THE TAX MAN WILL (CONTINUE TO) COMETH
5/16/2022 | Articles & Alerts
Property taxes imposed by local governments and school districts can be a serious burden on every type of property, including income-producing properties such as shopping centers, apartment complexes, and office buildings. The burden has become even greater due to the “reverse” assessment appeals that have become a popular income generating strategy for municipalities and school districts. Although the Pennsylvania Supreme Court took a scalpel to the reverse appeal process in Valley Forge Towers, et al v. Upper Merion School District and Keystone Realty Advisors, No. 49 MAP 2016 (Pa. July 5, 2017), many judges appear reluctant to side with taxpayers. In addition, school districts have now trotted out formulas and schemes that are allegedly non-discriminatory. This subject will continue to be fertile ground for litigation.
Yet another taxing issue pertains principally to non-profits and those entities which count upon their real estate holdings being exempt from property taxation. Exemptions are being challenged with much more frequency by taxing authorities. In part, this issue emanates from a somewhat complex and tortured legal history for tax exemptions. First, Pennsylvania tax exemption law is grounded in the Pennsylvania Constitution, which empowers the General Assembly to be exempt from real estate tax “institutions of purely public charity,” Pa. Const. Art. VIII, §2(a)(v). However, what constitutes a “public charity” is not defined in the legislation. That anomaly led to a series of court decisions intended to clarify the definition of a public charity and the passage of the “Institutions of Purely Public Charity Act,” 10 P.S. 371 et seq. (Charity Act). While the Charity Act was intended to reduce confusion, the courts interpreted the Charity Act as adding a second layer of criteria.
Judicial decisions subsequent to the Charity Act have added to the confusion. In a more recent case, the Commonwealth Court reviewed an exemption claim by the owner of the former headquarters for Lukens Steel Company, which is now listed on the National Register of Historic Places. In re City of Coatesville v. Huston Props., No. 115 C.D. 2016 (Pa. Commw. Ct. Feb. 16, 2017).
Yet another looming issue for non-profits is the business privilege tax. Not every jurisdiction imposes a business privilege tax, but some that do tend to be very aggressive in pursuing the tax from non-profits. For example, corporate nonprofits often operate major health networks. Recently, the City of Allentown has challenged the tax-exempt status of medical non-profits which conduct activities that would traditionally be taxable, such as hospital fitness centers and in-house pharmacies.
So, is a tax exemption ever safe from challenge? It appears not. Institutions with charitable purposes will continue to face questions as to the requirements of purely public charity status. These non-profits will be forced to expend important resources for litigation, that would otherwise be devoted to support their charitable endeavors.
As some cities, suburban municipalities and school districts face rising costs and potentially significant budget deficits, officials will continue to be aggressive, and at times too creative, in compelling businesses to part with more of their revenue. My prediction for this year, next year, and perhaps beyond, is that tax litigation will continue to be a high stakes game of cat and mouse. The courts will decide who gets the last slice of cheese.
Related Practices: Land Use, Zoning, and Development