MEMORANDUM OPINION BY JUDGE McGINLEY
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge
This case was assigned to the opinion writer before Judge Pellegrini succeeded Judge Leadbetter as President Judge.
OPINION NOT REPORTEDMEMORANDUM OPINION BY JUDGE McGINLEY
The underlying action was commenced by petition for review, in the nature of a declaratory judgment, to determine whether real property owned by the Commonwealth of Pennsylvania State System of Higher Education (PASSHE) for use by the Indiana University of Pennsylvania (IUP) (collectively "Petitioners"), is subject to local real estate taxation by the Indiana Area School District (School District), and the County of Indiana (County). (The School District, and the County, together with the Indiana County Board of Assessment Appeals (Board), are hereinafter referred to as "Respondents").
There are two Applications for Summary Relief before this Court: (1) Petitioners' "Second Application for Summary Relief;" and (2) Respondents' "Joint Application for Summary Relief."
PASSHEPASSHE is the owner of 22.93 acres of real property, which includes the "Robertshaw Building" located at Rose Street, White Township, Indiana County (Property). The Deed for the Property reflects titled ownership in "the Commonwealth of Pennsylvania State System of Higher Education, for the use of Indiana University of Pennsylvania." Deed, December 17, 1984, at 1; attached to Respondents' Brief as Exhibit "A."
Procedural HistoryPrior to 2011, the Property was classified by the Indiana County Assessment Office as "exempt" from real estate taxation as part of the existing Keystone Opportunity Enterprise Zone (KOEZ). Because the KOEZ was set to expire in 2011, the County's Chief Assessor investigated the Property's use and, after allegedly discovering commercial leases associated with the Property, he issued a Notice of Assessment Change dated July 10, 2010, which removed the Property from Tax Exempt Status.
On March 11, 2010, IUP received a real estate tax notice from Indiana County which demanded a tax payment in the amount of $30,206.15 based upon an assessed value of $992,970.00 and a millage rate of 30.42. On August 31, 2010, Petitioners filed a Notice of Appeal to the Board.
On April 13, 2011, following several postponements of the Board hearing, Petitioners filed a Petition for Review in the Nature of an Action for Declaratory Judgment in this Court's original jurisdiction. In the Petition for Review, Petitioners aver that the Property "houses a variety of university operations, including all aspects of building and grounds, maintenance, procurement and contracting." Petition for Review, April 13, 2011, ¶19 at 6. In Paragraphs 20 through 28 Petitioners aver that the Property also houses the "Indiana County Small Business Incubator" (Incubator). According to Petitioners the Incubator is a program component of the IUP College of Business that was established in 1986 to provide assistance to start-up or developing companies in Indiana County. The College of Business has a three-fold mission to educate, engage in research and scholarly activities, and serve the community. The Incubator is funded in part by the Ben Franklin Partnership of Central and Northern Pennsylvania. The Incubator provides a community service and education to IUP students who participate in the establishment and development of actual businesses. Petition for Review, April 13, 2011, ¶¶20-28 at 6-7.
Petitioners ask this Court to declare, as a matter of law, that Respondents have no legal authority to tax property owned by the Commonwealth as the Commonwealth is immune from taxation as the sovereign. Petitioners also ask the Court to declare that Respondents have no legal authority or jurisdiction to make a factual determination (in a Board of Assessment Appeals setting) whether property owned by the Commonwealth is being used for an authorized governmental purpose. Petitioners aver that property owned by the Commonwealth is immune from taxation by local government as a matter of law, unless sovereign immunity has been expressly waived by statute enacted by the General Assembly. Petition for Review, April 13, 2011, ¶¶4-5 at 3.
On May 9, 2011, Respondents filed Preliminary Objections to the Petition for Review. Respondents argued that declaratory relief was not available because the Board has exclusive jurisdiction to classify all properties as taxable, exempt or excluded from real estate taxation. They contend the Board is vested with exclusive jurisdiction to hold evidentiary hearings to determine whether governmental immunity applies. Petitioners filed an application for Summary Relief.
On August 5, 2011, a single-judge of this Court issued an order which: (1) overruled Respondents' Preliminary Objections; (2) denied Petitioners' Application for Summary Relief; and (3) directed the Respondents to file an Answer to the Petition for Review.
On September 1, 2011, Respondents filed their Answer to the Petition for Review. Respondents denied that the Property was being used strictly for university purposes and averred that the PASSHE leased portions of the Property to private commercial tenants. Specifically, in their Answer to the Petition for Review, Respondents state that they are "without sufficient information to form a belief as to the truth of the averments" pertaining to the Incubator. Respondents' Answer to Petition, ¶19, at 4. Respondents also state, "upon information and belief, portions of the Robertshaw Building [Property] are leased to and/or marketed for leasing to private commercial tenants and said leases generate rental income." Respondents' Answer to Petition, ¶19, at 4.
On September 30, 2011, Petitioners filed a "Second Application for Summary Relief" in which they ask this Court to grant their Petition for Review in the Nature of Declaratory Judgment as a matter of law. On November 2, 2011, Respondents filed a "Joint Application for Summary Relief" which requests that this Court dismiss the Petition for Review as a matter of law. Both Petitions are before this Court.
In a declaratory judgment action, just as in civil actions generally, summary judgment may be granted only in those cases in which the record clearly shows that there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Hydropress Environmental Services, Inc. v. Township of Upper Mount Bethel, County of Northampton, 575 Pa. 479, 836 A.2d 912 (2003); Public Utility Commission Bar Association v. Thornburgh, 434 A.2d 1327 (Pa. Cmwlth. 1981).
Respondents' "Joint Application for Summary Relief"Respondents assert that although the Property may be owned by PASSHE, "immunity" is not automatic or unqualified. They contend that PASSHE's ownership and use of the Property must be within its authorized governmental purpose before immunity applies. Therefore, "the use" of real estate is relevant in an "immunity" analysis. They rely on Southeastern Pennsylvania Transportation Authority (SEPTA) v. Board of Revision of Taxes, 574 Pa. 707, 712-714, 833 A.2d 710, 713 (2003), for this proposition.
Respondents further contend that they have statutory authority to determine taxable classifications, prepare a list of all properties exempted from taxation and hear all appeals challenging taxable classifications under Sections 601 and 701(c) of the Fourth to Eighth Class County Assessment Law, 72 P.S. §5453.601, and §5453.701(c).
Act of May 21, 1943, P.L. 571, as amended. Section 6(1)(ii) of the Act of October 27, 2010, P.L. 895, repealed The Fourth to Eighth Class County Assessment Law, effective January 1, 2011. The Fourth to Eighth County Assessment Law was replaced by the Consolidated County Assessment Law, 53 Pa.C.S. §§ 8801-8868, effective January 1, 2011. Because this matter arose prior to January 1, 2011, it is governed by the repealed Fourth to Eighth Class County Assessment Law.
Respondents seek an administrative evidentiary hearing before the Board on PASSHE's use of the Property to determine if the Property qualifies for immunity under the legal standard adopted by our appellate courts. They ask that Petitioners' request for summary relief be denied and the Petition for Review be dismissed as a matter of law.
Petitioners' "Second Application for Summary Relief"In their "Second Application for Summary Relief," Petitioners ask this Court to declare, as a matter of law, that they are "immune" from local real estate taxation. Petitioners contend that Respondents are prohibited from assessing a tax against the Property because the legislature has not granted Respondents specific authority to tax Commonwealth property or to decide the authorized governmental purpose of a component agency of the Commonwealth. They assert that the Property is entitled to blanket, unqualified immunity. Petitioners contend that this ends the inquiry and it is unnecessary for the Board to hold an evidentiary hearing to determine whether the Property is being "used for a public purpose."
Petitioners stress that "tax immunity" and "tax exemption" are distinct legal concepts and that only a tax "immunity" analysis is applicable to this controversy. They claim that whether a property is "used for a public purpose" is only relevant in a tax "exemption" analysis. They assert that Respondents have misread SEPTA because property that is "immune" from taxation is shielded from taxation "regardless of its use."
Under an "exemption" analysis a property is exempt when the legislature acts affirmatively to remove property otherwise subject to taxation, while immunity exists because no specific power to tax this class of property has ever been delegated by the legislature to the particular taxing body. Bucks County Community College v. Bucks County Board of Assessment Appeals, 608 A.2d 622, 623 n. 2 (Pa. Cmwlth. 1992). Because the legislature has not specifically delegated the power to tax a Commonwealth agency or instrumentality to Respondents, an "immunity," as opposed to an "exemption," analysis is appropriate. That is, the Property is entitled to immunity, unless PASSHE has acted outside the scope of its government authority in acquiring and holding the property.
Petitioners contend that the Property is owned by PASSHE, and that PASSHE and its component state-owned institutions are part of the sovereign Commonwealth of Pennsylvania. Petitioners argue that real estate owned by PASSHE may not be subject to taxation by political subdivisions absent express statutory authority, regardless of the use of the property.
The "Immunity" Analysis - Government Use TestIt is well-established that real estate owned by the Commonwealth is not subjected to taxation by political subdivisions absent express statutory authority. Appeal Board of School Directors of Owen J. Roberts School District, 500 Pa. 465, 467-68, 457 A.2d 1264, 1265 (1983). In fact, this Court has found no case where a local municipality was permitted to tax property owned outright by the State of Pennsylvania.
"Immunity" also extends to property owned by "agencies or instrumentalities" of the Commonwealth. Id. In the case of property owned by a State agency or instrumentality, Pennsylvania appellate courts have ruled that "immunity" is not unqualified, and does not apply if a property is not acquired or used for an authorized governmental purpose. Delaware County Solid Waste Authority v. Berks County Board of Assessment Appeals, 534 Pa. 81, 87, 626 A.2d 528, 531 (1993) ("Property owned by a Commonwealth agency is ...not given blanket immunity. If an agency acts outside its authorized governmental purposes, then its immunity is not automatic."). This is commonly known as the government use test. It begins with the presumption that property owned by a Commonwealth agency or instrumentality is immune from real estate taxation. The burden is on the taxing authority to establish the lack of immunity by showing that the Commonwealth agency or instrumentality acted outside the scope of its authority in acquiring and holding the property. Id. See also Appeal of West View Borough Municipal Authority, 381 Pa. 416, 113 A.2d 307 (1955). Property which is not acquired or used for authorized governmental purposes will not enjoy governmental immunity. Delaware County.
To the contrary, to qualify for tax "exemption" it must be established that the property is being used for a "public purpose." Article 8, Section 2 of the Pennsylvania Constitution.
In the case of property owned outright by the State, as opposed to a state agency or instrumentality, application of the "government use test" would be redundant because as this Court pointed out, the "government always acts as the government." East Stroudsburg University Foundation v. Office of Open Records, 995 A.2d 496, 504 (Pa. Cmwlth. 2010). Or, as the Supreme Court explained in Pennsylvania State Employees' Retirement System v. Dauphin County, 335 Pa. 177, 183, 6 A.2d 870, 873 (1939), "[e]ven if owned outright by the State, the revenues therefrom could only be devoted to public purposes under the Constitution." See also SEPTA in which the Supreme Court again recognized that property owned by the Commonwealth "has for reasons of public policy been consistently recognized as free from taxation." SEPTA, 574 Pa. at 714, 833 A.2d at 713.
For example, the Pennsylvania State Capitol Complex in Harrisburg, Pennsylvania.
Petitioners assert that PASSHE is equivalent to the sovereign Commonwealth for purposes of an immunity analysis. Petitioners contend that since PASSHE is equivalent to the sovereign Commonwealth , not merely an agency or an instrumentality, the Property is entitled to blanket immunity regardless of "the purpose for which it is used." This Court agrees that the "purpose for which the property is used" is not relevant because that is the test applied in an "exemption" analysis.
However, this does not necessarily mean that Petitioners prevail for they still must prove that: (1) PASSHE is the sovereign Commonwealth entitled to blanket immunity; and if not , (2) that it is a Commonwealth agency or instrumentality which has acted within the scope of its governmental authority in acquiring and holding the Property.
PASSHE is not the equivalent to the Sovereign Commonwealth For Purposes of Tax Immunity Analysis - It is an "Agency or Instrumentality" of the CommonwealthPASSHE is Pennsylvania's public university system. It is composed of 14 universities in Pennsylvania, including IUP, which are publicly owned and governed. PASSHE, has been statutorily designated as "a body corporate and politic constituting a public corporation and government instrumentality." The legislature has given it the right to have "perpetual existence as a corporation" and to adopt and use a "corporate seal." Section 20-2003-(A)(b) of the Public School Code, 24 P.S. §20-2003-A(b).
PASSHE should not be confused with The Pennsylvania State University or Pennsylvania's Commonwealth System of Higher Education . The Commonwealth System of Higher Education is the organizing body of Pennsylvania's "state-related" schools, which allows the independent control of the universities while supplying them with the public funds needed for operations at each institution. Universities in the Commonwealth System of Higher Education are considered public universities, but are under independent control rather than that of the state.
Sections 20-2002-A, 20-2003-A, and 20-2004-A, of the Public School Code of 1949 (Public School Code), Act of March 10, 1949, P.L. 30, were added by the Act of November 12, 1982, P.L. 660, as amended, 24 P.S. § 20-2002-A, 24 P.S. § 20-2003-A, 24 P.S. § 20-2004-A.
PASSHE is unique in that it is made up of a 20-member Board of Governors, which includes the Governor, the Secretary of Education, 4 members of the General Assembly and 14 members appointed by the Governor with the advice and consent of the Senate of Pennsylvania. Section 20-2004-(A)(a) of the Public School Code, 24 P.S. §20-2004-A(a). The Board of Governors is authorized to approve programs of research and service as might be consistent with the primary mission of PASSHE. Section 20-2003-(A)(a) of the Public School Code, 24 P.S. §20-2003-A(a). Real property owned by the Commonwealth, including PASSHE, may not be sold, transferred or disposed of without the approval of the General Assembly. 24 P.S. §20-2003-A(b)(3).
PASSHE is "part of the Commonwealth's system of higher education." Section 20-2004-(A)(a) of the Public School Code, 24 P.S. §20-2004-A(a). It serves and carries out a particular function for the Commonwealth, as opposed to being the Commonwealth. Therefore, for tax immunity purposes, PASSHE is not the equivalent to the sovereign Commonwealth. Property owned by PASSHE is not owned outright by the Commonwealth, and it is not entitled to absolute, unqualified real estate tax immunity.
Petitioners argue that PASSHE is the Commonwealth because it enjoys sovereign immunity under 42 Pa.C.S. §8521; Poliskiewicz v. E. Stroudsburg Univ., 536 A.2d 472 (Pa. Cmwlth. 1988). However, an entity's status as an agency or instrumentality of the Commonwealth varies, depending on the issue for which the determination is being made. Pennsylvania State University v. Derry Township School District, 557 Pa. 91, 731 A.2d 1272 (1999). Therefore, PASSHE's entitlement to sovereign immunity for purposes of tort liability is not necessarily determinative of its status in a tax immunity matter.
Based on the statutory characteristics of PASSHE, PASSHE 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 PASSHE acquired or used the Property outside its authorized governmental functions.
Whether PASSHE's Use of the Property is Within its Authorized Governmental PurposeIn Delaware County, our Supreme Court looked to the Delaware County Solid Waste Authority's (Authority) enabling legislation to determine whether its acquisition and use of land as a buffer zone was within its "stated purposes and powers" for purposes of tax immunity. Delaware County, 534 Pa. at 89, 626 A.2d at 532. There was no evidence that the excess property was acquired or used for some purpose other than as part of a landfill operation. Because the Authority was authorized to acquire, hold, maintain, own and lease facilities for the collection removal or disposal of ashes, garbage rubbish, the Authority did not act outside its "authorized purposes and powers" in holding land used as part of its landfill operation. Delaware County, 534 Pa. at 89, 626 A.2d at 532.
In SEPTA our Supreme Court confirmed that the proper inquiry for purposes of determining whether an instrumentality or agency is entitled to tax immunity is twofold: whether the agency or instrumentality has acted within its authorized (1) powers, and (2) purpose. SEPTA clarified that when applying the government use test in an immunity analysis the court must look at the agency or instrumentality's authorized powers and purpose. It is not enough to simply look to whether the agency or instrumentality was given authority to hold or lease property. The court must also determine if holding or leasing the property is within the agency's or instrumentality's governmental purpose.
Petitioners suggest that SEPTA was wrongly decided and blurred the distinction between immunity versus exemption. They contend that "use" of the property is only germane in an "exemption" analysis and that the Supreme Court, in holding that the "use" of the property was relevant in its "immunity" analysis effectively eliminates the distinction between immunity and exemption. This Court must disagree. As explained, the law applied by the Supreme Court in SEPTA was entirely consistent with prior case law. The Supreme Court accurately pointed out that the "use" of the property in an "exemption" analysis is relevant to determine if the property is being used for a "public purpose." In an "immunity" analysis, "use" of the property is necessary to determine if the agency or instrumentality is being used within the agency's "governmental powers and purposes." The only time "use" is not relevant is when it is the Commonwealth itself which owns the property. In such a case, there is tax immunity. As discussed, that is not the case here.
There, the Supreme Court reviewed the question of whether property which was owned by SEPTA and leased to commercial tenants was immune from local real estate taxation. There, SEPTA purchased a 20-story office building for its headquarters. To raise revenues, SEPTA leased space in the building to various government, non-profit and commercial entities. SEPTA applied to the tax revision board for an exemption on the basis that the property was immune and exempt from taxation. The Board granted a partial real estate tax exemption for the portions of the property which were used by SEPTA. The Court of Common Pleas of the County of Philadelphia concluded that the rental space by SEPTA was for a public purpose as it generated revenues for the government entity. This Court reversed and explained that an agency of the Commonwealth is immune from taxation so long as it acts in accordance with the powers granted to it. To the extent that SEPTA leased office space solely to raise revenue, this was outside the purpose of SEPTA which was to operate a transportation system for southeastern Pennsylvania.
The Supreme Court affirmed and found that SEPTA's property was presumed to be immune because it was organized under 74 Pa.C.S. §1711(a) which provides that metropolitan transportation authorities shall exercise the public powers of the Commonwealth as an agency and instrumentality thereof. In applying the government use test, the Supreme Court next found that while SEPTA was "authorized" to lease real estate in order to "raise revenue" and "reduce its expenses," the lease of property to third parties did not further its "purpose" which was to "operate a transportation system in Southeastern Pennsylvania." SEPTA, 574 Pa. at 710, 833 A.2d at 717. The Supreme Court ultimately concluded that SEPTA property leased to commercial tenants was not immune from taxation because leasing property was not an activity connected to SEPTA's purpose. That is, it was not sufficiently related to the governmental purpose of operating a regional transportation system.
Contrary to Petitioners' argument, the Supreme Court did not determine that SEPTA is the Commonwealth. It determined that SEPTA was part of the sovereignty of the Commonwealth as opposed to a "local" agency.
Here, this Court must, in the same way, look to PASSHE's authorized powers and purposes. With regard to its powers, PASSHE has been granted explicit power to:
acquire, purchase, hold, lease as lessee and use any property , real, personal or mixed, tangible or intangible, or any interest therein, lease as lessor any property, real, personal or mixed, tangible or intangible necessary or desirable for carrying out the purpose of the system, and to sell, transfer and dispose of any property acquired by gift, grant, devise or bequest, whether the property is real, personal or mixed, tangible or intangible, or any interest therein; to take , demand, receive and possess all moneys, real property and goods which shall be appropriated , given or granted to for the use of the system and to apply the same according to the will of the
donors; to sell, transfer and dispose of real property acquired by and titled to the system upon the approval by the General Assembly as provided in Section 2018-A. (Emphasis added).
Section 20-2003-(A)(b)(3) of the Public School Code, 24 P.S. §20-2003-A(b)(3).
Clearly, PASSHE has been given the "power" to own, lease (as lessee and lessor), and to sell real property and use all monies "for the use of the system." The question remains, however, whether PASSHE's lease of portions of the Property to commercial tenants in exchange for rental income is consonant with its "purpose."
PASSHE's enabling legislation states that its purpose is "to provide high quality education for the Commonwealth at the lowest possible cost to its students." The "primary mission" of PASSHE is "the provision of instruction 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." Id.
Section 20-2003-A of the Public School Code, 24 P.S. §20-2003-(A). --------
SEPTA is on all fours. In SEPTA, SEPTA purchased a property and occupied a portion of it for its headquarters. It leased the remaining space to commercial, non-profit, and government organizations. The Supreme Court held that SEPTA's enabling legislation did not state that a purpose of SEPTA was to become a commercial landlord. As to those portions of its property that it leased to third parties, the Supreme Court found that SEPTA "is like any other commercial landlord with which it competes as a landlord" and was, therefore, not immune from taxation. SEPTA, 574 Pa. at 710, 833 A.2d at 717. Here, as in SEPTA, PASSHE's lease of the Property to third parties is not within its governmental purpose. PASSHE's activities in leasing the Property to third parties are more akin to those of a commercial landlord. Therefore, PASSHE is not absolved or immune from its responsibility to pay real estate taxes on the portions of the Property that are utilized for such a commercial ventures.
Respondents request this Court to deny the Petition for Review so the Board can hold an evidentiary hearing on whether PASSHE is leasing portions of the Property to third party commercial entities and receiving rental income. This Court agrees that this is the proper course. It is unclear whether PASSHE leases a portion of the Property to the Incubator in exchange for rental income , and whether other portions are rented to other entities. On this record, this Court does not have sufficient information to determine what is taxable and what is not.
To the extent that the 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 Property which are leased to any third party in exchange for rental income , are subject to taxation, and do not enjoy tax immunity because they are not used for PASSHE's governmental purpose which is the provision of education.
Respondents' Application for Summary Relief in the above-captioned case is hereby GRANTED. Petitioners' Petition for Review in the Nature of Declaratory Judgment is DENIED.
/s/_________
BERNARD L. McGINLEY, Judge ORDER
AND NOW, this 5 day of April, 2012, Respondents' Application for Summary Relief in the above-captioned case is hereby GRANTED. Petitioners' Petition for Review in the Nature of Declaratory Judgment is DENIED.
/s/_________
BERNARD L. McGINLEY, Judge
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