Friends Boarding Home of Western Quarterly Meeting v. Com. of PA

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Friends Boarding Home of Western :
Quarterly Meeting, :
:
Petitioner :
:
v. : No. 332 F.R. 2018
: Submitted: March 9, 2022
Commonwealth of Pennsylvania, :
:
Respondent :

BEFORE: HONORABLE RENÉE COHN JUBELIRER, President Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE LORI A. DUMAS, Judge
HONORABLE STACY WALLACE, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE WOJCIK FILED: August 3, 2022

Before the Court en banc are the exceptions (Exceptions) filed by
Friends Boarding Home of Western Quarterly Meeting (Friends) to a three-judge
panel Opinion and Order affirming the order of the Commonwealth of Pennsylvania
(Commonwealth), Board of Finance and Revenue (F&R) that denied Friends’
Application for Sales Tax Exemption (Application).1 See Friends Boarding Home

1
Friends filed their Exceptions pursuant to Pennsylvania Rule of Appellate Procedure
1571(i), which states:
(Footnote continued on next page…)
of Western Quarterly Meeting v. Commonwealth, 260 A.3d 1064 (Pa. Cmwlth.
2021) (Friends Boarding Home). Specifically, the panel concluded that Friends did
not meet the constitutional test to qualify as an institution of purely public charity
under Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985)
(HUP). Friends Boarding Home, 260 A.3d at 1075. Friends argues that the panel
erred by: making factual conclusions unsupported by or contradictory to the parties’
stipulations of facts;2 neglecting to consider that Friends incurs operating deficits;
and improperly equating Friends with senior care facilities charging exorbitant entry
fees. Friends maintains that the evidence supports a determination that it has met all
constitutional and statutory standards to qualify as an institution of purely public
charity. Upon review, we overrule the Exceptions and reaffirm Friends Boarding
Home.

I. Background
A full recitation of the underlying facts, as stipulated to by the parties,
may be found in Friends Boarding Home. For our present analysis, we briefly
summarize that, in March 2017, Friends filed an Application with the Department

Any party may file exceptions to an initial determination by the
court under this rule within 30 days after the entry of the order to
which exception is taken. Such timely exceptions shall have the
effect, for the purposes of Rule 1701(b)(3) (authority of lower court
or agency after appeal) of an order expressly granting
reconsideration of the determination previously entered by the court.
Issues not raised on exceptions are waived and cannot be raised on
appeal.

Pa. R.A.P. 1571(i).

2
The parties filed a Stipulation of Facts and a Supplemental Stipulation of Facts. The
Supplemental Stipulation of Facts contained two stipulations pertaining to 2019.
2
of Revenue (Department) seeking an exemption from the Commonwealth’s sales
and use tax as an institution of purely public charity. According to the parties’
stipulations, Friends is a nonprofit corporation doing business as Friends Home, a
senior living community located in Kennett Square, Chester County. Stipulation of
Facts (S.F.), 11/17/20, Nos. 1-3, 5.
Friends provided rate schedules for years 2012 through 2019. Friends
subsidizes its rates. Friends also attempts to set its rates lower than other institutions
in the surrounding area but sufficient to meet its operating budget. According to the
2014-2018 Directories of Licensed Personal Care Boarding Homes (Directories) in
Chester County, which was secured from the Chester County Department of Aging
Services and includes rates charged by similar facilities, three facilities charge less
than Friends; nine facilities charge more. S.F. Nos. 15-26, Exhibit Nos. 12-23.
Friends offers financial assistance to some of its residents, providing on
average approximately $82,500 per year to nine residents, which represents 15% of
its resident population. Friends provides financial support to those in need after they
have paid the full fare for two years, and then, only $2,000 per month, which maxes
out after $40,000 or 20 months. Friends deferred two applications because the
requesting residents did not meet the requisite standard for financial assistance.
Between 2016 and 2020, a total of seven residents left the facility because they
lacked funds. Friends does not accept Medicaid or any other government assistance.
S.F. Nos. 31-40, Exhibit Nos. 24-25; Supplemental Stipulation of Facts (S.S.F),
4/27/21, Nos. 1-2.
On May 26, 2017, the Department denied Friends’ Application upon
determining that Friends does not donate or render gratuitously a substantial portion
of its services. Friends timely appealed to the Department’s Board of Appeals

3
(BOA), which similarly denied the appeal upon concluding that Friends did not meet
the “community service requirement” under the Institutions of Purely Public Charity
Act (Charity Act).3 Friends timely appealed to F&R, which again concluded that
Friends was not exempt on the basis of the statutory “community service
requirement” under the Charity Act. F&R determined that Friends satisfied the other
statutory criteria for exemption, but it never addressed the constitutional
qualifications. See id. Friends then petitioned this Court for review.
In Friends Boarding Home, although the panel determined that F&R’s
analysis was flawed in its application of the statutory and constitutional tests, the
panel affirmed upon determining that Friends failed to meet the second and third
prongs of the constitutional test known as the HUP test.4 Friends Boarding Home,
260 A.3d at 1074-76. Specifically, the panel determined that Friends did not prove

3
Act of November 26, 1997, P.L. 508, as amended, 10 P.S. §§371-385.

4
To satisfy the constitutional requirements for a “purely public charity,” an institution must
satisfy the five-part “HUP test,” which requires that an institution possess the following
characteristics:

(a) Advances a charitable purpose;

(b) Donates or renders gratuitously a substantial portion of its
services;

(c) Benefits a substantial and indefinite class of persons who are
legitimate subjects of charity;

(d) Relieves the government of some of its burden; and

(e) Operates entirely free from private profit motive.

HUP, 487 A.2d at 1317. After meeting the HUP test’s constitutional qualifications, an institution
must also satisfy the corresponding statutory elements set forth in Section 5 of the Charity Act,
10 P.S. §375.
4
that it donates or renders gratuitously a substantial portion of its services under the
HUP test. Id. at 1074. The panel found that, based on the parties’ stipulations,
Friends’ fees are comparable to rates charged by its for-profit competitors; Friends
may decline admission or request a resident to leave if he or she cannot afford to
pay; Friends only provides financial support to those in need after they have paid the
full fare for two years, and then, only $2,000 per month, which maxes out after
$40,000 or 20 months; Friends financially assisted less than 15% of its population;
and Friends does not accept Medicaid. Id.
With regard to the third prong, the panel determined that Friends does
not benefit an indefinite class of persons who are legitimate subjects of charity.
Friends Boarding Home, 260 A.3d at 1075. The panel explained that Friends only
admits individuals who can initially afford its services with the use of personally
available financial resources. Id. Once admitted, Friends continues to care for the
resident only if he or she can afford services with limited financial assistance for a
limited duration. Further, Friends excludes Medicaid recipients. Id. Having
determined that Friends failed to meet the second and third prongs of the HUP test,
the panel did not address the remaining constitutional or statutory factors. Id.
Friends’ Exceptions now follow.5

5
As this Court has stated:

In tax appeals from the [F&R], this Court functions as a trial court,
and exceptions filed to its final order have the effect of an order
granting reconsideration. [Consolidated Rail Corp.] v.
Commonwealth, 679 A.2d 303, 304 (Pa. Cmwlth. 1996). This Court
reviews de novo the determinations of the [F&R]. Kelleher v.
Commonwealth, 704 A.2d 729, 731 (Pa. Cmwlth. 1997).
“Stipulations of fact are binding upon both the parties and the
Court.” Id. “However, this Court may draw its own legal
conclusions.” Id. “Our scope of review in tax appeals is . . . limited
(Footnote continued on next page…)
5
 II. Exceptions
Friends asserts that the panel erred by: (1) finding that Friends charges
rates comparable to rates charged by its for-profit competitors; (2) finding that only
15% of Friends’ residents receive financial assistance; (3) ignoring the impact of
operating deficits; and (4) improperly equating Friends’ facility with senior care
facilities charging exorbitant entry fees. Friends otherwise maintains that it has met
all remaining constitutional and statutory standards to qualify as an institution of
purely public charity.

III. Discussion
A. Comparable Rates
First, Friends maintains that this Court erred in Friends Boarding
Home, in finding that Friends charges between $3,000-$5,665 per month and that
such rates are comparable to rates charged by its for-profit competitors of $2,090-
$4,715 per month. Friends Boarding Home, 260 A.3d at 1075. According to the
parties’ stipulations and exhibits attached thereto, Friends maintains that it charges
rates that are significantly lower than many competing facilities. See S.F. Exhibit
Nos. 19-23. Thus, Friends maintains that the panel’s finding of comparability is not
supported by the evidence and is contrary to the parties’ stipulations.
The parties agreed to Friends’ rate schedules for the years 2012-2019
and attached them as exhibits to their stipulations. S.F. Nos. 12-21. According to

to the construction, interpretation and application of a State tax
statute to a given set of facts.” United Services Automobile
Association v. Commonwealth, . . . 618 A.2d 1155, 1156
([Pa. Cmwlth.] 1992) (quoting Escofil v. Commonwealth, . . . 406
A.2d 850, 852 ([Pa. Cmwlth.] 1979)).

American Electric Power Service Corp. v. Commonwealth, 184 A.3d 1031, 1034 n.7 (Pa. Cmwlth.
2018).
6
the rate schedules, Friends charged $3,002 to $5,665 for supportive independent
living residency, depending on year and size of unit. S.F. Nos. 17-20. The parties
also agreed to the 2014-2018 Directories for Chester County, which include data on
rates charged by similar facilities. S.F. Nos. 25-30, Exhibit Nos. 19-23. According
to these Directories, for-profit homes charged comparable rates, and some of them
charged less than Friends. Id. For example, (i) during the period 2014 to 2018,
Colonial Woods charged its residents $2,300 to $3,100 per month, plus $100 per day
for respite care; (ii) during the period 2014 to 2016, Devon Manor charged its
residents a monthly fee of $2,847 to $3,717; (iii) during the period 2014 to 2017,
Golden Living Community charged its residents a monthly fee of $2,090 to $3,714;
and (iv) during the period 2014 to 2018, Harrison Senior Living of Coatesville
charged its residents a monthly fee of $2,000 to $4,715, plus level of care. S.F. Nos.
25-30, Exhibit Nos. 19-23. While some facilities charged significantly more than
Friends, including Remed, which charged its residents between $12,000 to $39,000
per month, the Court did not stray from the parties’ stipulations or otherwise err in
determining that Friends’ rates were comparable to those charged by its for-profit
competitors. The rate comparison was drawn from the parties’ stipulations and
exhibits. Therefore, we find no error in this Court’s conclusions regarding the
comparability of rates.

B. Financial Assistance
Next, Friends maintains that the panel erred in determining that only
15% of its residents received financial assistance. Friends asserts that this overlooks
the fact that Friends offers substantial subsidies to reduce rates for all of its residents.
According to Friends, because all rates are subsidized, all residents benefit by some
financial support, not just the 15% who receive direct financial assistance. Those

7
subsidized rates do not permit Friends to recover the cost of providing care to the
residents.
Friends’ argument in this regard fails because of the comparability of
rates. As discussed above, according to the parties’ stipulations and exhibits
attached thereto, Friends charges rates comparable to its for-profit competitors. The
record contains no explanation for the rate similarities. Friends’ argument that it is
charging below-average rates and thereby providing meaningful financial assistance
to all residents in the form of substantial subsidization is belied by the fact that other
for-profit facilities charge comparable rates.
As stipulated to by the parties, Friends provides direct financial
assistance to approximately 15% of its population, but only after those residents
financially qualified for admission and paid for two years without any financial
support. S.F. Nos. 31-40, Exhibit Nos. 24-25; S.S.F. Nos. 1-2. The amount of
financial assistance, when provided, does not exceed $2,000 per month, with a
maximum cap of $40,000. S.F. Exhibit Nos. 24-25. If a resident cannot afford to
pay, Friends may either decline admission or require the resident to leave. S.F. Nos.
32, 26, 39, 40, Exhibit Nos. 24-25. Upon review, the Court did not err in determining
that only 15% of Friends’ residents receive direct financial assistance, which is
limited in scope and amount, and that this level of assistance does not meet the test
that Friends donates or renders gratuitously a substantial portion of its services.
Friends Boarding Home, 260 A.3d at 1074.

C. Operating Deficits
Next, Friends contends that the panel ignored its operating deficits in
determining it did not meet the HUP test. Between 2014 and 2017, Friends incurred
annual operating losses between $386,620-$542,652. In 2018, Friends had an

8
operating deficit of $265,569 and for 2019, $790,069. Friends maintains that these
deficits lend additional support that Friends’ rates contain substantial subsidies that
benefit all residents, such that it satisfied the requirement that it donates or renders
gratuitously a substantial portion of its services.
We recognize that Friends incurs operating deficits that it covers with
funds generated from investments and contributions. However, Friends’ argument
that its operating deficits prove that it donates a substantial portion of its services by
subsidizing all rates is once again refuted by the fact that there are for-profit facilities
in the vicinity of Friends Home providing similar services at comparable rates. Even
though Friends may incur operating deficits, it has not demonstrated that it donates
“a substantial portion of its services” “to those who cannot afford the ‘usual fee.’”
HUP, 487 A.2d at 1315 n.9. Thus, we discern no error in the conclusion reached in
Friends Boarding Home in this regard.

D. Indefinite Class of Persons Who Are Legitimate Subjects of Charity
In addition, Friends contends that the panel erred in determining that
Friends does not benefit a substantial and indefinite class of persons who are
legitimate subjects of charity. The elderly is a substantial and indefinite class of
persons who are legitimate subjects of charity. Friends benefits the elderly by
providing services to them at below-average rates, without charging a hefty entrance
fee, and by providing additional financial assistance to some residents. Friends
contends that the panel’s decision is based on factual errors regarding the
comparability of rates charged and its flawed comparison to facilities in In re Appeal
of Dunwoody Village, 52 A.3d 408 (Pa. Cmwlth. 2012), and Menno Haven, Inc. v.
Franklin County Board of Assessment and Revision of Taxes, 919 A.2d 333

9
(Pa. Cmwlth. 2007), which charged exorbitant entry fees and created significant
barriers to entry for seniors.
In Friends Boarding Home, the Court observed that, when compared to
the facilities in Dunwoody Village and Menno Haven, “Friends charges a moderate
entrance fee of $4,000.” Friends Boarding Home, 260 A.3d at 1073. Nevertheless,
the comparison to Dunwoody Village and Menno Haven was apt in that

Friends only admits individuals who can afford its services
with the use of personally available financial resources.
Once admitted, Friends continues to care for a resident
only if he or she can afford services with the limited
financial assistance Friends provides, at its discretion, to a
relatively small percentage of its population. Friends also
excludes Medicaid recipients from its facility.

Id. at 17. When these factors are considered, Friends assists a finite – not an
indefinite – class of subjects of charity. After review, this Court discerns no error in
the conclusion reached in Friends Boarding Home.

E. Remaining Constitutional & Statutory Standards
Lastly, Friends asserts that F&R properly concluded that Friends met
all other criteria governing tax exempt status. F&R does not dispute that the other
constitutional and statutory criteria, except for the statutory community service
requirement, were met.
Having denied the foregoing Exceptions, we decline to review the other
factors for tax exemption. Even assuming that Friends would meet all other criteria,
our result would not change. To qualify for exemption, a taxpayer must meet all
criteria under the constitution and statute. Friends Boarding Home, 260 A.3d at
1070; Dunwoody Village, 52 A.3d at 413 n.4.

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 IV. Conclusion
For the foregoing reasons, we discern no error in our prior decision,
and, therefore, we overrule Friends’ Exceptions to Friends Boarding Home.

MICHAEL H. WOJCIK, Judge

Judge Fizzano Cannon did not participate in the decision of this case.

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 IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Friends Boarding Home of Western :
Quarterly Meeting, :
:
Petitioner :
:
v. : No. 332 F.R. 2018
:
Commonwealth of Pennsylvania, :
:
Respondent :

ORDER

AND NOW, this 3rd day of August, 2022, the Exceptions filed by
Petitioner Friends Boarding Home of Western Quarterly Meeting to this Court’s
opinion in Friends Boarding Home of Western Quarterly Meeting v.
Commonwealth, 260 A.3d 1064 (Pa. Cmwlth. 2021), are OVERRULED, and the
Prothonotary is directed to enter judgment in favor of Respondent Commonwealth
of Pennsylvania.

__________________________________
MICHAEL H. WOJCIK, Judge