The Latest: HAP was disappointed by the recent Supreme Court decisionin the case Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals that addressed the issue of whether the Institutions of Purely Public Charity Act (Act 55 of 1997) or the judicially-created test set forth in prior case law (known as the HUP test) should be applied in determining whether an entity is a “purely public charity” for purposes of tax exemption. A majority of the Court held that the court-defined HUP test sets the constitutional minimum for determining whether an entity qualifies as a purely public charity and that legislation cannot change that definition. The court stated that an entity seeking a tax exemption must first satisfy the requirements of the HUP test prior to satisfying the requirements enacted by the legislature in Act 55. HAP will be providing member hospitals and health systems with additional information regarding the implications of this decision.
Background: In 1985, five criteria were adopted by the Pennsylvania Supreme Court (Hospital Utilization Project v. Commonwealth, 507 Pa.1, 487 A.2d. 1306 [1985]) to determine whether an institution is an “institution of purely public charity.” During the decade following the 1985 Supreme Court decision, there was a surge of litigation by local governments and school districts that believed the court had created new and quite narrow standards that would eliminate the exemption for certain previously exempt institutions. Instead of clarifying the situation, the litigation following the Supreme Court decision created confusion and costly confrontations between traditionally tax-exempt institutions and political subdivisions.
Act 55 of 1997 was passed to bring clarity to the criteria to determine an institution’s real property and sales tax exemption status. Act 55 uses the same five criteria established by the Supreme Court in 1985 as the framework for defining an “institution of purely public charity,” but elaborates how an entity must demonstrate satisfaction of each criterion. Pennsylvania is unique among the states in this matter. No other state has developed such comprehensive requirements for state tax exemption.
