The Court of Common Pleas of Dauphin County has granted to an institution of purely public charity a real estate tax exemption for a parcel of property used as an assisted living facility or personal care center. In Charles P. & Margaret E. Polk Foundation v. Dauphin County Board of Assessment Appeals, the Court accepted the argument of the property owner of the Personal Care center, a non-church-related Foundation, that it did relieve the government of some of its burden for the advancement of social, moral, educational and physical objectives, and that the Personal Care Center donated or rendered gratuitously a substantial portion of its services. While real estate used by nursing homes is more regularly found to be tax exempt, assisted living facilities rarely are.

The Court recognized that, for a charitable exemption of real estate to be granted, the Applicant seeking exemption must prove, and the Court must find, that the Applicant satisfies the five prongs of the Hospital Utilization Project Case Test (“HUP Test”). See, Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 ( Pa. 1985). To find that an institution is a purely public charity, a court must find that the entity:

(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 objects of charity;

(d) Relieves the government of some of its burden; and

(e) Operates entirely free from private profit motive.

The Dauphin County Court also found that the five prongs of the so-called HUP Test have been codified by Act 55 of the 1999 Session of the Pennsylvania General Assembly, found at 10 P.S. § 375(b)-(f). Based upon a prior decision covering this piece of real estate and the stipulation of the parties, the Court did not rule on the three of the five prongs of the HUP Test because they had been satisfied. The decision concentrated on the issue of relieving the government of its burden and whether the Polk Personal Care Center donates or renders gratuitously a substantial portion of its services.

Recognizing that the test is whether the institution bears a substantial burden that would otherwise fall to the government, the Court cited St. Margaret Seneca Place v. Board of Assessment Appeals and Review, 640 A.2d 380, 385 Pa. (1994), for the proposition that the HUP Test does not require the institution to fully fund the care of some people who otherwise would be fully funded by the government. If services and facilities are provided which reduce the demands on government by an independent institution that meet the same needs, the Dauphin County Court reasoned that it can be fairly said that the government’s burden has been eased, citing Unionsville Chadds Ford School District v. Chester County Board of Assessment Appeals, 714 A.2d 397, 401 (Pa. 1998).

Non-profit or church-related nursing homes are more often able to establish the governmental service test, because many residents are eligible for Medicare or Medicaid, but Medicare and Medicaid do not apply to personal care facilities. The Polk Foundation was able to establish that it relieved the government of the burden of supporting a significant number residents who utilize or would be eligible for other governmental programs.

The Dauphin County Court relied more heavily on the specific tests contained within Act 55 to determine that the Polk Foundation had satisfied the community service prong of the HUP Test. Utilizing the provisions of 10 P.S. § 375(d)(1)(i), the Court reviewed the evidence presented and found that the community service test was met. The Court found that the Polk Foundation’s Personal Care Center satisfied the Community Service prong of the HUP Test, based upon the net operating income and net operating expense tests provided for in Act 55 and the statutory definition of “Uncompensated Goods or Service” at 10 P.S. 375(d)(4)(i). Specific and clear accounting testimony on the operation of this facility, as compared to overall operations of the Polk Foundation, was the key to this ruling.

Lutheran Home v. Schuylkill County Board of Assessment Appeals, presented a similar issue relating to a church-related Personal Care Boarding Home known as Luther Ridge, 782 A.2d 1 (Pa. Cmwlth. 2001). This decision was instrumental to the Dauphin County Court’s reasoning on the issue of relief of some of the government’s burden. Both the Polk Foundation and the Lutheran Home at Topton ( Luther Ridge) had a non-eviction policy for residents who ran out of funds. The County, in Lutheran Home, had argued that, because residents there cannot qualify for Medicare or Medicaid, Luther Ridge could not qualify for tax exemption under Act 55. That argument was not presented in Polk Foundation.

Conclusion: The Polk Foundation case is an important case both because it grants a tax exemption to real property used as an assisted living residence and because of the Court’s reliance upon and consistent usage of Act 55 as the codification of the HUP Test in rendering its decision