PICPA Foundation for Educ. and Research v. Com.

• Decision Date: 29 October 1991
• Citation: 143 Pa.Cmwlth. 291,598 A.2d 1078
• Parties: , 71 Ed. Law Rep. 176 PICPA FOUNDATION FOR EDUCATION AND RESEARCH, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.
• Court: Pennsylvania Commonwealth Court

Page 1078

598 A.2d 1078

143 Pa.Cmwlth. 291, 71 Ed. Law Rep. 176

PICPA FOUNDATION FOR EDUCATION AND RESEARCH, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.

Commonwealth Court of Pennsylvania.

Argued Sept. 12, 1991.

Decided Oct. 29, 1991.

John H. Enos, III, for petitioner.

Bart J. DeLuca, Jr., Sr. Deputy Atty. Gen., for respondent.

Before COLINS and PELLEGRINI, JJ., and LORD, Senior Judge.

PELLEGRINI, Judge.

PICPA ¹ Foundation for Education and Research (Taxpayer) petitions for review of an order of the Board of Finance and Revenue which refused Taxpayer's claim for a refund of sales tax plus statutory interest.

According to the Stipulation of Facts entered into by Taxpayer and the Commonwealth, ² Taxpayer is a pennsylvania nonprofit corporation organized pursuant to the Nonprofit Corporation Law of 1972, Act of November 15, 1972, P.L. 1063, formerly 15 Pa.C.S. Pt. III Art. B, ³ and is a separate and distinct corporation from PICPA. Taxpayer was established:

for exclusively charitable, scientific and educational purposes, to wit: for the advancement and encouragement of education and research in accounting through receiving gifts, donations and grants and administering these on a charitable basis to promote education and research in accounting; through cooperation with professional nonprofit organizations in their educational and research efforts; through sponsoring seminars, lectures, courses, and similar activities relating to the teaching, study and practice of accounting; through the publication and dissemination of articles and other written materials in furtherance of these objectives; and through other activities performed for the sole purpose of advancing and encouraging education and research in accounting at all levels.

Stipulation of Facts p 3. In keeping with its purposes, Taxpayer disseminates information on accounting, auditing, tax, credit and collections, financial management, planning and control systems, budgeting, asset management, personal and interpersonal development skills, and hands-on computer training. Taxpayer also offers conferences on agribusiness, financial institutions, health care, local government and other subjects.

Notice of Taxpayer's seminars and group study programs are sent to the members of PICPA, other accounting and professional groups, and to persons who have previously attended Taxpayer's seminars. ⁴ Taxpayer also advertises its seminars in The Philadelphia Inquirer and the Pittsburgh Press and is "open and available to the general public." Stipulation of Facts p 8. All seminar attendees are charged a non-waivable fee ranging from $65.00 to $465.00.

Taxpayer is not, however, accredited as a college or university, trade school, vocational/technical school, or primary or secondary school, and it does not confer formal degrees. Taxpayer also does not own any permanent classrooms, school buildings or campus but instead rents facilities such as hotel conference rooms to conduct its seminars and group study programs.

On May 17, 1984 Taxpayer purchased data processing forms which it uses in activities directly related to and consistent with the purposes for which Taxpayer was organized. On August 8, 1984 Taxpayer filed a petition for refund with the Board of Appeals claiming a refund of $255.32 in sales tax paid on $4,255.44 for the purchase of data processing forms, plus statutory interest. Taxpayer contended that it was entitled to the refund because, as a "nonprofit educational institution" as defined in Department of Revenue (Department) regulations, it is excluded from paying sales tax pursuant to Section 204(10) of The Tax Reform Code of 1971 (Tax Code), Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7204(10). ⁵

After notice and a hearing, the Board of Appeals, by decision and order dated February 22, 1985, found that Taxpayer did not qualify as a nonprofit educational institution because Taxpayer's primary purpose is to educate members of the accounting profession and any education of the public is only incidental to Taxpayer's primary purpose. On Taxpayer's petition for review, the Board of Finance and Revenue, by order mailed August 30, 1985, sustained the decision of the Board of Appeals. Taxpayer's appeal to this Court followed. ⁶

Taxpayer contends that it is entitled to a refund of sales tax because it qualifies as a nonprofit educational institution under Section 204(10) of the Tax Code, 72 P.S. § 7204(10), which provides:

"The tax imposed by section 202 shall not be imposed upon

....

(10) The sale at retail to or use by (i) any charitable organization, volunteer firemen's organization or nonprofit educational institution...." (Emphasis added).

The question as to whether Taxpayer is entitled to the refund claimed because it is a nonprofit educational institution is a mixed question of law and fact. ⁷ Presbyterian-University of Pennsylvania Medical Center v. Board of Revision of Taxes, 24 Pa.Commonwealth Ct. 461, 463, 357 A.2d 696, 697 (1976).

The term "nonprofit educational institution" is not defined in the Tax Code, but the Department's implementing regulations define the term as follows:

Nonprofit educational institution--A permanent organization or establishment which is created and which exists by law or by public authority for the purpose of educating the public without pecuniary profit to any officer, member, or shareholder except as reasonable compensation for services actually rendered to the institution is a nonprofit educational institution. For example, a college, university, private or parochial school, historical society, museum, library, musical organization; such as a symphony orchestra or opera company, or community theatre group may be a nonprofit educational institution when it is created and exists by law or by public authority, has facilities for use by the general public, and is operated upon a nonprofit basis.... Groups which merely support or encourage the cause of education in general or a specific educational institution, or disseminate information on safety, or which are concerned with the welfare of persons engaged in educational work, including groups such as PTA, alumni groups, scholastic groups, professional associations, and contributor groups are not nonprofit educational institutions even if such groups are sponsored by or affiliated with a nonprofit educational institution, and even if such groups benefit or generally inform the public.

61 Pa.Code § 32.1.

The regulatory definition sets forth several criteria for determining whether an organization qualifies as a nonprofit educational institution. First, the organization must be a "permanent organization or an establishment created and existing by law or by public authority." 61 Pa.Code § 32.1. Because it is undisputed that Taxpayer is both a permanent organization and an organization which was created and is existing pursuant to the Nonprofit Corporation Law of 1972, we find that Taxpayer has satisfied the first requirement for qualification as a nonprofit educational institution.

Second, the organization must operate on a nonprofit basis, that is, "without pecuniary profit to any officer, member, or shareholder except as reasonable compensation for services actually rendered." 61 Pa.Code § 32.1. The stipulation of facts establishes that Taxpayer has continually operated on a nonprofit basis and is currently operating at a deficit. All of Taxpayer's operations are funded by fees paid by seminar attendees, and seminar instructors either donate their services or receive a stipend below their usual rate of compensation. Moreover, Taxpayer has not paid dividends or distributed any part of its income or profits to its members, directors or officers except for compensation paid to its secretary for services actually rendered. ⁸ Because we find that Taxpayer operates on a nonprofit basis, Taxpayer meets the second requirement for qualification as a nonprofit educational institution.

Third, the organization must exist "for the purpose of educating the public." 61 Pa.Code § 32.1. Taxpayer first contends that the regulatory definition of a nonprofit educational institution violates Section 204(10) of the Tax Code in that it contains an additional requirement that Taxpayer educate the "public." Taxpayer argues that it should not be required to educate the "public," but only be required to engage in "educational activities."

Nonprofit corporations, which the law has long and consistently recognized as a separate and distinct class by the Nonprofit Corporation Law and earlier statutes, have not been subject to taxation by various statutes which imposed taxes upon for-profit corporations. Board of Christian Education of the Presbyterian Church v. School District of City of Philadelphia, 171 Pa.Superior Ct. 610, 620, 91 A.2d 372, 376 (1952). The Tax Code, however, treats nonprofit corporations organized for religious, charitable or educational purposes differently than those organized for other purposes in that the latter, and not the former, is subject to taxation.

The reason for not subjecting the first type of nonprofit corporation to taxation is that entities organized for religious, charitable or educational purposes often render valuable public services which government or private profit-oriented institutions avoid or abandon because the cost of rendering such services is prohibitive. See, e.g., May Department Stores Co. v. City of Pittsburgh, 31 Pa.Commonwealth Ct. 398, 376 A.2d 309 (1977); see also Appeal of University of Pittsburgh, 407 Pa. 416, 180 A.2d 760 (1962); Hill School Tax Exemption Case, supra; Thiel College v. County of Mercer, 101 Pa. 530 (1882); Biosciences Information Services, 122 Pa.Commonwealth Ct. 294, 551 A.2d 672 (1988), aff'd per curiam, 524 Pa. 132, 569 A.2d 927 (1990). The services provided by these institutions complement or expedite governmental programs, and may also save public funds or provide other...