American Law Institute v. Commonwealth

Dissenting Opinion by

Senior Judge KELLEY.

I respectfully dissent. I believe the majority’s holding, that the American Law Institute (ALI) is entitled to a renewal of its sales and use tax exemption as an institute of purely public charity, erodes the meaning of the term “charity.”

In support of its holding, the majority primarily relies upon American Society for Testing Materials v. Board of Revision of Taxes, 423 Pa. 530, 225 A.2d 557 (1967) (ASTM), wherein the Supreme Court upheld the Society’s exemption as a purely public charity over the City of Philadelphia’s objection that its principal beneficiaries were its membership, which was not open to the public, and that the Society had no contact with the public save through its library. Therein, the Supreme Court stated that “[wjhatever gain accrues to industry through ASTM eventually accrues to the benefit of the public as well.” ASTM, 423 Pa. at 536, 225 A.2d at 560. However, this Court later questioned the Supreme Court’s reliance in ASTM on an indirect public benefit and determined that the same was no longer valid as a result of the criteria established in the Supreme Court’s subsequent decisions in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (HUP) and G.D.L. Plaza Corporation v. Council Rock School District, 515 Pa. 54, 526 A.2d 1173 (1987) and their progeny. See Board of Revision of Taxes of the City of Philadelphia v. American Board of Internal Medicine, 154 Pa.Cmwlth. 204, 623 A.2d 418, 421 (1993), petition for allowance of appeal denied, 538 Pa. 636, 647 A.2d 511 (1994). In Board of Revision of Taxes of the City of Philadelphia, this Court stated that “[w]e have followed those decisions in holding that the institution’s charitable activity must directly benefit the ‘object’ of the charity, and that ‘indirect’ benefits to the public are not considered charitable.”1 Id.

I recognize that the majority states that “[t]he [Supreme] Court has reinforced the *1094concept that a purely public charity can provide members of the general public with resources that would not otherwise be within their reach and that ‘it is fully consistent with the fundamental character of a purely public charity to benefit the general public.’ ” Majority Opinion at 1092 (quoting Unionville-Chadds Ford School District v. Chester County Board of Assessment Appeals, 552 Pa. 212, 714 A.2d 397 (1998)). However, I believe that the majority has misinterpreted the Supreme Court’s holding in Unionville-Chadds Ford School District and expanded the same beyond the Supreme Court’s intent.2

In Unionville-Chadds Ford School District, when reviewing whether real property owned Longwood Gardens, Inc.3 was exempt from real estate tax, the Supreme Court rejected the notion that the general public cannot be a subject of charity because such a class of beneficiaries would not be limited to those who are incapacitated or financially distressed. In so doing, the Supreme Court held that the beneficiaries of charity need not be limited to those who are in distress and that there is no requirement that all of the benefits bestowed by a purely public charity go only to the financially needy. Unionville-Chadds Ford School District, 552 Pa. at 219, 714 A.2d at 400. The Supreme Court stated further that “an essential feature of public charity ‘is that it is not confined to privileged individuals, but is open to the indefinite public. It is this indefinite pub-lie or unrestricted quality that gives it its public character.’ ” Id. at 220, 714 A.2d at 401 (quoting Donohugh’s Appeal, 86 Pa. 306, 313 (1878)). In other words, a charity can benefit all persons without regard to economic status or whether such persons are rich or poor but the requirement remains that an entity must benefit a substantial and indefinite class of persons (regardless of economic status) who are legitimate subjects of charity in order to meet the constitutional qualifications as a purely public charity. See HUP.

Accordingly, I do not believe that the Supreme Court in Unionville-Chadds Ford School District revalidated the notion that indirect benefits to the general public are considered charitable. Therefore, I believe that this case is more akin to the line of cases that the majority finds factually distinguishable and which have upheld the denial of a sales and use tax exemption after concluding that the facts demonstrated that the benefit bestowed on the general public was at most indirect.

For example, PICPA Foundation for Education and Research v. Commonwealth, 535 Pa. 67, 634 A.2d 187 (1993), involved PICPA, a nonprofit corporation, which was established for the purpose of encouraging education and research in accounting. The Board denied PICPA’s petition for a refund after determining that PICPA did not qualify as a nonprofit education institution because any benefit to *1095the general public was only incidental. This Court affirmed the Board’s determination and on review to the Supreme Court, the Court found that to receive tax exempt status under Section 204(10) of the Tax Reform Code of 1971,4 a corporation had to be considered a purely public charity, meaning the organization had to provide a valuable service provided to the public that the government would otherwise have to provide. PICPA, 535 Pa. at 73, 634 A.2d at 190. The Supreme Court concluded that PICPA did not meet this requirement stating that “[ajlthough [PIC-PA’s] seminars and study groups are open to the public and in fact are advertised in several newspapers of general circulation, only 38% of the attendees are not PICPA members. Furthermore, the subject is of such a technical nature, it is clear that the courses are geared and intended to benefit individuals who have a professional or occupational interest in accounting subjects and not intended to benefit an indefinite number of people.” Id. at 74, 634 A.2d at 191. Accordingly, the Supreme Court held that the benefit bestowed upon the general public by PICPA’s seminars and study groups was at most indirect and ruled that PICPA was not entitled to a tax refund. Id.

In Community Accountants v. Commonwealth, 655 A.2d 652 (Pa.Cmwlth.1995), affirmed, 544 Pa. 259, 676 A.2d 194 (1996), this Court likewise determined that a nonprofit corporation which performed accounting services for other nonprofit groups and charities was not entitled to sales tax exempt status under Section 204(10) of the Tax Reform Code of 1971. Specifically, this Court concluded that Community Accountants was not a purely public charity because it directed its services at a large, but definite, class of beneficiaries which consisted of small businesses, sole proprietors, and small nonprofit organizations with limited profits and resources, as opposed to the general public. Community Accountants, 655 A.2d at 654.

Herein, the stipulated facts clearly show that any benefit bestowed upon the general public by ALI is, at most, indirect. The class of beneficiaries who benefit from ALI’s services is a definite class consisting primarily of attorneys and those associated with the legal profession. While ALI may have undertaken legal reform, clarification and simplification of the law and its adaptation to social needs, and improving the administration of justice thereby engaging in several spheres of activity, the bottom line is that all this activity is directed to professionals such as attorneys and paralegals, legal scholars, members of the judiciary and other legal organizations and only indirectly benefits society as a whole. The fact remains that ALI services a definite, albeit large, class of beneficiaries.

Moreover, while it is true that whatever gain can be said to accrue to attorneys eventually accrues to the benefit of the public as well, said gain is still an indirect benefit to the general public as opposed to a direct benefit. Pursuant to PICPA, Community Accountants, and the Board of Revision of Taxes of the City of Philadelphia, such indirect benefit is insufficient to quality an entity as a purely public charity under the Pennsylvania Constitution, HUP, and the Charity Act. See also Biosciences Information Service v. Commonwealth, 101 Pa.Cmwlth. 384, 516 A.2d 434 (1986) (Although the public benefited secondarily from BIOSIS’ service, the purpose of BIOSIS, to advance knowledge of theoretical and applied biology through research and publications, was not charitable in nature in that the primary beneficiaries *1096were various organizations who subscribed for a fee to BIOSIS’ periodicals and requested searches of its library.).

I believe that the majority’s holding clearly weakens the stringent standards set forth in HUP. Thus, if the majority’s position stands, any publisher, if they became nonprofit, of legal related materials, such as West Publishing, which publishes Standard Pennsylvania Practice, the Lawyers Cooperative Publishing, which publishes Pennsylvania Appellate Practice, and Lexis-Nexis, which publishes the Pennsylvania Law Encyclopedia, could easily satisfy the third prong of the HUP test and be considered a charity on the basis that any advice or guidance contained in their publications may eventually benefit members of the general public.

Accordingly, I would affirm.

. I suggest that the Supreme Court’s reliance on an indirect public benefit is also no longer valid as a result of the statutory qualifications for exemption set forth in Section 5 of the Institutions of Purely Public Charity Act (Charity Act), Act of November 26, 1997, P.L. 55, 10 P.S. § 375.

. As stated by Justice Nigro in his dissent to Unionville-Chadds Ford School District, "the HUP test should instead be applied to reinforce the traditional characteristics of charities rather than expand their scope to the point that the term charity is meaningless.” Unionville-Chadds Ford School District, 552 Pa. at 222, 714 A.2d at 402 (dissenting opinion by J. Nigro).

. Longwood Gardens, Inc., is a very large and world-renowned public garden located in Chester County, just outside the Philadelphia area. Unionville-Chadds Ford School District, 552 Pa. at 215, 714 A.2d at 398. The gardens have been open to the public since the 1920s and have been under the control of a nonprofit operating foundation since 1970. Id. More than 800,000 visitors per year make use of the gardens. Id. Longwood operates in heavy reliance on endowment funds since its operating expenses far exceed its revenues. Id. at 216, 714 A.2d at 399.

. Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7204(10).