SEPTA v. Board of Revision of Taxes

• Decision Date: 28 July 2003
• Citation: 574 Pa. 707,833 A.2d 710
• Parties: SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY (SEPTA), Appellant, v. BOARD OF REVISION OF TAXES, City of Philadelphia and School District of Philadelphia, Appellees.
• Court: Pennsylvania Supreme Court

833 A.2d 710

574 Pa. 707

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY (SEPTA), Appellant, v. BOARD OF REVISION OF TAXES, City of Philadelphia and School District of Philadelphia, Appellees.

Supreme Court of Pennsylvania.

Argued October 22, 2002.

Decided July 28, 2003.

Reargument Denied September 25, 2003.

Carrie E. Watt, Michael Sklaroff, for Southeastern Pennsylvania Transportation Authority.

Richard Feder, Lewis Rosman, for Bd. of Revision of Taxes of Philadelphia, City of Philadelphia and The School District of Philadelphia

Before ZAPPLA, C.J., and CAPPY, CASTILLE, NIGRO, NEWMAN, SAYLOR and EAKIN, JJ.

OPINION

Chief Justice CAPPY.

This appeal raises the question of whether property owned by Appellant, the Southeastern Pennsylvania Transportation Authority (hereinafter "SEPTA") and leased to commercial tenants is immune from local taxation.¹ The Commonwealth Court held that SEPTA is not immune from such taxation, since leasing commercial real estate is not part of SEPTA's governmental function. For the reasons stated herein, we affirm the decision of the Commonwealth Court.

SEPTA purchased property at 1234 Market Street in the City of Philadelphia. The property consists of a twenty-story office building. The property has approximately 664,664 square feet of office space that can be leased. SEPTA currently occupies 446,035 square feet of the office space, which it uses as its headquarters. It leases the remaining space to commercial, non-profit, and government organizations.

The Board of Revision of Taxes of the City of Philadelphia (hereafter "Board") determined that the fair market value of the property for the years 1994 through 1999 was $25,500,000.00. SEPTA applied for a real estate tax exemption with the Board on the basis that the property was immune and exempt from taxation for the years 1994 and thereafter. 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 subsequent years. 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.

SEPTA appealed the Board's decision to the Court of Common Pleas. The parties agreed that the portion of the property occupied by SEPTA, government organizations, non-profit entities, and any vacant space, common areas, and the parking garage were not subject to taxation. Thus, the only portion of the property that was at issue before the trial court was the portion of the building that SEPTA leased to commercial entities.

Following a hearing, the trial court granted SEPTA's appeal and reversed the Board. The trial court found that SEPTA's use of its property to raise revenue and reduce expenses was for a public purpose: "The rental of the space by SEPTA is for [sic] public purpose as it is intended to aid a struggling governmental entity, an entity intended to serve the public, to remain operating." Trial court opinion at 9. Accordingly, the court held that SEPTA was exempt from taxation regardless of whether or not portions of the property are leased to third party commercial entities. Id.

On appeal, the Commonwealth Court reversed. SEPTA v. Board of Revision of Taxes et al., 777 A.2d 1234 (Pa. Commw.2001). The Commonwealth Court explained that an agency of the Commonwealth is immune from taxation so long as it acts in accordance with the powers granted to it. "Therefore, SEPTA is immune from taxation until it acts outside its authorized purpose." 777 A.2d at 1238. The court then stated that the purpose of SEPTA is to operate a transportation system serving southeastern Pennsylvania; and the leasing of real estate solely to raise revenue is not an activity connected to this purpose. Accordingly, the court held that the excess property leased to commercial tenants was not immune from taxation. The court similarly concluded that SEPTA was not exempt from taxation since the commercial real estate business was not a governmental function.

This court granted allowance of appeal to address whether the Commonwealth Court erred in determining that the portion of SEPTA's property that it leased to commercial tenants was not immune from taxation.

SEPTA argues that our decision in Delaware County Solid Waste Authority v. Berks County Bd. of Assessment Appeals, 534 Pa. 81, 626 A.2d 528 (1993), governs the instant appeal. According to SEPTA, in Delaware, this court announced that an agency is immune from taxation when the agency was acting within its authorized governmental purposes and powers. Thus, Appellees² must show that the agency is acting outside of its authorized purpose and powers in order to tax SEPTA's property. In this case, Appellees cannot make this showing since the Legislature has given SEPTA the express authority to lease its real property in order to raise revenue, 74 Pa.C.S. § 1741(a)(12) and (a)(24). Thus, SEPTA concludes that the Commonwealth Court erred in determining that the excess property was not immune from taxation.

Appellees respond that Delaware County did not change the standard for tax immunity to make immune all acts within an agency's statutory power and authority. Instead, after Delaware County, the test continues to be whether the agency actually uses the property for a public purpose. Appellees argue that Delaware County made this clear by relying on the decision in West View Borough Municipal Authority Appeal, 381 Pa. 416, 113 A.2d 307 (1955). Thus, Appellees conclude that the Commonwealth Court properly employed and applied the "public purpose" test and the excess property was not immune from taxation.

The issue in this case is whether the Commonwealth Court applied the proper standard in evaluating SEPTA's tax immunity claim. As such, the issue presented involves a question of law. Our standard of review for a question of law is de novo; our scope of review is plenary. Buffalo Twp. v. Jones, 571 Pa. 637, 813 A.2d 659, 664 n. 4 (2002).

It is well settled that tax immunity is distinct from tax exemption. Delaware County, 626 A.2d at 530. However, in looking at the two concepts, courts of this Commonwealth have used the terms "immunity" and "exemption" interchangeably. We will first look at tax immunity in an attempt to clarify the distinction between the two ideas.

The elementary premise underlying taxation is that the power to tax is exclusively vested within the legislature. Commonwealth v. Dauphin County, 335 Pa. 177, 6 A.2d 870, 871 (1939). "Property is immune from taxation if the taxing body has not been granted the authority to levy a tax." Delaware County, 626 A.2d at 530. As a general matter, property owned by the Commonwealth and its agencies is immune from taxation by a local subdivision in the absence of express statutory authority. Dauphin County, 6 A.2d at 872; see also Delaware County, 626 A.2d at 530; Appeal of Bd. of Dir. of Owen J. Roberts, 500 Pa. 465, 457 A.2d 1264, 1265 (1983). It cannot be presumed that general statutory provisions giving local subdivisions the power to tax local real estate, were meant to include property owned by the Commonwealth, since to allow such taxation would upset the orderly processes of government. Dauphin County, 6 A.2d at 872. Thus, in order to tax property owned by the Commonwealth, a local subdivision must establish that it has the authority to tax such property.

On the other hand, tax "exemption" carves out specified property from taxation that the taxing body otherwise has the authority to tax. Delaware County, 626 A.2d at 530. The exemptions are the result of Article VIII, Section 2 of the Pennsylvania Constitution, which provides that the General Assembly may by law exempt from taxation certain classes of property, including "that portion of public property which is actually and regularly used for public purposes." PA. CONST. ART. VIII, § 2(a)(iii). Thus, unlike immunity situations, the property is presumed to be subject to tax unless specifically excluded and the taxpayer must establish that the property is exempt from taxation.

Thus, the primary distinction between "immunity" and "exemption" is simply that "the ordinary presumption against exemption does not apply where the property involved is owned by the Commonwealth, since such property has for reasons of public policy been consistently recognized as free from taxation." Dauphin County, 6 A.2d at 872-73. Keeping this distinction in mind, we now turn to an analysis of the specific arguments presented in this case. Appellees' argument focuses on the test set forth in West View, a tax exemption case, as providing the proper analysis to review the instant matter; we will likewise begin our analysis with that case.

In West View, the Municipal Authority of the Borough of West View constructed a building for its own purposes. 113 A.2d at 308. It used part of the property for its own operations, leased part of the property to the Borough to rent for social events, and leased the remaining property to commercial entities. Id. The Board of Property Assessment placed an assessment value on the entire property. Id. at 309. The Authority appealed. The Court of Common Pleas held that the part of the land and building used by the Authority and the parking area used by the Borough were exempt from taxation. Id. However, the court determined that the remainder of the property was subject to taxation. Id. The Municipal Authority appealed to this court. Id.

On appeal, the court entertained the issue of the "extent of the exemption from taxation of its real estate to which the appellant Municipal Authority is entitled." 113 A.2d at 307. In answering this question, the court explained that in order to qualify for tax exemption it must be established that the property is being used for a public purpose. Id. (citing PA. CONST. Art. IX, § 1, which was renumbered to PA....