.03. These assessments related to BIOSIS' purchase of office equipment and materials such as copiers, typewriters, computers and maintenance items.

12. BIOSIS filed timely petitions with the Board of Appeals of the Department, contesting the assessments. The Board of Appeals reassessed BIOSIS' use tax liability for the period from January 1, 1974, through October 30, 1977, to $163,232.47. The assessment for the period from January 1, 1975, through June 30, 1978, was reduced to $96,897.51.

13. BIOSIS filed timely petitions for review with the Board of Finance and Revenue, again contesting the assessments.

14. The Board of Finance and Review affirmed the assessments.

15. BIOSIS filed timely petitions for review with this Court from the orders of the Board of Finance and Revenue for each of the two audit periods.

Id. at 386-388, 516 A.2d at 434-435.

In this appeal, BIOSIS still maintains that it is a purely public charity and is, therefore, entitled to a tax exempt status. BIOSIS attacks this Court's 1986 decision by asserting that the panel failed to consider the stipulated facts in reaching its conclusion that BIOSIS is not a purely public charity. Once again, BIOSIS argues that it does meet the criteria used to determine whether an entity is a purely public charity and is, therefore, entitled to an exclusion from the payment of sales and use tax pursuant to Section 204(10) of the Code. Accordingly, BIOSIS contends that the panel erred in finding otherwise. ³

Section 204(10) of the Code excludes from sales and use taxes, "[t]he sale at retail or use by (i) any charitable organization, volunteer firemen's organization or nonprofit educational institution...." This exemption derives from the Pennsylvania Constitution, article VIII, section 2(a)(v) which permits the General Assembly to exempt from taxation institutions in the nature of purely public charities.

We note that BIOSIS carries the burden in this matter of proving that it is entitled to the tax exemption. Anastasi Brothers Corp. v. Commonwealth, 455 Pa. 127, 315 A.2d 267 (1974). Thus, because BIOSIS seeks a tax exempt status as a purely public charity, it must establish that it meets the criteria of a purely public charity.

The Pennsylvania Supreme Court has set forth five criteria which an organization must fulfill in order to qualify for the foregoing tax exemption in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (HUP ). According to HUP, an entity qualifies as a purely public charity if it possesses the following characteristics: (1) Advances a charitable purpose; (2) Donates or renders gratituitously a substantial portion of its services; (3) Benefits a substantial and indefinite class of persons who are legitimate subjects of charity; (4) Relieves the government of some of its burden; and (5) Operates entirely free from private profit motive. Id. at 22, 487 A.2d at 1317.

BIOSIS first argues that it does, in fact, advance a charitable purpose by collecting, preserving, and making available its library to the public. Without its library, BIOSIS argues, the public would be unable to access the accumulated literature in the biological sciences field.

The definition of "charitable purpose" was set forth in Hill School Tax Exemption Case, 370 Pa. 21, 87 A.2d 259 (1952), where the Pennsylvania Supreme Court stated:

The word 'charitable' in a legal sense includes every gift for a general public use, to be applied, consistent with existing laws, for the benefit of an indefinite number of persons, and designed to benefit them from an educational, religious, moral, physical, or social standpoint. In its broadest meaning it is understood "to refer to something done or given for the benefit of our fellows or the public...."

Id. at 25, 87 A.2d at 262 (quoting Taylor v. Hoag, 273...