By Randy L. Varner
In a 4-3 decision, the Pennsylvania Supreme Court, in Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals, No. 16 MAP 2011 (April 25, 2012) ("Mesivtah") [enhanced version available to lexis.com subscribers], held that a property owner seeking an exemption from real property taxation as a "purely public charity," must first meet the five-prong test set forth in Hospital Utilization Project v. Common-wealth, 487 A.2d 1306 (Pa. 1985) (the "HUP Test") [enhanced version available to lexis.com subscribers]. As explained below, this decision does not alter substantive exemption law, although it may encourage some taxing jurisdictions to take harder looks at exemptions. Those entities with exemptions should be aware of the Mesivtah decision and its limited holding.
In Mesivtah, the Commonwealth Court had held that the Appellant (a not-for-profit religious summer camp), did not relieve the government of some of its burden and, therefore, failed one of the prongs of the HUP Test, the test used to determine whether an institution qualifies as a purely public charity under the Pennsylvania Constitution.
Appellant appealed to the Supreme Court and argued that courts should defer to the five-prong test in the Institutions of Purely Public Charity Act, 10 P.S. §§ 371-385 ("Act 55"), when analyzing whether an institution is a purely public charity. Act 55 was passed by the General Assembly after the HUP Test was announced by the Supreme Court, and sought to provide some objective criteria for the five prongs of the HUP Test based upon case law that the HUP court had relied on. In Mesivtah, the Supreme Court only looked at whether it must defer to Act 55 when analyzing whether an institution is one of purely public charity, not to facts of the case or how those facts fit into the five-prong tests.
The Court held that before even getting to Act 55's test, an institution must pass constitutional muster by clearing the five-prong HUP Test. While the General Assembly is free to place more restrictive requirements on an institution seeking an exemption, it may not legislate away constitutional minimums, as established by theHUP Test. Therefore, the Court affirmed the Commonwealth Court's denial of the exemption.
Importantly, the Supreme Court did not review the Commonwealth Court's application of the Mesivtah facts to the law. Nothing in the Supreme Court's decision in Mesivtah changes prior case law interpretation or application of the prongs of either test. The Commonwealth Court's decision in Mesivtah, like all exemption cases, turned on the facts of that case. The Supreme Court, by making clear that the HUP Test must be met before undertaking analysis under Act 55, did not alter what "relieving the government of some of its burden" has meant under case law.
As a practical matter, if an appellant can pass the HUP Test, then it should also be able to pass the Act 55 test, and vice versa. The Appellant in Mesivtah argued that it met the Act 55 "governmental burden" prong, as part of its overarching argument that Act 55 should guide the Court's analysis of the HUP Test. However, it does not appear as if the trial court or the Commonwealth Court ever conducted an Act 55 analysis. In reality, if the courts did not believe that the Appellant met the "governmental burden" prong of the HUP Test, it is doubtful they would have found that it met the Act 55 prong.
Some commentators have argued that Mesivtah will make it harder for an institution to prove that it is a purely public charity. That is not a fair reading of the Mesivtah's holding.
We have always advised clients that the HUP Test must be met first, followed by the Act 55 test and have presented appeals based upon that premise. Again, nothing in Mesivtah alters what is meant by "relieving the government of some of its burden" under the HUP Test. We have found through repre-senting clients in exemption appeals that it is usually far more difficult dealing with Act 55's objective standards in an appeal than those developed in the HUP Test.
Still, the holding in Mesivtah may invite taxing jurisdictions or boards of assessment appeals to be more aggressive with institutions who are seeking or have exemptions. The most important thing institutions should remember-and this was not altered by Mesivtah-is to fully set forth how each prong of each of the tests is met when seeking an exemption or defending one.
© 2012 McNees Wallace & Nurick LLC
PA TAX LAW NEWS is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.
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