WEST ALLEGHENY HOSPITAL, Appellant, v. BOARD OF PROPERTY ASSESSMENT, APPEALS AND REVIEW OF ALLEGHENY COUNTY and West Allegheny School District.
Supreme Court of Pennsylvania.
Decided Dec. 23, 1982.
Reargument Denied Feb. 1, 1983.
455 A.2d 1170
Argued Sept. 21, 1982.
Judgment of sentence affirmed.
Jane D. Elliott, Duane, Morris & Heckscher, Philadelphia, for amicus curiae Hospital Ass‘n of Pa.
D.R. Pellegrini, W. Theodore Brooks, Pittsburgh, for West Allegheny School Dist.
William J. Fahey, John M. Silvestri, Patrick J. Loughney, Pittsburgh, for Bd. of Property Assessment, Appeals and Review of Allegheny County.
Before O‘BRIEN, C.J., and ROBERTS, NIX, LARSEN, MCDERMOTT and HUTCHINSON, JJ.
ROBERTS, Justice.
At issue on this appeal is whether the health care facilities of appellant West Allegheny Hospital, a non-profit corporation founded in 1956, are exempt from real estate taxes imposed by appellee West Allegheny School District. Two facilities are involved, one of which was acquired by appellant in late 1964 and was in operation until 1973, the other of which was built by appellant in 1973 and has been in operation since.
The Board of Property Assessment, Appeals and Review of Allegheny County denied both of appellant‘s applications for an exemption. After evidentiary hearings, the Court of Common Pleas of Allegheny County entered orders sustaining both of appellant‘s appeals from the adverse rulings of the Board. A divided panel of the Commonwealth Court entered an order reversing the orders of the court of common pleas. This Court granted allowance of appeal.
After a review of our case law interpreting the relevant constitutional and statutory provisions, we conclude that the present record establishes appellant‘s entitlement to an exemption with respect to both health care facilities. Hence, we reverse the order of the Commonwealth Court and reinstate the orders of the court of common pleas. 63 Pa.Cmwlth. 555, 439 A.2d 1293.
The basis for appellant‘s claims of exemption is
It is clear that appellant‘s facilities are “purely public” within the meaning of
It is also clear that each of appellant‘s facilities is a “hospital,” an institution specifically deemed eligible by the Legislature for tax-exempt status, with a recognized charitable purpose—the promotion of health. See Restatement (Second) of Trusts § 372 (1959).2 So, too, there is no ques-
What is disputed is whether appellant has been “endowed and maintained by public or private charity.” It is apparent on the present record that, although appellant has been the object of considerable generosity, both public and private, both quantifiable and not, this generosity has not been sufficient to offset the cost of capital acquisition. Approximately $565,000 of the $590,000 total cost of the first facility and $3 million of the $4.3 million total cost of the second facility were financed by appellant. Similarly, cash donations have covered only a small portion of appellant‘s day-to-day operating expenses, which include the costs of administrative and professional salaries, supplies, and utilities. Thus, both the cost of capital acquisitions and the cost of day-to-day operating expenses which have not been covered by donations have been passed along to patients, who have paid approximately 80% of the amounts billed.3 This high percentage of payment is attributable both to health care insurance carried by patients and the efforts of a debt-collection agency employed by appellant.
In denying appellant‘s exemption claims, the Commonwealth Court held that appellant‘s patient billings have placed a disproportionate burden of appellant‘s operational costs on patients. This holding, however, fails to consider the proviso to section 204(a)(3), which authorizes specific applications of “revenue“—a term which includes funds earned by the rendering of services. Such funds may be applied not only to “support” the institution but also “to increase the efficiency and facilities thereof, the repair and necessary increase of grounds and buildings thereof ...”
The record is clear that appellant has satisfied these terms of the statutory proviso. Revenues from patient billings have been properly applied to the day-to-day operating expenses of appellant‘s institutions, including the expenses of support and repair. The revenues also have been properly applied to the costs of financing the acquisition of facilities necessary to the fulfillment of the institution‘s charitable purpose.
Finally, the revenues from patient billings have, in the words of the proviso, been used by appellant “for no other purpose” than to contribute to “the support [of the institution] and the increase of the efficiency and facilities thereof, the repair and the necessary increase of grounds and buildings thereof.” Although appellant was founded in part by two doctors who have been compensated by appellant for their work in various administrative capacities, the record establishes that the doctors’ work has been necessary to the functioning of appellant‘s facilities and has been paid for at rates equal to or less than the rates paid by comparable institutions for comparable services. See Restatement (Second) of Trusts, supra, § 376 Comment b. The same founding doctors were the principal shareholders of the corporation which had owned the facility in 1964, immediate-
Our reading of the proviso to section 204(a)(3) of the General County Assessment Law is supported by Presbyterian Homes Tax Exemption Case, 428 Pa. 145, 236 A.2d 776 (1968), a case interpreting provisions of The Fourth to Eighth Class County Assessment Law which are comparable to the provisions of section 204(a)(3). See Act of May 21, 1943, P.L. 571, § 202(a)(3),
Appellee, however, relies upon language in our early case law which would suggest that the costs of necessary capital acquisition are not appropriately passed along to the beneficiaries of an institution. For example, in Y.M.C.A. of Germantown v. City of Philadelphia, 323 Pa. 401, 187 A. 204 (1936), this Court quoted a dictionary‘s definition of “chari-
The order of the Commonwealth Court is reversed and the orders of the Court of Common Pleas of Allegheny County are reinstated.
FLAHERTY, J., did not participate in the consideration or decision of this case.
NIX, J., files a dissenting opinion, in which HUTCHINSON, J., joins.
NIX, Justice, dissenting.
The majority appears to have centered its analysis upon the fact that appellant is a hospital and concludes that because a hospital promotes health, if it is public, it should be tax exempt. However, our case law has established a three-pronged test to be applied when a claim is made for real estate tax exemption under the
[T]o obtain the claimed exemption from taxation, [appellant] must affirmatively show that the entire institution, (1) is one of “purely public charity“; (2) was founded
by public or private charity; (3) is maintained by public or private charity. [Emphasis added.]
Accord, Four Freedoms House of Phila., Inc. v. City of Philadelphia, 443 Pa. 215, 279 A.2d 155 (1971); Pittsburgh Institute of Aeronautics Tax Exemption Case, 435 Pa. 618, 258 A.2d 850 (1969).
Moreover, in Four Freedoms House of Phila., Inc. v. City of Philadelphia, supra, a review of the pertinent law for such cases revealed:
Since liability of all real estate is the rule with exemption the exception, e.g., Dougherty v. City of Philadelphia, 112 Pa.Superior Ct. 570, 172 Atl. 177 (1934), the burden is placed on the claimant to bring itself within the exemption. E.g., Pittsburgh Institute of Aeronautics Tax Exemption Case, 435 Pa. 618, 258 A.2d 850 (1969); University of Pittsburgh Tax Exemption Case, 407 Pa. 416, 180 A.2d 760 (1962); Wynnefield United Presbyterian Church v. City of Philadelphia, 348 Pa. 252, 35 A.2d 276 (1944); Albright College Tax Assessment Case, 213 Pa. Superior Ct. 478, 249 A.2d 833 (1968). Moreover, statutory provisions exempting property from taxation are subject to a strict construction. E.g., Y.M.C.A. v. Reading, 402 Pa. 592, 167 A.2d 469 (1961); McGuire v. Pittsburgh School District, 359 Pa. 602, 60 A.2d 44 (1948).
Turning to the case at bar, appellant‘s “open-admission policy” coupled with adherence to its by-laws’ prohibition against discrimination or a distinction in the admission of patients based upon race, color, creed, national origin or sex, may satisfy the public part of the first prong of the test.1
Yet, the second and third prongs also must be met. The majority rather summarily dispenses with the requirement of having been founded by a public or private charity by noting the institution has a purpose, the promotion of
An objective examination of the record reveals that the original property purchased by Drs. Roberts and Grilli in 1956 for a very low price, less than $40,000.00, was deeded to the Tioga Corporation (which is not asserted to have been non-profit and whose principal shareholders were Drs. Roberts and Grilli). A parcel of the original property was sold to the appellant West Allegheny Hospital, (a non-profit corporation whose incorporators were Drs. Roberts, Grilli, Shelhorse, Mrs. Roberts and Mrs. Grilli) for a purchase price of $590,000.00 after having charged and received rent from West Allegheny Hospital for at least nine years. In addition to the huge profit in this transfer, it is also significant that appellant corporation‘s first capital acquisition accrued nine years after its incorporation. The record does not support a conclusion that the founding of West Allegheny Hospital was by gift.2 Such a conclusion is necessary to give this prong of the test any meaning. Therefore, the second prong of the test has not been met.
Finally, the third prong of the test has not been met either. Patients have paid or caused to be paid approximately 97% of the amounts billed for in-patient care and 80% of the amounts billed for out-patient care. In addition to payments from third-party payors, appellant has received huge federal sums and employs a collection agency for
It was stated in Hill School Tax Exemption Case, 370 Pa. 21, 23, 87 A.2d 259, 261 (1952). “It requires no citation of authority to demonstrate that a private hospital founded and maintained by a group of doctors for their own convenience, with or without profit, would not qualify for such tax exemption.” It requires no citation of authority to show that a non-profit corporation serving the public as a hospital but (1) founded by several doctors and their wives, without identifiable or quantifiable gift, (2) paid rent to a private corporation owned by two of the same doctors for nine years, (3) delivered a capital gain of over $550,000.00 to that private corporation owned by two of the same doctors, (4) received approximately $1,500,000 in federal money for capital improvements, (5) whose patients cover the major portion of appellant‘s operating expenses by paying approximately 97% or 80% of the amount billed through hospital third-party coverage or a collection agency, (6) whose physicians pay a “bed-tax” to the hospital and (7) receives payments from this Commonwealth for treatment of those on welfare, does not qualify for the tax exemption.
Passing a substantial part of operating costs on to appellant‘s health care consumers is one thing. Passing an additional part of appellant‘s costs on to the public by way of a constitutional real estate tax exemption under these facts is quite another. I would affirm the Commonwealth Court.
HUTCHINSON, J., joins in this dissenting opinion.