Opinion
No. 792 C.D. 2012 No. 836 C.D. 2012 No. 837 C.D. 2012
03-14-2013
Nile Swim Club of Yeadon, Appellant v. Delaware County Board of Assessment Appeals
BEFORE: HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge OPINION NOT REPORTED MEMORANDUM OPINION BY JUDGE McCULLOUGH
Nile Swim Club of Yeadon (Nile) appeals the March 29, 2012 decision of the Court of Common Pleas of Delaware County (trial court) affirming a decision of the Delaware County Board of Assessment Appeals (Board) to deny Nile's application for exemption of real estate tax. The only issue on appeal is whether Nile produced sufficient evidence demonstrating that it is a "purely public charity" as that term is stated in Article 8, section 2(a)(v) of the Pennsylvania Constitution and defined by our Supreme Court in Hospital Utilization Project v. Commonwealth of Pennsylvania, 507 Pa. 1, 487 A.2d 1306 (1985). After careful review, we affirm.
In Hospital Utilization Project, the Supreme Court enunciated what is generally known as the HUP test to determine whether an entity qualifies as a purely public charity. To satisfy the HUP test, an entity must meet all of the following five factors/elements: (1) advance a charitable purpose; (2) donate or render gratuitously a substantial portion of its services; (3) benefit a substantial and indefinite class of persons who are legitimate subjects of charity; (4) relieve the government of some of its burden; and (5) operate entirely free from private profit motive.
This case concerns three parcels of land owned by Nile, a recreational facility located in Yeadon Borough (Borough), Delaware County, Pennsylvania. Nile filed a tax exemption request with the Board, asserting that it qualifies as a purely public charity. Following a hearing, on November 15, 2008, the Board denied Nile's request. Nile filed an appeal, and the trial court held a hearing de novo.
Evidence presented at the hearing established the following facts. Nile was formed in the Borough in 1958 and operated as a private swim club until 2006, when it was granted recognition under section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. §501(c)(3), as a non-profit organization. Situated on the three parcels of land owned by Nile are the following: two outdoor swimming pools (one which is an Olympic-sized pool); a pool house containing an office, reception area, and changing rooms; an outdoor pavilion; a small snack bar; a tennis court; a basketball court; and a parking lot that holds approximately 80 vehicles. (Findings of Fact Nos. 4-7.)
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).
Nile is open for two-and-a-half months during the summer. Its predominate programs are recreational and instructional swimming, although Nile periodically hosts sporting events, camp programs, church picnics, community organization activities, and art shows. (R.R. at 47a, 67a-69a, 82a-83a.) As part of its swimming program, Nile offers a membership package, which can be purchased by paying a $500 bond and a $500 membership fee, plus $175 for each adult and $75 for each child. (R.R. at 83a.) Nile is also open to non-members and the public at large. (R.R. at 47a.)
On a sporadic basis, approximately twice a month, Nile offers non-members a day of swimming and reduces its usual rate of $15 per person to $10 or $5, depending on the particular day and whether the patron is an adult or child. (Nile Exhibit #1.) Nile further offers non-member, teenage patrons a one-hour swimming lesson every Saturday at a reduced rate of $5. (R.R. at 79a-80a.) On Friday nights, Nile hosts a "Teen Splash Party" from 8 p.m. to 11 p.m., for teenagers aged 13 to 17, and charges $3 for members and $5 for non-members. (Nile Exhibit #1.) Although Nile submitted testimony that "more non-members have used [the] facilities at this point probably than the members," (R.R. at 79a), there is no evidence of record demonstrating how many more non-members have participated in Nile's activities and/or what percentage of Nile's revenue is generated by non-member fees, whether collected at the regular or reduced rates. In any event, Nile's primary source of revenue is from membership dues. (Finding of Fact No. 10.)
From 2005 to 2007, Nile entered into an agreement with the Borough whereby the Borough reimbursed Nile for charging a reduced rate to non-members and the public at large. (R.R. at 47a-48a, 85a, 96a.) A witness for Nile testified that Nile continues to offer reduced rates to non-members on an occasional basis, despite the fact that the Borough no longer reimburses it. (R.R. at 85a.) Although there is evidence that the Borough reimbursed Nile approximately $8,000 in 2005, it is unclear from the record how much the Borough subsidized Nile in 2006 and 2007, or what percentage the Borough's subsidization contributed to Nile's overall revenue. (R.R. at 84a, 97a.) Indeed, the record does not establish, to any degree of certainty, the amount of Nile's revenue for any of the years in which it operated.
During its months of operation, Nile employs lifeguards, a maintenance staff, and a desk staff, and pays these individuals anywhere from minimum wage to $10.50 an hour. (R.R. at 102a.) The officers and directors of Nile, including its board of members, president, and vice-president of operations, do not receive compensation; most of these individuals have full-time jobs elsewhere and volunteer their time to manage Nile's day-to-day operations and fiscal responsibilities. Nile's president, Darryl Henderson, volunteers approximately 40 hours a month at Nile. (R.R. at 103a-104a, 112a.) However, the record does not reveal how much time the other volunteers donate, nor does it establish the average hourly rate that the volunteers or someone in Henderson's position would earn if compensated.
According to Henderson, Nile was operating at a deficit during the year of the hearing, but the record does not indicate the amount of Nile's deficit. Henderson testified that Nile has recently experienced difficult "economic times;" specifically, changes in the law have required Nile to revamp its drainage system and the costs of materials and labor has gone up. (R.R. at 101a.) Henderson stated that Nile's operating costs for the 2009 year were approximately $100,000, which is one-third of Nile's available "budget." Henderson claims that it is difficult to continue Nile's operation because 40% of its budget is devoted to paying sewer and other unspecified "taxes." Henderson testified that Nile has plans for an elaborate "expansion project," but the record does not indicate whether the proposed project is included as a pre-determined expense in Nile's budget. (R.R. at 105a-106a, 113a-114a.)
By order dated March 29, 2012, the trial court denied Nile's appeal. The trial court summarily concluded that Nile failed to prove any of the HUP factors. However, the trial court elaborated slightly on the second factor, concluding that Nile "produced no evidence to establish that [it] in fact donates or gratuitously renders a substantial portion of the services offered." As an apparent alternative to its holding that Nile's evidence was legally inadequate, the trial court stated that it "determined the credibility of the evidence presented and rendered its decision based on the weight of the evidence." Because the trial court found that Nile did not fulfill the HUP test, it declined to consider whether Nile met the additional requirements of the Institutions of Purely Public Charity Act (Act 55). (Trial court op. at 5-6.)
Act of November 26, 1997, P.L. 508, as amended, 10 P.S. §§371-385. By satisfying the HUP test, an entity shows that it meets the minimum constitutional requirements to be eligible for a tax exemption; it must then demonstrate that it satisfies the statutory requirements of Act 55 to receive the exemption. Camp Hachshara Moshava of New York v. Wayne County Board for the Assessment and Revision of Taxes, 47 A.3d 1271, 1275 (Pa. Cmwlth. 2012). The HUP test and Act 55 are not mutually exclusive and operate concurrently, with Act 55 codifying the purely public charity test of HUP and expounding upon the requirements thereof. Id. at 1275-76. Thus, in addition to satisfying the HUP test, an entity seeking a real estate tax exemption must also satisfy the statutory qualifications found in Act 55. Id. at 1276.
On appeal to this Court, Nile argues that it submitted sufficient evidence to establish every HUP factor. With respect to the element of the HUP test that requires an entity to donate or render gratuitously a substantial portion of its services, Nile points to Henderson's testimony that Nile's officers and directors volunteer their time to oversee and manage Nile's operations. Nile also highlights its evidence that it occasionally offers a reduced fee to the public and that it is currently operating at a deficit.
Our scope of review in a real estate tax assessment appeal is limited to determining whether the trial court's findings are supported by substantial evidence or whether the trial court abused its discretion or committed an error of law. Camp Hachshara Moshava, 47 A.3d at 1274 n.5. The trial court is the fact finder in tax assessment cases and resolves all matters of credibility and evidentiary weight. Id.
Notably, an institution seeking a real estate tax exemption bears a heavy burden of establishing its entitlement to such an exemption. Id. at 1275. A property owner's entitlement to a tax exemption is a mixed question of law and fact, and this Court will not disturb the trial court's decision absent an abuse of discretion or lack of supporting evidence. Id.
To satisfy its burden of demonstrating that it donates or renders gratuitously a substantial portion of its services, an entity must establish that it donates or renders gratuitously a substantial portion of its services to those persons who are unable to afford the usual fee. Appeal of Sewickley Valley YMCA of the Decision of the Board of Property Assessment, 774 A.2d 1, 8 (Pa. Cmwlth. 2001). The determination of whether an institution renders gratuitously a substantial portion of its services should be based on the totality of the circumstances because the term "substantial" does not imply a magical percentage. Id. Factors to be considered include, inter alia, the remuneration paid to its directors and staff, the percentage of revenue used to provide the charitable service, and the costs of providing its charitable services. Id.; Mars Area School District v. United Presbyterian Women's Association of North America, 693 A.2d 1002 (Pa. Cmwlth. 1997), aff'd, 554 Pa. 324, 721 A.2d 360 (1998).
In City of Washington v. Board of Assessment Appeals of Washington County, 550 Pa. 175, 704 A.2d 120 (1997), a college awarded numerous merit-based scholarships, on average totaling $533,000 per year, and grants based on financial need, on average totaling $4,330,000 per year. Collectively, this aid amounted to 30% of the college's overall operating expenses. In addition, the college sustained significant operating loses, on average $800,000 per year. To cover these losses, the college chose to use monies from its endowment fund rather than raise tuition prices. The trial court concluded, inter alia, that the college did not render gratuitously a substantial portion of its services. On appeal, this Court reversed: we concluded that the college's financial assistance was gratuitous, resulting in a 50% reduction in tuition expenses, and constituted a substantial portion of the college's services.
On further appeal, our Supreme Court affirmed, finding that "[d]ue to the extensive use of scholarships, grants, and endowment funds, the typical student at [the college] receives approximately 50% of his or her education without charge." Id. at 183, 704 A.2d at 123. The court noted that student tuition payments covered only 50% of the college's operating expenses, the college absorbed through its endowment fund tuition charges that would otherwise be charged to the students, and the end result was that the students effectively received 50% of their educational services for free. Citing previous case law, the court in City of Washington concluded that the college's level of gratuitous assistance was "well above" that which the court has deemed adequate to constitute a substantial portion of its services. Id. at 183, 704 A.2d at 124 (quoting St. Margaret Seneca Place v. Board of Property Assessment Appeals and Review, 536 Pa. 478, 486, 640 A.2d 380, 384 (1994) (holding that a nursing home that collected fees for its services and absorbed only one-sixth of its costs qualified for tax exemption as a purely public charity); Presbyterian Homes Tax Exemption Case, 428 Pa. 145, 153, 236 A.2d 776, 780 (1968) (holding that a rest home that collected fees from its residents and absorbed only one-fifth of its costs was a purely public charity).
In Sewickley Valley YMCA, the YMCA presented evidence establishing that in 1994, it donated $136,430 in financial aid/scholarships to the community. The YMCA also proved that it provided $138,000 in community service projects and programs to the public for free. Significantly, the YMCA adduced evidence that the value of the time its employees volunteered and donated to the community was equal to $80,398. According to the YMCA's records, the total amount of these gratuitous services and donations, $354,828, constituted 18% of its total revenue. The trial court credited this evidence and found that the YMCA proved that it was sufficiently donative. On appeal, this Court agreed with the trial court, concluding that the evidence established that the YMCA donates and renders gratuitously a substantial portion of its services. See also Hahn Home v. York County Board of Assessment Appeals, 778 A.2d 755 (Pa. Cmwlth. 2001) (concluding that there was sufficient evidence to support a finding that an entity gratuitously renders a substantial portion of its services where a witness testified to precise figures that were supported by numerous mathematical and accounting exhibits; this evidence established that the entity provided in excess of 90% or 95% of its goods and services gratuitously).
In Concern-Professional Services for Children and Youth v. Board of Assessment Appeals of Berks County, 560 A.2d 932 (Pa. Cmwlth. 1989), Concern, a non-profit corporation that engages in foster care/child placement programs, counseling, and other child welfare activities, sought an exemption as a purely public charity. The trial court concluded that Concern did not demonstrate that it donates or renders gratuitously a substantial portion of its services because Concern did not provide any of its services gratuitously, but, instead, received payment from agencies according to its standard fee schedule, which was $66 a day per child. Concern testified that its per diem rate takes into account its operating expenses for its facilities but that its short-term foster care program is very expensive, and, consequently, it was operating the facility at a loss. However, Concern presented no testimony concerning the amount of the loss that it was experiencing. In the two years prior to the alleged financial deficit, Concern's financial statements indicated that its revenue greatly exceeded its expenses.
On appeal, this Court affirmed. In doing so, we rejected Concern's argument that it was sufficiently donative because the fees it charged were substantially less than the value of the services it provided. Instead, relying on Biosciences Information Service [BIOSIS] v. Commonwealth, 551 A.2d 672 (Pa. Cmwlth. 1988) (en banc), we concluded that the evidence established that Concern did not regularly operate at a loss and that Concern did not provide services regardless of a client's ability to pay. Accordingly, this Court concluded that Concern failed to meet its burden of proving that it donated or rendered gratuitously a substantial portion of its services.
In BIOSIS, this Court rejected BIOSIS's argument that it donated a substantial portion of its services because it made abstracts of biological information available to the public at a price substantially less than its value. In doing so, we distinguished two cases from our Supreme Court, Hill School Tax Exemption Case, 370 Pa. 1, 87 A.2d 259 (1952), and West Allegheny Hospital v. Board of Property Assessment, Appeals and Review of Allegheny County, 500 Pa. 236, 455 A.2d 1170 (1982). In Hill School, a school operated at a deficit in 26 of the last 29 years and provided financial aid to its students, while in West Allegheny Hospital the medical facility accepted patients even if they could not afford to pay for treatment. In differentiating these cases, this Court concluded that BIOSIS did not donate a substantial portion of its services because BIOSIS "neither regularly operate[d] at a loss, nor provide[d] services regardless of a client's ability to pay." BIOSIS, 551 A.2d at 675.
As illustrated by these cases, it is imperative for an entity seeking purely public charity status to adduce competent evidence related to the entity's revenue, operating costs, profit, and/or deficit, and to specifically correlate this information with the value of charitable services donated or gratuitously rendered. Although there is no magic percentage to determine what constitutes a "substantial portion" of services for purposes of the HUP test, a trial court needs an adequate evidentiary basis upon which to compare the amount of gratuitous/donated services rendered with the total value of services offered, in order to decide whether the gratuitous/donated services comprise a substantial portion of the entity's overall services.
In this case, Nile argues that the volunteered time of its officers and directors proves that it donates a substantial portion of its services. However, unlike the YMCA in Sewickley Valley YMCA, Nile did not offer any evidence to establish how many total hours were donated by its volunteers and the record is devoid of any evidence upon which the trial court could approximate the monetary value of the donated hours. Because the trial court lacked a sufficient evidentiary basis to ascertain the amount of Nile's donated services, the trial court, a fortiori, could not decide whether the donated services amounted to a "substantial portion" of Nile's overall services. Compare City of Washington, 550 Pa. at 183, 704 A.2d at 123-24 (utilizing numerical, monetary evidence to value the amount of tuition the college gratuitously rendered in relation to the total amount of tuition charged).
Moreover, although Henderson testified that Nile was experiencing a deficit at the time of the hearing, the record does not indicate the approximate amount of this alleged deficit. The record also does not reflect the total amount of revenue that Nile received via its fees and subsidies from the Borough. Without definitive figures demonstrating the amount of Nile's deficit and operating revenue, or the monetary value of its volunteered time, the trial court did not have sufficient evidence to decide the extent, if any, to which Nile absorbed the $100,000 it paid in operating expenses during the alleged deficit. See City of Washington, 550 Pa. at 183, 704 A.2d at 123-24 (collecting cases for the proposition that where an entity charges fees and those fees do not cover operating expenses and result in a net deficit/loss, then the entity may be deemed to have provided a substantial amount of gratuitous services if it absorbs at least 20% of its operational costs).
We conclude that the facts and circumstances of this case most closely resemble those in Concern-Professional Services. Similar to the situation presented in that case, Nile charged a fee for its services and failed to establish that it had a history of regularly operating its facilities at a loss. Nile also failed to prove that it provided recreational swimming or swimming instructions regardless of a patron's ability to pay. Although Nile offered a reduced rate to non-member patrons on a sporadic basis, there is no quantitative evidence demonstrating that a substantial portion of Nile's total services were devoted to permitting non-members to use their facilities if they were unable to afford the regular rate. Indeed, there is no evidence of record that could enable the trial court to determine how many non-members paid the reduced rate as opposed to the regular rate or to establish what percentage of Nile's revenue is generated by non-member reduced fees.
In sum, Nile presented no evidence upon which the trial court could make findings concerning Nile's revenues or expenses or the amount or value of donated services. The vague testimony offered by Nile is inadequate to establish the facts and financial details required under the second prong of HUP. Therefore, Nile did not submit sufficient evidence, as a matter of law, to establish that it donates a substantial portion of its services for purposes of the HUP test.
Moreover, not only did the trial court correctly find that Nile did not donate a substantial portion of its services based on a lack of sufficient evidence, but the trial court also found that Nile's evidence was not credible. In tax assessment cases, the trial court is the fact finder vested with the exclusive role of resolving all matters of credibility and evidentiary weight. Camp Hachshara Moshava of New York v. Wayne County Board for the Assessment and Revision of Taxes, 47 A.3d 1271, 1274 n.5 (Pa. Cmwlth. 2012). In this case, the trial court assessed the weight of Nile's evidence and found that it was not sufficiently credible and convincing to prove that Nile donated a substantial portion of its services. Given the evidentiary deficiencies outlined above, we conclude that the trial court did not abuse its discretion in assessing the persuasive value of Nile's evidence and affording it little to no weight. Because Nile failed to establish that it donated a substantial portion of its services, it cannot qualify as an institution of purely public charity. See Camp Hachshara Moshava, 47 A.3d at 1276 (reiterating "that if any one of the elements of the HUP test cannot be established, the entity does not qualify as an institution of purely public charity.").
Moreover, we note that the lack of clear and competent evidence outlined above also reflect that Nile failed to adduce sufficient evidence to prove that it satisfied the third and fifth elements of the HUP test - i.e., that Nile benefits a substantial and indefinite class of persons who are legitimate subjects of charity and operates entirely free from private profit motive.
To prove that it benefits a substantial and indefinite class of persons who are legitimate subjects of charity, it was incumbent upon Nile to demonstrate that it offered the public access to its swimming pools at a sufficiently nominal rate. Unlike UnionvilleChadds Ford School District v. Chester County Board of Assessment Appeals, 552 Pa. 212, 714 A.3d 397 (1998), there is no evidence that Nile offered a reduced rate to the public every day in which it operated; nor is there evidence that Nile absorbed the costs of its operations to the point that if fullprice were charged to the public to swim in its pools, many persons would be unable to pay that rate. See id. ("[I]n 1994 alone Longwood sustained a loss of nearly $8 million which was later recovered from its endowment, and the ... [a]dmission fees charged to the public are intentionally maintained at a level below what would be required to cover costs, much less make a profit.... Were it not for the high quality public park grounds ... that are subsidized by Longwood, many would not be able to afford the fees that would prevail for access to comparable resources[.]").
Further, a court should consider the following factors to determine if an entity operates entirely free from private profit motive:
1. Whether the utilization of the revenue is made with the expectation of a reasonable return or some non-monetary benefit;
2. Whether the utilization of the revenue ultimately supports or furthers the eleemosynary nature of the charitable entity; and
3. Whether the utilization of the revenue inures, directly or indirectly, to any private individual related to the charitable entity or related organization(s).
Accordingly, we affirm.
/s/_________
PATRICIA A. McCULLOUGH, Judge ORDER
AND NOW, this 14th day of March, 2013, the March 29, 2012 order of the Court of Common Pleas of Delaware County is hereby affirmed.
/s/_________
PATRICIA A. McCULLOUGH, Judge
Wilson Area School District v. Easton Hospital, 561 Pa. 1, 8, 747 A.2d 877, 880 (2000).
Here, Nile failed to prove that it operates entirely free from private profit motive because there is no competent evidence establishing what its revenue is or how it is has been spent and/or distributed. See id. (stating "that it is how such revenue is used that will determine whether it evidences a private profit motive.").
Therefore, the record contains insufficient evidence upon which the trial court could base findings necessary to support a legal conclusion that Nile benefits a substantial and indefinite class of persons who are legitimate subjects of charity or that it operates entirely free from private profit motive.