SEPTA v. Board of Revision of Taxes

• Decision Date: 31 May 2001
• Citation: 777 A.2d 1234
• Parties: SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, v. BOARD OF REVISION OF TAXES, City of Philadelphia and School District of Philadelphia, Appellants.
• Court: Pennsylvania Commonwealth Court

777 A.2d 1234

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, v. BOARD OF REVISION OF TAXES, City of Philadelphia and School District of Philadelphia, Appellants.

Commonwealth Court of Pennsylvania.

Argued March 7, 2001.

Decided May 31, 2001.

Reargument Denied August 9, 2001.

Lewis Rosman, Philadelphia, for appellants.

Michael Sklaroff, Philadelphia, for appellee.

Before McGINLEY, J., and FLAHERTY and LEDERER, Senior Judges.

Reargument En Banc Denied August 9, 2001.

McGINLEY, Judge.

The Board of Revision of Taxes of the City of Philadelphia and the School District of Philadelphia (collectively, the City) appeal the order of the Court of Common Pleas of Philadelphia County (trial court) that reversed the Board of Revision of Taxes of the City of Philadelphia's (Board) decision and determined that the Southeastern Pennsylvania Transportation Authority (SEPTA) was not liable for real estate taxes on the portions of property it owns at 1234 Market Street in the City of Philadelphia (the Property) that it leases to commercial tenants.

SEPTA purchased the Property on September 24, 1993, for use as its administrative headquarters. The Property consists of a twenty story office building which includes a penthouse, basement, sub-basement, loading dock, and an underground parking garage. The Property contains approximately 664,664 leaseable square feet. SEPTA currently occupies 446,035 square feet of space within the Property. The Board determined that the fair market value of the Property for the years 1994 through 1999 was $25,500,000.00. Since 1994, SEPTA has leased portions of the Property to various tenants including government, nonprofit, and private commercial entities.

On November 1, 1993, SEPTA applied for an exemption from real estate taxes with the Board and sought to have the Property declared immune and exempt from taxation for the years 1994 and thereafter. On December 22, 1998, the Board granted a partial real estate tax exemption for the portions of the Property used by SEPTA and other government and non-profit entities and exempted eighty-five percent of the Property's assessed value for 1994 and thereafter. The Board set the taxable assessed value of the Property at $1,224,000.00 and the exempt assessed value of the Property at $6,936,000.00.

On January 21, 1999, SEPTA appealed the Board's decision on the basis that it was immune from taxation. The parties agreed that the following portions of the Property were not subject to taxation: any portions of the Property occupied by SEPTA, any portions of the Property occupied by government entities, any portions of the Property occupied by a nonprofit entity, any vacant space, any common areas, and the parking garage.

The trial court heard SEPTA's appeal on December 6, 1999. Gerald Maier (Maier), director of real estate for SEPTA, testified that he prepared a report in 1992 which indicated that SEPTA would save $1,200,000.00 if it consolidated its operations in one location. Notes of Testimony, December 6, 1999, (N.T.) at 11; Reproduced Record (R.R.) at 27a. Maier also testified that the City of Philadelphia and the Urban Redevelopment Authority of the City of Philadelphia paid less than market value for their space in the Property. N.T. at 26-27; R.R. at 42a-43a. On cross-examination, Maier stated that commercial tenants' leases provide for an increase if SEPTA is forced to pay real estate tax. N.T. at 32; R.R. at 48a.

Joseph M. Casey (Casey), director of the operating budget and operational analysis for SEPTA, testified that SEPTA was required by statute to explore all means of increasing revenues including rental income. N.T. at 43; R.R. at 59a. Casey also testified that SEPTA received approximately $1,200,000.00 from the rental of the Property to commercial tenants. SEPTA used the revenue for operations and noted that the operating subsidy received from the Commonwealth did not increase from 1996 through 1999. N.T. at 48; R.R. at 64a.¹

On July 13, 2000, the trial court granted SEPTA's appeal and reversed the Board. The trial court determined that SEPTA was immune from tax because there was no statutory authority for the City to tax SEPTA property. The trial court also determined that SEPTA had a duty to raise revenues and the lease of excess space at the Property fulfilled that duty, and because SEPTA's actions were within its purpose and powers, the trial court determined SEPTA was immune from taxation on all parts of the Property.

The trial court also determined that SEPTA was exempt from taxation:

Here, SEPTA acquired the Property pursuant to its enabling legislation, which states, inter alia, that SEPTA is exempt from `any property taxes or assessments of any kind or nature whatsoever, now in existence or to be enacted in the future, whether imposed by the Commonwealth or by any political subdivision thereof, or by any other taxing authority....' .... Clearly this statute exempts SEPTA from any taxation on the Property.

In 1994, SEPTA's former enabling legislation was repealed, and a new statute was enacted in its place. The current enabling statute states that, `since an authority will, as a public instrumentality of the Commonwealth, be performing essential governmental functions in effectuating such purposes, such an authority shall not be required to pay any taxes or assessments of any kind or nature whatsoever, now in existence or to be enacted in the future, whether imposed by the Commonwealth or by any government agency upon any property or the income therefrom acquired or used or permitted to be used by an authority for such purposes ....'

....

Thus, SEPTA, pursuant to its current enabling statute is exempt from taxation.

The mere fact that income is being derived from the Property, as the statute clearly states, has no effect upon SEPTA's tax exemption on the Property. (Emphasis in original). (Citations omitted).

Trial Court Opinion, September 25, 2000, at 7-8.

The City contends that the trial court's ruling, that the Property rented to commercial tenants is used for a public purpose and that SEPTA is therefore immune and exempt from taxation, is erroneous.²

First, we must determine whether SEPTA is immune from taxation. Political subdivisions such as the City have no inherent power of taxation. Appeal of Harrisburg School District, 53 Pa. Cmwlth. 299, 417 A.2d 848 (1980). The General Assembly must grant the political subdivision the power to tax by statute. Id. at 850-851. Generally, property owned by the Commonwealth and its agencies is beyond the taxing power of a political subdivision. Delaware County Solid Waste Authority v. Berks County Board of Assessment Appeals, 534 Pa. 81, 626 A.2d 528 (1993).

"SEPTA is an instrumentality of the Commonwealth and participates in its rights as a sovereign." SEPTA v. Board for the Assessment and Revision of Taxes of Delaware County, 13 Pa.Cmwlth. 207, 319 A.2d 10 (1974). The City does not suggest that the General Assembly granted it the power to tax the Commonwealth and its agencies.

However, this Court's analysis whether SEPTA is entitled to immunity from taxation does not end here. An agency of the Commonwealth is entitled to complete immunity from taxation as long as it acts in accordance with the powers granted to it. Where an agency acts outside the scope of the powers granted the immunity is lost. Dauphin County General Authority v. Dauphin County Board of Assessments, 768 A.2d 895 (Pa.Cmwlth. 2000), citing, Delaware County Solid Waste Authority v. Berks County Board of Assessment Appeals, 534 Pa. 81, 626 A.2d 528 (1993).³

Here, SEPTA is organized pursuant to Section 1711 of the Law, 74 Pa.C.S. § 1711.⁴ The General Assembly clearly indicated that SEPTA is an agency and instrumentality of the Commonwealth. Therefore, SEPTA is immune from taxation until it acts outside its authorized purpose. As set forth in Section 1711, the purpose of SEPTA is to plan, acquire, hold, construct, operate, improve, maintain and lease a transportation system. The question of whether SEPTA is immune from the City's real estate tax hinges on whether renting realty to commercial tenants is consistent with SEPTA's purpose of running a transportation system.

Section 1741(a)(12) of the Law, 74 Pa. C.S. § 1741(a)(12), provides that an authority shall have the power to lease as lessor real property. Section 1741(a)(24) of the Law, 74 Pa.C.S. § 1741(a)(24), provides that an authority shall have the power "[t]o explore alternative means of raising revenue or reducing expenses, including, but not limited to, real estate leases and rentals." Section 1741(a)(24) also provides that an authority must submit a report to the Commonwealth of Pennsylvania, Department of Transportation by April 15 of each year which details the actions of the authority in exploring alternate means of raising revenues and reducing expenses.

All agree that the purpose of SEPTA is to operate a transportation system in Southeastern Pennsylvania. While SEPTA is free to lease its real estate to tenants and is under the direction to raise revenue, clearly the leasing of real estate, solely to raise revenue, is not an activity connected to SEPTA's purpose. Therefore, SEPTA property leased to commercial tenants is not immune from taxation.⁵

Next, we must determine if the Property is exempt from tax. A tax exemption exists where the General Assembly affirmatively removes property that ordinarily would be subject to taxation. Bucks County Community College v. Bucks County Board of Assessment Appeals, 147 Pa.Cmwlth. 505, 608 A.2d 622 (1992). Article 8, Section 2(a)(iii) of the Pennsylvania Constitution provides: [t]he General Assembly may by law exempt from taxation: ... [t]hat portion of public property which is actually and regularly used for public purposes."

The General Assembly has provided a tax exemption for SEPTA in the Law. Section 1781 of the Law, 74 Pa.C.S. § 1781 exempts an authority created under the Law from...