         IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Kimberton Fire Company,               :
                 Appellant            :
                                      :
            v.                        : Nos. 166 C.D. 2016 and 167 C.D. 2016
                                      : ARGUED: October 18, 2016
Chester County Board of               :
Assessment Appeals and                :
Phoenixville Area School              :
District                              :


BEFORE:     HONORABLE PATRICIA A. McCULLOUGH, Judge
            HONORABLE JULIA K. HEARTHWAY, Judge
            HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge


OPINION NOT REPORTED


MEMORANDUM OPINION BY
JUDGE HEARTHWAY                         FILED: November 23, 2016


            Kimberton Fire Company (KFC) appeals from the January 7, 2016
order of the Court of Common Pleas of Chester County (trial court), which denied
KFC’s appeal and determined that KFC’s property at issue was not exempt from
the payment of real estate taxes. We affirm.


            KFC is a voluntary fire company that began operations in 1929. KFC
is a non-profit corporation with its principal office at 61 Firehouse Lane,
Kimberton (principal office property). The principal office property is owned by
KFC, is improved with a fire house, is exempt from real estate taxes, and is at
Chester County Tax Parcel No. 26-02-0225-E. KFC has been granted sales and
use tax-exempt status as a charitable organization by the Commonwealth. KFC
has also been granted tax-exempt status by the Internal Revenue Service (IRS)
under section 501(a) of the Internal Revenue Code (IRC) as an organization
described in section 501(c)(3) of the IRC. 26 U.S.C. §§ 501(a) and 501(c)(3).


              At issue here are properties at Chester County Tax Parcel Nos. 26-2-
230 and 26-2-229, with corresponding addresses of 2284 and 2280 Kimberton
Road (Property). The Property is owned by KFC, is adjacent to the principal office
property, is located in East Pikeland Township, is in the Phoenixville Area School
District, and is not used by KFC. The Property is used as a day care center titled
ABC-123 Early Learning Center (Day Care) and has one building on each parcel.
The Day Care is operated by ABC-123, Inc. (ABC), a non-profit corporation that
has been granted sales and use tax-exempt status as a charitable organization by the
Commonwealth, and tax-exempt status by the IRS under section 501(a) of the IRC
as an organization described in section 501(c)(3) of the IRC.


              ABC is a wholly-owned subsidiary of KFC. ABC operates the Day
Care, which is open to the general public. All customers pay the same rate,
including children of KFC and ABC employees and volunteers. However, no
children of employees or volunteers currently attend the Day Care. Further, all
Day Care workers are employed by ABC; none are employed by KFC. The Day
Care is operated and managed by ABC, and KFC is operated and managed
separately.


              ABC contributes all of its net proceeds from the Day Care’s
operations to KFC. ABC contributed the following net proceeds to KFC: 2011-
$58,806; 2012- $68,400; and 2013- $61,000. ABC does not pay rent for the
                                         2
use/occupancy of the Property. KFC does not subsidize the costs or expenses of
ABC beyond the free-rent provision. ABC’s primary source of income is the fees
charged for the day care services. ABC also derives income from hosting special
events and summer camps. No child attending the Day Care receives subsidized
care or reduced rates based on family income. The sole use of the Property is as a
day care center.


             Section 2 of ABC’s by-laws provides as follows:

                    The Board of Directors shall consist of five
             Directors. At all times, the majority of the Directors
             shall be elected officers of the Kimberton Fire Company.
             These shall be the Vice President, Treasurer, and one
             Trustee of the Fire Company, the Trustee to be selected
             by the President of the Kimberton Fire Company with the
             concurrence of its Board of Directors. The Directors
             specified in this subsection so chosen shall be referred to
             hereafter as “KFC Officer Directors.” The KFC Officer
             Directors shall appoint the non-Fire Company Directors.

             On July 17, 2013, KFC filed with the Chester County Board of
Assessment Appeals (Board) applications for tax exemption for the Property. The
Board held a hearing on October 30, 2013. On November 11, 2013, the Board
denied KFC’s applications for tax exemption.


             On December 1, 2013, KFC appealed to the trial court. The parties
filed a stipulation of facts on January 29, 2015. The trial court held a hearing on
November 16, 2015. On January 7, 2016, the trial court affirmed the Board’s
decision, finding that KFC is not exempt because it does not occupy the Property




                                         3
for which the exemption is sought. KFC appealed to this court on February 2,
2016.1


              KFC contends that the trial court erred in determining that because
KFC’s property was not “owner occupied,” but occupied by KFC’s wholly-owned
subsidiary, it was not exempt from real estate taxes.2


              Article 8, Section 2(a)(iii) and (v) of the Pennsylvania Constitution
provides that:

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

                                               ***

                     (iii) That portion of public property which is
              actually and regularly used for public purposes;

                                               ***

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



1
  We note that the matter was originally brought to this court as two separate appeals, one for
each property at issue. Thus, it was assigned two separate docket numbers, 166 C.D. 2016 and
167 C.D. 2016. By a March 31, 2016 order of this court, the appeals were consolidated because
the facts and issues are identical.

2
  Our review is limited to whether the trial court abused its discretion or committed an error of
law or whether its factual findings are supported by substantial evidence. ARC Human Services,
Inc. v. Clearfield County Assessment Office and Tax Bureau, 120 A.3d 465, 467 n.3 (Pa.
Cmwlth. 2015).


                                               4
                 Initially, KFC contends that the Property is exempt from taxation
pursuant to section 8812(a)(11) of the Consolidated County Assessment Law
(Law), 53 Pa. C.S. §8812(a)(11), which exempts from taxation:

                 (11) All real property owned by one or more institutions
                 of purely public charity, used and occupied partly by the
                 owner or owners and partly by other institutions of purely
                 public charity and necessary for the occupancy and use of
                 the institutions so using it.

KFC asserts that the Property is occupied by ABC, its wholly-owned subsidiary,
and its income is used to support the fire station. KFC created ABC to operate the
Day Care and all net revenue from the Day Care is paid to KFC.


                 Section 8812(a)(11) of the Law provides for exemption only if the
land is “used and occupied partly by the owner or owners and partly by other
institutions of purely public charity . . . .” (emphasis added.) It does not provide
for the exemption when the property is solely used by the institution of purely
public charity but not used by the owner at all. Moreover, pursuant to section
8812(b) of the Law, all property not regularly used and occupied from which
income or revenue is derived shall be subject to taxation.3


3
    Section 8812(b) of the Law provides exceptions as follows:

                 (1) Except as otherwise provided in subsection (a)(13) and (15), all
                 property, real or personal, other than that which is actually and
                 regularly used and occupied for the purposes specified in this
                 section, and all property from which any income or revenue is
                 derived, other than from recipients of the bounty of the institution
                 or charity, shall be subject to taxation, except where exempted by
                 law for State purposes.

(Footnote continued on next page…)
                                                  5
               Here, KFC stipulated to the fact that it does not use the Property.
However, KFC argues that ABC is its wholly-owned subsidiary, and, as such, KFC
occupies the Property through ABC. A subsidiary is a separate, distinct legal
entity for regulatory, liability, and tax purposes. See Commonwealth v. Gulf Oil
Corporation, 60 A.2d 46, 48-49 (Pa. 1948); Callery’s Appeal, 116 A. 222, 224 (Pa.
1922). Just because ABC is the wholly-owned subsidiary of KFC, it does not
follow that KFC uses the property. Appeal of Northwestern Corporation, 665 A.2d
856 (Pa. Cmwlth. 1995) (stating that when a subsidiary corporation does not own
the property and a parent corporation does not occupy or use a property, the
subsidiary corporation cannot qualify the parent corporation for property tax
exemption).      KFC is a separate company and, thus, KFC’s argument fails.4
Accordingly, KFC is not exempt from taxation under section 8812(a)(11) of the
Law because KFC does not use or occupy the Property.


               Next, KFC contends that the Property is exempt from taxation
pursuant to section 8812(a)(15) of the Law, 53 Pa. C.S. §8812(a)(15), which
exempts from taxation:

(continued…)
               (2) Except as otherwise provided in subsection (a)(12), 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 property shall be seized of
               the legal or equitable title in the realty and possessor of the
               personal property absolutely.

4
 We note that to allow a wholly-owned subsidiary of a charity to be exempt could provide an
unfair tax advantage and possibly lead to unfair competition. See section 8 of the Institutions of
Purely Public Charity Act, Act of November 26, 1997, P.L. 508, as amended, 10 P.S. §378,
which provides that “institutions of purely public charity shall not use their tax-exempt status to
compete unfairly with small business.”


                                                6
             (15) Notwithstanding the provision of subsection (b) or
             any other provision of this chapter to the contrary, all fire
             and rescue stations which are founded, endowed and
             maintained by public or private charity, together with the
             grounds annexed and necessary for the occupancy and
             use of the fire and rescue stations, and social halls and
             grounds owned and occupied by fire and rescue stations
             and used on a regular basis for activities which contribute
             to the support of fire and rescue stations, as long as the
             net receipts from the activities are used solely for the
             charitable purposes of the fire and rescue stations.

             KFC argues that the Property is owned by KFC and used on a regular
basis for activities that contribute to the support of KFC. ABC provides all net
revenue to KFC for support of its fire-fighting and rescue operation. Thus the
Property is used on a regular basis for activities that support the charitable
purposes of KFC. Further, the fundraising activities of ABC are necessary for
KFC’s occupancy and use of the fire station.


             KFC also argues that there is no requirement in section 8812(a)(15) of
the Law that the Property be occupied by KFC.             However, if occupancy is
required, then KFC occupies the Property through its wholly-owned subsidiary,
ABC. KFC asserts that it maintains total control over ABC. It controls ABC’s
board and, thereby, its daily operations. Further, KFC asserts that section 5(g) of
the Institutions of Purely Public Charity Act, 10 P.S. § 375(g), provides that a non-
profit parent corporation and its non-profit subsidiary corporations may elect to be




                                          7
considered a single institution for purposes of meeting the criteria to be considered
an institution of purely public charity.5


              Section 8812(a)(15) of the Law provides for the exemption of: (1) “all
fire and rescue stations which are founded, endowed and maintained by public or
private charity, together with the grounds annexed and necessary for the occupancy
and use of the fire and rescue stations, and [(2)] social halls and grounds owned
and occupied by fire and rescue stations and used on a regular basis for activities
which contribute to the support of fire and rescue stations, as long as the net
receipts from the activities are used solely for the charitable purposes of the fire
and rescue stations.”


              Thus, the fire station is exempt along with the grounds annexed to the
fire station that are necessary for the occupancy and use of the fire station; and
social halls and grounds owned and occupied by the fire station are exempt if they
are used on a regular basis for activities which contribute to the support of the fire
station by submitting all the net receipts from those activities to the fire station.


              The principal office property is the realty where the fire station is
located and is thus tax exempt. The Property at issue here is adjacent to the
principal office property and does not have a fire station on it, nor is it necessary
for the occupancy or use of the fire station. The Property also is not occupied by
the fire station, even though it is used on a regular basis for activities that


5
 It is not argued that ABC is not an institution of purely public charity. However, it does not
follow that ABC and KFC may elect to be considered a single institution for purposes of
determining occupancy and use of a property under the Law.


                                              8
contribute to the support of the fire station and all of ABC’s net receipts are given
to the fire station. Mere use by a subsidiary and contributions therefrom do not
qualify a property as tax exempt under section 8812(a)(15) of the Law, 53 Pa. C.S.
§ 8812(a)(15). The property must be annexed, necessary for the use of the fire
station, and necessary for the occupancy of the fire station. The last two conditions
were not met. Thus, KFC is not exempt from taxation under section 8812(a)(15)
of the Law.


              KFC owns the Property; however, it does not occupy or use the
Property. Further, ABC, a wholly-owned subsidiary of KFC, is a separate and
distinct entity from KFC and, therefore, KFC cannot be presumed to occupy the
Property through ABC’s use. The trial court did not err in determining that KFC is
not exempt from paying real estate taxes on the Property because it does not
occupy or use the Property.6


              Accordingly, we affirm.


                                            __________________________________
                                            JULIA K. HEARTHWAY, Judge

Judge McCullough concurs in the result only.
6
  See Veterans of Foreign Wars Post 1989 v. Indiana County Board of Assessment Appeals, 954
A.2d 100 (Pa. Cmwlth. 2008) (stating that a property lessee’s generation of income for a charity
is not sufficient for a tax exemption on that property); Appeal of the Winchester Group, 687 A.2d
52 (Pa. Cmwlth. 1996) (stating that the property improved with an apartment building owned but
not used or occupied by the fire station is not exempt from real estate taxation); Appeal of
Northwestern Corporation, 665 A.2d 856 (Pa. Cmwlth. 1995) (stating that when a subsidiary
corporation does not own the property and a parent corporation does not occupy or use a
property, the subsidiary corporation cannot qualify the parent corporation for property tax
exemption).


                                               9
          N THE COMMONWEALTH COURT OF PENNSYLVANIA


Kimberton Fire Company,           :
                 Appellant        :
                                  :
            v.                    : Nos. 166 C.D. 2016 and 167 C.D. 2016
                                  :
Chester County Board of           :
Assessment Appeals and            :
Phoenixville Area School          :
District                          :

                                ORDER


            AND NOW, this 23rd day of November, 2016, we hereby affirm the
order of the Court of Common Pleas of Chester County in the above-captioned
matter.



                                  __________________________________
                                  JULIA K. HEARTHWAY, Judge
