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Last week, Allegheny County initiated a three-year process to audit the 27,000 tax exempt properties in the County to verify their continuing eligibility for exemption, under a County ordinance passed in 2007 authorizing this review. Owners of exempt properties received the County’s first batch of audit materials in the last few days. The audit materials include two forms that must be completed and returned to the Office of Property Assessments (the "OPA") within 60 days after the date of the County’s letter, together with a written explanation of how the property satisfies the legal test for tax exemption. If the County determines that a property no longer qualifies, its exemption will be terminated.

The primary audit form is a “Review Application” that requires the owner to describe in detail how the property is used, certify that all information entered on the original tax exemption application for the property still applies and verify that no physical changes have occurred to the property that have not been reported to OPA. OPA will also conduct site visits to verify the information submitted.

In addition to responding to the audit letter and undergoing a field review, charities owning exempt properties must submit a written explanation demonstrating that they meet the legal test for exemption, in order to preserve their tax exemptions. To pass the legal exemption test, owners are required to demonstrate that they continue to qualify as Institutions of Purely Public Charity by: (1) advancing a charitable purpose; (2) operating free of private profit motive; (3) donating or rendering gratuitously a substantial portion of their services; (4) benefitting a substantial and indefinite class of persons who are legitimate subjects of charity; and (5) relieving the government of some of its burden. The legal analysis must also address the impact of a 2012 decision of the Pennsylvania Supreme Court that had not been issued when the properties were granted their initial exempt status.

The exemption review process presents a significant potential risk to tax exempt property owners. The law in this area requires fact-specific inquiries into each organization’s unique circumstances and involves both constitutional and statutory tests that can be difficult to apply. If an exemption is lost, the owner will be required to pay the full real estate tax based on the property’s current assessed value. When the County undertook its recent county-wide property reassessment, many owners of exempt property did not appeal their assessments because exempt properties pay no real estate tax and their assessments are viewed as having little import. The deadline to appeal 2013-assessed values is April 1, 2013. Owners of exempt properties may want to consider filing protective assessment appeals if they think their properties are over-assessed, to preserve their tax appeal rights in the event their exemption is lost.

The attorneys of Buchanan Ingersoll & Rooney have obtained real estate tax exemptions for a broad range of clients and defended challenges to existing tax exemptions brought by taxing bodies. The exempt organizations we have represented include continuing care facilities, universities and colleges, hospitals, religious orders and other charities. If you receive tax exemption audit materials from the County or have any other questions regarding the audit process, please contact us.