Pennsylvania State University v. Derry Township School District

FRIEDMAN, Judge.

The County of Dauphin (County) and the Derry Township School District (School District), (collectively, Taxing Authorities), appeal from an order of the Dauphin County Court of Common Pleas (trial court) granting the Pennsylvania State University’s (PSU) petition to remove its property, the Milton S. Hershey Medical Center (Hershey), from the real estate tax assessment rolls and striking the tax assessments issued by the Taxing Authorities. We affirm.

PSU is the owner and operator of Hershey, a medical center located in Derry Township, Dauphin County. Hershey encompasses PSU’s College of Medicine, its dormitories, various related research facilities and two PSU hospitals.1 In January of 1993, the Dauphin County Office of Tax Assessment notified PSU that Hershey’s exempt status from real estate taxes as a “purely public charity” was invalid as of January 1, 1993 and that, as of that date, its Derry Township properties would be placed on the tax rolls. PSU filed an appeal with *617the Dauphin County Board of Assessment Appeals (Board); however, following hearings, the Board denied PSU’s appeal and found the Hershey properties taxable. PSU appealed the Board’s decision to the trial court which, after a trial de novo, reversed the Board. Although the trial court concluded that Hershey was not exempt from real estate taxation as a “purely public charity,” it held that, in reality, Hershey is PSU which, as an instrumentality of the Commonwealth, is immune from taxation.2

The Taxing Authorities now appeal from the trial court’s decision,3 arguing that PSU is not, in fact, an instrumentality of the Commonwealth or, alternatively, even if PSU enjoys that status, it is not entitled to real estate tax immunity for Hershey under the circumstances here. We now hold that PSU is an instrumentality of the Commonwealth and is thereby immune from local real estate taxation on the Hershey property.

Initially, we point to the well-established principle that real estate owned by the Commonwealth may not be subjected to taxation by political subdivisions absent express statutory authority. Pennsylvania, State Employes’ Retirement System v. Dauphin County, 335 Pa. 177, 6 A.2d 870 (1939); Bucks County Community College v. Bucks County Bd. of Assessment Appeals, 147 Pa.Cmwlth. 505, 608 A.2d 622 (1992). We have recognized that, when applicable, such immunity extends not only to property owned by the Commonwealth itself but also to real estate owned by Commonwealth agencies or instrumentalities, whether or not it is used for a public purpose. Bucks County Community College; Owen J. Roberts School Dist. Appeal, 45 Pa.Cmwlth. 135, 405 A.2d 1314 (1979), rev’d on other grounds, 500 Pa. 465, 457 A.2d 1264 (1983). For example, in Southeastern Pennsylvania Transp. Auth. v. Bd. of Assessment & Revision of Taxes, 13 Pa.Cmwlth. 207, 319 A.2d 10 (1974), we held that the Southeastern Pennsylvania Transportation Authority was immune from local taxation as an instrumentality of the Commonwealth. Similar immunity was found for the Redevelopment Authority of the City of Harrisburg in Harrisburg School Dist. Tax Appeal, 53 Pa.Cmwlth. 299, 417 A.2d 848 (1980).

Here, the Taxing Authorities4 concede that there is legislation which refers to PSU’s status as a state-related university and instrumentality of the Commonwealth. However, the Taxing Authorities maintain that PSU is not considered a state agency or instrumentality for all purposes and, in fact, no court opinion explicitly holds that PSU is an instrumentality of the Commonwealth. In particular, the Taxing Authorities point out that PSU is not considered a state agency within the meaning of the Right to Know *618Act,5 Roy v. The Pennsylvania State Univ., 130 Pa.Cmwlth. 468, 568 A.2d 751 (1990), and, further, that we have refused to consider Temple University, another state-related university which the Taxing Authorities assert is on a par with PSU, to be a Commonwealth agency for purposes of sovereign immunity. Doughty v. City of Philadelphia, 141 Pa.Cmwlth. 659, 596 A.2d 1187 (1991). Finally, and most significantly, the Taxing Authorities assert that, when provided with the opportunity to do so, our supreme court declined to' recognize PSU as an agency of the Commonwealth for real estate tax immunity purposes. The Pennsylvania State Univ. v. County of Centre, 532 Pa. 142, 615 A.2d 303 (1992). Based on these cases, the Taxing Authorities dispute the trial court’s determination that PSU is an instrumentality of the Commonwealth for purposes of real estate tax immunity. We cannot agree that these cases support the Taxing Authorities’ position.

The County correctly cites Roy for the proposition that PSU is not a state agency for purposes of the Right to Know Act; however, as admitted by the Taxing Authorities, an entity’s status as a state agency or instrumentality can vary depending on the issue involved. In Roy, we examined the definition of agency provided in section 1 of the Right to Know Act, 65 P.S. §66.1, and concluded that PSU was not a state agency within the meaning of that act.6 Thus, because Roy relates to PSU’s agency status only in this limited context, that case eaniiot support the Taxing Authorities’ claim that PSU is not an instrumentality of the Commonwealth for purposes of real estate tax immunity. Similarly, because Doughty is confined to the issue of sovereign immunity, the Taxing Authorities cannot rely on that case to support their position that PSU is not entitled to immunity for tax purposes.7 Indeed, we have held tax immunity and sovereign immunity to be separate and distinct concepts. See Capitol Associates v. School Dist. of the City of Harrisburg, 684 A.2d 1119 (Pa.Cmwlth.1996) and Bucks County Community College (both recognizing that immunity of the sovereign from local taxation stems from the legislature’s lack of delegation of the taxing power to the local taxing authority and not from the common-law doctrine of sovereign immunity).

Finally, although it deals indirectly with real estate tax immunity, County of Centre does not require this court to conclude that PSU is not a Commonwealth instrumentality.8 At issue in County of Centre was the applicability of the doctrine of issue preclu*619sion based on a 1939 opinion of the Centre County Court of Common Pleas, which held that Pennsylvania State College, now PSU, was a Commonwealth agency.9 Pennsylvania State College v. County of Centre, (No. 2 Equity November Term, 1937, filed August 24,1939). Our supreme court concluded that the doctrine of issue preclusion did not apply to determine PSU’s status. However, the court did not reach any decision with regard to whether PSU was, in fact, a Commonwealth instrumentality; instead, the court remanded the case for resolution of that issue.10 We have previously determined that, because County of Centre is grounded on the res judicata effect of a 1939 decision, it is not authoritative on the question of whether a state-related university is an instrumentality of the Commonwealth immune from local real estate taxation. Bucks County Community College. Because we still believe this to be the case, we must now consider the question of PSU’s real estate tax immunity without deriving guidance from County of Centre.

To determine whether an entity constitutes an agency or instrumentality of the Commonwealth for tax immunity purposes, appellate courts have examined the language of the entity’s enabling legislation. Buck’s County Community College. PSU’s enabling legislation, the Act of February 22, 1855, P.L. 46, as amended, 24 P.S. §§2531-2584, is comprised of legislative enactments and related developments which define PSU’s fundamental role as an instrumentality of the Commonwealth.11

PSU is a state-related institution of higher education created by an act of the General Assembly in 1855, under the name Farmer’s High School of Pennsylvania, for the education of youth in the various branches of science, learning and practical agriculture. 24 P.S. §2531. The enabling legislation provided that the Governor, the Secretary of the Commonwealth, the President of the State Agricultural Society and the principal of the institution were to be ex officio members of the Board of Trustees, 24 P.S. §2533; to this day, PSU’s Board of Trustees includes six members appointed by the Governor and also has, as ex officio members, the Governor, the Secretary of Education, the Secretary of Agriculture and the Secretary of Environmental Resources. (PSU Exh. 7, R.R. at 430a.) The enabling act also specified in detail the subjects to be taught, requiring the Board of Trustees to employ teachers qualified to impart to pupils a knowledge of the English language, grammar, geography, history, mathematics, chemistry and such other branches of the natural and exact sciences as will conduce to the proper education of a farmer. 24 P.S. §2542. In 1862, the institu*620tion was renamed the Agricultural College of Pennsylvania.

Also in 1862, the United States Congress enacted the Morrill Land Grant Act (Morrill Act), 7 U.S.C. §§301-308, providing each state with land to be sold to- support and maintain at least one college in the state that taught both agriculture and mechanical arts, provided that the state agreed to certain terms and conditions. In 1863, pursuant to the Act of April 1, 1863, P.L. 213, 24 P.S. §§2571-2573, 2575 (1863 Act), PSU’s relationship to the Commonwealth was more clearly defined when Pennsylvania accepted the provisions of the Morrill Act and directed that funds received through the Morrill Act be paid to the Agricultural College of Pennsylvania, now PSU. Since that time, the Commonwealth annually appropriates money for PSU’s support in supplements to the original 1863 Act.12 (R.R. at 789a-812a). The scope of PSU’s responsibilities as a land-grant institution, as well as its relationship to the Commonwealth, further broadened with the enactment of the Smith-Lever Act, 7 U.S.C.' §§341-349, and the Hatch Agricultural Experiment Station Act, 7 U.S.C: §§361a-i.13

As Pennsylvania’s designated land grant institution of higher learning and largest public university, PSU fulfills the responsibilities it has assumed on behalf of the Commonwealth by carrying out educational, research and public service missions for the Commonwealth. In doing so, PSU clearly qualifies as a Commonwealth instrumentality, defined by this court as follows:

we must interpret the phrase ‘instrumentality of the Commonwealth’ according to its common and approved usage as required by Section 1903 of the Statutory Construction Act of 1972, 1 Pa.C.S. §1903. The definition of ‘instrumentality’ contained in Webster’s Third New International Dictionary[, 1172 (1981) ] is: ‘1: The quality of being instrumental; 2: something by which an end is achieved; means, b. something that serves as an intermediary or agent through which one or more functions of a controlling force is carried out.’ ‘Instrumental’ is defined by the same dictionary as ‘serving as a means or intermediary determining or leading to a particular result; being an instrument that functions in the promotion of some end or purpose.’

London Grove Township v. Southeastern Chester County Refuse Auth., 102 Pa.Cmwlth. 9, 517 A.2d 1002, 1004 (1986).

Based on this definition of instrumentality, we believe that PSU operates as an instrumentality of the Commonwealth, functioning as an integral part of Pennsylvania by carrying out the state’s educational, research and public service missions and fulfilling the responsibilities that government has required it to assume. PSU’s status as an instrumentality of the Commonwealth has often been recognized by the state legislature,14 by state *621attorneys general since 1921,15 and by the federal government;16 we now add to the long history of such treatment for PSU.

Alternatively, the Taxing Authorities contend that, even if PSU is an instrumentality of the Commonwealth, Hershey, or at least the hospital portion of Hershey, still should be held to be taxable. The Taxing Authorities rely on Delaware County Solid Waste Auth. v. Berks County Bd. of Assessment Appeals, 584 Pa. 81, 626 A.2d 528 (1993), in which our supreme court held that property owned by a Commonwealth agency is not given blanket immunity, and if an agency acts outside its authorized governmental purposes, its immunity is not automatic. The Taxing Authorities assert that, because Hershey uses the property for a hospital, particularly one operated in competition with private hospitals and physicians in the area, it is acting “in another manner than in a governmental way” and, thus, is not immune from taxation. See City of Pittsburgh v. Allegheny County, 851 Pa. 345, 41 A.2d 639 (1945).

The Taxing Authorities concede that PSU also operates a medical school at Hershey which, arguably, falls within PSU’s educational purpose;17 nevertheless, the Taxing Authorities maintain that the hospitals, which are profit oriented and not required for medical school accreditation, should be segregated from any immune portions of the property and taxed.

On the other hand, PSU contends that all of Hershey’s facilities fall within PSU’s purpose as necessary to its medical education program and in furtherance of its educational, research and public service mission. In fact, PSU contends that the trial court properly rejected the argument that Hershey operates outside the authorized governmental purpose of a university. We agree. The trial court, relying largely on Delaware *622County Solid Waste Authority, reasoned as follows:

In Delaware County Solid Waste Authority, property owned by a municipal authority was used as a land fill. It was undisputed that 296 of the 544 acres of the land fill were not essential parts of the operation of the land fill’s disposal area or the required buffer zone. In spite of this fact, the supreme court held that the immunity provision covers property that was acquired or used for an authorized purpose. Since there was no evidence that this excess buffer zone area was acquired or used for a purpose other than as part of the land fill operation, and served no other commercial purpose, it was subject to the same immunity provisions as the remainder of the land fill area. In the instant case, however, the discussion does not revolve around excess land. Here, [PSU] utilizes the six parcels to operate its College of Medicine, clearly within the stated purpose of a university. Additionally, it operates biomedical and animal research facilities which undoubtedly fall under the umbrella of education. Intricately intertwined with the College of Medicine and the research facilities are the [PSU] hospitals, occupying the same land, utilizing many of the same buildings and facilities, administered and staffed by the same state employees and holding themselves out as an integral part of [PSU]. The relationship between the hospitals and the remainder of [Hershey] is more than a mere overlap and akin to the type of “symbiotic relationship” referred to in Benner v. Oswald, supra.

(Trial ct. op. at 12-13.)

In addition, we agree with PSU’s contention that granting immunity from real estate taxes to PSU is consistent with the public policy considerations underlying the concept of such immunity. The immunity rule was “designed to insure the orderly conduct of business and public affairs between and amongst the various governmental agencies in the Commonwealth and to prevent needless, wasteful and time-consuming controversies arising when one agency or political subdivision decides to challenge another.” Moon Area School Dist. v. Garzony, 522 Pa. 178, 186, 560 A.2d 1361, 1366 (1989). We believe that allowing local taxation of PSU would adversely affect its performance of the governmental business it is expected to conduct. Moreover, because increased Commonwealth appropriations would be required to offset the cost of such taxes, requiring PSU to pay local real estate taxes ultimately would result in the transfer of funds from the Commonwealth to a select number of local taxing bodies.

Accordingly, we affirm.18

ORDER

AND NOW, this 12th day of June, 1998, the order of the Court of Common Pleas of Dauphin County, dated February 7, 1997, is hereby affirmed.

. In 1963, the trustees of the Milton S. Hershey Trust petitioned the Orphan’s Court of Dauphin County for approval to transfer $50 million from the Milton Hershey School Trust to the Milton Hershey Foundation (Foundation) to establish and maintain a medical school to be affiliated with and operated by PSU. When the transfer was initially authorized, the Foundation retained ownership of the land and buildings housing the medical complex; however, in 1968, the Foundation transferred all right, title and interest in the Trust funds and assets to PSU, which currently holds title to the real estate involved in this case.

.We have distinguished tax exemption from tax immunity; the former exists where the legislature, in a manner authorized by the constitution, acts affirmatively to remove property otherwise subject to taxation, whereas the latter exists because the legislature never delegated to the taxing body any specific power to tax a particular class of property. Bucks County Community College v. Bucks County Bd. of Assessment Appeals, 147 Pa.Cmwlth. 505, 608 A.2d 622 (1992).

Here, the trial court specifically stated that, were it not for PSU’s status as an instrumentality of the Commonwealth, at least the hospital portion of Hershey would be subject to real estate taxes. The trial court reasoned that, as a result of acquiring seven for-profit medical practices and its generous salary structure, Hershey did not operate entirely free from a private profit motive and, thus, failed to qualify as a purely public charity under the test set forth in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (JHUP). Indeed, the trial court stated that PSU’s hospitals operated in the same fashion as hospitals considered in recent cases in which the courts held that the hospitals’ operation of for-profit businesses acted as a bar to their continued tax-exempt status. (See Trial ct. op. at 2-4.)

. Our scope of review in a real estate tax assessment appeal is limited to determining whether the trial court abused its discretion or committed an error of-law, and whether the trial court’s findings are supported by substantial evidence. Wilson Area School Dist. v. Easton Hosp., 708 A.2d 835 (Pa.Cmwlth.1998); Pennsylvania Easter Seal Soc'y Appeal, 67 Pa.Cmwlth. 94, 445 A.2d 1369 (1982).

. The County and the School District have each filed a brief in this matter, and although each brief presents the issues and arguments in a slightly different fashion, the substance of both briefs is largely the same. Therefore, we generally refer to arguments as those of the Taxing Authorities in general rather than any specific Appellant, making exceptions where appropriate.

. Act of June 21, 1957, P.L. 390, as amended, 65 P.S. §§66.1-66.4, which provides that public records of state agencies shall be open for examination by citizens of Pennsylvania.

. Roy is based on Mooney v. Temple Univ. Bd. of Trustees, 4 Pa.Cmwlth. 392, 285 A.2d 909, aff'd, 448 Pa. 424, 292 A.2d 395 (1972). In Mooney, our supreme court considered the same definition of agency that we examined in Roy and held that Temple University, although established as an instrumentality of the Commonwealth to serve as a state-related institution, is not an agency of the Commonwealth whose public records must be made available for public examination. In Roy, we likened PSU to Temple, noting that both were declared in statutes to be state-related institutions and instrumentalities of the Commonwealth, and concluded that because their structure was essentially the same, the rationale of Mooney applied to Roy. We note, however, that while PSU was considered "essentially the same” as Temple University in Roy, we have concluded elsewhere that, with respect to PSU’s relationship to the state, it is more akin to the wholly state-owned and operated universities in the State System of Higher Education than it is to Temple or the University of Pittsburgh. Pearson v. Unemployment Comp. Bd. of Review, 689 A.2d 352 (Pa.Cmwlth.1997).

. In Doughty, Temple University argued that it was a state agency entitled to sovereign immunity based on the Temple University-Commonwealth Act, Act of November 30, 1965, P.L. 843, 24 P.S. §§2510-1 - 2510-12, the statute providing for the establishment and operation of Temple University as an instrumentality of the Commonwealth to serve as a state-related university in the Commonwealth's higher education system. We recognized that Temple fit within the definition of instrumentality, but held that the Commonwealth’s use of Temple as an instrumentality did not, in itself, transform Temple into a Commonwealth agency entitled to the defense of sovereign immunity.

. The Taxing Authorities assert that County of Centre compels this determination because, in that case, our supreme court addressed the precise issue we face here and impliedly held that PSU was not a Commonwealth agency for real estate tax purposes.

. Based on this holding, farmland owned by the College and used for educational purposes was rendered immune from real estate taxation. Pennsylvania State College. In 1984, in a case involving taxation of PSU property leased to a third party for commercial purposes, PSU argued that, under the doctrine of issue preclusion, Pennsylvania State College was determinative of its status as a Commonwealth agency immune from real estate taxation. The court of common pleas agreed and granted summary judgment, which this court affirmed. However, our supreme court reversed, holding that changes which had occurred in PSU during the intervening years created a lack of identity in the matters involved in the two cases, particularly with regard to the use of the land involved, so that issue preclusion was inapplicable and summary judgment inappropriate. County of Centre.

. This issue was never ultimately addressed because the parties agreed to discontinue the action.

. PSU’s enabling legislation was summarized in Benner v. Oswald, 592 F.2d 174 (3rd Cir.), cert. denied, 444 U.S. 832, 100 S.Ct. 62, 62 L.Ed.2d 41 (1979), which analyzed the various ways in which the state involved itself in PSU's affairs before concluding that all of PSU’s actions are "state actions” within the meaning of 42 U.S.C. §1983, stating:

The Court believes it is unquestionable that from the foregoing facts the Commonwealth has direct participation in determining at least some of the members of the Board of Trustees, that the Commonwealth does review [PSU’s] expenditure of Commonwealth funds, that the legislature intended [PSU] to be a state educational institution, that the Attorney General of Pennsylvania has consistently regarded [PSU] as such an institution, that [PSU] partakes of benefits available for its capital development, that it relies exclusively upon the general state authority for such development, and that [PSU] is substantially dependent on Commonwealth subsidies. Therefore, the requisite amount of "significant involvement” by the Commonwealth in [PSU’s] affairs is present and ... [PSU’s] actions are “state actions.”

Id. at 180.

. For fiscal year 1994-1995, the appropriation was approximately $256.8 million, (R.R. at 711a), and for fiscal year 1995-1996 the amount of the appropriation increased to approximately $275 million. (Trial ct. op. at 6.) Additionally, the Commonwealth has constructed many of the educational buildings on PSU’s campuses, properties valued in the hundreds of millions of dollars. The Commonwealth also provides that any bonds issued by PSU, and loans secured by mortgages, their transfers and the income therefrom, are free from taxation within the Commonwealth. Section 4.1 of the 1863 Act, 24 P.S. §2575.1, added by section 1 of the Act of December 7, 1965, P.L. 1052. In return for this aid, PSU provides lower tuition and fees for students who are residents of Pennsylvania. Roy.

. Pursuant to these acts, PSU operates the Cooperative Extension Service through which PSU extends education programs beyond its campus and carries both educational programming and research results out into the larger community. PSU’s Cooperative Extension Service maintains offices in each of Pennsylvania’s 67 counties. PSU’s relationship with the Commonwealth is also reflected in its numerous campuses, extending PSU’s educational, cultural and recreational facilities to communities throughout the state.

.For example, in section 4 of the Pennsylvania College of Technology Act, Act of July 1, 1989, P.L. 132, No. 27, 24 P.S. §2510-504, the Pennsylvania College of Technology “is granted the benefits and responsibilities of the status of The Pennsylvania State University as a State-related institution and as an instrumentality of the Commonwealth of Pennsylvania.’’ PSU employees are included within the definition of "State employee" under the State Employees’ Retirement Code, 71 Pa.C.S. §5102. Further, in the Public School Employees' Retirement Code, 24 Pa.C.S., §8102, "Employer” is defined as "[a]ny governmental entity directly responsible for the employ*621ment and payment of the school employee and charged with the responsibility of providing public education within this Commonwealth, including but not limited to:.. .the Pennsylvania State University." In addition, under the Probate Estate and Fiduciary Code, obligations of Pennsylvania governmental organizations are authorized investments, including obligations of PSU. 20 Pa.C.S. §7305(12).

. In a 1972 opinion, Pennsylvania's Attorney General held that PSU employees were state employees within the meaning of certain amendments to the Unemployment Compensation Law. Consistent with a 1921 Attorney General opinion, the 1972 opinion noted that, in contrast to private state-aided institutions like Temple University and the University of Pittsburgh, PSU already had been deemed a state instrumentality in much the same way as those entities known as state "authorities.” The 1972 opinion also noted that in prior Attorney General rulings, PSU was found immune from gasoline tax and inheritance tax, that bonds of PSU are exempt from Capital Stock Tax and that PSU is a Commonwealth instrumentality for social security purposes. (1972 Op. Atty. Gen. No. 132.) (PSU Exhs. ISO-185, R.R. at 813a-21a.) The State Department of Revenue has also declared PSU exempt from the State Sales and Use Tax as an instrumentality of the Commonwealth. (PSU Exh. 186, R.R. at 821a-22a.)

. In 1949, the Internal Revenue Service ruled that PSU, as an instrumentality of the Commonwealth of Pennsylvania, was not subject to federal income tax. (PSU Exh. 187, R.R. at 823a-24a.) Interest on debt obligations issued by PSU is similarly exempt from federal income tax. (PSU Exhs. 187, 188, 189, R.R. at 823a-29a.) Moreover, in 1984, Congress determined that, because of the close relationship between PSU and the Commonwealth of Pennsylvania, PSU was to be treated as a state governmental unit for purposes of the tax-exempt bond provision of the Internal Revenue Code. (PSU Exh. 190, R.R. at 830a-33a.)

.However, the Taxing Authorities contend that there is substantial authority for the conclusion that providing higher education is not a governmental function, citing Curtis v. Kline, 542 Pa. 249, 666 A.2d 265 (1995) and Community College of Philadelphia v. Brown, 544 Pa. 31, 674 A.2d 670 (1996). These cases do not support the Taxing Authorities’ argument.

In Curtis, the court notes only that there is no constitutional right to a post-secondary education, so that a statute requiring only separated, divorced or unmarried parents to provide their adult children with such education violated the equal protection clause. In Brown, the court concluded that community colleges do not serve “an essential government purpose” within the meaning of the Right to Know Act because education beyond the secondary level is not constitutionally mandated and it is unclear that the services provided by community colleges were indisputably necessary to the continued existence of the Commonwealth. We see no reason why these cases would negate the fact that a medical school fits within the educational purpose of a university.

. The County raises additional issues regarding PSU’s exemption from real estate taxation and devotes a large portion of its brief to the argument that PSU is not entitled to an exemption because it is not a purely public charity under the test set forth in HUP and does not satisfy the statutory requirements for exemption from real estate taxes under sections 204(a)(3) or 204(a)(7) of the General County Assessment Law (Assessment Law), Act of May 22, 1933, P.L. 853, as amended, 72 P.S. §5020-204(a)(3), 5020-204(a)(7). However, because we have affirmed the trial court's determination that PSU is immune from real estate taxation as an instrumentality of the Commonwealth, we need not address these issues.