This article will provide readers with the most recent updates in the ongoing attempt made by Allegheny County to limit the amount of charitable tax exempt properties in the county after the last Allegheny County assessment. Specifically highlighted below are the following topics:

1. The criteria required for a charitable institution to qualify for a tax exempt property;
2. The controversy revolving around the city’s decision to challenge the tax exempt status of UPMC properties with the Allegheny County assessment; and
3. The other property owners impacted by this tax exemption challenge.

Each topic is discussed below.

How Do You Qualify as a Charitable Tax Exempt Property?

Charitable tax exemption saves property owners millions of dollars a year.

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The Pennsylvania Constitution permits its taxing entities to provide for tax exemptions for properties owned by institutions operating as “purely public charity”. The Pennsylvania Supreme Court created a specific test for charitable property tax exemption in 1985, when it created the HUP test in the landmark case of Hospital Utilization Project v. Commonwealth (487 A.2d 1306 (Pa. 1985)). In order for a property to be considered tax exempt from real estate taxes in Allegheny County, the property owner must satisfy the HUP Test.

To be considered a “purely public charity”, and ultimately qualify as a tax exempt property after an Allegheny County assessment, the institution owning the property must prove each of the following:

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.

Though a review of all tax exempt properties was ordered back in 2007 with an Allegheny County assessment, a recent Supreme Court decision affirming the HUP Test has pushed the issue of charitable exemptions back into the forefront. This comprehensive Allegheny County assessment in 2013 is the first of its kind in the county, and has resulted in the county challenging more than 2,800 property exemptions.

The Beginning of Controversy – David v. Goliath

Early in 2013, Mayor Luke Ravenstahl announced that the City of Pittsburgh would be challenging the tax exempt status of thousands of properties across Allegheny County.

This story made so many headlines because the city specifically cited their challenge to all properties owned by UPMC. Additionally, the city has argued that UPMC should be required to pay payroll taxes. UPMC is currently both the largest landowner and employer in the City of Pittsburgh. The outcome on both of these issues will have a significant financial impact. Mayor Ravenstahl referred to this challenge as a classic David v. Goliath scenario.

In a letter that has since been released to the media, the arguments advanced by the city in challenging this tax exempt status are further explained. Specifically, three main challenges are brought.

1. The City argues that UPMC does not operate “entirely free from profit motive” as required by the HUP test. Specifically, it is cited that over the past two years, UPMC has generated revenues in excess of $1 billion, and accumulated reserves in excess of $3 billion.
2. The City argues that UPMC does not advance a charitable purpose. In previous cases it has been determined that in order for a healthcare provider to advance a charitable purpose, they must utilize an “open admissions policy”. This policy would require opening healthcare facilities to all comers and providing them with care, regardless of their ability to pay for the services. The city argues that based on UPMC’s policy of verifying insurance before providing medical services (among other practices), they do not meet this aspect of the HUP test.
3. The city argues that UPMC does not donate or render gratuitously a substantial portion of its services. By looking at the percentage of profit, and comparing it to the value of the charity and gratuitous services provided to the Pittsburgh community, the city views the portion of services provided gratuitously as insubstantial. This would violate the HUP test.

As this ongoing litigation continues, it will be interesting to watch these parties fight it out. Both parties have a significant amount of money at stake.

To find a copy of this letter fully explaining the legal case against the UPMC tax exemption, please click here.  

How The Allegheny County Assessment of Tax Exemption Has Been Impacting Other Tax Exempt Property Owners

The impact of this Allegheny County assessment of tax exempt properties will not truly be known until the end of this year or the beginning of 2014 after these issues have been resolved.

Hearings have started to be scheduled, wherein property owners will be required to justify their continued usage of this tax exemption.

It was reported earlier today that at least 20 property owners have willingly given up their tax exempt status. A full list of these property owners is listed at the link here.

County officials are estimating that adding these 20 properties on the tax roll will increase tax revenues by more than $40,000.00 per year. This number is only going to increase as additional property owners lose their tax exempt status by failing to meet the HUP test with the new Allegheny County assessment.

If you have any additional questions about tax exempt properties, or would like a free consultation about your property tax appeal case, please feel free to contact us.