Alliance Home of Carlisle v. Board of Assessment Appeals

Dissenting Opinion by

Judge SIMPSON.

I respectfully dissent because I believe the thoughtful trial judge incorrectly ap*436plied the constitutional tests for charitable tax exemption.

“An entity seeking a statutory exemption for taxation must first establish that it is a ‘purely public charity’ under Article VIII, Section 2 of the Pennsylvania Constitution before the question of whether that entity meets the qualifications of a statutory exemption can be reached.” Cmty. Options, Inc. v. Bd. of Prop. Assessment, 571 Pa. 672, 676, 813 A.2d 680, 683 (2002).

In Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985), our .Supreme Court set forth a five-part test for determining whether an entity qualifies as a “purely public charity” under the Pennsylvania Constitution:

[A]n entity qualifies as a purely public charity if it possesses 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) Reheves the government of some of its burden; and
(e) Operates entirely free from profit motive.

507 Pa. at 22, 487 A.2d at 1317 (HUP test). “For the [entity] to obtain the claimed exemption from taxation, it must affirmatively show that the entire institution, (1) is one of ‘purely public charity’; (2) was founded by public or private charity; (3) is maintained by public or private charity.” Appeal of Lutheran Social Services, 114 Pa.Cmwlth. 628, 539 A.2d 895, 897 (1988)(emphasis added), quoting Appeal of Woods Schools, 406 Pa. 579, 584, 178 A.2d 600, 602 (1962).

In addition to a determination as to the charitable status of the entire institution, there is also a constitutional test relating to the use of the parcel in question. Article VIII, Section 2(a)(v) of the Pennsylvania Constitution permits exemption from taxation of “only that portion of real property of such institution which is actually and regularly used for the purposes of the institution.”

Here, the trial court confused the two constitutional inquiries. Because some of Chapel Pointe’s real property already enjoys charitable tax exemption, the trial court was not asked to determine, and did not determine, whether the entire institution met the constitutional “purely public charity” test. Rather, it held the independent living unit part of the institution did not satisfy the test. Also, it did not determine whether the parcel in question “is actually and regularly used for the purposes of the institution.” Instead, its parcel-specific inquiry focused on the charitable status.

Lutheran Social Services, a case discussed by the trial court, is instructive. Lutheran Social Services owned property on which was located a retirement community consisting of a nursing care facility, an apartment building and cottage units. The institution appealed the taxable reclassification of the apartment building and cottage parcels. This Court acknowledged that analysis of the entire institution was required. Thereafter, noting financial inconsistencies and operational distinctions between the apartments and cottages, the Court concluded that the apartment and cottage uses were in fact separate. Based on this conclusion, we analyzed each use separately. Ultimately, the Court held that the cottage operation did not donate or render gratuitously a substantial portion of its services.1

*437Our Supreme Court followed a similar process in Appeal of Woods Schools, in which an institution sought to extend charitable tax exemption for property surrounding a research center to its contiguous school property. The Court acknowledged the “entire institution” analysis. 406 Pa. at 582, 178 A.2d at 602. However, the Court agreed with the lower courts that the school was in fact a separate and distinct entity from the research center. Id. at 584, 178 A.2d at 603. On that basis, the Court reviewed the facts pertaining only to the school, ultimately concluding the school did not donate a substantial portion of its services.

As in Appeal of Woods Schools and Lutheran Social Services, the trial court here was required to apply the constitutional criteria to the entire institution unless the record supports an analysis of separate components.2 Significantly, this approach is consistent with the approach for charitable tax exemption under the Institutions of Purely Public Charity Act,3 known as Act 55. Chartiers Valley Sch. Dist. v. Bd. of Assessment Appeals, 794 A.2d 981 (Pa.Cmwlth.2002)(by statutory definition, basic unit of evaluation is corporation, association or trust, or other similar entity, not parts of entity).

Consistent with the forgoing analysis, and with the intent of harmonizing the constitutional and statutory analyses, I would reverse and remand, with direction to apply an “entire institution” analysis to the constitutional questions, and with invitation to consider statutory tests thereafter.

Dissenting Opinion by Judge LEAVITT. Respectfully, I dissent. The majority, as did the trial court, disregards the Institutions of Purely Public Charity Act, Act of November 26, 1997, P.L. 508, 10 P.S. §§ 371-385 (Act 55). Indeed, in deciding the tax exemption application of Alliance Home of Carlisle, Pennsylvania, t/a Chapel Pointe (Chapel Pointe) the majority declares Act 55 to be “irrelevant.”1 Our charge, however, is to give effect to statutes of the General Assembly.

Act 55 does not create a tax exemption. Exemptions are established in the appropriate taxing statute. Here, the exemption sought by Chapel Pointe was established in Section 204(a)(3) 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), which exempts “institutions ... of charity” from the payment of real property tax.2 Under Act 55, the substantive standards for determining whether Chapel Pointe may claim an exemption under Section 204(a)(3) are the standards of HUP.3 See Section 5 *438of Act 55, 10 P.S. § 875. However; Act 55 covers new ground insofar as it establishes, for the first time, uniform procedures by which these determinations are to be made at the local level.

One of those procedures, applicable here, is the rebuttable presumption. Section 6(a) of Act 55 states as follows:

(a) Presumption determination. — An institution of purely public charity[4] possessing a valid exemption from the tax imposed by Article II of the act of March 4, 1971 (P.L. 6, No.’ 2), known as the Tax Reform Code of 1971, shall be entitled to assert a rebuttable presumption regarding that institution’s compliance with the criteria set forth in section 5 as follows:

(1) An institution of purely public charity that has annual program service revenue less than $10,000,000 shall be entitled to assert the presumption if the institution possesses a valid exemption under section 204(10) of the Tax Reform Code of 1971. 10 P.S. § 376(a)(1) (emphasis added). Chapel Pointe’s annual revenue is less than $10,000,000, and it holds an exemption under Section 204(10) of the Tax Reform- Code of 1971. However, the trial court held that Chapel Pointe, claiming an exemption for its independent living units had to prove, first, that these units, as a separate institution; satisfied the HUP5 standards before the procedures in Act 55 could come into play. This circular exercise is affirmed by the majority.

In disallowing Chapel Pointe the Act 55 presumption, the trial court relied upon Community Options, Inc. v. Board of Property Assessment, 571 Pa. 672, 813 A.2d 680 (2002). In that case, the appellant asserted that Act 55 must be applied to all tax exemption cases arising after 1998,6 to which the Supreme Court responded:

However, we need not reach this argument because we have rejected the Commonwealth Court’s reasoning in Community Service Foundation and the conclusion that Appellant is not a “purely public charity” under the Hospital Utilization Project test....

Id. at 683, 813 A.2d at 687. In short, Community Options does not support the trial court’s conclusion that the holding in *439HUP trumps Act 55.7 To the contrary, the Supreme Court did not reach the question of the scope of Act 55.

Where, as here, the General Assembly has codified a judicial interpretation of the constitution, it is appropriate to follow the terms of that statute. See In re Sale No. 10, 801 A.2d 1280, 1287-1288 (Pa.Cmwlth.2002) (noting that the enactment of Section 607(a) of the Real Estate Tax Sale Law, Act of July 7,1947, P.L. 1868, as amended, 72 P.S. §§ 5860.607, codified our Supreme Court’s decision in Tracy v. Chester County Tax Claim Bureau, 507 Pa. 288, 489 A.2d 1384 (1985)). Indeed, our Supreme Court has held that legislative codifications of real estate tax exemption case law are “binding and conclusive until [shown] clearly and beyond all question to be in violation of the Constitution.” Young Men’s Christian Association of Germantown v. City of Philadelphia, 323 Pa. 401, 407, 187 A. 204, 207 (1936).

Nevertheless, where the Pennsylvania Constitution is silent on the procedure by which a constitutional right is to be determined, the General Assembly’s authority is supreme.8 See Glancey v. State Employes’ Retirement Board, 530 Pa. 481, 502 n. 20, 610 A.2d 15, 26 n. 20 (1992) (stating that where the constitution is silent, the mechanics of pension forfeiture must be dictated by interpretation of the Pension Forfeiture Act); Collins v. Commonwealth, 262 Pa. 572, 575, 106 A. 229, 230 (1919) (stating that “[i]f the Constitution is silent on the subject, the legislative authority, being uncontrolled, is supreme”).9

Act 55 is such legislative action. It established uniform procedures, including the use of presumptions, to be followed in making the determination of whether or not a tax exemption shall be granted. To cling to HUP as if Act 55 had not been enacted presumes that Act 55 is unconstitutional. However, we must presume it is constitutional. Wilson Partners, L.P. v. Board of Finance & Revenue, 558 Pa. 462, 471, 737 A.2d 1215, 1220 (1999).

The majority also fails to consider the regulatory environment in which Chapel Pointe operates. A continuing care community makes a promise not unlike that of an insurance company, which, in exchange for a premium payment, provides protection against future, unknown loss. When a resident enters a continuing care community, the resident receives a life estate in the community, enforceable by contract. This life estate includes future nursing home care, should the need develop, even if the resident lacks the funds to pay for such care at that point. So long as the resident remains in an independent living unit, Chapel Pointe must make services available to the resident such as on-site nursing, meals and housekeeping. If these facilities and services are not used by the resident of the independent living unit, Chapel Pointe still bears the expense of making them available. To compare an independent living unit in a continuing care community to a commercial apartment is the proverbial “apple to orange” comparison.

Indeed, to focus on services rendered to residents of independent living units, while *440they occupy those units, is to miss the purpose of a continuing care community. Persons enter such a community for the purpose of lifetime protections, which the community is contractually obligated to provide. This point was overlooked in Appeal of Lutheran Social Services, East Region, 114 Pa.Cmwlth. 628, 539 A.2d 895 (1988) and Bethlen Home of Hungarian Reformed Federation of America, 125 Pa.Cmwlth. 315, 557 A.2d 828 (1989). Accordingly, I do not agree that the outcome here should be determined by Lutheran Social Services or Bethlen.

In Lutheran Social Services, this Court held that a retirement community consisting of a nursing care facility, a 96-unit apartment building and 81 cottage units functioned as three separate operations and then evaluated each operation under the HUP test. We concluded that the apartments qualified for the tax exemption but the cottages did not because the residents in the cottages did not receive a substantial portion of their services free of charge. In Bethlen, relying on Lutheran Social Services and Passavant Health Center v. Board of Assessment Revision of Taxes of Butler County, 93 Pa.Cmwlth. 575, 502 A.2d 753 (1985), this Court again denied a tax exemption for that portion of a retirement community consisting of cottages.

First, the facts in Lutheran Social Services and Bethlen appear distinguishable. Unlike Chapel Pointe, Bethlen is not a licensed continuing care community subject to the rigors of regulation.10 Second, the regulatory scheme applicable to a continuing care facility was not given any consideration in either Lutheran Social Services or Bethlen. Third, treating cottages as a separate institution is inconsistent with our holding in Chartiers Valley School District v. Board of Property Assessment, Appeals, Review & Registry of Allegheny County, 794 A.2d 981 (Pa.Cmwlth.2002), wherein, relying on Act 55, we held that the corporation, not a division or operational unit of the corporation, is the focus of the determination of whether an institution is one of purely public charity-

More to the point, Lutheran Social Services and Bethlen are not consistent with our Supreme Court’s holding in Unionville-Chadds Ford School District v. Chester County Board of Assessment Appeals, 552 Pa. 212, 714 A.2d 397 (1998) that courts must look to the institution as a whole to determine its status as a purely public charity. Indeed, this Court explained this examination as follows:

The presence of two potentially profit-making activities, a garden shop and restaurant, does not change the essential nature of Longwood as a whole, as an institution that operates free from private profit motive. Regardless of whether it shows a profit, the garden shop primarily advances and supports the institution’s educational purposes through its sale of books and films on horticulture-related topics; in addition, the. shop carries items such as film and rain gear for the convenience of visitors to the gardens. Profits from the garden shop are applied against the institution’s general operating expenses.

*441Unionville-Chadds Ford School District v. Chester County Board of Assessment Appeals, 692 A.2d 1136, 1143 (Pa.Cmwlth.1997) (emphasis added) (footnote omitted).11 Accordingly, it is error to treat the independent living units at Chapel Pointe as a separate institution, even if they should be found to operate at a profit.

To conclude, I believe this matter should be remanded to the trial court for a new hearing that conforms to the procedures required by the General Assembly in Act 55. The trial court should, first, determine whether Chapel Pointe is an institution of purely public charity, giving it benefit of the rebuttable presumption set forth in Section 6(a)(1) of Act 55, 10 P.S. § 376(a)(1). Consistent with Unionville-Chadds Ford, the trial court should consider the totality of the circumstances in deciding whether the independent living units transform the essential nature of Chapel Pointe from an institution that operates free of the profit motive to something else.12 However, should the trial court determine Chapel Pointe to be an institution of purely public charity, its task would not be complete. This is because under Act 55, a “parcel or part of the parcel [used] for purposes other than the charitable purpose of that institution” can be subjected to real estate taxes. Section 5(h)(1) of Act 55, 10 P.S. § 375(h)(1) (emphasis added). If the independent living units do not advance the charitable purpose 13 of Chapel Pointe, then the parcel on which they sit should be taxed. If those independent living units do advance the charitable purpose of Chapel Pointe, then that parcel should be exempt along with the rest of the institution.

For these reasons, I dissent. I would reverse the trial court and remand for another hearing on whether Chapel Pointe is a purely public charity and whether its independent living units advance Chapel Pointes charitable efforts on behalf of the elderly, considering the totality of circumstances.

. In addition, the generation of profit from the cottage operation subjected the parcel to *437taxation under Section 204 of the General County Assessment Law, Act of May 22, 1933, P.L. 853, as amended, 72 P.S. § 5020-204(b).

. In fairness to the trial court, this Court departed from the "entire institution” analysis without explanation on occasion, especially where attention was not drawn to the entire institution because the appeal concerned only one of several parcels. See e.g., Appeal of Bethlen Home, 125 Pa.Cmwlth. 315, 557 A.2d 828 (1989); Passavant Health Center v. Bd. of Assessment, 93 Pa.Cmwlth. 575, 502 A.2d 753 (1985).

. Act of November 26, 1997, P.L. 508, 10 P.S. §§ 371-85.

. See n. 3 of majority opinion.

. This exemption includes "the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed and maintained by public or private charity....” Section 204(a)(3) of the Assessment Law, 72 P.S. § 5020-204(a)(3).

. See Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (HUP). In HUP, the Supreme Court, con*438struing Article VIII, Section 2 of the Pennsylvania Constitution, established a 5-point test for determining when a taxpayer is a "purely private charity” entitled to an exemption. Act 55 codifies the HUP test. It states its purpose to implementation of the "traditional legislative and judicial applications of the constitutional term 'institutions of purely public charily.' " Section 2(b) of Act 55, 10 P.S. § 372(b). See also Selfspot, Inc. v. Butler County Family YMCA, 818 A.2d 587, 593 (Pa.Cmwlth.2003), acknowledging that Act 55 codifies the HUP test.

. An “institution of purely public charity” is defined in Section 3 of Act 55 to be an institution that "meets the criteria under section 5.” 10 P.S. § 373.

. The trial court held that before Chapel Pointe could invoke the rebuttable presumption, it first had to prove that its apartments were themselves a "purely private charity” within the meaning of Article VIII, Section 2 of the Pennsylvania Constitution. Stated otherwise, the trial court simply disregarded Act 55.

.At issue was a tax exemption for three years: 1996 to 1998. The trial court applied Act 55 to the application for 1998, which was the first year Act 55 became effective. It applied HUP to tax years 1996 and 1997, denying an exemption for those years. This Court reversed. The appellant appealed with respect to all three years. On appeal, the Supreme Court found that the trial court erred with respect to its application of the HUP test and that the taxpayer qualified for the exemption in all three years.

. To the contrary, Act 55 implements the substance of the HUP holding.

. It goes without saying that the judiciary has ultimate responsibility and authority to interpret the Pennsylvania Constitution. Common Cause/Pennsylvania v. Commonwealth, 710 A.2d 108, 118 (Pa.Cmwlth.1998).

. This Court has expressly recognized that Article VIII, Section 2 is not self-executing and that legislative standards for implementing the tax exemptions are appropriate to the extent they are constitutional. Robert Morris College v. Board of Property Assessment, Appeals & Review, Allegheny County, 5 Pa.Cmwlth. 648, 291 A.2d 567, 571 (1972).

. Chapel Pointe holds a license issued by the Pennsylvania Insurance Department pursuant to the Continuing Care Provider Registration and Disclosure Act, Act of June 18, 1984, P.L. 391, 40 P.S. §§ 3201-3225. Legislative findings therein note that continuing care communities have become an important and needed alternative for the long-term residential, social and health maintenance for the Commonwealth's senior citizens. Under this act, Chapel Pointe is regulated to ensure its financial solvency and that its residency agreements meet certain standards. Further, it is required to offer independent living units, assisted living units and full nursing home care to residents.

. The Supreme Court affirmed, focusing on the question of whether the beneficiaries of a purely public charily must be the poor, the infirm or the needy. The Court held that "the fundamental character of a purely public charity [is] to benefit the general public." Unionville-Chadds Ford School District, 552 at 220, 714 A.2d at 401. In sum, in the Unionville-Chadds Ford School District cases, the appellate courts of Pennsylvania examined the institution as a whole to determine its status as a purely public charity. The bookstore and restaurants, not themselves charitable, advanced the institution’s purpose and, therefore, did not undermine the claim of Longwood Gardens to a tax exemption.

. In support of application, Chapel Pointe submitted a report showing that, in the aggregate, 17.94% of Chapel Pointe's costs of providing goods and services to its residents were uncompensated. In the nursing home, 15.78% of the total costs were uncompensated; in assisted living, 23.05%; and in independent living, 18.66%. The report also concluded that a large number of residents were subsidized. It showed that 70.63% of residents paid less than 100% of the costs of their goods and services; 51.95% of residents paid less than 90% of those costs. On average, 63.72% of the residents paid less than the costs of the goods and services provided to them by Chapel Pointe.

.This Court and our Supreme Court have given a liberal construction to “public purposes” to include all uses within the powers granted to the body. Delaware County Solid Waste Authority v. Berks County Board of Assessment Appeals, 534 Pa. 81, 87-88, 626 A.2d 528, 531-532 (1993); Dauphin County General Authority v. Dauphin County Board of Assessments, 768 A.2d 895 (Pa.Cmwlth.2000). Logically, this same liberal construction should be applied to a private institution claiming to be an institution of purely public charity.