"Purely charitable organization" - affordable housing and counseling - evidence about other properties - institution as a whole
Alliance for Building Communities v. County of Lehigh Board of Assessment Appeals – Cmwlth. Court – July 22, 2013
Alliance for Building Communities, Inc. (Taxpayer) appeals the order of the Court of Common Pleas of Lehigh County denying Taxpayer tax exempt status as an “institution of purely public charity” under Article VIII, Section 2(a)(v) of the Pennsylvania Constitution. The trial court affirmed the determination of the Lehigh County Board of Assessment Appeals that Taxpayer failed to establish that it qualified for an exemption as a purely public charity.
Taxpayer argues that the trial court erred by focusing only on Taxpayer’s operation of 20 rental properties it owns in Allentown rather than the charitable nature of Taxpayer’s entire organization. We agree and, therefore, vacate and remand.
Taxpayer is a Pennsylvania non-profit corporation that is tax exempt under Section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. §501(c)(3); Taxpayer is also exempt from Pennsylvania sales and use tax. Its charitable mission is to provide affordable housing and counseling services to low-income persons. To that end, Taxpayer manages approximately 420 individual rental units, of which it owns 90 units. At issue in this case are 36 rental units on 20 real properties located in the City of Allentown. In July 2010, Taxpayer filed applications for real estate tax exemption for these 20 properties, and the Lehigh County Board of Assessment Appeals denied the applications. Taxpayer appealed to the trial court, which consolidated the 20 tax appeals.
Of the 20 properties at issue, 16 are leased to low-income tenants pursuant to a contract between Taxpayer and HUD under its Section 8 rental subsidy program. Those 16 properties contain 25 rental units. The other four properties, comprised of 11 rental units, are leased to mostly low or moderate income tenants at rents that are below market rates for the area.
In Hospital Utilization Project, 507 Pa. 1, 487 A.2d 1306, the Pennsylvania Supreme Court established a five-part test for determining whether an entity qualifies as a “purely public charity” under the Pennsylvania Constitution. The so-called HUP test provides:
[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) Relieves the government of some of its burden; and
(e) Operates entirely free from private profit motive.
Here, in applying the HUP test, the trial court committed the same error as the trial court in Alliance Home of Carlisle, PA v. Board of Assessment Appeals, 591 Pa. 436, 919 A.2d 206 (2007). The trial court sustained the School District’s objection to the testimony of Taxpayer’s CEO about the other properties Taxpayer operates. This prevented Taxpayer from offering the necessary evidence on the institution as a whole. Because the trial court limited the testimony to the 20 Allentown properties, and did not make findings of fact or conclusions of law as to the entire institution, this Court cannot perform meaningful review. Couriers-Susquehanna, Inc. v. County of Dauphin, 645 A.2d 290, 294 (Pa. Cmwlth. 1994) (noting that trial court’s lack of critical finding of fact precluded this Court’s meaningful review).
For this reason, we vacate and remand this matter to the trial court to conduct further proceedings necessary to determine Taxpayer’s tax exempt status at the institutional level and then, if necessary, for a review of the 20 properties.