IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indiana University of : Pennsylvania, :

Appellant :

: v. : : Indiana County Board : of Assessment Appeals, : Indiana Area School District, : No. 1923 C.D. 2014 and Indiana County : Argued: June 18, 2015

BEFORE: HONORABLE DAN PELLEGRINI, President Judge

HONORABLE BERNARD L. McGINLEY, Judge (P.) HONORABLE P. KEVIN BROBSON, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY JUDGE McGINLEY FILED: September 17, 2015

Indiana Unive rsity of Pennsylvania ( Appellant) appeals from the Final
O rder of the Court of Common Pleas of Indiana County ( Trial Court ) that affirmed
the deter mination of the Indiana County B oard of Assessment Appeals ( Board ) and overruled the appeal of the Appellant as to the taxability of cert ain portions of the
Robertshaw P roperty. 1 For the following reasons, this Court affirms.

The Robertshaw Property was deeded to the Pennsylvania State System of Higher Education (PASSHE) , for the use of Appellant by the
Robert shaw Controls Company in 1984. Deed to the Robertshaw Property at 1; Reproduced Re cord (R.R.) at 018a. Appellant is a subsidiary of PASSHE pursuant

1 The Robertshaw P roperty consists of 22.93 acres of land located in White Township, Indiana County, Pennsylvania with a building on the property located at 650 South 13th Stre et, Indiana, Pennsylvania 15705.2

to Section 2002

- A of the Public School of 1949 (Code)

. 2 Appellant has operated the Indiana County Small Bu siness Incubator (Incubator) at that location since
1986

. Appellant also uses the space at the Robertshaw Property for administrative
offices and classrooms. The Robertshaw Property was originally classified as tax exempt under the Keystone Opportunity En terprise Zone. The Keystone Opportunity Enterprise Zone expired in 2011.

In July 2010, the Board sent notice to Appellant that the Robertshaw Property would no longer be classified as tax exempt beginning in 2011. In March of 2011, Appellant receive d a real estate tax notice from the Board demanding taxes in the amount of $30, 206.15 based on an assessed value of $992,970.22.

Appellant filed for declaratory relief in this Court’s original jurisdiction and requested this Court to declare that the Appellant was the

“ sovereign Commonwealth ” a nd its property immune from taxation

. Pennsylvania State System of Higher Education v. Indiana Area School District ( Pa. Cmwlth.,
No. 184 M.D. 2011 , filed April 5, 2012 ), aff’d
, 69 A.3d 236 (Pa. 201 3) (IUP Slip
O pinion I)

.

This Court found :

[Appellant] is ‘part of the Commonwealth’s system of higher education.’ It serves and carries out a particular function for the Commonwealth, as opposed to being the Commonwealth. Therefore, for tax immunity purposes,

2 Act of March 10, 1949, P.L. 30, 24 P.S. § 20

- 2002

- A as amended

. Section 2002

- A of the Code was added by the Act of November 12, 1989, P.L. 660.3 [App ellant] is not the equivalent to the sovereign Commonwealth . Property owned by [Appellant] is not owned outright by the Commonwealth, and it is not entitled to absolute, unqualified real estate tax immunity. (Citation and footnote omitted, emphasis in the original. ) Based on the statutory characteristics of [Appellant], [Appellant] is an ‘agency or instrumentality’ of the government which is entitled to the initial presumption of real estate tax immunity. This presumption, however, may be overcome if [ App ellant ] acquired or used the [Robertshaw] Property outside its authorized governmental functions.

.... To the extent that the [Robertshaw] Property houses classrooms, laboratories, libraries, study halls, auditoriums, workshops, etc., which are used by the university, its faculty, employees and students, for teaching and educational purposes, then it shall not be subject to real estate taxes. However, those portions of the [Robertshaw] Property which are leased to any third party in exchange for rental inco me , are subject to taxation, and do not enjoy tax immunity because they are not used for [Appellant’s] governmental purpose which is the provision of education. (Emphasis in the original .) IUP I Slip Opinion at 10

- 15; R.R. at 350a

- 355a.

This Court grant ed the Board’s Application for Summary Relief 3 and denied the Appellant’s Petition for Review in the Nature of Declaratory Judgment. IUP I Slip Opinion at 16; R.R. at 356a. An evidentiary hearing was held before the Board, and it determined the Incubator portion of the property was taxable. That determination was appealed to the Trial Court

.

3 The Board, Indiana Area School District , and the County of Indiana, filed for Summary Relie f and requested that the Board hold an evidentiary he aring on whether the Appellant wa s leasing portions of the Robertshaw Property to third party commercial entities in exchange for rental income. IUP I S lip Opinion at 15; R.R. at 355a.4 A hearing was held on June 4, 2014, at which time t he Board presented Frank Sisko (Sisko), the Chief Tax Assessor of Indiana County as a witness

. Hearing Transcript , (H.T.) June 4, 2014 , at 12; R.R. at 483a. Sisko
described how the Board arrived at the tax assessed on the Robertshaw Property: “The assessed value was arrived based on the square footage provided at the hearing of 27,946 . That figure was multiplied by a rate per square foot based on the last reassessment, our appraising manual, and then different factors for depreciation and such were given to arrive at the [$]61,210.” H.T. at 14; R.R. at 485a. This figure was based on the portion of the Robertshaw P r operty used for
the Incubator. H.T. at 18; R.R. at 489a.

Appellant presented Dr. Robert Bold in (Dr. Boldin) as a witness. H.T. at 19; R.R. at 490a. Dr. B ol d in is a professor of finance at Appellant, and
oversees the Incubator. H.T . at 20; R.R. at 491 a. Dr. Boldin testified that the Incubator is “part of an umbrella operation of management services group which is ... under the Eberly College of Business and Technology.” H.T . at 23; R.R. at 494a. Students are eligible to intern and otherwise work with the businesses in the Incubator: “Periodically the tena n ts will ask if there are any students that migh t be
availa b l e either as an internship or just a straight working

... for t heir company.”
H.T . at 23

- 24; R.R. at 494a

- 495a. However, only “four or five” students per year perform services for th os e business es lea sing space from the Incubator. H.T . at 30; R.R. at 501a. Some professors do , however, incorporate Incubator activiti es into
their classes and Dr. Boldin explained that :

A number of companies that have been in the [I]ncubator have been studied, if you will, by Dr. [Stephen] Osbourne’s students and typically what happens is if a5 company needs a marketing study ... or an a ccounting system needs to be put in, he will then put together a team of ... five or six students. And he runs that as a course so throughout the semester they will be work ing on that particular project...
H.T . at 27; R.R. 498a.

Appellant presented Susa n na Sink (Sink) as a witness. H.T . at 37; R.R. at 508a. Sink is the associate vice president of finance at Appellant and

serves as treasurer an d controller. H.T . at 38; R.R. at 509a. Sink testified that Appellant has to prepare information about capital assets “as part of what we call the FIN report which is a huge template that [PASSHE] asks us to complete... when we send those reports to [PASSHE] they [sic] combine all 14, the institutions
as well as the office of the Chancellor, and then they [sic] are required to repo rt that direct to the State.” H

. T . at 39

- 40; R.R. at 510a

- 511a. Sink also testified that PASSHE is included as a discretely presented component unit in the Commonwealth’s Comprehensive Annua l Financial Report. H.T . at 44; R.R. at
515 a. “Discretely presented component units can be other organizations of which the nature and significance of their relationship with the primary government is such that the exclusion of these organizations from the primary government’s
financial statements wou ld be misleading.” H.T . at 43; R.R. at 514a. Counsel for Appellant stated that the purpo se of presenting this evidence wa s to show that Appellant was so closely related to the Commonwealth that Appellant must be
treated as an extension of the Commonwealt h government. H.T . at 45

- 46; R.R. at
516a

- 517a.6 Last, Appellant presented Dr. Cornelius Woot en (Dr. Wooten) as a
witness. H.T . at 49; R.R. at 520a. Dr. Wooten is the vice president of
administratio n and finance at Appellant. H.T . at 50; R.R. at 521a. Dr. Wooten testified that the Robertshaw Property “has three distinct spaces.” H.T . at 50; R.R. at 521a. There is “an educational space area, an administrative space and of cou rse the [I]ncubator space.” H.T . at 50

- 51; R.R. at 521a

- 522a . Dr. Wooten a greed with Appellant’s counsel that Appellant received $90,000 in rental income from the Incubator, but invested about $310,000 of its money into operating the Incubator.
H.T . at 54; R.R. at 525a. “ We don’t use the term ‘profit’. We are in fact a non

pr ofit organization...[w] e are not in the process of making a profit. We are in the business of providing instructional services and to provide economic development...

. ” (Emphasis added.) H.T . at 53; R.R. at 524a.

The Trial Court found:

The issue remaining for this Court to decide is whether portions of the property were in fact leased to third parties for rental income. Testimony from each party indicated that this is the case. While [ Appellant ] maintains that service to the community and promotin g economic development are among the purposes of the Incubator, it does not negate the fact that space within the Robertshaw [P]roperty is leased to third parties not affiliated with IUP. Opinion and Order of the Trial Court, September 23, 2014, at 3

- 4; R.R. at 586a

587a.

The Trial Court dismissed Appellant’s appeal, an d affirmed the Board’s decision

. Appellant appeals that Order to this Court.7 Appellant presents two issues on appeal. 4 The first i ssue is whether the Incubator p roperty is immune from taxation, and the second is whether there is an exemption from taxation that would apply to the Incubator

.

I . Whether the Robertshaw Property is Immune from Taxation
The last time this Court reviewed this controversy, this Court held that Appellant was an agency or instrumentality of the Commonwealth, and was not the government of the Commonwealth proper. IUP I Slip Opinion at 10

- 11; R.R. at
350a

- 351a. Property owned by Commonwealth agencies or instrumentalities may be taxed whe n that property is not used or acquired for an authorized purpose. Southeastern Pennsylvania Transportation Authority (SEPTA) v. Board of
Revision of Taxes , 833 A.2d 710 (Pa. 2003).

In SEPTA , SEPTA acquired an office building in downtown Philadelphia to use as its new headquarters. Id. at 711. There was more space in the building than what was needed for offices, so SEPTA leased the extra space to private businesses, government agencies, and non

- profit organizations in order to
raise additional revenue

. Id. SEPTA’s main mission is to provide public transportation in southeastern Pennsylvania. Id. at 716. Even though SEPTA is authorized under 74 Pa. C.S. § 1741(a)(12) to acquire and dispose of property and authorized under 74 Pa. C.S. § 1741(a)(24) t o lease property to third parties in
order to raise additional revenue, these activities do not directly involve operating

4 In tax assessment cases, this Court considers whether the trial court abused its discretion, committed an error of law, or reached a decision not supported by substantial evidence. Downingtown v. Chester County Board of Assessment Appeals , 913 A.2d 194, 198 (Pa. 2006).8

a p ublic transportation system in s outheastern Pennsylvania. Id. at 716

- 717. Because the landlord activities were not directly lin ked to SEPTA’s purpose, the Pennsylvania Supreme Court held that the real estate used in the landlord activity fell outside the scope of government al immunity and was subject to local property

taxes. Id. at 717.

Like SE P T A, Appellant is a Commonwealth agency. IUP I Slip Opinion at 10

- 11; R.R. at 350a

- 351a. Commonwealth agencies have immunity from taxation, but only when the agency has acted within the scope of its
authorizat ion and within the purpose of its operation

. SEPTA , 833 A. 2 d at 715

. Appellant is authorized to act as a landlord under Section 2003

- A(b)(3) of the
Code 5

, 24 P.S. § 20

- 2003

- A(b)(3) , to lease as lessor real property. The first part of the immunity test is satisfied. The purpose of Appellant is “the provision of
instruction f

or undergraduate and graduate students to and beyond the master’s degree in the liberal arts and sciences and in applied fields, including the teaching profession.” 24 P .S. § 20

- 2003

- A(a). Operating a small business incubator is not necessarily incompatibl e with educating undergraduate and graduate students, but
this Court must examine whether the Incubator wa s used to further that purpose

.

Dr. Boldin testified “approximately four or five ” students per year perform services for the busin ess lea sing space from the Incubator. H.T . at 30; R.R. at 501a. The opportunity to work with the businesses at the Incubator is open
to all students and not rest ricted to business students. H.T . at 35; R.R. at 506a. There is no requirement that a lessee of the Incubator sp ace is a student or a former

5 This Section was added by the Act of November 12, 1982, P.L. 660.9

student of the Appellant and current or former students ren ting space at the
Incubator did not happen very often. H.T . at 31

- 32; R.R. at 502a

- 503a.

While Appellant is authorized to lease real estat e to third parties under
Se ction 2003

- A(b)(3) of the Code , 24 P.S. § 20

- 2003

- A(b)(3), this activity does

not directly advance the main purpose of Appellant to provide undergraduate and graduate education under Section 2003

- A(a) of the Code , 24 P.S. § 20

- 2003

- A(a)

. As explained hereafter, t he portion of the Robertshaw Property leased for the
Incubator is taxable under the current , valid, legal analysis.

However, Appellant asserts that the law has recently changed regarding the taxability of property owned by Commonwealth agen cies pursuant to City of Philadelphia v. Cumberland County Board of Assessment Appeals , 81 A.3d 24 (Pa. 2013) and Reading Housing Authority v. Board of Assessment Appeals of Berks County , 103 A.3d 869 (Pa. Cmwlth. 2014).

City of Philadelphia involved a unique, one o f a kind fact pattern . It
concerned a nearly two

- hundred year old charitable trust (Girard Trust ) created by
Ste phen Girard in his will in 1830 and administered by a quasi

- governmental entity
as a trustee for almost two

- hundred years. City o f Philadelphia , 81 A.3d at 25

- 29

. At the time the Girard Trust was created, there was no legal framework that
authorized the City of Philadelphia and the Commonwealth to ca rry out the terms
of the trust

. S pecial legislation was enacted as a result. Id. at 30. The trustee functions were delegated to an agency created by the General Assembly known as the Board of City Trusts in 1869. Id. at 33. The Board of City Trusts acquired10

property in Cumberland County in 2001 and rented part of it to the Office of Attorney General. Id. at 41. The Board of Assessment Appeals determined the property which was rented to the Office of Attorney General was taxable. Id. The Board of City Trusts appealed to the Cumberland County Court of Common Pleas. City of Philade lphia , 81 A.3d at 41. The Cumberland County Court of Common Pleas found the Girard Trust and the Board of City Trusts to be Commonwealth agencies and the rental of property to the Office of Attorney General wa s a v alid public use of the property and not t axable. Id. at 41

- 42. Cumberland County appealed the ruling to this Court, and this Court held that the Board of City Trusts was not a Commonwealth agency because there was no connection between the Board of City Trusts and the operation s of government o ther than the Board of City Trusts was created by an act of the General Assembly

. Id. at 42

- 43.

O ur Pe nnsylvania Supreme Court has reviewed the prior case law regarding Commonwealth agencies and immunity from local real estate taxes. Id.
at 50

- 52. Appellant contends the Pennsylvania Supreme Court overruled SEPTA

. This Court disagrees

. In City of Philadelphia , our Supreme Court noted:

[T]he Court determined that even if an entity is clearly a governmental agency or instrumentality, it may not autom atically claim immunity from local real estate taxation for property leased to third

- party commercial entities. The Court noted that SEPTA is part of the Commonwealth sovereign and entitled to presumed immunity; its enabling legislation also authorizes it to lease real estate in order to raise revenue and reduce expenses. Nevertheless, to the extent that SEPTA was acting as a ‘ commercial landlord ’ at its headquarters building in Philadelphia , the Court held that leasing real estate to commercial tenants wh o were not part of or associated with SEPTA, ‘solely to raise revenue,’ was11 outside the scope of SEPTA’S immunity because the activity was not sufficiently connected to SEPTA’S stated purpose of providing a metropolitan public transportation system. Al tho ugh the lease arrangements
r aised revenue and lessened public funding, they were still commercial ventures not eligible for immunity: ‘In that respect, SEPTA is like any other commercial landlord with w hich it competes as a landlord. City of Philadelphia , 81 A.3d at 51 (citation omitted and emphasis added )

.

Nowhere in that discussion or in the rest of the case does the Pennsylvania Supreme Court comment regarding whether SEPTA is no longer
valid case law. SEPTA is relevant case law to describe the landscape of that particular area of law

. 6 Further, the concurring opinion stated SEPTA w as applicable law and argued that the fact pattern in City of Philadelphia wa s similar

to SEPTA

. City of Philadelphia , 81 A.3d at 56 (Saylor, J., co ncurring). T he Pennsylvania Supreme Court found the charitable trust was immune from local real
estate taxation :

In this historical and legal landscape, it would seem to be a fool’s errand to attempt to determine whether the Girard entities comprise a Co mmonwealth agency in the

6 Appellant also points to the discussion of Pennsylvania State University v. Derry Township School District , 731 A.2d 1272 (Pa. 1999) , for the proposition that the “ pivotal factor should be whether the institution’s real property is so thoroughly under the control of the Commonwealth that, effectively the institution’s property functions as Commonwealth property.” Id. at 1274

. T he anal ysis used in Pennsylvania State University was applied to determine whether an entity is a Commonwealth agency, not whether an entity is immune from local real estate taxation. In that case, the Pennsylvania Supreme Court found the Pennsylvania State Univ ersity was not a Commonwealth agency and not immune from local real estate taxation. Id. at 1274

- 1275. However, it does not follow that if an entity is determined to be a Commonwealth agency, then it has unqualified immunity from local taxation. See [ SEP TA ] v. Board of Revision of Taxes , 833 A.2d 710 (Pa. 2003); Delaware County Solid Waste Authority v. Berks County Board of Assessment Appeals , 626 A.2d 528 (Pa. 1993).12 modern sense by squeezing a sui generis creature of the nineteenth century

– when the Commonwealth itself was in its infancy

– into a twentieth century (and largely late twentieth century, at that) decisional paradigm deriving from disputes concerning waste disposal sites, airports, and ev olving land grant universities

. ... [T]he historical status of the Girard entities properly gives us pause before stepping in, as a judicial matter, and rendering a decision that may well upset relian ce interests and cause severe economic dislocation

.

.... [G]iven the General Assembly’s historical interest in, and concern with the Girard Entities, we believe it better that that policy determination be considered and decisively rendered by that body, rath er than by a Court attempting to apply new doctrines to old, and rather unique, relationships. We conclude, therefore, that the Trust, College, and Board of the City Trusts and, by extension, the real estate holdings of the Girard Trust, retain immunity f rom local property taxation as, collectively, part of the sovereignty of the Commonwealth of Pennsylvania

. City of Philadelphia , 81 A.3d at 54

- 55.

Unlike the trust in City of Philadelphia , Appellant i s a subsidiary of PASSHE, which is explicitly named as a “government instrumentality” in Section
2002

- A(a) of the Code, 24 P.S. § 20

- 2002

- A(a)

. As cited, Section 2002

- A(a) was enacted in 1982. PASSHE and Appellant are instrumentalities of the Commonwealth, and were design ated as such during the late twentieth century when the case law concerning this particular issue was established. SEPTA is still applicable law for this type of fact pattern.

Reading Housing Authority concerned the renting o f mixed

- use apartments by the Reading Housing Authority (Authority) where eighty percent of13

the units were pr iced at the market rate, and twenty percent of the units were set
aside for low

- income renters. Reading Housing Authority , 103 A.3d at 870

- 871. The Board of Assessment Appeals of Berks County attempted to tax the eighty percent portion of the rental properties that were priced at the market rate. Id. at 871

- 872. The main purpose of the Authority wa s to provide “subsidized housing
to individuals of modest or low income”. Id. a t 873. This Court found the Authority was acting in the scope of its authority and the mixed

- use apartments furthered its purpose even though not all of the units were rented to low

- income

renters. Id. at 873

- 875. The Authority was authorized by statute to create and lease
mixed

- use projects

. Id. at 874. E vidence was submitted that it is bad public policy
to concentrate low

- income renters into one area and mixed

- use projects are a better
method of carrying out the Authority’s purpose. Id. This Court a lso noted that the
market rate a nd the subsidized apartments constitute a n integrated whole as they are both necessary for the success of the mixed

- use project because the market rate units provide the support for the subsidized units. Reading Housing Authority , 103
A.3d at 875.

Reading Housing Authority is distinguishable from the present controversy. Appellant is authorized to lease office space to third parties, but those
leases do not further Appellant ’s purpose of educating undergraduate and gr aduate
students. Th e Incubator also does not form a n “integrated whole” with the rest of Appellant as Appellant may carry on its educational mission without the Incubator

. Whether Appellant spent more money operating the Incubator than the Appellant

rece ived in rental income is not convincing

.14 Contrary to Appellant’s assertions, the law regarding governmental immunity from local real estate taxation did not change with City of Philadelphia
and Reading Housing Authority

. SEPTA is applicable to this contr oversy and
while we agree Appellant acted within its statutory authorization, its actions did not promote the purpose of providing undergraduate and graduate education. The portion of the Robertshaw Property , the Incubator, which wa s leased to third partie s in exchange for rental income i s not immune from local real estate
taxation. 7

II . Whether the Robertshaw Property is Exempt from Taxation Appellant contends that if this Court finds that immunity does not apply to the Robertshaw Property, it should still not be taxed because the Incubator conforms to a public purpose or is otherwise exempt from local taxation

. Appellant points to 53 Pa. C.S. § 8812(a)(3) and 53 Pa. C.S. § 8812(a)(8) of the Consolidated County Assessment Law (Law)

.

An entitlement to a tax exemption should be strictly interpreted against the taxpayer. In re Appeal of Pennsylvania Easter Seal Society from Real
Estate Taxation Assessment , 445 A.2d 1369, 1370 (Pa. Cmwlth. 1981) citing Board of Revision of Taxes of Philadelphia v. Unit ed Fund of Philadelphia , 314 A.2d 530 (Pa. Cmwlth. 197 3).

7 Certainly the number of students employed and trained by the business tenants is re lev ant to the issue of taxation. But evidence as to the benefit to the Appellant and its students was de minimi s on this record.15 53 Pa. C.S. § 8812(a)(3) of the Law provides: “All hospitals, universities... endowed and maintained by public or private charity as long as all the following apply...The property of purely public cha rities is necessary to and actually used for the princip al purposes of the institution and not used in such a manner as to compete with commercial enterprise .” ( Both bold and italics

e mphasis added.) It was established in IUP I Slip Opinion that Appellan t is a Commonwealth agency. It is not a public or private charity. For the sake of argument , even if Appellant was a private or public charity, the leasing of Incubator space to third party commercial enterprises did not further the “principal

purp ose of the institution”, which is education. Additi onally, the Incubator property wa s used in a way “as to compete with commercial enterprise.”

On cross examination, Dr. Boldin testified:
Q. [Michael Clark, Counsel for Indiana County] You would agree the re [are] a lot of commercial buildings here in Indiana that lease space to tenants?

A. [Dr. Boldin] Sure. Q. And those tenants could be starting up businesses? A. They could.
Q. And would you agree that those commercial landlords compete with [Appellant] in leasing space for businesses? A. Well, our emphasis is on new business start up[s] primarily.
Q. But

— A. Or developing businesses.16 Q. But would you agree that there are commercial landlords who have start up new businesses in their buildi ngs? A. I suppose. Q. And they compete with [Appellant] in leasing space? A. Probably.
H.T . at 34; R.R. at 505a.

The exemption in 53 Pa. C.S. § 8812(a)(3) of the Law does not apply to Appellan t here because Appellant is not a public or private charit y, the Incubator is not part of the principal purpose of the Appellant, and the Incubator is used in a way in which it competes with commercial landlords.

53 Pa. C.S. § 8812(a)(8) of the Law exempts from local taxation “[a]ll other publ ic property used f or public purposes...” In this controversy, the trial court determined that Appellant leased space in the Incubator to entities not
affiliated with Appellant in exchange for rental income . Trial Court Opinion at 3

- 4; R.R. at 586a

- 587a. For the purposes of exemption from taxation as a public use, the test is whether the property has been leased for a public or private purpose. Appeal of the Municipal Authority of Borough of West View , 113 A.2d 307, 309 (Pa. 1953).

The general rule is when a governmental entity leases property for a private or commercial purpose, that lease does not count as a “public purpose”, and that property will not be exempt from taxation. Id. at 310. Since it has been determined that portions of the Robertshaw Property have been leased to non

-17

governmental third party entities in exchange for rental income, the public use exemption of 53 Pa. C.S. § 8812(a)(8) of the Law does not apply to the Incubator portions of the Robertshaw Property.

Accordingly, this Court affirms.

____________________________ BERNARD L. McGINLEY, JudgeIN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indiana University of : Pennsylvania, :

Appellant :

: v. : : Indiana County Board : of Assessment Appeals, : Indiana Area School District, : No. 1923 C.D. 2014 and Indiana County :

O R D E R

AND NOW, this 17 th day of September , 2015 , the Order of the Court
of Common Pleas of Indiana County in the above

- captioned matter is affirmed.

____________________________ BERNARD L. McGINLEY, JudgeIN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indiana University of : Pennsylvania, : Appellant :

: v. : No. 1923 C.D. 2014
: Argued: June 18, 2015 Indiana County Board : of Assessment Appeals, : Indiana Area School District, : and Indiana County :

BEFORE: HONORABLE DAN PELLEGRINI , President Judge

HONORABLE BERNARD L. McGINLEY, Judge (P.) HONORABLE P. KEVIN BROBSON , Judge

OPINION NOT REPORTED

DISSENTING OPINION BY JUDGE BROBSON FILED: September 17, 2015

I agree with the majority that the Pennsylvania State System of Higher Education (PASSHE), which owns the Robertshaw Property, is an instrumentality
of the Commonwealth. See Pa. State Univ. v. Derry Twp. Sch. Dist. , 731 A.2d 1272 (Pa. 1999) (comparing and contrasting P A SSHE, a Commonwealth instrumentality and thus immune from taxation, with Pennsylvania State University). Real property of PASSHE is, therefore, “presumed to be immune, with the burden on the local taxing body to demonstrate taxability.” Ci ty of Phila. v. Cumberland Cnty. Bd. of Assessment Appeals , 81 A.3d 24, 50 (Pa. 2013) ( Girard Trust ). Whereas, however, the majority concludes that the operation of the Indiana County Small Business Incubator (Incubator) within the RobertshawPKB

- 2

Property , wh ich provide s students with real

- world work experience and support s new and emerging businesses , falls outside of the scope of PASSHE’s authorized purposes and , thus , outside of the scope of its immunity, I would conclude otherwise. I, therefore, respectfu lly dissent.

The only similarities between this case and Southeastern Pennsylvania Transportation Authority v. B oar d of Revision of Taxes , 833 A.2d 710, 71 1 (Pa. 2003) ( SEPTA ) , is that both cases involve an instrumentality of the Commonwealth leasing a por tion of its property to a third

- party tenant. This act, however, does not ipso facto take the leased premises outside of the scope of the instrumentality’s immunity from taxation. To the contrary, the Supreme Court of Pennsylvania in SEPTA found that a m etropolitan transportation authority acted outside its authorized governmental purposes because it (a) leased its otherwise exempt property to a commercial tenant whose activities were entirely unrelated to the transp ortation authority’s activities; and (b ) for the sole purpose of generating revenue and reducing costs. In this regard, it acted no differently than any other commercial landlord and thus acted outside of its authorized purposes and , thus , outside of the scope of its immunity. SEPTA , 833 A.2d at 71 6

- 1 7 . As then

- Justice (now Chief Justice) Saylor observed in his concurring opinion in Girard Trust , “the immunity . . . question hinges on whether the agency, in . . . . renting out the property, is acting within or outside of its own authorized pu rposes.” Girard Trust , 81 A.3d at 56 (Saylor, J., concurring).

On the issue of tax immunity, all doubts are to be resolved in favor of the taxpayer, and, as noted above, it is the taxing authority’s burden to establish that the property in question is not immune from taxation. Lehigh

- Northampton Airport Auth

. v. Lehigh Cnty

. Bd

. of Assessment Appeals , 889 A.2d 1168, 1175

- 76PKB

- 3

(Pa. 2005). The evidence before the trial court consisted of a joint exhibit book, admitted by stipulation of the parties. (Reprod uced Record (R.R.) 477a.) The only other exhibit offered by the taxing authorities in this case was the county tax assessment card for the Robertshaw Property. The taxing authorities called only
one witness

—

Frank Sisko, the Chief Assessor for Indiana Cou nty. Mr. Sisko testified as to the assessed value of the portion of the Robertshaw Property that the County deemed to be taxable, that being the Incubator space. (R.R. 484a

- 85a.) Mr. Sisko also testified about the “licens e agreements” that PASSHE execut es with its Incubator tenants. Mr. Sisko testified that the County used the square footage
set forth in the licens e agreements to arrive at the amount of taxable space in the
Robertshaw Property . ( R.R. 487a.)

Appellant was the only party to the appeal be fore the trial court that offered testimony about the Incubator’s operations. Its first witness was Dr. Robert J. Boldin, a professor of finance at Indiana University of Pennsylvania (IUP), a PASSHE institution. Dr. Boldin has overseen the Incubator in t he
Robertshaw Property since 1997, spending approximately 25% of his work

- related time in the Incubator. (R.R. 491a.) Dr. Boldin testified that the Incubator looks to attract small, start

- up companies as tenants: “[T]he key here is that we want to
look at those companies that have the potential for growth and that will actually begin to hire employees because economic development is real ly the critical factor for the [I] ncubator to be in operation.” (R.R. 493a

- 94a.) U nlike a typical
commercial landlord , one of the goals of the Incubator is to actually see tenants
l eave, or “graduate
, ” from the I ncubator. (R.R. 495a

- 96a, 499a.)

According to Dr. Boldin, the “ focus of the [I]ncubator is to provide the service to the community which is one of the three p illars of the U niversity’sPKB

- 4

function [:] teaching, scholarly research and community service.” (R.R. 494a.) The Incubator also creates opportunities for student employment and internships, as well as opportunities for IUP students to provide value

- added se rvices, such as web site development. In this way, the Incubator provides opportunities for all IUP students, not just business students. (R.R. 495a.) During the 2013

- 2014 academic year, Dr. Boldin estimated that four or five, maybe more, students provi ded services to Incubator tenants. (R.R. 501a.) Although tenants in the Incubator are not required to use the offered services, Dr. Boldin testified that he
asks all new tenants to reach out to the Director of the Small Business Development Center for as sistance. ( Id. )

Dr. Boldin also testified about the IUP Management Services Group, which oversees the Incubator as part of the Eberly College of Business and Information Technology at IUP (College of Business). (R.R. 494a.) The Management Services Group provides services to Incubator tenants, including assistance with government contracting and other services, such as marketing studies and implementation of accounting systems. (R.R. 498a.) The Management Services Group also prepared a study about the e conomic impact of the Incubator to Indiana County over two decades

— from 1990 to 2010. The study reported a conservative estimate of economic benefit to Indiana County from the Incubator over this period at over a billion dollars. (R.R. 499a

- 500a.)

Appell ant also called Dr. Cornelius Wooten, IUP’s Vice President for Finance and Administration, to testify about the Incubator. He offered the following: IUP like all educational institutions, we are a three prong

mission. That will be teaching, schola rship o r research and service. S o those three, these are the three missions of IUP like most higher education institutions, bePKB

- 5 teaching, research and service. Now, as it relates to the [I] ncubator of what you have heard about the, Dr. Boldin described how the [ I] ncubator fit within the Eberly C ollege of Business and also the report of the management services. We feel very strongly that as part of the IUP mission, the mission of instruction, the mission of service, both of those go hand in hand in terms of promo ting one of the important aspects here in this Commonwealth of Pennsylvania of economic development. We feel very strongly that IUP has a responsibility to promote economic development. And at the end of the day, everything we do as it relates to students , whether we are talking about the teaching component or the service component, it all fits in and compliments each other. S o ultimately, we are there to provide students [the opportunity] upon graduation to be productive citizens so that they can in fact hopefully stay within the Commonwealth of Pennsylvania to promote economic development. S o economic development is in fact what the [I] ncubator is all about. (R.R. 522a

- 23a.) Dr. Wooten r ejected the suggestion that the Incubator competes in the commercial marketplace for tenants:

[I] somewhat disagree with that analysis in the sense that our role is to try to compliment the teaching component as well as the service component and as part of the teaching and service component is to try to compliment and facilitate that effort whereby we will utilize our students as part of the management services component to supplement what we do relative to providing the service component of IUP to promote, once again, economic development. So we serve as an arm, as an opportunity to provide facility towards starting new businesses, developing businesses, to have an opportunity to get the benefit of our services, to get the benefit of students in terms of i nternships, to get the benefit of our faculty and to get the benefit of our management services. And while certainly ongoing new businesses could naturally get those services if they are not housed in the [I] ncubator, it certainly is more convenient by th e mere fact that we are there to help facilitate that effort

.PKB

- 6

(R.R. 523a

- 24a.) Dr. Wooten actually refers to the Incubator as a “learning laboratory,” where the College of Business can provide services to new and emerging businesses on site as well as o pportunities for students. (R.R. 529a

- 30a.)

Purposes and general powers of PASSHE are set forth in
Section 2003

- A of the Public School Code of 1949 (Public School Code). 1 Regarding purposes, Section 2003

- A(a) of the Public School Code provides:

The State System of Higher Education shall be part of the Commonwealth ’ s system of higher education. Its purpose shall be to provide high quality education at the lowest possible cost to the students. The primary mission of the system is the provision of instruct ion for undergraduate and graduate students to and beyond the master’s degree in the liberal arts and sciences and in applied fields, including the teaching profession

. . . . Programs of research and service may be provided which are approved by the Boar d of Governors, and which are consistent with the primary mission of the system . Each institution shall provide appropriate educational facilities, student living facilities and such other facilities as deemed necessary by the board

. (Footnote omitted; em phasis added.) This section of the Public School Code grants PASSHE “all the powers necessary or convenient for the carrying out of the aforesaid purposes,” including, but not limited to, the express power to lease property “necessary or desirable for car rying out the purposes of the system.”
Section 2003

- A(b)(3) of the Public School Code.

As noted in Section 2003

- A of the Public School Code, the Board of Governors of PASSHE is the body vested by the General Assembly with the authority to determine the pr ograms of service that PASSHE should provide as

1 Act of March 10, 1949, P.L. 30, as amended , 24 P.S. § 20

- 2003

- A , added by the Act of November 12, 1982 , P.L. 660

.PKB

- 7

well as the “necessity and desirability” of facilities for the purposes of meeting PASSHE’s mission. Specifically, the Board of Governors is empowered “[t]o establish broad fiscal, personnel and education al policies under which the institutions of the system shall operat e .” Section 2006

- A (a) (4) of the Public
School Code. 2 It also has the power “[t]o do and perform generally all of those things necessary and required to accomplish the role and objectives of the system.”
Section 2006

- A (a) (15) of the Public School Code

. 3

Consistent with these powers, on October 16, 1984, the Board of Governors adopted “Policy 1984

- 10: State System of Higher Education Mission.” (R.R. 14a.) It includes the following as missio ns, or purposes, of PASSHE:

5. To provide continuing education and community and public services in accord with the needs and aspirations of citizens and the social, cultural, economic, and technical needs of the Commonwealth.

. . . . 8. To participate in and help provide leadership for the economic revitalization and development of the Commonwealth. The Incubator has been in existence since 1986. It is not simply leased commercial space. It is space where, as the record bears out, IUP’s College of Business works to enhance economic development in the region by providing low

- cost space to new and developing companies while providing services to those tenants and
real

- world learning opportunities to its students.

2 Act of M arch 10, 1949, P.L. 30, as amended , 24 P.S. § 20

- 2006

- A(a)(4), added by the Act of November 12, 1982 , P.L. 660.

3 Act of M arch 10, 1949, P.L. 30, as amended , 24 P.S. § 20

- 2006

- A(a)( 15 ), added by the Act of November 12, 1982 , P.L. 660.PKB

- 8 On this record, then, unlike the metro politan transportation authority
in SEPTA , it is not at all clear that PASSHE’s motives in leasing out Incubator space to new or developing small businesses are purely commercial

— i.e. , for the sole purpose of generating revenue and reducing PASSHE’s costs. 4 To the contrary, the unrebutted record evidence shows that PASSHE operates the Incubator as part of IUP’s College of Business and that the Incubator serves a dual mission of PASSHE, as formulated by the Board of Governors under its lawfully

- delegated au thority, to educate PASSHE students and to promote economic development within the communities in which PASSHE institutions are
located. Allocating, as we must, the burden of proof to the taxing bodies and resolving, as we must, any doubt in favor of the taxpayer, I would conclude that the taxing bodies in this case have failed to meet their burden of showing that PASSHE’s leasing activities as part of the Incubator are outside of the scope of PASSHE’s authorized purposes and, therefore, failed to show th at the leased Incubator space in the Robertshaw Property falls outside the scope of PASSHE’s immunity from taxation. 5

4 Even if we disregard the testimony of Appellant ’s witnesses, I would conclude that the testimony of Indiana County’s Chief Assessor, the taxing authority’s only witness, is inadequate to rebut the presumption of immunity.

5 The majority recognizes that “[o]perating a small business incubator is not necessarily incompatible with educati ng und ergraduate and graduate students .” Maj. Op. at 8. The majority, however, then purports to examine “whether the Incubator was used to further that purpose.” Id. The majority concludes that the Incubator was not used to further that purpose. I can glean from the majority’s opinion only two proffered reason s in support of that conclusion. First, on page 9 of its opinion, the majority reasons that PASSHE’s leasing of Incubator space “does not directly advance the main purpose of Appellant to provide underg raduate and graduate education.” Later, in footnote 7 on page 14, the majority writes: “Certainly the number of students employed (Footnote continued on next page...)PKB

- 9 Accordingly, I would reverse the Order of the Court of Common Pleas of Indiana County.

P. KEVIN BROBSON, Judge

(continued...)
and trained by the business tenants is relevant to the issue of taxation. But the benefit to [IUP] and its students was de minim i s on this record.” Respectfully, I believe that the majority has too narrowly defined the purposes/mission of PASSHE and/or has usurped the Board of Governor’s role to determine what programs of services are consistent with the primary mission of PA SSHE. Indeed, even the majority, in these passages, acknowledges record support for the conclusion that the Incubator at least indirectly advances the mission of PASSHE and benefits its students. Whether that benefit is substantial or de minim i s is not r elevant to the tax immunity question, but rather is a matter better left to the Board of Governors if or when it evaluates the merits of continuing the Incubator as part of the IUP College of Business.