            IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Rouse Brokenstraw Associates       :
Corporation,                       :
                                   :
                         Appellant :
                                   :
                   v.              : No. 1197 C.D. 2017
                                   : Argued: May 7, 2018
Warren County Board of Appeals,    :
City of Warren, and Warren County :
School District and Warren County :


BEFORE:        HONORABLE PATRICIA A. McCULLOUGH, Judge
               HONORABLE MICHAEL H. WOJCIK, Judge
               HONORABLE JAMES GARDNER COLINS, Senior Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE WOJCIK                                                      FILED: June 11, 2018


               Rouse Brokenstraw Associates Corporation (RBA) appeals the order of
the Court of Common Pleas of the 37th Judicial District, Warren County Branch,
(trial court) affirming the decision of the Warren County Board of Appeals (Board)
denying an exemption from real estate taxes for RBA’s apartment building known
as Canterbury Court.1 We affirm.

       1
          Article 8, Section 2(a)(v) of the Pennsylvania Constitution states, “[t]he General
Assembly may by law exempt from taxation . . . [i]nstitutions 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).
Under the test enunciated in Hospital Utilization Project v. Commonwealth, 487 A.2d 1306, 1317
(Pa. 1985) (HUP), in order to be considered an “institution of purely public charity” under Article
8, Section 2(a)(v), a landowner must: (1) advance a charitable purpose; (2) donate or render
               Following a hearing, the trial court made the following relevant
findings of fact. RBA is a non-profit corporation that is exempt from federal tax
under Section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. §501(c)(3), and is
exempt from state taxes. RBA owns an apartment building known as Canterbury
Court and has paid property taxes through 2013 on the building. RBA claims that
the building is exempt from property taxes from 2014 onward.
               Canterbury Court was financed through a Section 202 loan under the
Federal Housing Act of 1959 (Housing Act), 12 U.S.C. §1701q, from the
Department of Housing and Urban Development (HUD) to provide housing for low-
income, elderly persons and only accepts low-income tenants who are at least 62
years old. The amount of rent that the tenants pay is determined by a formula that
HUD calculates. HUD pays a subsidy to RBA in addition to the rent paid. The
Housing Authority of Warren County (Authority) manages the building as RBA’s
agent. RBA pays the Authority for this service provided there are sufficient funds.
RBA pays the Authority this management fee and for work done by Authority
employees, which are pro-rated portions of their salaries based on the time spent at
Canterbury Court.
               All members of RBA’s Board of Directors (Board) work on a volunteer
basis and are not paid and all but one is a member of Trinity Memorial Episcopal
Church (Trinity), the driving force behind the creation of Canterbury Court. The
Board conducts regular meetings.
               Elaine Rhodes, the Board’s president, testified that she donates her time
to attend Board meetings and to help meet the needs of RBA/Canterbury Court. She


gratuitously a substantial portion of its services; (3) benefit a substantial and indefinite class of
persons who are legitimate subjects of charity; (4) relieve the government of some of its burden;
and (5) operate entirely free from private profit motive.
                                                 2
stated that she asked Trinity for a donation to pay for community events at
Canterbury Court such as holiday parties for its tenants and that Trinity has made an
annual cash donation for this purpose. Tonya Mitchell-Weston, the Authority’s
executive director, testified that Trinity’s donation has never exceeded $1,000.00 in
a given year. She stated that the Authority has a group of volunteers known as the
“Holiday Club,” which also helps tenants celebrate holidays at Authority properties,
including Canterbury Court. Joe Saeli, an Authority employee, testified that he has
worked overtime at Canterbury Court without pay on one occasion when an elevator
broke down. Tracey Templeton Hill, the Authority’s finance director, testified that,
using generally accepted accounting practices, RBA has operated at a loss in recent
years including 2014 onward. She stated that she attributes much of the shortfall to
an increase in the assessed value of the property and the resulting increase in
property taxes. She testified that the vast majority of RBA’s revenues are from the
rent that the tenants pay and HUD’s subsidy. She stated that the only other source
of revenue is Trinity’s comparatively small donation. Hill testified that RBA is not
free to raise the rent because HUD has strict rules regarding rent increases.
             With respect to the HUP test, the parties agreed that RBA established
the first, third, and fifth prongs, i.e., that it advances a charitable purpose; that it
benefits a substantial and indefinite class of persons who are legitimate subjects of
charity; and that it operates entirely free from a profit motive. However, based on
the foregoing, the trial court concluded that RBA failed to demonstrate that it meets
the second prong, that it donates or gratuitously renders a substantial portion of its
services, because its “paramount purpose . . . is to provide housing services,” and
“these services are provided for cost [because a]ll residents pay rent” and “a subsidy
is provided by HUD” “[i]n addition to the rent.” Trial Court 7/26/17 Opinion at 4.


                                           3
The trial court rejected RBA’s assertion that the unremunerated Board work
constitutes gratuitous services because the work is for RBA’s benefit and not the
tenants. Id. at 4-5. Additionally, the trial court found that Trinity’s annual $1,000.00
donation, although generous, “does not finance a substantial portion of the services
provided by Canterbury Court.” Id. at 5. The trial court also rejected RBA’s
assertion that the “Holiday Club” provides gratuitous services because the
“Authority is paid by RBA for that service” and “it is not apparent that the . . .
services to the tenants of Canterbury Court were a result of any initiative taken by
RBA.” Id. Further, “[e]ven if the club’s services are attributable to RBA, these
services are not a substantial part of all services provided by RBA.” Id. Finally, the
trial court found that the “unpaid overtime work done by [Authority] employees at
Canterbury Court is not a gratuitous service of RBA, nor is it a substantial portion
of all services provided by RBA.” Id. The court determined that even if the unpaid
emergency maintenance that has been provided “is gratuitous in nature, then the
beneficiary is the [Authority], which was obligated to perform the emergency
maintenance promptly” because “[t]he tenants of Canterbury Court pay for
maintenance when they pay their rent.” Id.
             The trial court concluded that National Church Residences v. Mercer
County Board of Assessment Appeals, 925 A.2d 220 (Pa. Cmwlth. 2007), appeal
denied, 944 A.2d 759 (Pa. 2008), and WRC North Fork Heights, Inc. v. Board of
Assessment Appeals, 917 A.2d 893 (Pa. Cmwlth.), appeal denied, 944 A.2d 760 (Pa.
2007), are controlling. Trial Court 7/26/17 Opinion at 6. The trial court found that
National Church Residences involved a facility named Buchanan Manor that was
substantially similar to Canterbury Court in the following respects:            (1) its
construction was funded through Section 202 of the Housing Act; (2) its purpose


                                           4
was to provide subsidized housing for low-income, elderly residents; (3) HUD
determined the amount of rent that its tenants would pay; (4) HUD provided
subsidies for the tenants’ rent through the program under Section 8 of the Housing
and Community Development Act of 1974, 42 U.S.C. §1437f; (5) its operation was
given over to a management company in exchange for a percentage of gross revenue;
and (6) the Board of the company that owned Buchanan Manor was not remunerated.
Id. Accordingly, the trial court affirmed the Board’s decision denying RBA’s
request for an exemption for Canterbury Court and RBA filed the instant appeal.2
               The trial court subsequently filed a Pa. R.A.P. 1925(a) opinion in which
the court rejected RBA’s claim that it meets the fourth prong of the HUP test, i.e.,
that it relieves the government of some burden “by absorbing costs associated with
depreciation, litigation, finances, and staffing.” Trial Court 11/2/17 Opinion at 1.
With respect to depreciation, the trial court determined that “[a]ccounting for
depreciation may have been of greater concern to the Court if [RBA was] arguing
about the assessed value of the property, but [RBA]’s challenge only related to
whether or not [RBA] is entirely exempt from property taxes.” Id. at 2. With respect
to litigation, the court determined, “While it is true that [RBA] has taken it upon
itself to litigate this matter and certain of its personnel appeared to testify, [RBA]’s


      2
          As this Court has explained:

                Whether a parcel of property qualifies for tax exemption is a
               question of law. As such, this Court’s “standard of review is de novo
               and our scope of review is plenary.” In a tax assessment appeal, our
               review is limited to “determin[ing] whether the trial court abused its
               discretion or committed an error of law and whether the decision is
               supported by the requisite evidence.”

Veterans of Foreign Wars Post 1989 v. Indiana County Board of Assessment Appeals, 954 A.2d
100, 102 n.2 (Pa. Cmwlth. 2008) (citation omitted).
                                                5
action does not further a goal of alleviating a government burden.” Id. With respect
to finances, the trial court found “that whatever staffing obligations exist at
Canterbury Court are occasioned by the management of the same by the [Authority].
All money paid to the [Authority] . . . comes from revenues from rents received and
a federal government subsidy.” Id. Finally, the trial court rejected RBA’s assertion
that its sponsorship of Canterbury Court for the federal subsidy relieves the
government of some burden, finding it “is not justified” and “that [RBA]’s argument
is rebuffed – at least tacitly – by [National Church Residences and WRC North Fork
Heights, Inc.] Id. at 3.
             In this appeal, RBA first claims that the trial court erred in determining
that it failed to demonstrate that it met the second prong of the HUP test. RBA
asserts that a non-profit may satisfy the “donate or render gratuitously a substantial
portion of its services” prong of the HUP test when it provides senior housing at cost
or less regardless of whether it receives federal subsidization under St. Margaret
Seneca Place v. Board of Property Assessment Appeals and Review, 640 A.2d 380
(Pa. 1994). RBA asserts that in holding that RBA did not demonstrate that it met
the second HUP prong, the trial court confused RBA’s relationship with the
Authority; RBA owns the building while the Authority provides the management
services. RBA contends that although it pays the Authority a 6.88% management
fee, any profit derived by the Authority does not inure to RBA’s benefit and it
provides 100% of its services gratuitously. Further, RBA contends that the trial
court’s reliance on National Church Residences and WRC North Fork Heights, Inc.
is misplaced because in National Church Residences, the owner contracted with its
parent company to provide maintenance services while RBA only contracts with the
Authority for such services. Additionally, in National Church Residences, HUD


                                          6
contracted for zero-based budgeting, which required HUD to increase its subsidies
to account for increases in real estate taxes. No such agreement exists herein.3
               However:

               Whether or not the portion donated or rendered
               gratuitously is “substantial” is a determination based on
               the totality of the circumstances surrounding the
               organization. The word “substantial” does not imply a
               magical percentage. It must appear from the facts that the
               organization makes a bona fide effort to service primarily
               those who cannot afford the “usual fee.”
HUP, 487 A.2d at 1315 n.9.
               RBA’s reliance on St. Margaret Seneca Place is misplaced because in
that case, 48% of the residents received Medicaid funding which only covered two-
thirds of the patients’ costs with the nursing home paying the remaining balance.
640 A.2d at 382. The Supreme Court held that “[t]he showing that the nursing home
bears one-third of the cost of care for half its residents satisfies the home’s burden
of proof for this requirement.” Id. at 384.


       3
          RBA also argues that under 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), a charity providing
residential housing that receives subsidies for 95% of the units from a low-income federal housing
program remains a tax exempt “purely public charity” provided that any surplus in assistance is
monitored by the appropriate governmental agency. In this case, there is no dispute that 95% or
more of Canterbury Court’s units receive such federal subsidies and that HUD monitors any
surplus. RBA further asserts that the residency requirements established by HUD and imposed on
RBA satisfy the requirements of the Institutions of Purely Public Charity Act (Act 55), Act of
November 26, 1997, P.L. 508, 10 P.S. §§371–385. However, because RBA does meet the
constitutional requirements under HUP, any consideration of the provisions of the General County
Assessment Law or Act 55 is unnecessary. See HUP, 487 A.2d at 1312 (“Hence, we begin our
analysis by recognizing that regardless whether HUP qualifies as a ‘charitable organization’ under
[the statutory exemption], as defined by the Pennsylvania Code . . . it must first qualify under the
Constitution as a ‘purely public charity’ . . . . Because we reach the conclusion in our following
discussion that HUP is not a ‘purely public charity’ within the meaning of the Constitution, we do
not reach whether HUP qualifies under the Pennsylvania Code definition.”).
                                                 7
             Conversely, in National Church Residences, as in the instant matter, the
difference between the cost of services and the government subsidy was not paid by
the property owner, but by the residents themselves through rent. Likewise, RBA’s
business model and operations are identical to those in National Church Residences
that were determined not to satisfy the HUP requirements. See also G.D.L. Plaza
Corporation v. Council Rock School District, 526 A.2d 1173, 1177 (Pa. 1987) (“In
the present case all operating costs of the Plaza not covered by rents paid by the
tenants is borne by federal government subsidies. This includes salaries of those
who provide the services for the Plaza and the expenses for the services themselves,
all of which are channelled through the management fee paid to [the management
company] from revenue obtained from the government subsidies.”).
             Here, the trial court did not consider the volunteer work by the RBA
Board to be substantial and did not deem the holiday parties a substantial part of the
services that are provided to the residents of Canterbury Court. Further, the trial
court found that RBA has realized net gains before depreciation and that in the only
year in which RBA did not realize a net gain, 2014, RBA had incurred substantial
fees in refinancing its mortgage, which has subsequently saved RBA tens of
thousands of dollars each year in interest payments. Any suggestion that RBA
cannot operate within HUD’s budget is not supported by the facts as found below.
See, e.g., National Church Residences, 925 A.2d at 228 (“Mercer’s Audited
Financial Reports for years 1999 through 2005 . . . reflected that Mercer operated at
a net profit each of those years from a cash-flow standpoint before depreciation, even
after the inclusion of the management fee . . . . Additionally, the audited financial
statements and tax returns reflect that Mercer had operated at a net profit before
depreciation with positive cash-flow.”); WRC North Fork Heights, Inc., 917 A.2d at


                                          8
901 (“WRC’s vague testimony that it assists residents in accessing help with
medical, social, emotional and spiritual needs, with no attempt to quantify the costs
incurred by WRC, could not meet the specific requirements regarding donations
stated in [Act 55]. In terms of the HUP analysis, the record lacks evidence that WRC
donates or renders gratuitously a ‘substantial portion’ of its services.”). Because
RBA does not donate a substantial portion of its services as required by HUP, it is
not entitled to a tax exemption as a “purely public charity” under the Constitution.4
               Accordingly, the trial court’s order is affirmed.




                                              MICHAEL H. WOJCIK, Judge




       4
         Because RBA does not satisfy the second prong of the HUP test, we need not consider
whether the trial court erred in also determining that RBA does not satisfy the fourth prong of that
test. See, e.g., Lehighton Area School District v. Carbon County Board of Assessment, 708 A.2d
1297, 1302 (Pa. Cmwlth. 1998) (“We first review the HUP standard, keeping in mind that the
applicant must satisfy all five criteria of the HUP test. Associated YM–YWHA of Greater New
York/Camp Poyntelle v. County of Wayne, [613 A.2d 125 (Pa. Cmwlth. 1992)].”).
                                                 9
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Rouse Brokenstraw Associates       :
Corporation,                       :
                                   :
                         Appellant :
                                   :
                   v.              : No. 1197 C.D. 2017
                                   :
Warren County Board of Appeals,    :
City of Warren, and Warren County :
School District and Warren County :


                                  ORDER


            AND NOW, this 11th day of June, 2018, the order of the Court of
Common Pleas of the 37th Judicial District, Warren County Branch, dated July 24,
2017, is AFFIRMED.




                                    __________________________________
                                    MICHAEL H. WOJCIK, Judge
