IN THE COMMONWEALTH COURT OF PENNSYLVANIA

The Ceramic Art & Culture Institute :

:

v. : No. 1294 C.D. 2018

:

Berks County Board of Assessment :

Appeals and Reading School District :

:

Appeal of: Berks County Board of :

Assessment Appeals :

The Ceramic Art & Culture Institute :

:

v. : No. 1330 C.D. 2018

: Argued: December 12, 2019

The Board of Assessment Appeals of :

Berks County :

:

v. :

:

Reading School District, :

Appellant :

 

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE P. KEVIN BROBSON, Judge

HONORABLE ANNE E. COVEY, Judge

OPINION 

BY PRESIDENT JUDGE LEAVITT FILED: February 18, 2020

The Berks County Board of Assessment Appeals and the Reading 

School District (collectively, School District) appeal the August 27, 2018, order of 

the Court of Common Pleas of Berks County (trial court) that granted The Ceramic 

Art & Culture Institute (Institute) a real estate tax exemption. In doing so, the trial 

court held that the Institute was a purely public charity by reason of its educational 

and cultural activities. On appeal, the School District argues that the Institute does

not satisfy the constitutional and statutory test for a purely public charity and, 
2

alternatively, that parts of the building are not regularly used by the Institute and

should be taxed. The School District further argues that the Institute does not qualify 

for a tax exemption under the Consolidated County Assessment Law (Assessment 

Law),

1 because it has only an equitable ownership of the real estate in question. 

Alternatively, the School District argues that the Assessment Law violates the 

Pennsylvania Constitution. We affirm.

Background

In March of 2016, Gary and April Kutay purchased a Queen Anne style 

home (property) at 746 Centre Avenue, Reading, which has an assessed value of 

$259,000. The property houses the Institute, a Pennsylvania nonprofit corporation 

established by the Kutays’ daughter, Hollace Kutay.

2

 The Institute was incorporated 

“exclusively for charitable, educational, and scientific purposes” with its “[m]ain 

[p]urpose” being an “[a]rt gallery and art institute.” Reproduced Record at 108a 

(R.R.__). The Institute is tax exempt under Section 501(c)(3) of the Internal 

Revenue Code, 26 U.S.C. §501(c)(3), and holds a sales and use tax exemption from

the Pennsylvania Department of Revenue. The Institute provides art education to 

residents of the City of Reading and conducts workshops for at-risk and 

disadvantaged people in Berks, Lancaster, and Lebanon counties. The Institute’s

stated mission is “to support individual and artistic growth” and to enhance the arts 

in Reading by hosting nationally known artists to conduct workshops and exhibit 

work at the Institute’s gallery. R.R. 135a.

 

1

53 Pa. C.S. §§8801-8868. The Assessment Law applies to second class A counties and third, 

fourth, fifth, sixth, seventh and eighth class counties. 53 Pa. C.S. §8801(b)(1)(i). Berks County 

is a third class county.

2 The record shows that the Kutays have supported the Institute with donations, in-kind gifts and 

low-interest loans. Many of the loans have been repaid by the Institute’s fundraising activities. 
3

From March 2016 through December 2017, the Institute renovated the 

property to make it suitable for its activities. The renovations included infrastructure 

improvements to the heating and air conditioning system as well as carpentry,

plumbing, painting and tile work throughout the house. The basement was 

transformed into a clay studio, furnished with a 19.2-cubic-square-foot kiln. The 

Institute used the property for fundraising events in October 2016, June 2017, 

October 2017, and June 2018. 

In February 2018, the Institute began offering classes at the property. 

Hollace Kutay serves as the instructor without compensation. Tuition is set below 

the cost of the materials, kiln firing and instruction. Scholarship students do not pay 

tuition or for the cost of their materials. The Institute offers free workshops to

nonprofit groups serving disadvantaged, at-risk, and disabled populations, as well as

Boy Scout chapters in Lancaster and Berks Counties. 

Hollace Kutay serves as the Institute’s full-time executive director. She 

lives in Lancaster County and commutes daily to the Institute. She receives no salary

or reimbursement for her expenses. The Institute’s directors serve without 

compensation. The Institute has no employees and pays no salaries. 

The Institute’s articles of incorporation preclude the use of revenue to 

benefit individuals associated with the organization or “other private persons.” R.R. 

108a. All revenue must be used for charitable purposes. In 2016 and 2017, the 

Institute operated at a net loss, finishing 2017 with a deficit of $18,000.

On August 23, 2017, the Institute entered into an installment sales 

agreement to purchase the property from the Kutays for $360,000, which agreement 

was recorded the same day. Under the agreement, the Institute paid $1,000 at 

settlement and agreed to pay the principal balance, with four-percent interest 
4

amortized for 20 years, in monthly installments of $2,175.47. The agreement further 

provides that a balloon payment of $216,325.76 must be remitted on August 1, 2027. 

In the event of a default, prior payments by the Institute are forfeited. The agreement 

makes the Institute responsible for payment of “any real estate taxes and water and 

sewer rentals and all other municipal services charges for the [property] payable for 

the period commencing the date of this agreement.” R.R. 512a. 

On August 25, 2017, the Institute applied to the Board of Assessment 

Appeals (Board) for a real estate tax exemption.

3

 The application stated that the 

Institute is the “record owner” of the property and that the “[p]roperty [is] actually 

and regularly used by an institution of purely public charity for the purpose of ... 

[e]ducation[] and [a]rt [g]allery[.]” R.R. 520a. The Institute’s application states in 

relevant part, as follows:

Land – Total Acreage .28 Use charitable outdoor events & 

exhibits

Building – Basement Ceramic Teaching Facility sq. 

ft. 1,780

– 1st Floor Art Gallery & Event Space sq. ft. 2,042

– 2nd Floor Housing for director & visiting artists 

sq. ft. 1,640

– Upper Floors Attic space expected to be 

refurbished for director living quarters sq. ft. 1,527

 

3

In August 2016, the Kutays, as the record owners of the property, submitted a real estate tax 

exemption application, which contained the same information in the Institute’s application. R.R. 

463a. The Kutays later withdrew the application after being told that “there needed also to be legal 

ownership by the charitable entity.” Notes of Testimony (N.T.), 8/8/2018, at 31; R.R. 379a. 
5

R.R. 521a. On November 20, 2017, the Board denied the tax exemption, and the

Institute appealed. In July and August of 2018, the trial court held a de novo hearing

in which the School District intervened. 

At the hearing, April and Hollace Kutay testified to the facts recited

above. Hollace Kutay further testified that she selected the property for the Institute 

because it is located in a neighborhood “in need of revitalization.” Notes of 

Testimony (N.T.), 7/18/2018, at 14; R.R. 27a. The Kutays purchased the property 

on behalf of the Institute, contingent on the zoning hearing board’s approval for 

“how [the Institute] wanted to use the building.” Id. at 12; R.R. 25a. 

Hollace Kutay testified that the third floor attic space has not been 

converted into living quarters because the Institute cannot afford the renovation. 

Lacking heat and plumbing, the attic is “not habitable” and has been used only for 

storing Christmas decorations. Id. at 24; R.R. 37a. No one resides at the property. 

Hollace Kutay has stayed overnight on the second floor “maybe 15 to 20 times” to 

fire the kiln. Id. at 24; R.R. 37a. Hollace Kutay testified that the first floor of the 

property has been used for board meetings, and the large room on that floor is 

planned for gallery exhibitions open to the public. The Institute is the sole occupant 

of the property. 

Hollace Kutay also testified about a carriage house located behind the 

main house. She explained that she has incorporated a business called “Fine Art at 

Centre Park,” to sell ceramic artworks. In June of 2016, she used the carriage house 

to display her senior thesis work from college. However, to date, Fine Art at Centre 

Park has not sold any art and is “only an organization on paper.” Id. at 28; R.R. 41a. 

The Institute has installed a pottery wheel, a kiln, and working tables in the carriage 
6

house, where Hollace Kutay has created ceramics for the Institute’s fundraising 

events. She also works with small groups of students there.

Hollace Kutay testified that she wrote to all of the elementary and 

middle school art teachers in the area about the Institute’s classes and scholarship 

opportunities. She received positive responses. The Institute offered into evidence 

an email printout, in which an art teacher expressed gratitude that students “are 

getting an opportunity to work with an expert[.]” R.R. 268a. Hollace Kutay testified 

that scholarship students make up 50% of the enrollees and pay nothing for 

instruction or materials. She plans to reduce that number to 25%. 

In opposition to the Institute’s case, the School District presented the

deed, the mortgage agreement, and the installment sales agreement, which showed 

that the Kutays purchased the property for $280,000 and sold it to the Institute for 

$360,000. The School District also presented an application for a real estate tax 

exemption filed by the Kutays as title owners in August 2016; the Board’s denial of 

their application; and the Kutays’ appeal of the Board’s decision to the trial court. 

The School District argued, inter alia, that the Institute is a “sham” charity because 

it was established to generate a profit for the Kutays and to avoid real estate taxes.

Trial Court Decision

By order of August 27, 2018, the trial court reversed the Board, holding

that the Institute is a purely public charity within the meaning of Article VIII, Section 

2(a)(v) of the Pennsylvania Constitution, PA. CONST. art. VIII, §2(a)(v), and the 

Institutions of Purely Public Charity Act (Act 55).4 It based this conclusion on a 

number of factual findings. The Institute provides art education; operates entirely 

free from a private profit motive; pays no salaries; charges a tuition that is 

 

4 Act of November 26, 1997, P.L. 508, 10 P.S. §§371-385. 
7

insufficient to cover the costs of a student’s education; and donates a substantial 

portion of its services to aid low-income students, who receive scholarships and pay 

neither for instruction nor for materials they use.

Having concluded that the Institute is a purely public charity, the trial 

court held that the property is exempt from real estate taxes under Section 8812(a)(3) 

of the Assessment Law because it has been in “absolute and sole possession” by the 

Institute and dedicated to its “educational functions.” Trial Court Opinion, 

8/27/2018, at 13. The trial court further held that Section 8812(b) of the Assessment 

Law allows an equitable owner of real property, such as the Institute, to qualify for 

a tax exemption.

Appeal

On appeal,5the School District raises six issues, which we have 

consolidated and reordered for our analysis.

6 First, it argues that the Institute is not

a purely public charity. Second, it argues that at least 75% of the property is not 

used by the Institute, making that portion subject to taxation under the Pennsylvania 

Constitution and Section 8812(a) of the Assessment Law. Third, it argues that 

Section 8812(b) of the Assessment Law does not allow an equitable owner of realty 

to qualify for an exemption; alternatively, Section 8812(b) violates the Pennsylvania 

Constitution. We address these issues seriatim.

 

5 This Court’s review determines whether the trial court abused its discretion, committed an error 

of law, or rendered a decision unsupported by substantial evidence. Walnut-Twelve Associates v. 

Board of Revision of Taxes of City of Philadelphia, 570 A.2d 619, 622 (Pa. Cmwlth. 1990). The 

trial court, as fact finder, has discretion over evidentiary weight and credibility determinations. 

1198 Butler Street Associates v. Board of Assessment Appeals, County of Northampton, 946 A.2d 

1131, 1138 n.7 (Pa. Cmwlth. 2008).

6 Before this Court, the Board joined in the brief of the School District.
8

I. Purely Public Charity

The School District argues that the trial court erred in concluding that 

the Institute is a purely public charity because the Institute did not satisfy the fivepart test established by our Supreme Court in Hospital Utilization Project v. 

Commonwealth of Pennsylvania, 487 A.2d 1306 (Pa. 1985) (HUP). Likewise, it 

argues that the Institute did not satisfy the requirements in Act 55.

The Pennsylvania Constitution addresses real estate exemptions for 

charitable institutions. Article VIII, Section 2(a) states in pertinent part, as follows:

(a) The General Assembly may by law exempt from taxation:

***

(v) Institutions of purely public charity, but in the 

case of any real property tax exemptions only that 

portion of real property of such institution which is 

actually and regularly used for the purposes of the 

institution.

PA. CONST. art. VIII, §2(a)(v). The Pennsylvania Constitution does not define an

“institution of purely public charity,” but our Supreme Court has filled this lacuna 

with what is generally known as the HUP test. Under the HUP test, a purely public 

charity is an institution that:

(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
9

(e) Operates entirely free from private profit motive.

HUP, 487 A.2d at 1317. In 1997, the General Assembly enacted Act 55 to “weigh[] 

in on questions affecting determinations of charitable exemption[.]” Alliance Home 

of Carlisle, PA v. Board of Assessment Appeals, 919 A.2d 206, 216 (Pa. 2007). Act 

55 tracks the five criteria set forth in the HUP test and specifies the type of evidence 

needed to meet each individual criterion.

This Court has explained that Act 55 codifies “the purely public charity 

test of HUP” and expounds thereon. Church of the Overcomer v. Delaware County 

Board of Assessment Appeals, 18 A.3d 386, 392 n.4 (Pa. Cmwlth. 2011). The HUP

test sets forth the minimum constitutional requirements for a tax exemption. 

Therefore, “[a]n entity seeking a statutory exemption for [sic] taxation must first 

establish that it is a ‘purely public charity’ under Article VIII, Section 2 of the 

Pennsylvania Constitution before the question of whether that entity meets the 

qualifications of a statutory exemption can be reached.” Alliance Home of Carlisle, 

919 A.2d at 222. 

Guided by these principles, we consider each factor of the HUP test and 

of Act 55.

7

A. “Charitable Purpose”

Our Supreme Court has established that the term “charitable” includes

every gift for a general public use, to be applied, consistent with 

existing laws, for the benefit of an indefinite number of persons, 

and designed to benefit them from an educational, religious, 

moral, physical or social standpoint. In its broadest meaning it 

 

7

In Church of the Overcomer, 18 A.3d at 391, this Court held that a property owner’s entitlement 

to a tax exemption is a mixed question of law and fact. Further, this Court will not disturb the trial 

court’s decision absent an abuse of discretion or lack of supporting evidence. Id. at 388 n.1.
10

is understood “to refer to something done or given for the benefit 

of our fellows or the public.”

HUP, 487 A.2d at 1315 (citation omitted). Notably, institutions that provide 

education have long been regarded as having a “charitable purpose.” City of 

Washington v. Board of Assessment Appeals of Washington County, 704 A.2d 120, 

123 (Pa. 1997).

Section 5(b) of Act 55 provides that to advance a charitable purpose, an 

institution must be organized and operated primarily to fulfill any one or more of the 

following purposes: 

(1) Relief of poverty.

(2) Advancement and provision of education. This paragraph 

includes postsecondary education.

(3) Advancement of religion.

(4) Prevention and treatment of disease or injury, including 

mental retardation and mental disorders.

(5) Government or municipal purposes.

(6) Accomplishment of a purpose which is recognized as 

important and beneficial to the public and which advances 

social, moral or physical objectives. 

10 P.S. §375(b) (emphasis added). 

The trial court concluded that the Institute serves a charitable purpose 

under the HUP test and under Section 5(b) of Act 55 by providing art education to 

the public, particularly disadvantaged, at-risk and disabled persons. The School 

District does not challenge the trial court’s holding in this regard. Rather, it argues 

that the installment sales agreement has defeated the Institute’s charitable purpose 

because in the event of a default, any sum paid by the Institute towards the purchase 
11

price of the property will be forfeited. The School District did not cite, and we did 

not find, any legal authority to support the proposition that an installment sales 

agreement, by itself, negates a charity’s charitable purpose. 

We conclude that the trial court did not err in holding that the Institute 

serves a charitable purpose under the Pennsylvania Constitution and Section 5(b) of 

Act 55.

B. “Gratuitous Service”

The second prong of the HUP test requires the taxpayer to establish that 

it “[d]onates or renders gratuitously a substantial portion of its services.” HUP, 487 

A.2d at 1317. “The word ‘substantial’ does not imply a magical percentage. It 

[requires evidence] that the organization makes a bona fide effort to service 

primarily ‘those who cannot afford the usual fee.’” Id. at 1315 n.9. Further, the fact 

that an entity charges for its services does not negate its status as a charitable 

institution. St. Margaret Seneca Place v. Board of Property Assessment Appeals 

and Review, County of Allegheny, 640 A.2d 380, 384 (Pa. 1994) (collection of fees 

is appropriate since charities need not provide services on a wholly gratuitous basis). 

Act 55 provides guidance on the gratuitous donation requirement. It 

states:

(d) Community service. --

(1) The institution must donate or render 

gratuitously a substantial portion of its services. 

This criterion is satisfied if the institution benefits 

the community by actually providing any one of the 

following:

***

(iv) Financial assistance or 

uncompensated goods or services to at 
12

least 20% of those receiving similar 

goods or services from the institution 

if at least 10% of the individuals 

receiving goods or services from the 

institution either paid no fees or fees 

which were 90% or less of the cost of 

the goods or services provided to them, 

after consideration of any financial 

assistance provided to them by the 

institution.

10 P.S. §375(d)(1)(iv) (emphasis added). This Court has explained that financial 

assistance is determined by comparing “the subsidized goods and services and the 

goods and services provided to full paying individuals.” Albright Care Services v. 

Union County Board of Assessment (Pa. Cmwlth., Nos. 2094, 2100 C.D. 2012, filed 

January 29, 2014) (unreported), slip op. at 20.8 

The School District argues that under Nile Swim Club of Yeadon v. 

Delaware County Board of Assessment Appeals (Pa. Cmwlth., Nos. 792, 836, 837 

C.D. 2012, filed March 14, 2013) (unreported), the Institute’s evidence did not 

satisfy the gratuitous service factor. We disagree.

Nile Swim Club involved a two-pool swim club that funded its 

operations with membership dues. The club presented testimony that it occasionally

offered a reduced fee to the public at large; the club’s officers volunteered time to 

help the club’s operations; and the club operated at a deficit. The trial court held 

that the swim club’s evidence was too vague, and this Court affirmed. We explained 

that there must be competent evidence on 

 

8 Commonwealth Court Internal Operating Procedure 414(a), 210 Pa. Code §69.414(a), provides 

that an unreported panel decision of the Commonwealth Court, issued after January 15, 2008, may 

be cited for its persuasive value. 
13

the entity’s revenue, operating costs, profit, and/or deficit, and to 

specifically correlate this information with the value of charitable 

services donated or gratuitously rendered. Although there is no 

magic percentage to determine what constitutes a “substantial 

portion” of services for purposes of the HUP test, a trial court 

needs an adequate evidentiary basis upon which to compare the 

amount of gratuitous/donated services rendered with the total 

value of services offered, in order to decide whether the 

gratuitous/donated services comprise a substantial portion of the 

entity’s overall services.

Id., slip op. at 9-10 (emphasis added). The vague testimony offered by the swim 

club was held insufficient to satisfy the second prong of HUP.

Nile Swim Club is distinguishable. The trial court found that the 

Institute has granted scholarships to 25% of its students based on need, and they do 

not pay for instruction or materials. Paying students are subsidized by the Institute

because their tuition does not fully cover the cost of the materials, kiln firing, or 

instruction. The Institute also offers workshops free of cost to disadvantaged, atrisk, and disabled populations. This record is wholly unlike that in Nile Swim Club, 

where the club “occasionally” offered a reduced fee to the public. 

The Institute’s financial statements and tax returns also support the trial 

court’s conclusion in this regard. By the end of 2016, the Institute had generated 

income of $3,904 from “admissions, merchandise sold or services performed,” but

its total expenses were $55,549. R.R. 286a, 292a. Expenses included $33,033 for 

“[o]ccupancy, rent, utilities, and maintenance” and $18,000 for advertising, 

equipment, and supplies. R.R. 286a, 300a. By the end of 2017, the Institute had 

generated income of $18,275 from “admissions, merchandise sold or services 

performed”; its total expenses were $67,030, including $34,157 for “[o]ccupancy, 

rent, utilities, and maintenance” and $30,160 for costs relating to equipment and 

supplies. R.R. 302a, 308a, 319a. The tax returns showed that in 2016 the Institute 
14

received $69,671 in “[c]ontributions, gifts, [and] grants” and in 2017, it received 

$71,817. R.R. 286a, 302a. This kind of financial detail was totally absent in Nile 

Swim Club.

The School District argues, nevertheless, that Act 55 requires “a 

calculation of uncompensated services rendered versus the cost of providing such 

services, how many classes have been held, how many attendees were in the classes, 

and/or which attendees paid the full fee versus a reduced fee versus no fee.” School 

District Brief at 37. Such detail is not required by Section 5(d)(1)(iv) of Act 55, 

which states that the institution must provide

[f]inancial assistance or uncompensated goods or services to at 

least 20% of those receiving similar goods or services from the 

institution if at least 10% of the individuals receiving goods or 

services from the institution either paid no fees or fees which 

were 90% or less of the cost of the goods or services provided to 

them.

10 P.S. §375(d)(1)(iv). The trial court found, as fact, that 25% of the Institute’s 

students paid no fees; that the Institute also offered free workshops to nonprofit 

groups; and even the fees of paying students do not cover the Institute’s costs to 

provide them instruction. In short, the Institute provides “financial assistance or 

uncompensated goods” to all students, which passes the 20% threshold in Section 

5(d)(1)(iv). 

We conclude that the trial court did not err in holding that the Institute 

satisfied the “gratuitous service” requirement under the Pennsylvania Constitution 

and Act 55.

C. “Charity to Persons”

The third prong of the HUP test requires the public charity to benefit a 

substantial and indefinite class of persons who are legitimate subjects of charity. 
15

Mars Area School District v. United Presbyterian Women’s Association of North 

America, 693 A.2d 1002, 1007 (Pa. Cmwlth. 1997). Notably, the beneficiaries of 

charity need not be limited to those in financial distress. As our Supreme Court 

noted:

There is no requirement [] that all of the benefits bestowed by a 

purely public charity go only to the financially needy.... Nor has 

it ever been supposed in this country, that an institution 

established for the purposes of education is not a charity within 

the meaning of the law, because it sheds its blessings, like the 

dews of Heaven, upon the rich as well as the poor.

City of Washington, 704 A.2d at 125 (emphasis and internal citations and quotations 

omitted). In City of Washington, the Supreme Court held that a private four-year 

liberal arts college satisfied the “legitimate subject of charity” test even though 

scholarships were awarded not only on the basis of financial need but also on the 

basis of academic achievement. Id. 

Section 5(e)(2) of Act 55 defines “legitimate subjects of charity” to 

mean “[t]hose individuals who are unable to provide themselves with what the 

institution provides for them.” 10 P.S. §375(e)(2). It further defines “substantial 

and indefinite class of persons,” in relevant part, as “[p]ersons not predetermined in 

number, provided that, where the goods or services are received primarily by 

members of the institution, membership cannot be predetermined in number and 

cannot be arbitrarily denied by a vote of the existing members.” 10 P.S. §375(e)(2). 

The School District argues that the Institute did not demonstrate that 

the Institute’s students cannot obtain ceramic instruction “without charge, 

elsewhere, such as in a public school.” School District Brief at 32. However, the

Institute’s evidence showed that ceramics instruction was not provided at the public 

schools in the area. Further, the Institute places “no restriction whatsoever on whom 
16

may participate in the art training,” and not all of its students are youths. Trial Court 

Opinion, 08/27/2018, at 20. Even so, persons who are financially secure “may 

nevertheless be ‘poor’ or ‘needy’ in relation to the outlays needed to obtain certain 

services in the absence of charity.” In re Sewickley Valley YMCA Decision of Board 

of Property Assessment, 774 A.2d 1, 12 (Pa. Cmwlth. 2001) (quoting UnionvilleChadds Ford School District v. Chester County Board of Assessment Appeals, 714 

A.2d 397, 400 (Pa. 1998)). 

We conclude that the trial court did not err in concluding that the 

Institute met the “charity to persons” requirement under the Pennsylvania 

Constitution and Act 55.

D. “Government Burden”

To satisfy the fourth prong of the HUP test, the purely public charity 

must relieve the government of some burden. In In re Sewickley Valley, 774 A.2d 

at 12, this Court held that a YMCA relieved the government of a burden because it 

gratuitously allowed school districts to use its swimming pool and athletic fields. 

Likewise, in City of Washington, the Supreme Court held that a private, four-year 

liberal arts college “relieves the load placed on the state-owned system of colleges 

and universities” by providing higher education for state residents. 704 A.2d at 125. 

Section 5(f) of Act 55 provides that an institution may relieve the

government of some of its burden if it 

(1) Provides a service to the public that the government would 

otherwise be obliged to fund or to provide directly or indirectly 

or to assure that a similar institution exists to provide the service 

[or]

(2) Provides services in furtherance of its charitable purpose 

which are either the responsibility of the government by law or 
17

which historically have been assumed or offered or funded by the 

government.

10 P.S. §375(f). 

The School District argues that the trial court erred on this factor

because the School District has no obligation to provide ceramics classes. Because 

the Institute does not grant academic credits, it did not relieve the School District of 

any burden.

In Unionville-Chadds Ford, 714 A.2d 397, our Supreme Court 

concluded that Longwood Gardens, a world-renowned public garden, relieved the 

government of some of its burden. Longwood Gardens includes an arboretum, 

conservatory and greenhouse complex, architectural displays, water gardens, 

fountains, an open air theatre, meadow and forest land, wildlife habitats, walking 

trails, picnic areas and a variety of educational and research facilities. The Supreme 

Court held that although the government does not have an obligation to provide 

public gardens, this is not determinative. This is because

the government has long provided support for public parks and 

recreation areas as well as for cultural institutions, including 

museums, libraries, etc. Longwood’s public park and cultural 

facilities fall clearly within the scope of burdens that are 

routinely shouldered by government. Hence, this element of the 

HUP test was properly found to be met.

Id. at 401 (emphasis added).

In Pocono Community Theater v. Monroe County Board of Assessment 

Appeals, 142 A.3d 110 (Pa. Cmwlth. 2016), this Court considered a theater that 

hosted community programs and events; donated marketing and theater space for 

educational programs; and screened first-run studio, independent, and art house 

films on a daily basis. This Court reasoned that the fourth prong of the HUP test 
18

should not be construed literally. Id. at 116. The theater, as did Longwood Gardens, 

advanced a cause that the government has chosen to support. To that end, the General 

Assembly has established the Pennsylvania Council on the Arts, a state agency with 

the mission to “foster the excellence, diversity, and vitality of the arts in 

Pennsylvania and to broaden the availability and appreciation of those arts 

throughout the state.” Id. By offering musical and theatrical performances and 

community art programs, the theater advanced “the government’s assumed 

responsibility to support the arts while advancing historic preservation.” Id. A 

theater is the type of “cultural institution” targeted by the Supreme Court in 

Unionville-Chadds Ford, 714 A.2d at 401.

We reject School District’s narrow understanding of the “government 

burden” factor. As in Unionville-Chadds Ford and Pocono Community Theater, the 

Institute relieves the government of an assumed burden to foster the arts. It is 

irrelevant that the School District does not bear the specific burden to teach ceramics.

The government has long provided support for cultural institutions and education in 

the arts. Unionville-Chadds Ford, 714 A.2d at 401. 

We conclude that the trial court did not err in concluding that the 

Institute relieved the government of some of its burden under the Pennsylvania 

Constitution and Act 55.

E. “Private Profit Motive”

A purely public charity must operate free of a private profit motive. 

Excessive salaries paid to a charity’s management are inconsistent with this 

standard. St. Margaret Seneca Place, 640 A.2d at 385. Providing financial support 

to for-profit businesses affiliated with the charity may indicate that the “charity” 

does not operate free of a profit motive. Community General Osteopathic Hospital 
19

v. Dauphin County Board of Assessment Appeals, 706 A.2d 383, 390 (Pa. Cmwlth. 

1998). A charity’s surplus, if any, must be used to operate its facility. Id. (quoting 

West Allegheny Hospital v. Board of Property Assessment, Appeals, and Review, 

455 A.2d 1170 (Pa. 1982)).

Section 5(c) of Act 55 states that to be free from private profit motive, 

the purely public charity must meet all of the following:

(1) Neither the institution’s net earnings nor donations which it 

receives inures to the benefit of private shareholders or other 

individuals, as the private inurement standard is interpreted 

under section 501(c)(3) of the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. §501(c)(3)).

(2) The institution applies or reserves all revenue, including 

contributions, in excess of expenses in furtherance of its 

charitable purpose or to funding of other institutions which meet 

the provisions of this subsection and subsection (b).

(3) Compensation, including benefits, of any director, officer or 

employee is not based primarily upon the financial performance 

of the institution.

(4) The governing body of the institution of purely public 

charity has adopted as part of its articles of incorporation or, if 

unincorporated, other governing legal documents a provision 

that expressly prohibits the use of any surplus funds for private 

inurement to any person in the event of a sale or dissolution of 

the institution of purely public charity.

10 P.S. §375(c). 

Here, the trial court found that the Institute operates at a net loss; pays

no salary or benefits to Hollace Kutay; and does not pay fees to the board of 

directors. The articles of incorporation preclude the use of earnings to benefit 

individuals associated with the Institute or other private persons; all proceeds in 
20

excess of expenses must be used for charitable purposes. On this evidence, the trial 

court concluded that the Institute operated free of a private profit motive in 

satisfaction of both the HUP test and Section 5(c) of Act 55.

The School District contends that the Institute is a “sham” charity that 

was created to profit the Kutays. They point out that the Kutays purchased the 

property at $280,000 and sold it to the Institute under the terms of the installment 

agreement for $360,000. 

The trial court found otherwise. Crediting the testimony of April and 

Hollace Kutay, the trial court rejected the School District’s suggestion that the 

Institute was a “shell corporation” through which the Kutays generated profit or 

avoided taxes. Trial Court Opinion, 8/27/2018, at 17. Notably, the School District 

does not challenge the trial court’s credibility determinations. 

We conclude that the trial court did not err in concluding that the 

Institute operated free of a private profit motive under the Pennsylvania Constitution

and Act 55. 

In summary, the trial court’s findings are supported by substantial 

evidence. For all the above-recited reasons, we affirm the trial court’s conclusion

that the Institute satisfied both the constitutional requirements established in the 

HUP test and the statutory requirements in Act 55. Thus, the Institute proved that it 

qualified for a tax exemption as a purely public charity.

II. Institute’s Use of Property

The School District argues that even if the Institute is a purely public 

charity, its property is taxable to the extent it is not used for its charitable purpose. 

The School District argues that under the tax exemption clause of the Pennsylvania 
21

Constitution and Section 8812(a) of the Assessment Law, the Institute cannot claim 

a total tax exemption unless it uses the entire property for its charitable purpose. 

Under the Pennsylvania Constitution, a charity’s tax exemption extends 

only to “that portion of real property of such institution which is actually and 

regularly used for the purposes of the institution.” PA. CONST. art. VIII, §2(a)(v).9 

Section 8812(a)(3) of the Assessment Law, which formed the basis of the Institute’s 

claim for real estate tax exemption, states as follows:

(a) General rule.—The following property shall be exempt 

from all county, city, borough, town, township, road, poor, 

county institution district and school real estate taxes:

***

 

9 Section 5(h) of Act 55, entitled “parcel review,” likewise provides:

(h) Parcel review.--

(1) Nothing in this act shall affect, impair or hinder the 

responsibilities or prerogatives of the political subdivision 

responsible for maintaining real property assessment rolls to make a 

determination whether a parcel of property or a portion of a parcel 

of property is being used to advance the charitable purpose of an 

institution of purely public charity or to assess the parcel or part of 

the parcel of property as taxable based on the use of the parcel or 

part of the parcel for purposes other than the charitable purpose of 

that institution.

(2) Nothing in this act shall prohibit a political subdivision from 

filing challenges or making determinations as to whether a 

particular parcel of property is being used to advance the charitable 

purpose of an institution of purely public charity.

10 P.S. §375(h) (emphasis added). Our Supreme Court has observed that although the language 

employed in the statute is not identical to the constitutional text, i.e., where the constitutional text 

speaks of “used for the purposes of the institution,” the statute speaks of “being used to advance 

the charitable purpose,” “it would appear that any definitional difference is minor and, if anything, 

would serve to narrow the exemption, which the General Assembly is free to do.” Alliance Home 

of Carlisle, 919 A.2d at 224.
22

(3) All hospitals, universities, colleges, 

seminaries, academies, associations and institutions 

of learning, benevolence or charity, including fire 

and rescue stations, with the grounds annexed and 

necessary for their occupancy and use, founded, 

endowed and maintained by the public or private 

charity[10] as long as all of the following apply:

(i) The entire revenue derived by the 

entity is applied to support the entity

and to increase the efficiency and 

facilities of the entity, the repair and 

the necessary increase of grounds and 

buildings of the entity and for no other 

purpose.

(ii) The property of purely public 

charities is necessary to and actually 

used for the principal purposes of the 

institution and not used in such a 

manner as to compete with 

commercial enterprise.

53 Pa. C.S. §8812(a)(3) (emphasis added). 

The School District argues that the Institute failed to satisfy Section 

8812(a)(3)(i) of the Assessment Law because the Institute’s revenue “is funneled to” 

the Kutays through the installment payments. School District Brief at 28. In 

addition, it argues that Fine Art at Centre Park, a for-profit entity, serves to “compete 

 

10 The School District does not argue that the Institute failed to satisfy the requirement in Section 

8812(a)(3) that the Institute be “founded, endowed and maintained by the public [] charity.” 53 

Pa. C.S. §8812(a)(3). Notably, Act 55 provides that an institution satisfying the five criteria set 

forth in Section 5(b)-(f), 10 P.S. §375(b)-(f), “shall be considered to be founded, endowed and 

maintained by public or private charity.” 10 P.S. §375(a). Because we conclude that the Institute 

satisfied the five criteria in Section 5(b)-(f) of Act 55, the Institute is “founded, endowed and 

maintained” by public charity as required by Section 8812(a)(3) of the Assessment Law. 53 Pa. 

C.S. §8812(a)(3). 
23

with commercial enterprise,” which violates Section 8812(a)(3)(ii) of the 

Assessment Law. Id.; 53 Pa. C.S. §8812(a)(3)(ii).

The trial court found that the Institute purchased the property from the 

Kutays and entered the transaction in good faith. Further, Hollace Kutay testified 

that Fine Art at Centre Park is “only an organization on paper” and not operational.

N.T. 28, R.R. 41a. As such, it does not compete with commercial art galleries. 

Crediting Hollace Kutay’s testimony, the trial court found that the Institute has been 

in sole possession of all the property, including the carriage house. Trial Court 

Opinion, 08/27/2018, at 3. The trial court’s findings are supported by substantial 

evidence and will not be disturbed. 

The School District then argues that at least a portion of the property is 

not exempt from real estate tax because it is not actually and regularly used for any 

charitable purpose of the Institute. It targets several spaces. The carriage house on 

the property was used to sell Hollace Kutay’s ceramic works. The third floor attic 

of the main house has not been renovated and is not habitable. Hollace Kutay stayed 

overnight on the second floor of the main house to fire the kiln but did so only on “a 

handful of nights.” N.T., 07/18/2018, at 25; R.R. 38a. The first floor of the main 

house, likewise, is not regularly used for the Institute’s purposes. The School 

District argues that because only 25% of the floor space is regularly used for the 

Institution’s charitable purpose, the remainder is taxable. 

The Institute counters that the property has been under active 

restoration since 2016. This is sufficient to constitute regular use of the property for 

a charitable purpose. In any event, the Institute contends that the record established 

that it uses more than the basement of the house. The Institute uses the first floor 

for board meetings, and that floor will be open to the public as an art gallery. 
24

Plumbing work has been done on the second floor, as the first phase of creating 

accommodations for visiting artists and students. Classes and fundraising have taken 

place in the carriage house. The Institute argues that there is no precedent for the 

proposition that the attic space of a property must be taxed separately if it is 

uninhabitable.

This Court has held that the necessity for the property to be occupied 

by a charitable institution is a flexible standard. Absolute necessity need not be 

shown. In re City of Pittsburgh, 977 A.2d 71, 75 (Pa. Cmwlth. 2009).11 

Nevertheless, courts will look at the “use of the property rather than any 

characterization of the owner or lessee or the use of the proceeds from the property” 

to make their determination. Id. at 75 (quoting Board of Revision of Taxes of 

Philadelphia v. United Fund of Philadelphia Area, 314 A.2d 530, 533 (Pa. Cmwlth. 

1973)). 

In Borough of Homestead v. St. Mary Magdalen Church, 798 A.2d 823 

(Pa. Cmwlth. 2002), the borough challenged the tax exemption for an office building 

owned by the diocese. The diocese used the office building to assist displaced steel 

mill workers with a job center, which occupied 5% of the total space. The remaining 

space was occupied by for-profit and nonprofit entities, which helped the 

unemployed. The for-profit entities occupied 16% of the space, and the nonprofit 

entities occupied 79% of the space. The diocese provided utility services and was 

responsible for all maintenance. The borough argued that the diocese did not 

sufficiently occupy or possess the office building to qualify for an exemption under 

 

11 In re City of Pittsburgh concerned a trust seeking a real estate tax exemption under, inter alia, 

Section 204(a)(3) of The General County Assessment Law, Act of May 22, 1933, P.L. 853, as 

amended, 72 P.S. §5020-204(a)(3), which contains similar language as in Section 8812(a)(3) of 

the Consolidated County Assessment Law. 53 Pa. C.S. §8812(a)(3).
25

Section 204(a)(9) and 204(c) of The General County Assessment Law.12 This Court 

held otherwise and affirmed the trial court’s grant of an exemption. 

In doing so, we distinguished Appeal of Archdiocese of Philadelphia, 

617 A.2d 821 (Pa. Cmwlth. 1992), which also involved Section 204(c) of The 

General County Assessment Law. The archdiocese leased the entire building to

another charitable organization. It used the garage only to park a bus and stored 

furniture in the basement. Given these facts, this Court held that the archdiocese did 

not “use” the building for its charitable purpose. 

By contrast, in St. Mary Magdalen Church, the diocese maintained

active, daily possession of the office building “with some control over all activities 

on the property.” St. Mary Magdalen Church, 798 A.2d at 829. The diocese 

permitted other organizations to occupy space as licensees not tenants. Further, the 

diocese did not give up its right to control of the property, and it maintained the 

premises. Given these circumstances, this Court concluded that the diocese 

occupied the building sufficiently to allow the tax exemption.

 

12 Section 204(a)(9) of The General County Assessment Law provides that certain property shall 

be exempt from taxation, specifically:

(9) All real property owned by one or more institutions of purely public charity, 

used and occupied partly by such owner or owners and partly by other institutions 

of purely public charity, and necessary for the occupancy and enjoyment of such 

institutions so using it.

72 P.S. §5020-204(a)(9).

Section 204(c) of The General County Assessment Law provides:

Except as otherwise provided in clause (10) of this section, all property, real and 

personal, actually and regularly used and occupied for the purposes specified in this 

section shall be subject to taxation, unless the person or persons, associations or 

corporation, so using and occupying the same, shall be seized of the legal or 

equitable title in the realty and possessor of the personal property absolutely.

72 P.S. §5020-204(c). Section 8812(a)(11) and 8812(b)(2) of the Consolidated County 

Assessment Law contains similar language. 53 Pa. C.S. §8812(a)(11), 8812(b)(2).
26

Here, the record evidence does not support the School District’s 

argument that only 25% of the floor space is regularly used for the Institute’s 

charitable purpose. The School District reads the requirement that the real property

must be “actually and regularly” used for a charitable purpose as requiring constant 

use of every square foot of the building. This is an extreme interpretation of regular 

use.

Moreover, in Senior Citizen Health Care Counsel of Erie County, 

Pennsylvania, Inc. v. Board of Tax Assessment Appeals of Erie County, 

Pennsylvania, 678 A.2d 430, 432 (Pa. Cmwlth. 1996), this Court held that a purely 

public charity actually and regularly used its space simply by hiring an architect and 

soliciting bids for renovation. The Institute has taken steps to renovate the building, 

which is sufficient to show actual and regular use. However, it has done more. It 

offers art instruction while the renovations continue.

The trial court found that the Institute used the entire building in 

different ways. The basement has been converted to a studio with installment of a 

kiln, where most of the classes take place. The first floor has been used for board 

meetings and is staged for an art gallery. Plumbing work had been done in 

preparation of housing visiting artists on the second floor. The carriage house has 

been used exclusively by students and to produce ceramics for the Institute’s 

fundraising efforts. The Institute’s use of the property cannot be compared to the

“minimal, passive possession” that barred the tax exemption in Appeal of 

Archdiocese of Philadelphia. As in St. Mary Magdalen Church, the Institute has 

sole possession and control of the entire property.

The trial court’s findings of fact that the Institute actually and regularly 

uses the property are supported by the record. We affirm the trial court’s conclusion 
27

that the Institute satisfied the tax exemption clause of the Pennsylvania Constitution 

and Section 8812(a)(3) of the Assessment Law.

III. Equitable Ownership

Finally, the School District argues that the trial court erred by holding 

that Section 8812(b)(2) of the Assessment Law allows for an equitable owner of real 

property to qualify for a tax exemption. The School District further argues that

Section 8812(b)(2) violates the uniformity clause and the tax exemption clause of 

the Pennsylvania Constitution. 

Section 8812(b)(2) of the Assessment Law states:

(b) Exceptions.--

 ***

(2) Except as otherwise provided in subsection 

(a)(12)[13], all property, real and personal, actually 

 

13 Subsection (a)(12) provides:

(a) General rule.--The following property shall be exempt from all county, city, 

borough, town, township, road, poor, county institution district and school real 

estate taxes:

***

(12) All playgrounds with the equipment and grounds annexed 

necessary for the occupancy and use of the playgrounds, founded, 

endowed or maintained by public or private charity which apply 

their revenue to the support and repair of the playgrounds and to 

increase the efficiency and facilities thereof, either in ground or 

buildings or otherwise, and for no other purpose, and owned, leased, 

possessed or controlled by public school boards or properly 

organized and duly constituted playground associations, and 

approved and accepted by the board of the county in which the 

playgrounds are situated. A school board may, by resolution, agree 

to pay for grading, paving, macadamizing, maintenance or 

improvement of streets or roads abutting land owned by the school 

district.

53 Pa. C.S. §8812(a)(12).
28

and regularly used and occupied for the purposes 

specified in this section shall be subject to taxation 

unless the person or persons, associations or 

corporation so using and occupying the property 

shall be seized of the legal or equitable title in the 

realty and possessor of the personal property 

absolutely.

53 Pa. C.S. §8812(b)(2) (emphasis added). Accordingly, a person with “equitable 

title” can qualify for a real estate tax exemption so long as the property is actually 

and regularly used and occupied for an exempt purpose enumerated in Section 

8812(a).

When an agreement of sale is signed, the purchaser becomes the 

equitable owner through the doctrine of equitable conversion; the seller retains legal 

title only as a security against the purchase price. DiDonato v. Reliance Standard 

Life Insurance Company, 249 A.2d 327, 329 (Pa. 1969). Here, the trial court found

that the Institute obtained equitable ownership of the property by entering into the 

installment sales agreement. Thus, it qualified for a tax exemption under Section 

8812(b)(2).14

The School District argues that Section 8812(b)(2) is unconstitutional 

because it impermissibly expands Article VIII, Section 2(a)(v) of the Pennsylvania 

Constitution, which provides that “only that portion of real property of such 

 

14 On November 19, 2019, the School District filed an application with this Court to file a postsubmission communication pursuant to PA. R.A.P. 2501(a), requesting this Court to take judicial 

notice of the post-trial sale of the real property to a third party. The School District attached a 

copy of the recorded deed, which shows that the Kutays and the Institute sold the property to an 

individual on July 21, 2019, for $374,000. The School District asserts that the deed shows that the 

Institute never took title to the property. However, the Institute was an equitable owner. The 

change in ownership does not affect the exemption before July 21, 2019. The School District’s 

application will be denied because it is irrelevant to the School District’s appeal. What happens 

to the property after the trial court’s order of August 27, 2018, is beyond this appeal.
29

institution” that is actually and regularly used for a charitable purpose is exempt 

from taxation. PA. CONST. art. VIII, §2(a)(v) (emphasis added). The School District 

contends that the term “of such institution” requires a legal ownership, not equitable 

ownership. Otherwise, parties could circumvent the requirement that ownership and 

occupancy be unified “by merely entering into a written agreement titled 

‘installment sale agreement’ instead of ‘lease.’” School District Brief at 23. The 

Institute counters that Article VIII, Section 2(a)(v) of the Pennsylvania Constitution 

does not use the term “owner” or “ownership.” Institute Brief at 30.

Allowing an equitable owner to obtain a tax exemption does not expand 

the scope of Article VIII, Section 2(a)(v). Further, whether a particular sales 

agreement is a “sham” requires a factual determination to be made by the trial court. 

In the instant case, the trial court credited the testimony of April and Hollace Kutay

to find that the parties entered into the sales agreement in good faith. As fact finder, 

the trial court is required to evaluate the witnesses, their demeanor and make 

necessary credibility determinations, which cannot be disturbed on appeal. Finney 

v. Department of Transportation, Bureau of Driver Licensing, 721 A.2d 420, 423 

(Pa. Cmwlth. 1998). Notably, the School District does not challenge the trial court’s 

credibility determinations. 

The School District further contends that Section 8812(b)(2) violates 

the uniformity clause of the Pennsylvania Constitution, which provides that “[a]ll 

taxes shall be uniform, upon the same class of subjects, within the territorial limits 

of the authority levying the tax, and shall be levied and collected under general 

laws.” PA. CONST. art. VIII, §1. The School District argues that Section 8812(b)(2) 

provides “preferential tax treatment to equitable property owners that lack legal title 

to the property.” School District Brief at 25. We disagree.
30

The principles governing the validity of tax classifications are well 

established. We evaluate challenges based on the uniformity and equal protection 

standards in the same manner: 

Under the equal protection clause, and under the Uniformity 

Clause, absolute equality and perfect uniformity in taxation are 

not required. In cases where the validity of a classification for tax 

purposes is challenged, the test is whether the classification is 

based upon some legitimate distinction between the classes that 

provides a non-arbitrary and “reasonable and just” basis for the 

difference in treatment. Stated alternatively, the focus of judicial 

review is upon whether there can be discerned “some concrete 

justification” for treating the relevant group of taxpayers as 

members of distinguishable classes subject to different tax 

burdens. When there exists no legitimate distinction between the 

classes, and, thus, the tax scheme imposes substantially unequal 

tax burdens upon persons otherwise similarly situated, the tax is 

unconstitutional.

City of Harrisburg v. School District of City of Harrisburg, 710 A.2d 49, 53 (Pa. 

1998) (citations omitted). 

Neither the uniformity clause nor the tax exemption clause of the 

Pennsylvania Constitution distinguishes between legal and equitable title. Section 

8812(b)(2) of the Assessment Law treats legal and equitable owners of realty the 

same, or, uniformly. We reject the School District’s uniformity clause argument. 

Conclusion

For all of the foregoing reasons, we hold that the Institute proved that 

it is a purely public charity under the constitutional requirements in the HUP test 

and under the statutory requirements in Act 55. The record established that the 

Institute has regularly and actually used the property to advance its charitable 

purpose in satisfaction of the tax exemption clause of the Pennsylvania Constitution 
31

and Section 8812(a)(3) of the Assessment Law. We also hold that the Institute, as 

equitable owner of the property, may qualify for a tax exemption under Section 

8812(b)(2) of the Assessment Law, which does not violate the uniformity clause and 

the tax exemption clause of the Pennsylvania Constitution. 

We affirm the trial court’s order of August 27, 2018.

 

 

 MARY HANNAH LEAVITT, President Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

The Ceramic Art & Culture Institute :

:

v. : No. 1294 C.D. 2018

:

Berks County Board of Assessment :

Appeals and Reading School District :

:

Appeal of: Berks County Board of :

Assessment Appeals :

The Ceramic Art & Culture Institute :

:

v. : No. 1330 C.D. 2018

: 

The Board of Assessment Appeals of :

Berks County :

:

v. :

:

Reading School District, :

Appellant :

O R D E R

AND NOW, this 18th day of February, 2020, the order of the Court of 

Common Pleas of Berks County, in the above-captioned matter, is AFFIRMED. 

Appellant Reading School District’s application to file a post-submission 

communication pursuant to Pennsylvania Rule of Appellate Procedure 2501(a) is 

DENIED.

 

 MARY HANNAH LEAVITT, President Judge