Court Opinion

ID: 9733813
Source: CourtListenerOpinion
Date Created: 2023-08-26 17:17:50.33007+00
Date Added: 2024-06-11T18:26:44.143049
License: Public Domain

OPINION BY
Judge PELLEGRINI.
Alliance Home of Carlisle, Pennsylvania, t/a Chapel Pointe (Chapel Pointe) appeals from an order of the Court of Common Pleas of Cumberland County (trial court) denying its request to extend its charitable real estate tax exemption to the parcel of property on which its independent living section is located.
Chapel Pointe is a non-profit corporation that was formed in 1944 to provide a home and sustenance for aged and infirm people in Carlisle, Pennsylvania. It currently operates as a licensed continuing care retirement community. Located on its property is a 59-bed skilled nursing home, which has been exempted from real estate taxation as a hospital and a 53-bed assisted living compound, which has been exempted as well. Also located on the property and *430at issue in this case are 93 apartments that function as the independent living component of the Chapel Pointe retirement community. In 1997, the trial court affirmed a decision by the Cumberland County Board of Assessment (Board) denying an extension of the tax exemptions for the skilled nursing home and assisted living areas to the contiguous parcel on which the independent living units are located, finding that Chapel Pointe was not a purely public charity and was not entitled to an exemption from real estate taxes on the apartment units. Chapel Pointe did not appeal this decision.
In 2001, after the enactment of the Institutions of Purely Public Charity Act1 (more commonly referred to as “Act 55”), Chapel Pointe again petitioned the Board requesting a determination that it was entitled to a presumption under Act 55 that it was an institution of purely public charity, and the parcel consisting of the independent living apartments be exempt from real estate taxes as a purely public charity. It argued that it met both the constitutional and statutory tests for exemption by providing, among other things, uncompensated goods and services to the residents which were in excess of five percent of the cost of providing such goods and services as required. The Board denied the request after concluding that it was res judi-cata based on the 1997 decision and precluded re-litigation. Chapel Pointe then appealed to the trial court which permitted a hearing on the matter.
At the hearing, Chapel Pointe presented the testimony of H. David Padden (Pad-den), a certified public accountant, who provided the following information regarding Chapel Pointe’s 932 independent living apartments: he stated that the minimum age requirement for a resident in an apartment was 62, and that all the apartments were privately paid for by the residents without any government subsidies. He explained that a perspective resident had to provide Chapel Pointe with a detailed financial statement, and Chapel Pointe did not admit any resident who could not pay the entrance fee up front and whose financial information did not reflect that they could pay the monthly rental fees. One apartment unit was used as a model. The total amount for the entrance fees for the 92 apartments for residents was $5,721,000. As of the date of the hearing, four apartments were vacant. The entrance fee was amortized to income over a period of time.
Padden continued to state that Chapel Pointe placed each apartment on a 40-year depreciation schedule, and the average stay for -a resident was three to four years. However, residents could stay in their apartments as long as they were safe and then they could be moved to. either the assisted living compound or to the nursing home within Chapel Pointe. He stated that the average stay of a resident was four to five years. He further stated that Chapel Pointe amortized all entrance fees over the life expectancy of the resident. He explained that Chapel Pointe amortized the entrance fee at 20% each year prorated monthly for five years; therefore, if a resident left the apartment within five years, a prorated amount of the entrance fee would be refunded. Nonetheless, all income earned on an entrance fee was retained by Chapel Pointe, and after five years, no portion of the entrance fee was *431refundable. Padden also stated that a uniform monthly rental fee was charged for each apartment. Regarding uncompensated services, Padden stated that 55% of the apartment residents received some type of uncompensated services such as assistance with the timely taking of medications, participation in some social activities, and advice regarding family or financial problems which amounted to them receiving uncompensated services greater than 10% of the cost of care.
Regarding Chapel Pointe’s financial statement, Padden stated that Chapel Pointe allocated its administrative costs on the basis of total operating costs, with 68% of administrative costs allocated to the nursing home, 22% to the assisted living compound, and 9% for the independent living apartments. Although Padden testified that for years 1998, 1999 and 2000, Chapel Pointe realized an operating loss and had relied upon contributions and bequests to make up for that loss, on cross-examination, he admitted that in arriving at the figures that determined the losses, he included depreciation for each year and did not include other contributions and non-operating revenues and gains.
John Hendrickson (Hendrickson), the Executive Director of Chapel Pointe, testified that entrance fees ranged from $37,000 for an efficiency apartment to $73,000 for a two-bedroom apartment, and that Chapel Pointe earned 20% from each entrance fee that was charged. He could not recall ever waiving the entrance fee. Currently, the rent was $599 for one resident and an additional $130 for an additional occupant. Hendrickson indicated that there were a few residents who had trouble meeting their monthly payment and were receiving some financial assistance from Chapel Pointe. Residents whose income had become insufficient to pay the rent were required to immediately apply for financial assistance from their family, church or public welfare agencies. He noted that if the monthly rental fee was not timely paid, Chapel Pointe could terminate the residency, although it had never done so. Residents were required to annually prepare and submit a current financial statement to Chapel Pointe and the failure to do so constitutes grounds for termination/eviction. Hendrickson stated that it was Chapel Pointe’s policy for any surplus in revenues that were generated from fees charged or from charitable donations given to remain with Chapel Pointe. To defend the requirement of the entrance fee and a resident’s disclosure of his or her assets, Hendrickson explained their importance:
There is a limit to the amount of benevolent care that we can provide. We’re not a large facility with a huge endowment that can provide benevolent care without using monies coming in from operations. So we want to look at and be sure that we’re going to be able to provide the benevolent care that we’ve already committed to, and so we have to be sure that there are people who are coming in are private pay. The other reason is that we want to be sure that we have something to compare a disclosure to now should they apply for a different level of living down the road and there is a significant difference in the amount of assets that are there. Again, we do not want to give charity to just anyone. We want to give charity to or financial assistance to people that truly qualify for financial assistance. (Emphasis added.)
(Reproduced Record at 157-158.) Richard Lehmann, Chapel Pointe’s director of Financial Services, testified that there were only three residents that were currently receiving direct financial assistance from Chapel Pointe. He explained that that meant that those residents could not cover *432the rental fee and, although they were billed the full amount, Chapel Pointe wrote off $100 or $150 a month as a benevolent allowance.
Testifying on behalf of the Board and Cumberland County (County) were William Reath (Reath), a real estate assessor with the County and Randy Waggoner (Waggoner), an assessment consultant for Wolfe and Shearer Realtors. Reath testified that the current assessed value of the 93 apartments was $2,593,350 for 100% of the market value in the year 2000. Wag-goner testified- that he previously worked for 18 years in the Cumberland County Assessment Office, 13 of those years as its Chief Assessor. He stated that he visited the independent living apartments and then conducted a rental survey of rental apartments in the area to compare rental prices. He found that the low-end of the scale for one-bedroom apartments was $325 per month and $425 per month for two-bedrooms while the average was $350 per month and $450 per month for one-bedroom and two-bedroom apartments, respectively.
The trial court initially denied Chapel Pointe’s contention that it was entitled to a rebuttable presumption under Act 55 that it was a purely public charity because that was a preliminary question which first had to be answered within the meaning of Article 8, Section 2(a)(v) of the Pennsylvania Constitution. It then denied Chapel Pointe’s petition for an exemption from the real estate tax as a purely public charity because it did not prove that it donated or rendered gratuitously a substantial portion of its services to the residents of its apartments, noting that residents had to meet financial requirements before admission; Chapel Pointe received $5,721,000 for 92 units plus additional entrance fees for subsequent occupants; it retained the entire entrance fee after five years and prorated the fee if the resident died or left before that time; and it charged a monthly rental which was substantially higher than the norm for a rental in the Carlisle area. The trial court noted:
This system gives older people, at a considerable cost, a safe comfortable place to live, it provides ancillary services for a charge, and residents get priority for transition into the assisted living compound and/or nursing home if the unfortunate need arises. The system provides a substantial amount of money for Chapel Pointe, and a steady source of future occupants of its assisted living compound and nursing home.
(Trial court’s January 31, 2002 opinion at 17.) This appeal by Chapel Pointe followed.
Chapel Pointe contends that the trial court erred in refusing its request for a tax exemption because it looked at the parcel of land on which the independent living apartments are located separately from the other living facilities, i.e., the assisted living and skilled nursing facilities, when considering whether Chapel Pointe was a purely public charity under Article 8, Section 2 of the Pennsylvania Constitution and Act 55 instead of treating Chapel Pointe as one institution in making its evaluation.3
*433Article 8, Section 2 of the Pennsylvania Constitution provides that, “[t]he General Assembly may exempt from taxation ... 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.” (Emphasis added.) In Hospital Utilization Project v. Commonwealth of Pennsylvania (HUP), 507 Pa. 1, 487 A.2d 1306 (1985), our Supreme Court determined that an entity qualified as a purely public charity under the Constitution if it met the following test:
1. Advances a charitable purpose;
2. Donates or renders gratuitously a substantial portion of its services;
3. Benefits a substantial and indefinite class of persons who are legitimate subjects of charity;
4. Relieves the government of some of its burden; and
5. Operates entirely free from profit motive.
Rather than adopting a more stringent test, Section 5 of Act 55, 10 P.S. § 375, adopted this test. This Court has followed that Constitutional mandate and the standards set forth in HUP in two cases that are quite similar factually to the case sub judice and has in both instances upheld the denial of a tax exemption for a facility on property that also maintains additional facilities that do qualify for a tax exemption based on the entity’s classification as a purely public charity.
In Appeal of Lutheran Social Services, 114 Pa.Cmwlth. 628, 539 A.2d 895 (1988), Lutheran Social Services appealed from the denial of a real estate tax exemption for its 96-unit apartment building and 81 cottage units it operated as part of a retirement community for the elderly which also contained a nursing facility. The Board of Assessment reclassified the apartment building and cottages from tax exempt to taxable but did not change the status of the nursing facility from tax exempt. On appeal, we determined that the apartments were tax exempt because while the applicants paid a processing fee, they did not pay an admission fee and the fees did not cover the operating expenses of the apartments. Many of the residents were exonerated from paying increases in their monthly fees. The apartments operated at a deficit. As to the cottages, applicants paid an entrance fee ranging from $38,500 to $46,000 depending on the type of unit; no resident was ever admitted without paying the entrance fee; if the resident died, any balance became the property of Lutheran Social Services; and residents paid a monthly maintenance fee plus their own utilities. We stated:
The cottage operation at Luther Acres presents an entirely different situation. Even if the fact that the cottages pro*434vide housing for the elderly were held to satisfy the first Hospital Utilization Project criterion of advancing a charitable purpose, the cottage operation runs afoul of the second criterion, that of donating or rendering gratuitously a substantial portion of its services. The simple fact that the cottage operation consistently realizes a substantial profit demonstrates that no services are being rendered free to cottage residents. LSS’s claim that it subsidizes cottage residents by not charging them $20 per month in taxes and by exonerating some from increases in the monthly maintenance fee is untenable ...
The cottage operation sells something — ■ housing for the elderly — at a profit, and LSS then uses that profit for the purposes above held to be charitable in nature. However, the situation would be no different if LSS conducted some other business on the premises, manufacturing or retailing for example, at a profit, and then donated that profit to its charitable activities. Such fund-raising would be laudable but not, in the legal sense, charitable.
Id. at 901-902. Relying upon Lutheran Social Services, we came to the same conclusion in Appeal of Bethlen Home, 125 Pa.Cmwlth. 315, 557 A.2d 828 (Pa.Cmwlth.1989). In that case, Bethlen Home operated a facility that included a nursing home which provided intermediate and advanced nursing care as well as seven retirement cottages that consisted of two separate living units. The County of Westmoreland assessed the retirement cottages and the land on which they were erected for real estate taxes and Bethlen Home appealed. The appeal was denied and the trial court held that the retirement cottages were tax exempt. On appeal, we reversed based on the following facts: the residents had to be 65 years or older to reside in a cottage; they had to submit evidence of their financial ability to sustain independent living; they had to pay an entrance fee ranging from $25,000 to $45,500; no applicant ever took occupancy without paying the fee; and occupants paid a monthly service fee of $25 plus all of their utilities. We noted that although occupants were able to receive free nursing care in the nursing home at some time in the future, that fact was irrelevant to the determination of whether the cottage operation was of a purely public charity. Further, even though Bethlen repaired its cottages free of charge and provided lawn mowing and snow removal at no cost to the occupants, we concluded that those few services were insufficient to meet the second criterion of HUP.
While it was conceded that Chapel Pointe’s assisted living and the skilled nursing facilities are used for a charitable purpose and the land on which they are located have been given a tax exemption, we are not required to exempt from taxation the independent living apartments or any other facilities on the same property, whether they be charitable or not, merely because they are located on the same property. Were we to find otherwise, any use could be placed on property that already has received a tax exemption for real estate based on a charitable exemption. Of course, if Chapel Pointe’s purpose tips away from being charitable because of an accumulation of non-charitable activities or if a claim is made that it competes in its activities with “for profits,” see Section 8(a) of Act 55, 10 P.S. § 378, then its entire exemption can be challenged.
Chapel Pointe then argues that it even if we look at the parcel and use separate and apart from that which has already been exempted, the independent living apartments meet the definition of a *435purely public charity.4 The only prong of the standard at issue in this case is whether Chapel Pointe donates or renders gratuitously a substantial portion of its services relative to the independent living apartments. Chapel Pointe contends that it has met this requirement under Section 5(d)(l)(iii) of Act 55,10 P.S. § 376(d)(l)(iii), which provides that in order to prove that an institution renders gratuitously a substantial portion of its services, it may show that it provides wholly gratuitous goods or services to at least 5% of those receiving similar goods or services from the institution.
The trial court in this case found otherwise, determining that there was no evidence that Chapel Pointe was donating a substantial portion of its services to the residents living in the independent living apartments and, therefore, did not meet the definition of a purely public charity.5 We agree. As the trial court stated:
Chapel Pointe has not proven by credible evidence, under any standard, that it donates or renders gratuitously a substantial portion of its services to the residents of its apartments. No assistance is provided to any residents for the payment of their entrance fees. Very minimal assistance is provided to a few residents by adjusting their monthly rental fees. Some financially insignificant ancillary program benefits are provided for those residents who choose to participate. The apartment operation helps fund Chapel Pointe’s nursing home and assisted living compound. Chapel Pointe’s convoluted effort to utilize the criteria in its unified financial statement to convenience us, based on a cost per day per resident analysis, that (1) the apartments operate as a loss, and (2) it renders gratuitously a substantial portion of services for the apartment residents, is not credible. Under Article 8, Section 2(a)(v) of the Pennsylvania Constitution, it is “only that portion of real property of [an] institution which is actually and regularly used” for “purely public charity,” that is exempt from real property taxes. Thus, unlike the nursing home and the assisted living compound, the apartments and the land they are on do not qualify for a statutory real estate tax exemption.
Because there is substantial evidence in the record to support the trial court’s determination, we will not disturb that determination on appeal.
Accordingly, the order of the trial court is affirmed.

ORDER

AND NOW, this 15th day of June, 2004, the order of the Court of Common Pleas of Cumberland County, dated January 31, 2002, is affirmed.

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

. The 93 apartment units consist of the Colonial Apartments (11 , units); Jarrett Apart-merits (three, 4-unit townhouses); Heritage & Harmony Suites (two, 12-unit apartment buildings); Cornerstone Manor (23 units); and Bedford Terrace (23 units).

. Chapel Pointe initially argues that the trial .court erred in concluding that it was not entitled to the rebuttable presumption that it was an institution of purely public charity because it previously was found to be an .institution of purely public charity regarding its other fa.cilities. It directs our attention to Section 5(b) of Act 55 which provides:
Burden of proof. If an institution of purely public charity asserts a presumption under subsection (a), a political subdivision challenging that institution before a government agency or court shall bear the burden, by a preponderance of the evidence, of proving that the institution of purely public charity *433does not comply with the requirements of section 5.
10 Pa.C.S. § 376(b). Chapel Pointe argues that nothing in the Constitution instructs the courts on the process to determine whether an institution is one of purely public charity, and the rebuttable presumption in Act 55 should apply because it is not being relied upon to ultimately determine whether it qualifies for a tax exemption, but only to establish the process through which the taxing authority must proceed to impose taxes on real property to determine that the real property is taxable. That issue ignores that what this issue involves is not whether Chapel Pointe, an institution of purely public charity, which for the purposes of this case is conceded, but whether the independent living apartments are being used for charitable purposes. In any event, we need not address this issue because the facts are not in dispute, and this issue merely inquires whether those facts, as established, meet the legal standards for a purely public charity, making the presumption irrelevant.

. Whether an institution is one of purely public charity is a mixed question of fact and law, and we are bound by the trial court's decision as long as there is no abuse of discretion and there is supporting evidence. Concern-Professional Services for Children and Youth v. Board of Assessment Appeals of Berks County, 127 Pa.Cmwlth. 79, 560 A.2d 932, petition for allowance of appeal denied, 524 Pa. 612, 569 A.2d 1370 (1989).

. Although not before us, it also seems there is an issue as to whether Chapel Pointe's independent living apartments benefit a substantial and indefinite class of persons who are legitimate subjects of charity when they are required to pay a substantial entrance fee and monthly rental fee.