Ind. Univ. of Pa. v. Jefferson Cnty. Bd. of Assessment Appeals

243 A.3d 745

INDIANA UNIVERSITY OF PENNSYLVANIA, Appellant

v.JEFFERSON COUNTY BOARD OF ASSESSMENT APPEALS

v.Punxsutawney Area School District and Borough of Punxsutawney

No. 775 C.D. 2019

Commonwealth Court of Pennsylvania.

Argued May 14, 2020

Decided December 3, 2020

Michael S. Ferguson, University Legal Counsel, Harrisburg, for Appellant.

Edward F. Hirshberg, Pittsburgh, for Appellee Punxsutawney Area School District.

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE CHRISTINE FIZZANO CANNON, Judge, HONORABLE J. ANDREW CROMPTON, Judge

OPINION BY PRESIDENT JUDGE LEAVITT

The Indiana University of Pennsylvania (University) appeals an order of the Court of Common Pleas of Jefferson County (trial court) holding that those portions of University buildings leased to commercial tenants are subject to local real estate taxes. The trial court held that the University is not immune from local taxation and is not entitled to a tax exemption. On appeal, the University argues that the Pennsylvania State System of Higher Education is immune from local taxation, as is every Commonwealth agency, except where the legislature has expressly authorized the local taxing authority to levy tax. Because no such statutory authorization exists here, the University contends that the trial court erred.

Background

At issue are properties located in the Borough of Punxsutawney, Jefferson County, which were acquired by the University in August 2018. The first property, known as the Fairman Centre, is located at 101 West Mahoning Street and was occupied on the first floor by an insurance agency at the time of acquisition. The second property, known as the Agape and Miller Buildings, is located at 105 and 115-121 West Mahoning Street. At the time of the acquisition, the Agape Building was vacant, and the Miller Building had three commercial tenants.

By letter dated August 31, 2018, the University notified the Jefferson County Assessment Office that the properties should be removed from the County's tax rolls because they were not subject to local taxation. Accompanying the letter was an application for exemption stating that each parcel is "owned by an instrumentality of the Commonwealth of Pennsylvania and [ ] immune from taxation." Reproduced Record at 32a, 34a (R.R.––––).¹ The Jefferson County Board of Assessment Appeals (Board) conducted a hearing. It denied the University's application with respect to the Agape and Miller Buildings, but it exempted that part of the Fairman Centre used for the University's Culinary Institute. The University appealed, and the trial court held a de novo hearing on May 3, 2019.

Before the trial court, the University, the Board and the Punxsutawney Area School District (School District) agreed that the county had the burden of proof on its authority to tax. Nevertheless, the University proceeded first with its case.²

The University presented the testimony of Susanna Sink, Interim Vice President for Administration and Finance, who is responsible for University facilities. She testified that the University purchased the properties for the Culinary Institute and has "future plans to renovate these buildings" beginning in March 2021. Notes of Testimony (N.T.), 5/3/2019, at 24; R.R. 90a. The renovations will allow the University "to expand the culinary program, upgrade the facility, and promote the culinary certificate and the baking certificate as well as offer potential associate degrees." Id. The Fairman Centre, which was recently renovated, will remain as is, but the Agape and Miller Buildings will be razed. Shortly before the hearing, the University had "put out bidding for architectural designs" but had not yet applied for building permits. Id.

Sink described the commercial leases that were in place when the University acquired the properties. The insurance agency had entered a three-year lease on May 31, 2016, for the first floor of the Fairman Centre. The lease in the Miller Building for a chiropractor office was scheduled to end on April 30, 2020. A restaurant at the Miller Building was on a month-to-month lease. The beauty salon that occupied part of the Miller Building moved out in October 2018. Sink testified that the University permitted the existing tenants to stay in their respective locations until they found new locations.

At the time of the hearing, the University was using the second floor of the Fairman Centre for its culinary classes and the first floor (not occupied by the insurance agency) "for the baking program." N.T. 25; R.R. 91a. Sink estimated that approximately 125 students were taking culinary classes in the Fairman Centre. The University intends to convert the third floor for classrooms and faculty offices. The unleased portion of the Miller Building and the entire Agape Building are vacant.

Sink explained that the University's primary mission under the Public School Code of 1949³ is to provide "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." N.T. 16; R.R. 82a. She conceded that the commercial leases do not directly advance the University's educational mission. Sink stated that the vacant portions of the buildings advance the University's statutory purpose because they are slated "for future development." N.T. 28; R.R. 94a.

Neither the School District nor the Board presented evidence.

Trial Court Decision

In an opinion and order filed May 24, 2019, the trial court partially granted the University's appeal. It concluded that the University was immune from paying local property tax on the land underlying the buildings and the vacant space in each building, but it was subject to taxation on the portions of the buildings encumbered by commercial leases. The trial court recognized that the Public School Code of 1949 authorizes the University to lease property to commercial third parties, but it concluded that the University's primary mission of educational instruction is "in no way furthered by its maintenance of the commercial leases here at issue." Trial Court Decision, 5/24/2019, at 3; R.R. 310a. The trial court concluded that "[w]here the leases are concerned, [the University] is no longer immune from paying local property taxes." Id.

In granting the University's appeal with respect to the vacant building space, the trial court explained as follows:

When [the University] acquired the property, [ ] it did so for the specific purpose of expanding the Culinary Academy and has developed a detailed master plan to achieve that goal. See [Exhibit] B. To that end, it intends to raze and completely replace at least two of the buildings and is currently putting out bids for various phases of the project, which is scheduled to commence next year. Although the bulk of the property is vacant, [the University's] active engagement in the transformational process outlined in Exhibit B means, for all practical purposes, that it is currently using that space in conformity with the purpose for which it was created.

Id. The trial court further noted that the School District did not present any evidence that the University's "failure to immediately utilize the vacant space for educational activities was tantamount to using it for commercial endeavors unrelated to its mission." Id. The University's appeal to this Court followed.

Appeal

On appeal,⁴ the University contends that the trial court erred in holding that any portion of its properties could be subjected to local taxation. It asserts that real property owned by the Commonwealth, which includes the University, is immune from taxation, regardless of how it is used, unless the local taxing authority has been granted explicit statutory authority by the General Assembly to tax the property. Here, the local taxing authorities have not been granted express statutory authority to tax University property. The University further argues that the Pennsylvania Supreme Court's decision in Southeastern Pennsylvania Transportation Authority (SEPTA) v. Board of Revision of Taxes , 574 Pa. 707, 833 A.2d 710 (2003) ( SEPTA ), on which the trial court relied, is inapposite to the question of whether the University is immune from taxation.

In response, the School District⁵ argues that the University is not immune from local tax if its property is used in a way that does not advance its statutory purpose to provide education. At the time the University applied for tax immunity, only part of one building, the Fairman Centre, was in active use for educational purposes. The School District asserts that the University's leases do not coincide with the University's statutory purpose, i.e. , to provide education.

Analysis

We begin with the legal standards for determining whether government property can be subjected to local tax. The power "to determine what property shall be subject to taxation and what shall be immune is traditionally within the province of the General Assembly." Commonwealth v. Dauphin County , 335 Pa. 177, 6 A.2d 870, 871 (1939). "An arm, agency, subdivision, or municipality of the Commonwealth enjoys sovereign immunity from local real estate taxation.... Property owned by the Commonwealth and its agencies and instrumentalities is presumed to be immune, with the burden on the local taxing body to demonstrate taxability." City of Philadelphia v. Cumberland County Board of Assessment Appeals , 622 Pa. 581, 81 A.3d 24, 50 (2013). The local taxing body may tax real property of the Commonwealth only where it has express statutory authorization to do so.

Dauphin County , 6 A.2d at 872 ("The legislators did not intend to upset the orderly processes of government by allowing the sovereign power to be burdened by being subjected to municipal taxes.").

A tax exemption differs from a tax immunity. An...