Fayette Res., Inc. v. Fayette Cnty. Bd. of Assessment Appeals

• Decision Date: 23 December 2014
• Docket Number: No. 405 C.D. 2014,405 C.D. 2014
• Citation: 107 A.3d 839
• Court: Pennsylvania Commonwealth Court
• Parties: FAYETTE RESOURCES, INC., a Pennsylvania non-profit corporation, v. FAYETTE COUNTY BOARD OF ASSESSMENT APPEALS, and North Union Township, Laurel Highlands Area School District and Fayette County Appeal of: Fayette County Board of Assessment Appeals.

107 A.3d 839

FAYETTE RESOURCES, INC., a Pennsylvania non-profit corporation

v. FAYETTE COUNTY BOARD OF ASSESSMENT APPEALS, and North Union Township, Laurel Highlands Area School District and Fayette CountyAppeal of: Fayette County Board of Assessment Appeals.

No. 405 C.D. 2014

Commonwealth Court of Pennsylvania.

Argued Nov. 10, 2014.

Decided Dec. 23, 2014.

John M. Zeglen, Uniontown, for appellant.

Kenneth J. Yarsky, II, Pittsburgh, for appellees Fayette Resources, Inc. and Fayette County.

BEFORE: BONNIE BRIGANCE LEADBETTER, Judge, and PATRICIA A. McCULLOUGH, Judge, and JAMES GARDNER COLINS, Senior Judge.

Opinion

OPINION BY Senior Judge COLINS.

This is an appeal filed by Fayette County Board of Assessment Appeals (the Board) from the order of the Court of Common Pleas of Fayette County (trial court) sustaining consolidated tax assessment appeals filed by Fayette Resources, Inc. (Resources) and holding that Resources is entitled to a real estate tax exemption as a “purely public charity.” Because Resources failed to meet its burden to prove that it satisfies all of the requirements for tax exemption as a “purely public charity” under our Supreme Court's decision in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985), we reverse.

Resources is a Pennsylvania non-profit corporation, exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code. (Trial Court Hearing Transcript (H.T.) at 27–29, Reproduced Record (R.R.) at 69a–71a; Resources Ex. A, R.R. at 94a–118a.) Resources operates group homes for intellectually disabled individuals (persons with an IQ of 70 or less), which generally house three to four intellectually disabled adults per home with staff members on site in rotating shifts to assist them. (H.T. at 10–14, 19–22, R.R. at 52a–56a, 61a–64a.) Resources also provides services for the intellectually disabled, including training in daily living skills and training for employment. (Id. at 10, 12–13, R.R. at 52a, 54a–55a.) Resources has approximately 80 group homes in Fayette County and other counties in western Pennsylvania, and has over 700 employees. (Id. at 11, 16, R.R. at 53a, 58a.).

In 2012, Resources filed requests for exemption from real estate taxes for 15 properties that it owns that are located in six municipalities and four school districts in Fayette County. All but one of those properties are group homes and the other property is a training center, where Resources runs programs for the intellectually disabled persons that it serves and trains its staff. (Id. at 11–13, 55, R.R. at 53a–55a, 57a.) The Board denied the requests for exemption and Resources filed separate appeals from the denials, which were consolidated by the trial court. On November 26, 2013, the trial court held an evidentiary hearing in the consolidated appeals at which Resources and the Board appeared.

At the trial court hearing, the only evidence introduced by Resources consisted of the testimony of its Director of Operations and copies of its Articles of Incorporation and By–Laws and the Internal Revenue Service notification that it qualified for Section 501(c)(3) federal tax exemption. Resources' Director of Operations testified that most of Resources' funding is through the state Department of Public Welfare.¹ (H.T. at 23–24, R.R. at 65a–66a.) Resources has a contract with the state to provide the residential housing and other services for intellectually disabled adults and is paid by the Department of Public Welfare with moneys coming primarily from federal Medicaid funds. (Id. at 13–14, 23–24, R.R. at 55a–56a, 65a–66a.) Individuals eligible for this funding do not pay anything to Resources, but where individuals do not qualify for government support, they or someone on their behalf must pay for the services. (Id. at 13–14, 24–25, 37, R.R. at 55a–56a, 66a–67a, 79a.) Resources does not provide any free services because federal law prohibits it from providing services to anyone at a rate lower than the Medicaid payment rates. (Id. at 37, 39–40, R.R. at 79a, 81a–82a.) No evidence was submitted at the trial court hearing of any charitable contributions received or used by Resources in its operations, volunteer services or other donations of any kind.

Resources' Director of Operations testified that the majority of Resources' employees work directly with the individuals that it serves. (Id. at 16–17, R.R. at 58a–59a.) The workers in Resources' group homes are paid approximately $9 to $11 per hour. (Id. at 22, R.R. at 64a.) Resources' CEO is paid an annual salary of approximately $125,000 or $130,000 and its Director of Operations' salary is approximately $83,000. (Id. ) Resources has no shareholders and no one at Resources receives any remuneration from it other than salaries. (Id. at 36, R.R. at 78a.)

Resources' Director of Operations admitted that in its fiscal year ending June 30, 2010, Resources' gross revenues of approximately $24 million exceeded its expenses by $820,000. (Id. at 38–39, R.R. at 80a–81a.) He testified that Resources uses its surplus funds to acquire and fix up houses for group homes and to cover losses in years when state funding is insufficient. (Id. at 25–26, 39, R.R. at 67a–68a, 81a.) Resources' Articles of Incorporation and By–Laws prohibit the use of net earnings to benefit its directors and officers or other private persons and require that on dissolution any assets be distributed to another charitable institution or to a government entity for a public purpose. (Resources Ex. A, R.R. at 98a, 116a; H.T. at 28–29, R.R. at 70a–71a.) No evidence was submitted to the trial court, however, as to how the government payments and other fees that Resources receives for providing care and services compare to the total cost of such care and services, including the acquisition and rehabilitation of the houses. No financial statements were admitted into evidence. Although the parties referred to Resources' Form 990 federal tax return for fiscal year ending June 2010 at the hearing, it was not offered in evidence by either party and is not in the record.

On February 21, 2014, the trial court issued an opinion and order ruling that that Resources is entitled to a real estate tax exemption as a “purely public charity.” The Board timely appealed, contending that Resources did not prove that it satisfies the constitutional and statutory requirements for exemption from state and local taxes.²

Section 204(a)(3) of the General County Assessment Law³ provides:

(a) The following property shall be exempt from all county, city, borough, town, township, road, poor and school tax, to wit:

* * *

(3) All ... associations and institutions of ... benevolence, or charity, ... with the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed, and maintained by public or private charity: Provided, That the entire revenue derived by the same be applied to the support and to increase the efficiency and facilities thereof, the repair and the necessary increase of grounds and buildings thereof, and for no other purpose....

72 P.S. § 5020–204(a)(3).

An entity does not qualify for this charitable tax exemption merely because it is a non-profit corporation and a tax-exempt charity for federal income tax purposes. Hospital Utilization Project, 487 A.2d at 1316 ; Hahn Home v. York County Board of Assessment Appeals, 778 A.2d 755, 759 (Pa.Cmwlth.2001). To qualify for a charitable exemption from state or local taxes, an entity must first prove that it is a “purely public charity” under Article VIII, Section 2(a)(v) of the Pennsylvania Constitution. Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals, 615 Pa. 463, 44 A.3d 3, 9 (2012) ; Community Options, Inc. v. Board of Property Assessment, 571 Pa. 672, 813 A.2d 680, 683 (2002) ; Hospital Utilization Project, 487 A.2d at 1312 ; Camp Hachshara Moshava of New York v. Wayne County Board for Assessment and Revision of Taxes, 47 A.3d 1271, 1275 (Pa.Cmwlth.2012).

To satisfy this constitutional prerequisite, the entity seeking a charitable tax exemption must demonstrate that it meets all of the following five requirements set forth by the Pennsylvania Supreme Court in Hospital Utilization Project, referred to as the “HUP test”: (1) it must advance a charitable purpose; (2) it must donate or render gratuitously a substantial portion of its services; (3) it must benefit a substantial and indefinite class of persons who are legitimate subjects of charity; (4) it must relieve the government of some of its burden; and (5) it must operate entirely free from private profit motive. Mesivtah Eitz Chaim of Bobov, Inc., 44 A.3d at 5, 9 ; Community Options, Inc., 813 A.2d at 683 ; Hospital Utilization Project, 487 A.2d at 1317 ; Camp Hachshara Moshava of New York, 47 A.3d at 1275 ; Hahn Home, 778 A.2d at 760. The burden is on the seeker of the exemption to establish each of those elements. Hospital Utilization Project, 487 A.2d at 1312 ; Camp Hachshara Moshava of New York, 47 A.3d at 1275–76. Whether an entity qualifies as a “purely public charity” under the HUP test is a mixed question of law and fact on which the trial court's decision must be upheld absent an abuse of discretion or lack of supporting evidence. Community Options, Inc., 813 A.2d at 683 ; Camp Hachshara Moshava of New York, 47 A.3d at 1275.

If the entity satisfies the HUP test, it must then also show that it meets the statutory requirements of the Institutions of Purely Public Charity Act (the Charity Act).⁴ Community Options, Inc., 813 A.2d at 685 ; Camp Hachshara Moshava of New York, 47 A.3d at 1275–76. Section 5 of the Charity Act imposes five requirements that track the five prongs of the HUP test and sets forth specific criteria by which the entity may meet those requirements. 10 P.S. § 375(a) -(f). However, the Charity Act's provisions are not identical to the HUP test, and an entity's status as a “purely public charity” under the...