           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indiana University of                         :
Pennsylvania,                                 :
                   Appellant                  :
                                              :
              v.                              :
                                              :
Indiana County Board                          :
of Assessment Appeals,                        :
Indiana Area School District,                 :    No. 1923 C.D. 2014
and Indiana County                            :    Argued: June 18, 2015

BEFORE:       HONORABLE DAN PELLEGRINI, President Judge
              HONORABLE BERNARD L. McGINLEY, Judge (P.)
              HONORABLE P. KEVIN BROBSON, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE McGINLEY                                  FILED: September 17, 2015
              Indiana University of Pennsylvania (Appellant) appeals from the Final
Order of the Court of Common Pleas of Indiana County (Trial Court) that affirmed
the determination of the Indiana County Board of Assessment Appeals (Board) and
overruled the appeal of the Appellant as to the taxability of certain portions of the
Robertshaw Property.1 For the following reasons, this Court affirms.


              The Robertshaw Property was deeded to the Pennsylvania State
System of Higher Education (PASSHE), for the use of Appellant by the
Robertshaw Controls Company in 1984. Deed to the Robertshaw Property at 1;
Reproduced Record (R.R.) at 018a. Appellant is a subsidiary of PASSHE pursuant

1
 The Robertshaw Property consists of 22.93 acres of land located in White Township, Indiana
County, Pennsylvania with a building on the property located at 650 South 13th Street, Indiana,
Pennsylvania 15705.
to Section 2002-A of the Public School of 1949 (Code).2 Appellant has operated
the Indiana County Small Business Incubator (Incubator) at that location since
1986. Appellant also uses the space at the Robertshaw Property for administrative
offices and classrooms. The Robertshaw Property was originally classified as tax
exempt under the Keystone Opportunity Enterprise Zone. The Keystone
Opportunity Enterprise Zone expired in 2011.


              In July 2010, the Board sent notice to Appellant that the Robertshaw
Property would no longer be classified as tax exempt beginning in 2011. In March
of 2011, Appellant received a real estate tax notice from the Board demanding
taxes in the amount of $30,206.15 based on an assessed value of $992,970.22.


              Appellant filed for declaratory relief in this Court’s original
jurisdiction and requested this Court to declare that the Appellant was the
“sovereign Commonwealth” and its property immune from taxation. Pennsylvania
State System of Higher Education v. Indiana Area School District (Pa. Cmwlth.,
No. 184 M.D. 2011, filed April 5, 2012), aff’d, 69 A.3d 236 (Pa. 2013) (IUP Slip
Opinion I).


              This Court found:

              [Appellant] is ‘part of the Commonwealth’s system of
              higher education.’ It serves and carries out a particular
              function for the Commonwealth, as opposed to being the
              Commonwealth. Therefore, for tax immunity purposes,
2
 Act of March 10, 1949, P.L. 30, 24 P.S. § 20-2002-A as amended. Section 2002-A of the Code
was added by the Act of November 12, 1989, P.L. 660.



                                            2
              [Appellant] is not the equivalent to the sovereign
              Commonwealth. Property owned by [Appellant] is not
              owned outright by the Commonwealth, and it is not
              entitled to absolute, unqualified real estate tax immunity.
              (Citation and footnote omitted, emphasis in the original.)

              Based on the statutory characteristics of [Appellant],
              [Appellant] 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 [Appellant] acquired or used the
              [Robertshaw]      Property    outside     its   authorized
              governmental functions.
              ….
              To the extent that the [Robertshaw] 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 [Robertshaw] 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 [Appellant’s] governmental purpose which is
              the provision of education. (Emphasis in the original.)
IUP I Slip Opinion at 10-15; R.R. at 350a-355a.


              This Court granted the Board’s Application for Summary Relief3 and
denied the Appellant’s Petition for Review in the Nature of Declaratory Judgment.
IUP I Slip Opinion at 16; R.R. at 356a. An evidentiary hearing was held before the
Board, and it determined the Incubator portion of the property was taxable. That
determination was appealed to the Trial Court.

3
  The Board, Indiana Area School District, and the County of Indiana, filed for Summary Relief
and requested that the Board hold an evidentiary hearing on whether the Appellant was leasing
portions of the Robertshaw Property to third party commercial entities in exchange for rental
income. IUP I Slip Opinion at 15; R.R. at 355a.



                                              3
             A hearing was held on June 4, 2014, at which time the Board
presented Frank Sisko (Sisko), the Chief Tax Assessor of Indiana County as a
witness. Hearing Transcript, (H.T.) June 4, 2014, at 12; R.R. at 483a. Sisko
described how the Board arrived at the tax assessed on the Robertshaw Property:
“The assessed value was arrived based on the square footage provided at the
hearing of 27,946. That figure was multiplied by a rate per square foot based on
the last reassessment, our appraising manual, and then different factors for
depreciation and such were given to arrive at the [$]61,210.” H.T. at 14; R.R. at
485a. This figure was based on the portion of the Robertshaw Property used for
the Incubator. H.T. at 18; R.R. at 489a.


             Appellant presented Dr. Robert Boldin (Dr. Boldin) as a witness.
H.T. at 19; R.R. at 490a. Dr. Boldin is a professor of finance at Appellant, and
oversees the Incubator. H.T. at 20; R.R. at 491a. Dr. Boldin testified that the
Incubator is “part of an umbrella operation of management services group which is
… under the Eberly College of Business and Technology.” H.T. at 23; R.R. at
494a. Students are eligible to intern and otherwise work with the businesses in the
Incubator: “Periodically the tenants will ask if there are any students that might be
available either as an internship or just a straight working … for their company.”
H.T. at 23-24; R.R. at 494a-495a. However, only “four or five” students per year
perform services for those businesses leasing space from the Incubator. H.T. at 30;
R.R. at 501a. Some professors do, however, incorporate Incubator activities into
their classes and Dr. Boldin explained that:

             A number of companies that have been in the [I]ncubator
             have been studied, if you will, by Dr. [Stephen]
             Osbourne’s students and typically what happens is if a


                                           4
             company needs a marketing study … or an accounting
             system needs to be put in, he will then put together a
             team of … five or six students. And he runs that as a
             course so throughout the semester they will be working
             on that particular project…
H.T. at 27; R.R. 498a.


             Appellant presented Susanna Sink (Sink) as a witness. H.T. at 37;
R.R. at 508a. Sink is the associate vice president of finance at Appellant and
serves as treasurer and controller. H.T. at 38; R.R. at 509a. Sink testified that
Appellant has to prepare information about capital assets “as part of what we call
the FIN report which is a huge template that [PASSHE] asks us to complete…
when we send those reports to [PASSHE] they [sic] combine all 14, the institutions
as well as the office of the Chancellor, and then they [sic] are required to report
that direct to the State.” H.T. at 39-40; R.R. at 510a-511a. Sink also testified that
PASSHE is included as a discretely presented component unit in the
Commonwealth’s Comprehensive Annual Financial Report. H.T. at 44; R.R. at
515a. “Discretely presented component units can be other organizations of which
the nature and significance of their relationship with the primary government is
such that the exclusion of these organizations from the primary government’s
financial statements would be misleading.” H.T. at 43; R.R. at 514a. Counsel for
Appellant stated that the purpose of presenting this evidence was to show that
Appellant was so closely related to the Commonwealth that Appellant must be
treated as an extension of the Commonwealth government. H.T. at 45-46; R.R. at
516a-517a.




                                         5
            Last, Appellant presented Dr. Cornelius Wooten (Dr. Wooten) as a
witness.   H.T. at 49; R.R. at 520a.         Dr. Wooten is the vice president of
administration and finance at Appellant. H.T. at 50; R.R. at 521a. Dr. Wooten
testified that the Robertshaw Property “has three distinct spaces.” H.T. at 50; R.R.
at 521a. There is “an educational space area, an administrative space and of course
the [I]ncubator space.” H.T. at 50-51; R.R. at 521a-522a. Dr. Wooten agreed with
Appellant’s counsel that Appellant received $90,000 in rental income from the
Incubator, but invested about $310,000 of its money into operating the Incubator.
H.T. at 54; R.R. at 525a. “We don’t use the term ‘profit’. We are in fact a non-
profit organization…[w]e are not in the process of making a profit. We are in
the business of providing instructional services and to provide economic
development….” (Emphasis added.) H.T. at 53; R.R. at 524a.


            The Trial Court found:

            The issue remaining for this Court to decide is whether
            portions of the property were in fact leased to third
            parties for rental income. Testimony from each party
            indicated that this is the case. While [Appellant]
            maintains that service to the community and promoting
            economic development are among the purposes of the
            Incubator, it does not negate the fact that space within the
            Robertshaw [P]roperty is leased to third parties not
            affiliated with IUP.
Opinion and Order of the Trial Court, September 23, 2014, at 3-4; R.R. at 586a-
587a.


            The Trial Court dismissed Appellant’s appeal, and affirmed the
Board’s decision. Appellant appeals that Order to this Court.


                                         6
              Appellant presents two issues on appeal.4 The first issue is whether
the Incubator property is immune from taxation, and the second is whether there is
an exemption from taxation that would apply to the Incubator.


         I. Whether the Robertshaw Property is Immune from Taxation
              The last time this Court reviewed this controversy, this Court held that
Appellant was an agency or instrumentality of the Commonwealth, and was not the
government of the Commonwealth proper. IUP I Slip Opinion at 10-11; R.R. at
350a-351a. Property owned by Commonwealth agencies or instrumentalities may
be taxed when that property is not used or acquired for an authorized purpose.
Southeastern Pennsylvania Transportation Authority (SEPTA) v. Board of
Revision of Taxes, 833 A.2d 710 (Pa. 2003).


              In SEPTA, SEPTA acquired an office building in downtown
Philadelphia to use as its new headquarters. Id. at 711. There was more space in
the building than what was needed for offices, so SEPTA leased the extra space to
private businesses, government agencies, and non-profit organizations in order to
raise additional revenue.       Id.    SEPTA’s main mission is to provide public
transportation in southeastern Pennsylvania. Id. at 716. Even though SEPTA is
authorized under 74 Pa. C.S. § 1741(a)(12) to acquire and dispose of property and
authorized under 74 Pa. C.S. § 1741(a)(24) to lease property to third parties in
order to raise additional revenue, these activities do not directly involve operating


4
  In tax assessment cases, this Court considers whether the trial court abused its discretion,
committed an error of law, or reached a decision not supported by substantial evidence.
Downingtown v. Chester County Board of Assessment Appeals, 913 A.2d 194, 198 (Pa. 2006).



                                              7
a public transportation system in southeastern Pennsylvania.            Id. at 716-717.
Because the landlord activities were not directly linked to SEPTA’s purpose, the
Pennsylvania Supreme Court held that the real estate used in the landlord activity
fell outside the scope of governmental immunity and was subject to local property
taxes. Id. at 717.


                 Like SEPTA, Appellant is a Commonwealth agency.            IUP I Slip
Opinion at 10-11; R.R. at 350a-351a. Commonwealth agencies have immunity
from taxation, but only when the agency has acted within the scope of its
authorization and within the purpose of its operation. SEPTA, 833 A.2d at 715.
Appellant is authorized to act as a landlord under Section 2003-A(b)(3) of the
Code5, 24 P.S. § 20-2003-A(b)(3), to lease as lessor real property. The first part of
the immunity test is satisfied. The purpose of Appellant 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.” 24 P.S. § 20-2003-A(a). Operating a small business incubator is not
necessarily incompatible with educating undergraduate and graduate students, but
this Court must examine whether the Incubator was used to further that purpose.


                 Dr. Boldin testified “approximately four or five” students per year
perform services for the business leasing space from the Incubator. H.T. at 30;
R.R. at 501a. The opportunity to work with the businesses at the Incubator is open
to all students and not restricted to business students. H.T. at 35; R.R. at 506a.
There is no requirement that a lessee of the Incubator space is a student or a former

5
    This Section was added by the Act of November 12, 1982, P.L. 660.



                                                8
student of the Appellant and current or former students renting space at the
Incubator did not happen very often. H.T. at 31-32; R.R. at 502a-503a.


             While Appellant is authorized to lease real estate to third parties under
Section 2003-A(b)(3) of the Code, 24 P.S. § 20-2003-A(b)(3), this activity does
not directly advance the main purpose of Appellant to provide undergraduate and
graduate education under Section 2003-A(a) of the Code, 24 P.S. § 20-2003-A(a).
As explained hereafter, the portion of the Robertshaw Property leased for the
Incubator is taxable under the current, valid, legal analysis.


             However, Appellant asserts that the law has recently changed
regarding the taxability of property owned by Commonwealth agencies pursuant to
City of Philadelphia v. Cumberland County Board of Assessment Appeals, 81
A.3d 24 (Pa. 2013) and Reading Housing Authority v. Board of Assessment
Appeals of Berks County, 103 A.3d 869 (Pa. Cmwlth. 2014).


             City of Philadelphia involved a unique, one of a kind fact pattern. It
concerned a nearly two-hundred year old charitable trust (Girard Trust) created by
Stephen Girard in his will in 1830 and administered by a quasi-governmental entity
as a trustee for almost two-hundred years. City of Philadelphia, 81 A.3d at 25-29.
At the time the Girard Trust was created, there was no legal framework that
authorized the City of Philadelphia and the Commonwealth to carry out the terms
of the trust. Special legislation was enacted as a result. Id. at 30. The trustee
functions were delegated to an agency created by the General Assembly known as
the Board of City Trusts in 1869. Id. at 33. The Board of City Trusts acquired



                                           9
property in Cumberland County in 2001 and rented part of it to the Office of
Attorney General. Id. at 41. The Board of Assessment Appeals determined the
property which was rented to the Office of Attorney General was taxable. Id. The
Board of City Trusts appealed to the Cumberland County Court of Common Pleas.
City of Philadelphia, 81 A.3d at 41. The Cumberland County Court of Common
Pleas found the Girard Trust and the Board of City Trusts to be Commonwealth
agencies and the rental of property to the Office of Attorney General was a valid
public use of the property and not taxable. Id. at 41-42. Cumberland County
appealed the ruling to this Court, and this Court held that the Board of City Trusts
was not a Commonwealth agency because there was no connection between the
Board of City Trusts and the operations of government other than the Board of
City Trusts was created by an act of the General Assembly. Id. at 42-43.


            Our Pennsylvania Supreme Court has reviewed the prior case law
regarding Commonwealth agencies and immunity from local real estate taxes. Id.
at 50-52. Appellant contends the Pennsylvania Supreme Court overruled SEPTA.
This Court disagrees. In City of Philadelphia, our Supreme Court noted:

            [T]he Court determined that even if an entity is clearly a
            governmental agency or instrumentality, it may not
            automatically claim immunity from local real estate
            taxation for property leased to third-party commercial
            entities. The Court noted that SEPTA is part of the
            Commonwealth sovereign and entitled to presumed
            immunity; its enabling legislation also authorizes it to
            lease real estate in order to raise revenue and reduce
            expenses. Nevertheless, to the extent that SEPTA was
            acting as a ‘commercial landlord’ at its headquarters
            building in Philadelphia, the Court held that leasing real
            estate to commercial tenants who were not part of or
            associated with SEPTA, ‘solely to raise revenue,’ was


                                        10
              outside the scope of SEPTA’S immunity because the
              activity was not sufficiently connected to SEPTA’S
              stated purpose of providing a metropolitan public
              transportation system. Although the lease arrangements
              raised revenue and lessened public funding, they were
              still commercial ventures not eligible for immunity: ‘In
              that respect, SEPTA is like any other commercial
              landlord with which it competes as a landlord.
City of Philadelphia, 81 A.3d at 51 (citation omitted and emphasis added).


              Nowhere in that discussion or in the rest of the case does the
Pennsylvania Supreme Court comment regarding whether SEPTA is no longer
valid case law. SEPTA is relevant case law to describe the landscape of that
particular area of law.6        Further, the concurring opinion stated SEPTA was
applicable law and argued that the fact pattern in City of Philadelphia was similar
to SEPTA. City of Philadelphia, 81 A.3d at 56 (Saylor, J., concurring). The
Pennsylvania Supreme Court found the charitable trust was immune from local real
estate taxation:

              In this historical and legal landscape, it would seem to be
              a fool’s errand to attempt to determine whether the
              Girard entities comprise a Commonwealth agency in the

6
  Appellant also points to the discussion of Pennsylvania State University v. Derry Township
School District, 731 A.2d 1272 (Pa. 1999), for the proposition that the “pivotal factor should be
whether the institution’s real property is so thoroughly under the control of the Commonwealth
that, effectively the institution’s property functions as Commonwealth property.” Id. at 1274.
The analysis used in Pennsylvania State University was applied to determine whether an entity is
a Commonwealth agency, not whether an entity is immune from local real estate taxation. In
that case, the Pennsylvania Supreme Court found the Pennsylvania State University was not a
Commonwealth agency and not immune from local real estate taxation. Id. at 1274-1275.
However, it does not follow that if an entity is determined to be a Commonwealth agency, then it
has unqualified immunity from local taxation. See [SEPTA] v. Board of Revision of Taxes, 833
A.2d 710 (Pa. 2003); Delaware County Solid Waste Authority v. Berks County Board of
Assessment Appeals, 626 A.2d 528 (Pa. 1993).



                                               11
             modern sense by squeezing a sui generis creature of the
             nineteenth century – when the Commonwealth itself was
             in its infancy – into a twentieth century (and largely late
             twentieth century, at that) decisional paradigm deriving
             from disputes concerning waste disposal sites, airports,
             and evolving land grant universities.… [T]he historical
             status of the Girard entities properly gives us pause
             before stepping in, as a judicial matter, and rendering a
             decision that may well upset reliance interests and cause
             severe economic dislocation.
             ….
             [G]iven the General Assembly’s historical interest in, and
             concern with the Girard Entities, we believe it better that
             that policy determination be considered and decisively
             rendered by that body, rather than by a Court attempting
             to apply new doctrines to old, and rather unique,
             relationships.

             We conclude, therefore, that the Trust, College, and
             Board of the City Trusts and, by extension, the real estate
             holdings of the Girard Trust, retain immunity from local
             property taxation as, collectively, part of the sovereignty
             of the Commonwealth of Pennsylvania.
 City of Philadelphia, 81 A.3d at 54-55.


             Unlike the trust in City of Philadelphia, Appellant is a subsidiary of
PASSHE, which is explicitly named as a “government instrumentality” in Section
2002-A(a) of the Code, 24 P.S. § 20-2002-A(a). As cited, Section 2002-A(a) was
enacted in 1982. PASSHE and Appellant are instrumentalities of the
Commonwealth, and were designated as such during the late twentieth century
when the case law concerning this particular issue was established. SEPTA is still
applicable law for this type of fact pattern.


             Reading Housing Authority concerned the renting of mixed-use
apartments by the Reading Housing Authority (Authority) where eighty percent of

                                          12
the units were priced at the market rate, and twenty percent of the units were set
aside for low-income renters. Reading Housing Authority, 103 A.3d at 870-871.
The Board of Assessment Appeals of Berks County attempted to tax the eighty
percent portion of the rental properties that were priced at the market rate. Id. at
871-872. The main purpose of the Authority was to provide “subsidized housing
to individuals of modest or low income”. Id. at 873. This Court found the
Authority was acting in the scope of its authority and the mixed-use apartments
furthered its purpose even though not all of the units were rented to low-income
renters. Id. at 873-875. The Authority was authorized by statute to create and lease
mixed-use projects. Id. at 874. Evidence was submitted that it is bad public policy
to concentrate low-income renters into one area and mixed-use projects are a better
method of carrying out the Authority’s purpose. Id. This Court also noted that the
market rate and the subsidized apartments constitute an integrated whole as they
are both necessary for the success of the mixed-use project because the market rate
units provide the support for the subsidized units. Reading Housing Authority, 103
A.3d at 875.


               Reading Housing Authority is distinguishable from the present
controversy. Appellant is authorized to lease office space to third parties, but those
leases do not further Appellant’s purpose of educating undergraduate and graduate
students. The Incubator also does not form an “integrated whole” with the rest of
Appellant as Appellant may carry on its educational mission without the Incubator.
Whether Appellant spent more money operating the Incubator than the Appellant
received in rental income is not convincing.




                                         13
               Contrary to Appellant’s assertions, the law regarding governmental
immunity from local real estate taxation did not change with City of Philadelphia
and Reading Housing Authority. SEPTA is applicable to this controversy and
while we agree Appellant acted within its statutory authorization, its actions did
not promote the purpose of providing undergraduate and graduate education. The
portion of the Robertshaw Property, the Incubator, which was leased to third
parties in exchange for rental income is not immune from local real estate
taxation.7


         II. Whether the Robertshaw Property is Exempt from Taxation
               Appellant contends that if this Court finds that immunity does not
apply to the Robertshaw Property, it should still not be taxed because the Incubator
conforms to a public purpose or is otherwise exempt from local taxation.
Appellant points to 53 Pa. C.S. § 8812(a)(3) and 53 Pa. C.S. § 8812(a)(8) of the
Consolidated County Assessment Law (Law).


               An entitlement to a tax exemption should be strictly interpreted
against the taxpayer. In re Appeal of Pennsylvania Easter Seal Society from Real
Estate Taxation Assessment, 445 A.2d 1369, 1370 (Pa. Cmwlth. 1981) citing
Board of Revision of Taxes of Philadelphia v. United Fund of Philadelphia, 314
A.2d 530 (Pa. Cmwlth. 1973).




7
  Certainly the number of students employed and trained by the business tenants is relevant to the
issue of taxation. But evidence as to the benefit to the Appellant and its students was de minimis
on this record.



                                               14
            53 Pa. C.S. § 8812(a)(3) of the Law provides: “All hospitals,
universities… endowed and maintained by public or private charity as long as all
the following apply…The property of purely public charities is necessary to and
actually used for the principal purposes of the institution and not used in such a
manner as to compete with commercial enterprise.”           (Both bold and italics
emphasis added.) It was established in IUP I Slip Opinion that Appellant is a
Commonwealth agency. It is not a public or private charity. For the sake of
argument, even if Appellant was a private or public charity, the leasing of
Incubator space to third party commercial enterprises did not further the “principal
purpose of the institution”, which is education.       Additionally, the Incubator
property was used in a way “as to compete with commercial enterprise.”


            On cross examination, Dr. Boldin testified:

            Q. [Michael Clark, Counsel for Indiana County] You
            would agree there [are] a lot of commercial buildings
            here in Indiana that lease space to tenants?

            A. [Dr. Boldin] Sure.

            Q. And those tenants could be starting up businesses?

            A. They could.

            Q. And would you agree that those commercial landlords
            compete with [Appellant] in leasing space for
            businesses?

            A. Well, our emphasis is on new business start up[s]
            primarily.

            Q. But—

            A. Or developing businesses.


                                        15
              Q. But would you agree that there are commercial
              landlords who have start up new businesses in their
              buildings?

              A. I suppose.

              Q. And they compete with [Appellant] in leasing space?

              A. Probably.
H.T. at 34; R.R. at 505a.


              The exemption in 53 Pa. C.S. § 8812(a)(3) of the Law does not apply
to Appellant here because Appellant is not a public or private charity, the Incubator
is not part of the principal purpose of the Appellant, and the Incubator is used in a
way in which it competes with commercial landlords.


              53 Pa. C.S. § 8812(a)(8) of the Law exempts from local taxation “[a]ll
other public property used for public purposes…” In this controversy, the trial
court determined that Appellant leased space in the Incubator to entities not
affiliated with Appellant in exchange for rental income. Trial Court Opinion at 3-
4; R.R. at 586a-587a. For the purposes of exemption from taxation as a public use,
the test is whether the property has been leased for a public or private purpose.
Appeal of the Municipal Authority of Borough of West View, 113 A.2d 307, 309
(Pa. 1953).


              The general rule is when a governmental entity leases property for a
private or commercial purpose, that lease does not count as a “public purpose”, and
that property will not be exempt from taxation. Id. at 310. Since it has been
determined that portions of the Robertshaw Property have been leased to non-


                                         16
governmental third party entities in exchange for rental income, the public use
exemption of 53 Pa. C.S. § 8812(a)(8) of the Law does not apply to the Incubator
portions of the Robertshaw Property.


            Accordingly, this Court affirms.



                                       ____________________________
                                        BERNARD L. McGINLEY, Judge




                                         17
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indiana University of                  :
Pennsylvania,                          :
                   Appellant           :
                                       :
            v.                         :
                                       :
Indiana County Board                   :
of Assessment Appeals,                 :
Indiana Area School District,          :   No. 1923 C.D. 2014
and Indiana County                     :


                                  ORDER

            AND NOW, this 17th day of September, 2015, the Order of the Court
of Common Pleas of Indiana County in the above-captioned matter is affirmed.




                                       ____________________________
                                       BERNARD L. McGINLEY, Judge
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Indiana University of                   :
Pennsylvania,                           :
                         Appellant      :
                                        :
            v.                          :   No. 1923 C.D. 2014
                                        :   Argued: June 18, 2015
Indiana County Board                    :
of Assessment Appeals,                  :
Indiana Area School District,           :
and Indiana County                      :


BEFORE: HONORABLE DAN PELLEGRINI, President Judge
        HONORABLE BERNARD L. McGINLEY, Judge (P.)
        HONORABLE P. KEVIN BROBSON, Judge


OPINION NOT REPORTED

DISSENTING OPINION
BY JUDGE BROBSON                                    FILED: September 17, 2015



            I agree with the majority that the Pennsylvania State System of Higher
Education (PASSHE), which owns the Robertshaw Property, is an instrumentality
of the Commonwealth. See Pa. State Univ. v. Derry Twp. Sch. Dist., 731 A.2d
1272 (Pa. 1999) (comparing and contrasting PASSHE, a Commonwealth
instrumentality and thus immune from taxation, with Pennsylvania State
University). Real property of PASSHE is, therefore, “presumed to be immune,
with the burden on the local taxing body to demonstrate taxability.” City of Phila.
v. Cumberland Cnty. Bd. of Assessment Appeals, 81 A.3d 24, 50 (Pa. 2013)
(Girard Trust). Whereas, however, the majority concludes that the operation of the
Indiana County Small Business Incubator (Incubator) within the Robertshaw
Property, which provides students with real-world work experience and supports
new and emerging businesses, falls outside of the scope of PASSHE’s authorized
purposes and, thus, outside of the scope of its immunity, I would conclude
otherwise. I, therefore, respectfully dissent.
             The    only   similarities    between   this   case    and   Southeastern
Pennsylvania Transportation Authority v. Board of Revision of Taxes, 833 A.2d
710, 711 (Pa. 2003) (SEPTA), is that both cases involve an instrumentality of the
Commonwealth leasing a portion of its property to a third-party tenant. This act,
however, does not ipso facto take the leased premises outside of the scope of the
instrumentality’s immunity from taxation. To the contrary, the Supreme Court of
Pennsylvania in SEPTA found that a metropolitan transportation authority acted
outside its authorized governmental purposes because it (a) leased its otherwise
exempt property to a commercial tenant whose activities were entirely unrelated to
the transportation authority’s activities; and (b) for the sole purpose of generating
revenue and reducing costs. In this regard, it acted no differently than any other
commercial landlord and thus acted outside of its authorized purposes and, thus,
outside of the scope of its immunity. SEPTA, 833 A.2d at 716-17. As then-Justice
(now Chief Justice) Saylor observed in his concurring opinion in Girard Trust,
“the immunity . . . question hinges on whether the agency, in . . . . renting out the
property, is acting within or outside of its own authorized purposes.” Girard Trust,
81 A.3d at 56 (Saylor, J., concurring).
             On the issue of tax immunity, all doubts are to be resolved in favor of
the taxpayer, and, as noted above, it is the taxing authority’s burden to establish
that the property in question is not immune from taxation.         Lehigh-Northampton
Airport Auth. v. Lehigh Cnty. Bd. of Assessment Appeals, 889 A.2d 1168, 1175-76


                                          PKB-2
(Pa. 2005). The evidence before the trial court consisted of a joint exhibit book,
admitted by stipulation of the parties. (Reproduced Record (R.R.) 477a.) The only
other exhibit offered by the taxing authorities in this case was the county tax
assessment card for the Robertshaw Property. The taxing authorities called only
one witness—Frank Sisko, the Chief Assessor for Indiana County. Mr. Sisko
testified as to the assessed value of the portion of the Robertshaw Property that the
County deemed to be taxable, that being the Incubator space. (R.R. 484a-85a.)
Mr. Sisko also testified about the “license agreements” that PASSHE executes with
its Incubator tenants. Mr. Sisko testified that the County used the square footage
set forth in the license agreements to arrive at the amount of taxable space in the
Robertshaw Property. (R.R. 487a.)
             Appellant was the only party to the appeal before the trial court that
offered testimony about the Incubator’s operations.          Its first witness was
Dr. Robert J. Boldin, a professor of finance at Indiana University of Pennsylvania
(IUP), a PASSHE institution.      Dr. Boldin has overseen the Incubator in the
Robertshaw Property since 1997, spending approximately 25% of his work-related
time in the Incubator. (R.R. 491a.) Dr. Boldin testified that the Incubator looks to
attract small, start-up companies as tenants: “[T]he key here is that we want to
look at those companies that have the potential for growth and that will actually
begin to hire employees because economic development is really the critical factor
for the [I]ncubator to be in operation.”       (R.R. 493a-94a.)    Unlike a typical
commercial landlord, one of the goals of the Incubator is to actually see tenants
leave, or “graduate,” from the Incubator. (R.R. 495a-96a, 499a.)
             According to Dr. Boldin, the “focus of the [I]ncubator is to provide
the service to the community which is one of the three pillars of the University’s


                                       PKB-3
function[:] teaching, scholarly research and community service.” (R.R. 494a.)
The Incubator also creates opportunities for student employment and internships,
as well as opportunities for IUP students to provide value-added services, such as
web site development. In this way, the Incubator provides opportunities for all
IUP students, not just business students. (R.R. 495a.) During the 2013-2014
academic year, Dr. Boldin estimated that four or five, maybe more, students
provided services to Incubator tenants. (R.R. 501a.) Although tenants in the
Incubator are not required to use the offered services, Dr. Boldin testified that he
asks all new tenants to reach out to the Director of the Small Business
Development Center for assistance. (Id.)
             Dr. Boldin also testified about the IUP Management Services Group,
which oversees the Incubator as part of the Eberly College of Business and
Information Technology at IUP (College of Business).             (R.R. 494a.)   The
Management Services Group provides services to Incubator tenants, including
assistance with government contracting and other services, such as marketing
studies and implementation of accounting systems. (R.R. 498a.) The Management
Services Group also prepared a study about the economic impact of the Incubator
to Indiana County over two decades—from 1990 to 2010. The study reported a
conservative estimate of economic benefit to Indiana County from the Incubator
over this period at over a billion dollars. (R.R. 499a-500a.)
             Appellant also called Dr. Cornelius Wooten, IUP’s Vice President for
Finance and Administration, to testify about the Incubator.         He offered the
following:
             IUP like all educational institutions, we are a three prong
             mission. That will be teaching, scholarship or research
             and service. So those three, these are the three missions
             of IUP like most higher education institutions, be
                                       PKB-4
            teaching, research and service. Now, as it relates to the
            [I]ncubator of what you have heard about the, Dr. Boldin
            described how the [I]ncubator fit within the Eberly
            College of Business and also the report of the
            management services. We feel very strongly that as part
            of the IUP mission, the mission of instruction, the
            mission of service, both of those go hand in hand in
            terms of promoting one of the important aspects here in
            this Commonwealth of Pennsylvania of economic
            development. We feel very strongly that IUP has a
            responsibility to promote economic development. And at
            the end of the day, everything we do as it relates to
            students, whether we are talking about the teaching
            component or the service component, it all fits in and
            compliments each other. So ultimately, we are there to
            provide students [the opportunity] upon graduation to be
            productive citizens so that they can in fact hopefully stay
            within the Commonwealth of Pennsylvania to promote
            economic development. So economic development is in
            fact what the [I]ncubator is all about.
(R.R. 522a-23a.) Dr. Wooten rejected the suggestion that the Incubator competes
in the commercial marketplace for tenants:
            [I] somewhat disagree with that analysis in the sense that
            our role is to try to compliment the teaching component
            as well as the service component and as part of the
            teaching and service component is to try to compliment
            and facilitate that effort whereby we will utilize our
            students as part of the management services component
            to supplement what we do relative to providing the
            service component of IUP to promote, once again,
            economic development. So we serve as an arm, as an
            opportunity to provide facility towards starting new
            businesses, developing businesses, to have an
            opportunity to get the benefit of our services, to get the
            benefit of students in terms of internships, to get the
            benefit of our faculty and to get the benefit of our
            management services. And while certainly ongoing new
            businesses could naturally get those services if they are
            not housed in the [I]ncubator, it certainly is more
            convenient by the mere fact that we are there to help
            facilitate that effort.
                                     PKB-5
(R.R. 523a-24a.)     Dr. Wooten actually refers to the Incubator as a “learning
laboratory,” where the College of Business can provide services to new and
emerging businesses on site as well as opportunities for students. (R.R. 529a-30a.)
             Purposes and general powers of PASSHE are set forth in
Section 2003-A of the Public School Code of 1949 (Public School Code).1
Regarding purposes, Section 2003-A(a) of the Public School Code provides:
                    The State System of Higher Education shall be part
             of the Commonwealth’s system of higher education. Its
             purpose shall be to provide high quality education at the
             lowest possible cost to the students. The primary mission
             of the system 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. . . .
             Programs of research and service may be provided which
             are approved by the Board of Governors, and which are
             consistent with the primary mission of the system. Each
             institution shall provide appropriate educational facilities,
             student living facilities and such other facilities as
             deemed necessary by the board.
(Footnote omitted; emphasis added.) This section of the Public School Code
grants PASSHE “all the powers necessary or convenient for the carrying out of the
aforesaid purposes,” including, but not limited to, the express power to lease
property “necessary or desirable for carrying out the purposes of the system.”
Section 2003-A(b)(3) of the Public School Code.
             As noted in Section 2003-A of the Public School Code, the Board of
Governors of PASSHE is the body vested by the General Assembly with the
authority to determine the programs of service that PASSHE should provide as

      1
      Act of March 10, 1949, P.L. 30, as amended, 24 P.S. § 20-2003-A, added by the Act of
November 12, 1982, P.L. 660.



                                         PKB-6
well as the “necessity and desirability” of facilities for the purposes of meeting
PASSHE’s mission. Specifically, the Board of Governors is empowered “[t]o
establish broad fiscal, personnel and educational policies under which the
institutions of the system shall operate.”        Section 2006-A(a)(4) of the Public
School Code.2 It also has the power “[t]o do and perform generally all of those
things necessary and required to accomplish the role and objectives of the system.”
Section 2006-A(a)(15) of the Public School Code.3
              Consistent with these powers, on October 16, 1984, the Board of
Governors adopted “Policy 1984-10: State System of Higher Education Mission.”
(R.R. 14a.) It includes the following as missions, or purposes, of PASSHE:
                    5.    To provide continuing education and
              community and public services in accord with the needs
              and aspirations of citizens and the social, cultural,
              economic, and technical needs of the Commonwealth.
                    ....
                    8.    To participate in and help provide leadership
              for the economic revitalization and development of the
              Commonwealth.

The Incubator has been in existence since 1986. It is not simply leased commercial
space. It is space where, as the record bears out, IUP’s College of Business works
to enhance economic development in the region by providing low-cost space to
new and developing companies while providing services to those tenants and
real-world learning opportunities to its students.

       2
        Act of March 10, 1949, P.L. 30, as amended, 24 P.S. § 20-2006-A(a)(4), added by the
Act of November 12, 1982, P.L. 660.
       3
        Act of March 10, 1949, P.L. 30, as amended, 24 P.S. § 20-2006-A(a)(15), added by the
Act of November 12, 1982, P.L. 660.



                                          PKB-7
              On this record, then, unlike the metropolitan transportation authority
in SEPTA, it is not at all clear that PASSHE’s motives in leasing out Incubator
space to new or developing small businesses are purely commercial—i.e., for the
sole purpose of generating revenue and reducing PASSHE’s costs.4                        To the
contrary, the unrebutted record evidence shows that PASSHE operates the
Incubator as part of IUP’s College of Business and that the Incubator serves a dual
mission of PASSHE, as formulated by the Board of Governors under its
lawfully-delegated authority, to educate PASSHE students and to promote
economic development within the communities in which PASSHE institutions are
located.
              Allocating, as we must, the burden of proof to the taxing bodies and
resolving, as we must, any doubt in favor of the taxpayer, I would conclude that
the taxing bodies in this case have failed to meet their burden of showing that
PASSHE’s leasing activities as part of the Incubator are outside of the scope of
PASSHE’s authorized purposes and, therefore, failed to show that the leased
Incubator space in the Robertshaw Property falls outside the scope of PASSHE’s
immunity from taxation.5

       4
          Even if we disregard the testimony of Appellant’s witnesses, I would conclude that the
testimony of Indiana County’s Chief Assessor, the taxing authority’s only witness, is inadequate
to rebut the presumption of immunity.
       5
          The majority recognizes that “[o]perating a small business incubator is not necessarily
incompatible with educating undergraduate and graduate students.” Maj. Op. at 8. The majority,
however, then purports to examine “whether the Incubator was used to further that purpose.” Id.
The majority concludes that the Incubator was not used to further that purpose. I can glean from
the majority’s opinion only two proffered reasons in support of that conclusion. First, on page 9
of its opinion, the majority reasons that PASSHE’s leasing of Incubator space “does not directly
advance the main purpose of Appellant to provide undergraduate and graduate education.”
Later, in footnote 7 on page 14, the majority writes: “Certainly the number of students employed
(Footnote continued on next page…)

                                            PKB-8
               Accordingly, I would reverse the Order of the Court of Common Pleas
of Indiana County.




                                     P. KEVIN BROBSON, Judge




(continued…)

and trained by the business tenants is relevant to the issue of taxation. But the benefit to [IUP]
and its students was de minimis on this record.” Respectfully, I believe that the majority has too
narrowly defined the purposes/mission of PASSHE and/or has usurped the Board of Governor’s
role to determine what programs of services are consistent with the primary mission of PASSHE.
Indeed, even the majority, in these passages, acknowledges record support for the conclusion that
the Incubator at least indirectly advances the mission of PASSHE and benefits its students.
Whether that benefit is substantial or de minimis is not relevant to the tax immunity question, but
rather is a matter better left to the Board of Governors if or when it evaluates the merits of
continuing the Incubator as part of the IUP College of Business.



                                             PKB-9
