Community Service Foundation, Inc. v. Bucks County Board of Assessment & Revision of Taxes , 672 A.2d 373 ( 1996 )

MeGINLEY, Judge.

Community Service Foundation, Inc. (CSF) appeals from an order of the Court of Common Pleas of Bucks County (trial court) that affirmed, on consolidated appeals, two orders of the Bucks County Board of Assessment and Revision of Taxes (Board) denying CSF tax exempt status as a purely public charity. We affirm.

CSF is a non-profit corporation incorporated in 1977 by Theodore Watchel and his wife, which provides residential, educational and counseling services to troubled youths. CSF’s three properties at issue are a school and treatment center, a residential property housing married couples who serve as surrogate parents and a group home serving as a residence for youths attending the school.

CSF programs are funded by the Commonwealth, by Bucks County (County), by payments from some of the students’ parents and by charitable grants and donations. CSF compensates its staff at rates lower than comparable government rates. In years when funding ran out before the end of the school year the staff continued to provide services until the end of the year. If CSF enjoys a surplus it reinvests that money in the organization.

CSF sought tax exemptions for its real estate holdings as an institution of purely public charity. The Board denied CSF’s requests and CSF appealed. In an opinion and order dated December 5,1994, the trial court affirmed the Board. The trial court stated that contributions and sources of funding to CSF were critical in determining whether CSF relieved government of some of its burden and is a public or private charity. The trial court critically noted that an entity does not relieve the County of its burden simply by being paid to do the County’s work and that CSF was almost entirely funded by the County. The trial court concluded that CSF was simply a mechanism through which the County satisfied some of its burden and that CSF did not prove that it was an institution of purely public charity.

On appeal, CSF questions whether an organization that meets other required criteria for designation as a purely public charity also meets the test of relieving government of some of its burden where its programs are funded by county agencies, local school districts, private donations and in-kind donations by the organization’s qualified employees in the form of work for below-market compensation. We note that the question of whether an institution is one of purely public charity is a mixed question of law and fact on which the trial court’s decision is binding absent abuse of discretion or lack of supporting evidence. Hill School Tax Exemption Case, 370 Pa. 21, 87 A.2d 259 (1952).

CSF contends that the trial court erred in concluding that, because the actual funds for its programs are derived largely from the County and, to a lesser extent, from private charity and from payments from some parents of enrolled students, CSF does not relieve government of some of its burden. CSF argues that it qualified for tax exempt status, even though nearly all its revenues were derived from government payments, because it provided valuable, unique and necessary services which the local government was unable to provide on its own. CSF asserts that in determining whether CSF was exempt the trial court erroneously focused on the amount of contributions received as compared to total income, implicitly requiring some threshold level of private donation.

Article 8, Section 2 of the Constitution of Pennsylvania provides in part: “(a) The General Assembly may by law exempt from taxation: ... (v) Institutions of purely private charity_” Pursuant to this authority, the legislature has exempted from local taxation “[a]ll hospitals, universities, colleges, seminaries, academies, associations and institutions of learning, benevolence, or charity ... founded, endowed, and maintained by public or private charity_” Section 204(a)(3) of The General County Assessment Law (Law), Act of May 22, 1933, P.L. 853, as amended, 72 P.S. § 5020-204(a)(3). An institution that through its charitable activities relieves government of some of its burden confers a pecuniary benefit for which it receives a quid pro quo in the form of exemption from taxation. Young Men’s Christian Association of Germantown v. Philadelphia, 323 Pa. 401, 187 A. 204 (1936). Any entity seeking exemption from tax has the affirmative burden to prove entitlement to that exemption. Four Freedoms House of Philadelphia, Inc. v. City of Philadelphia, 443 Pa. 215, 279 A.2d 155 (1971).

Our Pennsylvania Supreme Court reviewed extensive case law concerning charitable tax exemptions and summarized the minimum constitutional requirements in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 21-22, 487 A.2d 1306, 1317 (1985):

[An] 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) Reheves the government of some of its burden; and

(e) Operates entirely free from private profit motive.

The criterion in dispute here is whether CSF relieves the government of some of its burden. For the purpose of charitable tax exemption, an institution relieves the government if it bears a substantial burden that would have otherwise fallen to the government. Couriers-Susquehanna v. Dauphin County, 165 Pa.Cmwlth. 192, 645 A.2d 290 (1994). A purely public charity does not cease to be such where it receives some government funding for its services. City of Pittsburgh v. Board of Property Assessment, Appeals and Review, 129 Pa. Cmwlth, 69, 564 A.2d 1026 (1989).

Presently, CSF asserts that it relieves government of some burden by providing residential, educational and counseling services to troubled youths at a lower cost than similar programs provided by the Commonwealth or the County. CSF cites St. Margaret Seneca Place v. Board of Property Assessment, Appeals and Review, 536 Pa. 478, 640 A.2d 380 (1994), in support of its position. In St. Margaret Seneca Place, our Pennsylvania Supreme Court upheld the charitable tax exemption for a nursing home that paid one-third of the difference between the actual costs and the Medicaid payments for roughly one half of its residents. The remaining residents at the nursing home were self-paying. The Supreme Court held that “[t]he [Hospital Utilization Project ] test of whether an institution has relieved the government of some of its burden does not require a finding that the institution has fully funded the care of some people who would otherwise be fully funded by the government.” St. Margaret Seneca Place, 536 Pa. at 487, 640 A.2d at 385.

The evidence presented in St. Margaret Seneca Place clearly demonstrated that the nursing home paid a significant portion of the residents’ costs. Such evidence is lacking in the present controversy. At trial, CSF did not establish that it pays a substantial portion of the costs of its programs. In pondering the issue of CSF’s tax exempt status the trial court noted that “we do not know the total amount of charitable donations that CSF has received.” Trial Court Opinion, December 5, 1994, (Opinion) at 6-7. The trial court “consider[ed] this information critical to ... determining whether CSF relieves the government of some of its burden and whether CSF is maintained by public or private charity.” Opinion at 7. After considering the evidence presented, the trial court found that CSF failed to meet its burden because it did not prove that it substantially relieved the government of any burden. The trial court ultimately held that CSF “failed to present a sufficiently detailed and clear case to satisfy a finding consistent with St. Margaret Seneca Place." Opinion, at 6.

Although there is no requirement that an institution carry the cost of programs which would otherwise be the government’s responsibility, whether or not the institution “pays a substantial portion of the cost” of a governmental service is a significant factor in determining eligibility for the charitable tax exemption. St. Margaret Seneca Place, 536 Pa. at 487, 640 A.2d 380 at 385. The amount of charitable contributions received by CSF is crucial because whether CSF relieves some of the County’s burden depends, at least in part, on absorbing the cost of programs which the County is obligated to provide. If CSF programs are not substantially funded by private contributions rather than government grants CSF is not bearing a substantial burden that would otherwise fall to the government, but is essentially contracted by the County to provide those services for less cost. Tax exempt status is properly reserved for organizations which abate government costs, not for those who perform government responsibilities as independent contractors.

We recognize that CSF has provided the facilities and performed the day-to-day management of a school and a residential treatment center. CSF’s endeavors are certainly worthwhile community services, but CSF does not relieve the County’s burden merely by utilizing funds to provide help within the County. A project funded by the government and intended for public benefit is not entitled to a tax exemption simply because it is worthwhile and commendable. G.D.L. Plaza Corporation v. Council Rock School District, 515 Pa. 54, 526 A.2d 1173 (1987).

It is not enough under the Hospital Utilization Project test that an institution renders services to legitimate subjects of charity. In order to be tax exempt, the entity must prove, among other things, that it relieves government of some of its burden. The trial court was unconvinced by the evidence presented that CSF bore a substantial burden that would otherwise fall to the government. The trial court did not set forth specific percentage requirements for private donations, but did carefully assess the evidence of the funding received by CSF and found that CSF did not prove that its operations are maintained by means other than government subsidies. This finding weighed heavily in the trial court’s analysis. Accordingly, the trial court determined that CSF did not present evidence sufficient to demonstrate that it meets the test for the only point in dispute, i.e., that CSF did not relieve government of some of its burden.

We affirm.

ORDER

AND NOW, this 28th day of February, 1996, the order of the Court of Common Pleas of Bucks County in the above-captioned matter is affirmed.

KELLEY, J., concurs in result only.