Guthrie Clinic, Ltd. v. Sullivan County Bd. of Assessment Appeals, 042506 PACCA, 1099 CD 2005

• Docket Nº: 1099 CD 2005
• Party Name: Guthrie Clinic, Ltd. v. Sullivan County Bd. of Assessment Appeals,
• Case Date: April 25, 2006
• Court: Court of Appeals of Pennsylvania

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Guthrie Clinic, Ltd., Appellant

v.

Sullivan County Board of Assessment Appeals

No. 1099 C.D. 2005

Court of Appeals of Pennsylvania

April 25, 2006

Argued: February 28, 2006

BEFORE: HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROCHELLE S. FRIEDMAN, Judge HONORABLE JOSEPH F. McCLOSKEY, Senior Judge

OPINION

FRIEDMAN, JUDGE

Guthrie Clinic, Ltd. (Guthrie) appeals from the April 21, 2005, order of the Court of Common Pleas of the 44^th Judicial District (Sullivan County Branch) (trial court), which denied Guthrie’s request for an exemption from Pennsylvania real estate taxes for its clinic located in Dushore, Sullivan County (Dushore Clinic).

Guthrie, a medical group that incorporated in 1987 as a professional corporation,¹ employs approximately 220 physicians in various clinics that serve approximately forty communities throughout the northern tier of Pennsylvania and the southern tier of central New York. (R.R. 125a, 130a.) Among these, Guthrie operates the Dushore Clinic. Staffed by one physician specializing in internal medicine and a part-time nurse practitioner who specializes in family medicine, (R.R. at 218a), the Dushore Clinic provides primary medical care to residents of Sullivan County.

Guthrie is exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. §501(c)(3),² and is exempt from paying Pennsylvania sales tax under the act known as the Institutions of Purely Public Charity Act, Act of November 26, 1997, P.L 508, 10 P.S. §§371-385 (Act 55). (R.R. at 125a.)

In August 2004, Guthrie applied to the Sullivan County Board of Assessment Appeals (Board) seeking a real estate tax exemption, as a purely public charity, for its Dushore Clinic. By a decision dated November 2, 2004, the Board denied Guthrie’s exemption request, and Guthrie filed a timely appeal to the trial court, which held a de novo hearing on the matter.

At the hearing, James Armstrong, Guthrie’s Chief Financial Officer, and Paul Chacona, Guthrie’s Senior Vice President and Chief Operating Officer, testified regarding physician compensation. Armstrong explained that Guthrie sets physician compensation by first determining the “productivity” of each physician. Using a national survey, Guthrie then determines how other physicians with the same level of productivity are being compensated and pays its physician’s fifteen percent less than that amount. (R.R. at 144a-46a.) On cross-examination, Armstrong admitted that the more a physician “produces,” the higher the salary and that there is a financial incentive for physicians to be more “productive.” (R.R. at 193a, 211a.) For example, Armstrong testified that Dr. Deshmukh’s salary was based on his productivity and that if Dr. Deshmukh produced an outstanding amount, he would receive a higher salary. (R.R. at 198a.) Armstrong also testified about Guthrie’s Profit Sharing Plan/Pension Plan (Plan).³ (R.R. at 149-51a, 195a-96a.) According to Armstrong, both individual employees and Guthrie make contributions to the Plan, with Guthrie making a set contribution of two percent of the employee’s salary and a discretionary contribution. (R.R. at 150a, 195a-96a.) Armstrong stated that the Board of Directors determines the discretionary contribution to the Plan annually, and the current contribution was five percent of an employee’s salary. (R.R. at 150a-51a, 196a.) Finally, Armstrong acknowledged that Guthrie’s prime contract for physicians included a non-competition clause; he also admitted that Guthrie has a bonus program and that part of his compensation is subject to a bonus at the Board of Directors’ discretion. (R.R. at 150a, 198a-99a, 211a.)

Chacona provided similar testimony regarding Guthrie’s calculation of compensation for the physician at the Dushore Clinic, stating “we map [his compensation] out with a fifteen percent deduction based on the revenues generated as compared to the national survey.” (R.R. at 223a) (emphasis added). On cross-examination, however, Chacona stated that a physician’s compensation is based on that physician’s “productivity.” (R.R. at 230a.)

After considering the testimony, the trial court held that Guthrie had failed to qualify for the exemption as a purely public charity...