In Spring 2013, Allegheny County began a review of all tax-exempt properties in the county to determine whether the exemptions should continue or be terminated, pursuant to a 2007 county ordinance requiring such a review every three years. The possibility of losing tax exemptions has created anxiety in the nonprofit sector and uncertainty about the process for nonprofits and taxing bodies alike. Two recent decisions in Pennsylvania tax exemption cases highlight potential arguments for nonprofits appealing terminated tax exemptions.
County Assessment Offices and Boards of Assessment Appeals Have Limited Powers
In Warren General Hospital v. Warren County Board of Assessment Appeals, A.D. 55 of 2013, the Warren County Court of Common Pleas reversed the action of the County’s Board of Assessment Appeals, which of its own accord had terminated the tax-exempt status of Warren General Hospital. The court restored the property’s tax exemption on the grounds that the applicable assessment statute does not authorize a county board of assessment appeals to overturn a charity’s tax exempt status on its own initiative; rather, the board’s power is limited to ruling on exemption challenges filed by a taxing body.
In the context of its countywide tax exemption review, Allegheny County has explained that if it determines an exemption is no longer warranted, the County’s Office of Property Assessments (“OPA”) will issue a notice terminating it. Taxpayers appealing terminated exemptions may consider arguing that OPA, like the Warren County Board of Assessment Appeals, lacks authority to terminate a tax exemption absent a challenge filed by a taxing body. While Allegheny County’s 2007 ordinance cites as authority for the triennial exemption review process a provision in the Institutions of Purely Public Charity Act, this provision does not appear to grant additional power to terminate tax exemptions.
Applying Charitable Exemption Test for Nonprofit Owning Multiple Properties
Another issue involved in Allegheny County’s exemption review is how, mechanically, to undertake the review for nonprofits that own multiple properties. In Alliance for Building Communities v. Lehigh Board of Assessment, 73 A.3d 659 (2013), the Pennsylvania Commonwealth Court held that the trial court erred in evaluating the tax-exempt status of properties by analyzing each property’s charitable attributes in isolation rather than in the context of the organization’s overall charitable mission. The Pennsylvania Supreme Court has held that for an organization qualifying as an institution of purely public charity under the constitutional and statutory tests, the individual parcels of real estate owned by the institution “are not to be evaluated as if the parcels represent[ed] separate institutions or corporate entities.” Alliance Home of Carlisle, PA v. Board of Assessment Appeals, 591 Pa. 436, 466 (2007). Rather, each property owned by a purely public charity needs only to be actually and regularly used to further the institution’s charitable purpose to qualify for tax exemption.
Applying this requirement can be challenging because Pennsylvania courts have not established clear guidelines for the process. The critical issue for a nonprofit seeking to preserve its tax exemption will be an ability to demonstrate how each of its properties is actually and regularly used to further its charitable mission. An issue to be considered by nonprofits appealing terminated exemptions will be whether the County properly conducted the parcel review by evaluating each property in the context of the institution’s overall charitable mission, rather than applying the constitutional and statutory exemption tests to each property in isolation.
Possible Long-Term Solution through Constitutional Amendment
The uncertainty regarding the tax exemption tests may be addressed by a potential amendment to the Pennsylvania Constitution, HB 724/SB 4, which would place authority to define “purely public charity” solely with the legislature rather than the courts. The amendment intends to provide clarity on tax exemption criteria by authorizing the legislature to prescribe objective and exclusive tests. The process to amend the Pennsylvania Constitution takes several years and has a number of steps.
Please contact us if we may be of service as your organization navigates the tax exemption process.