          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Foundation for Eldercare,               :
                            Appellant   :
                                        :
            v.                          : No. 982 C.D. 2017
                                        : Argued: April 12, 2018
Dauphin County Board of Tax             :
Assessment Appeals, Borough of          :
Highspire and Steelton-Highspire        :
School District                         :


BEFORE:     HONORABLE RENÉE COHN JUBELIRER, Judge
            HONORABLE ELLEN CEISLER, Judge
            HONORABLE DAN PELLEGRINI, Senior Judge


OPINION NOT REPORTED


MEMORANDUM OPINION BY
SENIOR JUDGE PELLEGRINI                              FILED: May 8, 2018


            The Foundation for Eldercare (Foundation) appeals from an order of
the Court of Common Pleas of Dauphin County (trial court) affirming the decision
of the Dauphin County Board of Tax Assessment Appeals (Board) finding that the
Foundation was not an institution of purely public charity and, therefore, not
entitled to an exemption from real estate taxes. For the reasons that follow, we
affirm.


                                          I.
            The Pennsylvania Constitution provides that the General Assembly
may exempt from taxation “[i]nstitutions of purely public charity.” Pa. Const. art.
VIII, § 2(a)(v). Because our Constitution does not define that term, in Hospital
Utilization Project v. Commonwealth (HUP), 487 A.2d 1306 (Pa. 1985), our
Supreme Court established a five-prong test to determine whether an institution
qualifies as a purely public charity. Commonly referred to as the HUP test, an
entity qualifies as a purely public charity under the Pennsylvania Constitution if it:

             (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

             (e) Operates entirely free from private profit motive.


Id. at 1317. The burden is on the entity seeking the tax exemption to first show
that it satisfies all five prongs of the HUP test. Pocono Community Theater v.
Monroe County Board of Assessment Appeals, 142 A.3d 110, 115 (Pa. Cmwlth.
2016). By satisfying the HUP test, the applicant demonstrates that it meets the
minimum constitutional qualifications for being an appropriate subject of a tax
exemption. City of Washington v. Board of Assessment Appeals of Washington
County, 666 A.2d 352 (Pa. Cmwlth. 1995), aff’d, 704 A.2d 120 (Pa. 1997). To
qualify for a tax exemption, the entity must then also show that it meets the
detailed statutory requirements of Section 5 of the Institutions of Purely Public
Charity Act (Act 55), Act of November 26, 1997, P.L. 508, as amended, 10 P.S. §§
371-385. If an entity does not satisfy the HUP test, there is no need to reach the
Act 55 standards. See Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of
                                          2
Assessment Appeals, 44 A.3d 3, 9 (Pa. 2012). Moreover, an organization does not
qualify as a purely public charity merely because it is a non-profit corporation, and
it is irrelevant whether the organization is recognized as a tax-exempt charity for
federal income tax purposes. Sacred Heart Healthcare System v. Commonwealth,
673 A.2d 1021 (Pa. Cmwlth. 1996).


                With this legal standard in mind, we now turn to the facts of the
present case.


                                                II.
                The Foundation is a Pennsylvania non-profit corporation which has
been granted 501(c)(3)1 tax-exempt status by the Internal Revenue Service (IRS)
and currently operates 30 senior housing units throughout the Commonwealth. At
issue here are five contiguous parcels of land in Highspire Borough, Dauphin
County (properties) upon which homes have been constructed. The Foundation
rents these properties to the disabled and senior citizens age 65 and over who are
lower income, meaning persons with incomes less than 80% of the median
household income in Dauphin County.2


                The Foundation filed real estate tax assessment appeals with the
Board for each of the properties seeking a real property tax exemption, stating the

       1
           Section 501 (c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3).

       2
          The median household income for Dauphin County is approximately $55,000;
therefore, the maximum income level for eligible seniors to rent one of the properties from the
Foundation is approximately $44,000.



                                                 3
properties were acquired as “rental dwelling[s] for qualified senior citizens in
accord with the IRS approved by-laws of the Foundation.” (Trial Court’s Op. at
1.) The Board denied the Foundation’s requests for tax-exempt status pursuant to
the Supreme Court’s decision in HUP. The Foundation appealed to the trial court,
and the Borough of Highspire (Borough) and Steelton-Highspire School District
(School District) intervened.


             John Berg (Berg), Executive Director of the Foundation, testified
before the trial court that the Foundation is recognized as an institution of purely
public charity by the Pennsylvania Department of Revenue for state tax purposes
and does not receive any government grants or loans. Berg is not paid a salary for
his services, but the Foundation does have one part-time employee – Debra
Begatto, Administrative Vice President, who handles recordkeeping and deals with
the tenants and their issues for which she receives a salary of $800 per month plus
travel expenses. The Foundation receives charitable gifts primarily from two
sources – small private donations from members of the board and more substantial
“gifts” from developers who are required to provide those gifts in consideration of
receiving construction contracts from the Foundation.


             The Foundation’s 2014 IRS Form 990, Schedule J, offered into
evidence at trial states that Berg received $11,485 in non-taxable benefits for the
year and another Trustee received $500 in other reportable compensation. The
Foundation’s 2014 IRS Form 990, Schedule L, reveals that Berg also earned a
brokerage fee of $102,000 that year.




                                         4
             The homes on each of the properties offer single-floor living with
interior garages, hallways wide enough to accommodate walkers and wheelchairs,
and space for a live-in caregiver so that seniors can “age in place.” Berg testified
that the Foundation rents these properties solely to seniors age 65 and older whose
income is less than 80% of the median household income for Dauphin County,
which the IRS deems to be “low-income.” (Reproduced Record (R.R.) at 41a-
43a.) Exceptions are made for extreme old age, meaning 80 and up, or those who
are disabled, meaning they have received a state or county-issued disability tag.


             Rent for the properties is set at $1,499 per month, which includes all
maintenance services, lawn care, snow and ice removal, and interior and exterior
repairs including the changing of filters and light bulbs. According to Berg, while
this rental amount is sufficient to pay for current mortgage and operation expenses,
it only represents 70% of the Foundation’s costs of ownership and operation
because it does not cover depreciation. Prospective tenants are not required to
make a down payment, but they must submit one month’s rent as a security deposit
and pay the first month’s rent up front. The Foundation does not take Medicaid
payments and does not provide in-home services to tenants such as nursing or
specialized care, community health screenings, counseling, meals or transportation.
Berg testified that three of the five current tenants at the properties receive monthly
subsidies between $100 and $300. These subsidies are provided solely within the
discretion of the Foundation, can be canceled or terminated at any time for any
reason or for no reason, and the written Rental/Subsidy Policies are not provided to
prospective tenants upon filling out an application. He testified that this money for
the subsidies comes from rents from other tenants. Berg further testified that the


                                          5
Foundation’s leases have senior sensitive provisions, including the ability to
terminate the lease without penalty for physical reasons or death; the option to
remain for the senior tenant’s life; and limited rent increases tied to the rate of
inflation so as to track benefit increases in Social Security. 3


              The Board then entered into evidence the entire transcript of Berg’s
deposition as taken on April 8, 2016.             Berg testified that the purpose of the
Foundation “is to provide safe, modern, affordable, and accessible housing for low
middle-income senior citizens or persons who are disabled.” (R.R. at 335a.) The
Foundation advertises through print ads and Facebook and targets its advertising to
persons of a certain age and income, meaning annual income of at least $35,000.
Berg admitted that the Foundation does not target ads to or accept applications
from very low-income individuals, as it is clear they cannot afford to pay the rent.


              In response to the introduction of the deposition, Berg testified that as
of the time of his deposition, there was no “rental policy” or standard set of criteria
listed in the Foundation’s rental application specifying the qualifications
prospective tenants needed to meet, e.g., their income level, age and disability.
Instead, Berg conducts interviews with prospective tenants to determine these
qualities and only after such determinations are made would they be provided with
rental applications.      The Foundation also runs credit reports and criminal

       3
          Berg testified that the Foundation similarly applied for tax-exempt status for its
properties located in other counties throughout the Commonwealth. As of the time of the
hearing, the Foundation’s application in Montgomery County was denied and an appeal was
pending; the application in Chester County was granted; and the application in York County had
not yet been ruled upon.



                                              6
background checks on prospective tenants. Berg admitted that the Foundation
could refuse to rent to applicants based upon ability to pay, family size or type of
disability, as the Foundation is not equipped to deal with mentally-disabled tenants.
Berg further testified that tenants would be permitted to renew their leases so long
as they were physically able to maintain the residences, but they would not be
allowed to remain or continue their leases if they could not afford to pay rent. In
contrast to his hearing testimony, Berg admitted during his deposition that the rent
charged by the Foundation covers the mortgage payments, maintenance and
upkeep of the properties.      Berg also testified that the monthly subsidies are
currently capped at $500 per tenant and are dependent upon the Foundation’s
ability to afford such subsidies.


             Gregory Bardell (Bardell), a licensed real estate broker, testified as an
expert with respect to the fair market rental of the Foundation’s properties. In
October 2015, after reviewing comparables, bank appraisals and performing his
own valuation of the properties, he testified that they were worth approximately
$205,000 each. Given all of the data and factors he considered, including the
services offered through the Foundation’s leases, the upgrades to the homes, their
location and the fact they were brand new, Bardell calculated a fair market rent of
$2,050 per month for each of the properties.


             Dr. Katherine E. Galluzzi (Dr. Galluzzi), professor and chairperson of
the Department of Geriatric Medicine at the Philadelphia College of Osteopathic
Medicine, testified as an expert on the relationship between senior well-being and
housing issues. Dr. Galluzzi testified that she visited the properties and noted the


                                          7
homes, including the kitchens and the bathrooms, were wheelchair accessible,
there were no impediments to get a wheelchair from the garage into the home, the
flooring was appropriate, and there were grab bars in the showers and near the
toilets. In her opinion, individuals who know they are going to be able to age into
their homes and who can anticipate being able to afford homes on a fixed income
are able to engage more fully in the community and have a better sense of security,
socialization and privacy. She further testified that enabling seniors to age into
their own community and remain functional in that setting as long as possible
forestalls the need for the government to expend Medicare and Medicaid dollars
for placement.


              Francis J. Lamb, a licensed CPA, testified that a replacement reserve
was necessary so that the Foundation could replace items such as rooves, furniture
and appliances, which wear out over time. After reviewing the Foundation’s
financial information, he determined that the rent collected for the properties was
not sufficient to establish a replacement reserve, i.e., depreciation, absent
charitable gifts.


              The trial court denied the requested tax exemptions. Citing to In re:
Appeal of Dunwoody Village (Dunwoody Village), 52 A.3d 408 (Pa. Cmwlth.
2012), it found that the Foundation failed to meet prongs three and four of the
HUP test. The trial court noted that the Foundation only rents to middle-income
seniors and the determination of whether to encourage a person to complete a
rental application is based solely on an interview conducted by Berg. Moreover,
the Foundation does not take Medicaid payments and its rental application does not


                                         8
indicate the income or physical capability requirements it supposedly espouses for
potential tenants. The trial court stated that this reflects screening individuals to
assess their “rentability” and suggests that the Foundation is not open to all such
situated persons.


              In addition, the trial court noted that “the government does not by
statute or otherwise have a burden to provide [housing] for middle-income seniors
or mobility-disabled persons who can afford to make the rental payments which
cover the costs of a mortgage and associated costs.” (Trial Court’s Op. at 3.) The
trial court did not address the remaining prongs of the HUP test or the Act 55
standard. This appeal followed.4


                                             III.
                                              A.
              The Foundation first argues that the trial court erred in concluding that
it does not benefit a substantial and indefinite class of persons who are legitimate
subjects of charity. The Foundation argues that low-income seniors are legitimate
subjects of charity and the uncontroverted testimony establishes that it only
charges $1,499 per month in rent, which represents 70% of its costs and
significantly less than fair market rent for the properties, and that it provides
subsidies to 60% of its tenants in Dauphin County. The Foundation notes that the
trial court incorrectly refers to “middle-income” seniors when the record

       4
         Our review in a real estate tax assessment appeal is limited to determining whether the
trial court abused its discretion or committed an error of law, and whether the trial court’s
findings are supported by substantial evidence. Pocono Community Theater, 142 A.3d at 114
n.2.


                                               9
establishes that it only rents to “low-income” seniors, as defined by the IRS. The
Foundation further argues that the mere fact that it screens or assesses prospective
tenants demonstrates an attempt to operate efficiently and does not, by itself,
disqualify the Foundation from being considered a purely public charity.
Moreover, the Foundation argues that the trial court’s reliance upon Dunwoody
Village is misplaced because the Foundation does not provide housing to wealthy
seniors, does not charge a hefty entrance fee, and its monthly rental fees are
significantly lower than those charged in Dunwoody Village.


             The Foundation argues that our courts have recognized that senior
citizens may be appropriate objects of charity due to financial need or the
emotional, social and physical challenges which increase with age. Grace Center
Community Living Corp. v. County of Indiana, 796 A.2d 1008 (Pa. Cmwlth. 2002);
see also Presbyterian Homes Tax Exemption Case, 236 A.2d 776, 779 (Pa. 1968).
However, the Foundation “cherry picks” certain facts from the record and ignores
the other half of this prong of the HUP test – it must benefit a substantial and
indefinite class of persons. As our Supreme Court has held, an essential feature of
a public charity “is that it is not confined to privileged individuals, but is open to
the indefinite public. It is this indefinite or unrestricted quality that gives it its
public character.” Unionville-Chadds Ford School District v. Chester County
Board of Assessment Appeals (Unionville), 714 A.2d 397, 401 (Pa. 1998).


             As the trial court points out, Berg and the Foundation screen
applicants and admittedly may turn down potential tenants due to inability to pay,
the size of their family or the nature of their disability. Berg admitted during his


                                         10
deposition that tenants are not permitted to remain if they are physically unable to
maintain the property or are unable to pay. While there is testimony indicating that
the Foundation charges less than the fair market rent for these properties, Berg also
admitted during his deposition that the rent the Foundation does collect covers its
mortgages and maintenance costs. Moreover, the Foundation admittedly targets its
advertising to potential tenants with a minimum threshold income level, and the
limited subsidies it provides can be canceled or terminated at any time, for any
reason or no reason. Importantly, the Foundation does not accept Medicaid or
government grants and subsidies, nor does it provide in-home services to its
tenants to address any emotional, social or physical challenges they may encounter
due to their age. As the trial court noted, these facts suggest that the Foundation
screens individuals to assess their “rentability” – the probability that prospective
tenants will be able to afford the rent and not do damage to the properties. All of
these facts support the trial court’s finding that the Foundation does not benefit a
substantial and indefinite class of persons such as the elderly or all disabled
individuals, but only those who can afford to make rental payments that cover the
property’s mortgage and associated costs.


                                         B.
             As for the fourth prong of the HUP test, the Foundation argues that
the trial court erred in determining that it does not relieve the government of a
portion of its burden because it is not carrying out an enumerated constitutional or
statutory duty.   The Foundation also argues that the trial court ignored Dr.
Galluzzi’s testimony that the Foundation serves low-income senior citizens and the
disabled by providing them with unmet housing needs and that allowing seniors to


                                         11
age-in-place avoids or delays admission into nursing homes and assisted-living
facilities. The Foundation points to Dauphin County’s Redevelopment Authority
and a U.S. Government Accountability Office Report it submitted to the trial court
as support for the proposition that providing housing for low-income senior
citizens is a recognized governmental policy and function.


             In Unionville, 714 A.2d at 401, our Supreme Court did hold that to
meet the fourth prong of the HUP test, an entity does not have to show that the
burden relieved is either constitutionally or statutorily imposed. However, that
does not end our inquiry.

             The HUP test of whether an institution has relieved the
             government of some of its burden does not require a
             finding that the institution has fully funded the care of
             some people who would otherwise be fully funded by the
             government. The test is whether the institution bears a
             substantial burden that would otherwise fall to the
             government.


Dunwoody Village, 52 A.3d at 421 (quoting St. Margaret Seneca Place v. Board of
Property Assessment, Appeals and Review, 640 A.2d 380, 385 (Pa. 1994)).


             Here, the Foundation does not accept Medicaid or any other
government payments or subsidies on behalf of its tenants. It also does not provide
skilled nursing or specialized care to its tenants, or any other services such as
health screenings, counseling, meals or transportation.      The only services the
Foundation provides are general maintenance functions frequently provided by
landlords, (i.e., lawn care, snow and ice removal, and interior and exterior repairs)

                                         12
which would not otherwise fall upon the government. Importantly, there is no
evidence of record that the tenants would otherwise require government housing
assistance or be placed in nursing or assisted-living facilities but for the
Foundation.    Dr. Galluzzi’s testimony regarding tendencies of the elderly, in
general, is not enough to satisfy this burden.


              Overall, this case is akin to National Church Residences of Mercer
County v. Mercer County Board of Assessment Appeals (Mercer), 925 A.2d 220
(Pa. Cmwlth. 2007), which involved a 40-unit apartment building that provided
housing to low-income, elderly individuals. Just like the Foundation, Mercer did
not provide its tenants with the benefit of any in-home services. Relying upon our
Supreme Court’s decision in Metropolitan Pittsburgh Nonprofit Housing
Corporation v. Board of Property Assessment, Appeals and Review, 391 A.2d 1059
(Pa. 1978), we held that Mercer did not relieve the government of some of its
burden by providing low-cost housing for the elderly with limited incomes. As
such, here we discern no error or abuse of discretion in the trial court’s
determination that the Foundation failed to establish by credible evidence that it
meets the fourth prong of the HUP test.


              Accordingly, the order of the trial court is affirmed.



                                        ________________________________
                                        DAN PELLEGRINI, Senior Judge




                                          13
            IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Foundation for Eldercare,                :
                            Appellant    :
                                         :
             v.                          : No. 982 C.D. 2017
                                         :
Dauphin County Board of Tax              :
Assessment Appeals, Borough of           :
Highspire and Steelton-Highspire         :
School District                          :




                                        ORDER


             AND NOW, this 8th day of May, 2018, the order of the Court of
Common Pleas of Dauphin County in the above-captioned matter is hereby
affirmed.



                                         ________________________________
                                         DAN PELLEGRINI, Senior Judge
