Non-Profit Exempt From Real Estate Tax?

In re Appeal of Dunwoody Village, 52 A.3d 408, 2012 Pa. Commw. LEXIS 195 (2012)

 

Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether a non-profit corporation that operated a continuing retirement case community qualified as an institution of purely public charity entitled to an exemption from real estate tax obligations pursuant to Article VIII, Section 2(a)(v) of the Pennsylvania Constitution. Dunwoody Village, Inc. (“DVI”) operates a continuing care retirement community on an 85.5-acre parcel of property (“Property”) situated in Newtown Township, Delaware County, Pennsylvania.  On the Property, DVI maintains 65 country houses, 174 apartments and 239 residential units. In order to be eligible to live in the residential units, an applicant is required to sign a life care contract, submit a medical application, a financial application, and pay a fee of One Thousand Dollars ($1,000.00) to be placed on a waiting list.  If an applicant is accepted, he is required to pay a one-time entrance fee, and is also required to pay a monthly rental fee.  In 2008, the non-refundable entrance fee for a couple in a 1,750 square foot, two bedroom country house was $237,000, while the entrance fee for a single person in a 420 square-foot studio apartment was $82,000.  In 2008, the monthly fees ranged from $2,203 for a studio apartment to $6,691 for a couple in two bedroom country house.  Residents are also asked to contribute to a Residents' Reserve Fund, which is used to assist those residents who can no longer afford their monthly fees.

 

In 2007, Delaware County assessed the Property at $31,000,000 for real estate tax purposes.  In response, DVI filed an appeal asserting that the Property was exempt from real estate taxation as DVI qualified as an institution of purely public charity.  The County Appeals Board held a hearing and denied the application.  On appeal, the Delaware County Court of Common Pleas affirmed concluding inter alia that, as DVI did not operate independently of profit motive, it did not qualify as a purely public charity.

 

On appeal, our Commonwealth Court affirmed.  In issuing its ruling, the court noted that, in order to qualify as an institution of purely public charity, an entity had to satisfy the five prong test established in HUP v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (“The HUP Test”), which provides that an entity qualifies as a purely public charity if it: (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.  In this matter, there was no evidence that DVI satisfied any of these requirements as: (a) DVI’s primary purpose was to lease residential space to medically and financially qualified seniors, not to benefit seniors in general, (b) it charges significant application and monthly fees, does not accept Medicare or any other government program, and makes no effort to accept applicants that cannot pay the requisite fees, (c) its services are only provided to those applicants who can afford the application and monthly fees, not an indefinite class of individuals that are legitimate subjects of charity, (d) it does not relieve the government of any burden since it does not accept those applicants who are unable to pay the requisite fees, and whose care may ultimately become the government’s responsibility, and (e) it does not operate entirely free of profit motive, as its executives’ compensation packages provide for bonuses and other related incentives tied to DVI's marketplace and/or financial performance.  For these reasons, DVI did not qualify as an institution of purely public charity, and its request for real estate tax exempt status was properly denied.