OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE McGINLEY.
The underlying action was commenced by petition for review, in the nature of a declaratory judgment, to determine whether real property owned by the Commonwealth of Pennsylvania State System of Higher Education (PASSHE) for use by the Indiana University of Pennsylvania (IUP) (collectively "Petitioners"), is subject to local real estate taxation by the Indiana Area School District (School District), and the County of Indiana (County). (The School District, and the County, together with the Indiana County Board of Assessment Appeals (Board), are hereinafter referred to as "Respondents").
There are two Applications for Summary Relief before this Court: (1) Petitioners' "Second Application for Summary Relief;" and (2) Respondents' "Joint Application for Summary Relief."
PASSHE is the owner of 22.93 acres of real property, which includes the "Robertshaw Building" located at Rose Street, White Township, Indiana County (Property). The Deed for the Property reflects titled ownership in "the Commonwealth of Pennsylvania State System of Higher Education, for the use of Indiana University of Pennsylvania." Deed, December 17, 1984, at 1; attached to Respondents' Brief as Exhibit "A."
Prior to 2011, the Property was classified by the Indiana County Assessment Office as "exempt" from real estate taxation as part of the existing Keystone Opportunity Enterprise Zone (KOEZ). Because the KOEZ was set to expire in 2011, the County's Chief Assessor investigated the Property's use and, after allegedly discovering commercial leases associated with the Property, he issued a Notice of Assessment Change dated July 10, 2010, which removed the Property from Tax Exempt Status.
On March 11, 2010, IUP received a real estate tax notice from Indiana County which demanded a tax payment in the amount of $30,206.15 based upon an assessed value of $992,970.00 and a millage rate of 30.42. On August 31, 2010, Petitioners filed a Notice of Appeal to the Board.
On April 13, 2011, following several postponements of the Board hearing, Petitioners filed a Petition for Review in the Nature of an Action for Declaratory Judgment in this Court's original jurisdiction. In the Petition for Review, Petitioners aver that the Property "houses a variety of university operations, including all aspects of building and grounds, maintenance, procurement and contracting." Petition for Review, April 13, 2011, ¶19 at 6. In Paragraphs 20 through 28 Petitioners aver that the Property also houses the "Indiana County Small Business Incubator" (Incubator). According to Petitioners the Incubator is a program component of the IUP College of Business that was established in 1986 to provide assistance to start-up or developing companies in Indiana County. The College of Business has a three-fold mission to educate, engage in research and scholarly activities, and serve the community. The Incubator is funded in part by the Ben Franklin Partnership of Central and Northern Pennsylvania. The Incubator provides a community service and education to IUP students who participate in the establishment and development of actual businesses. Petition for Review, April 13, 2011, ¶¶20-28 at 6-7.
Petitioners ask this Court to declare, as a matter of law, that Respondents have no legal authority to tax property owned by the Commonwealth as the Commonwealth is immune from taxation as the sovereign. Petitioners also ask the Court to declare that Respondents have no legal authority or jurisdiction to make a factual determination (in a Board of Assessment Appeals setting) whether property owned by the Commonwealth is being used for an authorized governmental purpose. Petitioners aver that property owned by the Commonwealth is immune from taxation by local government as a matter of law, unless sovereign immunity has been expressly waived by statute enacted by the General Assembly. Petition for Review, April 13, 2011, ¶¶4-5 at 3.
On May 9, 2011, Respondents filed Preliminary Objections to the Petition for Review. Respondents argued that declaratory relief was not available because the Board has exclusive jurisdiction to classify all properties as taxable, exempt or excluded from real estate taxation. They contend the Board is vested with exclusive jurisdiction to hold evidentiary hearings to determine whether governmental immunity applies. Petitioners filed an application for Summary Relief.
On August 5, 2011, a single-judge of this Court issued an order which: (1) overruled Respondents' Preliminary Objections; (2) denied Petitioners' Application for Summary Relief; and (3) directed the Respondents to file an Answer to the Petition for Review.
On September 1, 2011, Respondents filed their Answer to the Petition for Review. Respondents denied that the Property was being used strictly for university purposes and averred that the PASSHE leased portions of the Property to private commercial tenants. Specifically, in their Answer to the Petition for Review, Respondents state that they are "without sufficient information to form a belief as to the truth of the averments" pertaining to the Incubator. Respondents' Answer to Petition, ¶19, at 4. Respondents also state, "upon information and belief, portions of the Robertshaw Building [Property] are leased to and/or marketed for leasing to private commercial tenants and said leases generate rental income." Respondents' Answer to Petition, ¶19, at 4.
On September 30, 2011, Petitioners filed a "Second Application for Summary Relief" in which they ask this Court to grant their Petition for Review in the Nature of Declaratory Judgment as a matter of law. On November 2, 2011, Respondents filed a "Joint Application for Summary Relief" which requests that this Court dismiss the Petition for Review as a matter of law. Both Petitions are before this Court.
Respondents' "Joint Application for Summary Relief"
Respondents assert that although the Property may be owned by PASSHE, "immunity" is not automatic or unqualified. They contend that PASSHE's ownership and use of the Property must be within its authorized governmental purpose before immunity applies. Therefore, "the use" of real estate is relevant in an "immunity" analysis. They rely on
Respondents further contend that they have statutory authority to determine taxable classifications, prepare a list of all properties exempted from taxation and hear all appeals challenging taxable classifications under Sections 601 and 701(c) of the Fourth to Eighth Class County Assessment Law, 72 P.S. §5453.601, and §5453.701(c).
Respondents seek an administrative evidentiary hearing before the Board on PASSHE's use of the Property to determine if the Property qualifies for immunity under the legal standard adopted by our appellate courts. They ask that Petitioners' request for summary relief be denied and the Petition for Review be dismissed as a matter of law.
Petitioners' "Second Application for Summary Relief"
In their "Second Application for Summary Relief," Petitioners ask this Court to declare, as a matter of law, that they are "immune" from local real estate taxation. Petitioners contend that Respondents are prohibited from assessing a tax against the Property because the legislature has not granted Respondents specific authority to tax Commonwealth property or to decide the authorized governmental purpose of a component agency of the Commonwealth. They assert that the Property is entitled to blanket, unqualified immunity. Petitioners contend that this ends the inquiry and it is unnecessary for the Board to hold an evidentiary hearing to determine whether the Property is being "used for a public purpose."
Petitioners stress that "tax immunity" and "tax exemption" are distinct legal concepts and that only a tax "immunity" analysis is applicable to this controversy. They claim that whether a property is "used for a public purpose" is only relevant in a tax "exemption" analysis.
Petitioners contend that the Property is owned by PASSHE, and that PASSHE and its component state-owned institutions are part of the sovereign Commonwealth of Pennsylvania. Petitioners argue that real estate owned by PASSHE may not be subject to taxation by political subdivisions absent express statutory authority,
The "Immunity" Analysis — Government Use Test
It is well-established that real estate owned by the Commonwealth is not subjected to taxation by political subdivisions absent express statutory authority.
"Immunity" also extends to property owned by "agencies or instrumentalities" of the Commonwealth.
In the case of property owned
Petitioners assert that PASSHE is
However, this does not necessarily mean that Petitioners prevail for they still must prove that: (1) PASSHE
PASSHE is not the equivalent to the Sovereign Commonwealth For Purposes of Tax Immunity Analysis — It is an "Agency or Instrumentality" of the Commonwealth
PASSHE is Pennsylvania's public university system. It is composed of 14 universities in Pennsylvania, including IUP, which are publicly owned and governed.
PASSHE is unique in that it is made up of a 20-member Board of Governors, which includes the Governor, the Secretary of Education, 4 members of the General Assembly and 14 members appointed by the Governor with the advice and consent of the Senate of Pennsylvania. Section 20-2004-(A)(a) of the Public School Code, 24 P.S. §20-2004-A(a). The Board of Governors is authorized to approve programs of research and service as might be consistent with the primary mission of PASSHE. Section 20-2003-(A)(a) of the Public School Code, 24 P.S. §20-2003-A(a). Real property owned by the Commonwealth, including PASSHE, may not be sold, transferred or disposed of without the approval of the General Assembly. 24 P.S. §20-2003-A(b)(3).
PASSHE is "part of the Commonwealth's system of higher education." Section 20-2004-(A)(a) of the Public School Code, 24 P.S. §20-2004-A(a). It serves and carries out a particular function for the Commonwealth, as opposed to being
Based on the statutory characteristics of PASSHE, PASSHE is an "agency or instrumentality" of the government which is entitled to the initial presumption of real estate tax immunity. This presumption, however, may be overcome if PASSHE acquired or used the Property outside its authorized governmental functions.
Whether PASSHE's Use of the Property is Within its Authorized Governmental Purpose
There, the Supreme Court reviewed the question of whether property which was owned by SEPTA and leased to commercial tenants was immune from local real estate taxation. There, SEPTA purchased a 20-story office building for its headquarters. To raise revenues, SEPTA leased space in the building to various government, non-profit and commercial entities. SEPTA applied to the tax revision board for an exemption on the basis that the property was immune and exempt from taxation. The Board granted a partial real estate tax exemption for the portions of the property which were used by SEPTA. The Court of Common Pleas of the County of Philadelphia concluded that the rental space by SEPTA was for a public purpose as it generated revenues for the government entity. This Court reversed and explained that an agency of the Commonwealth is immune from taxation so long as it acts in accordance with the powers granted to it. To the extent that SEPTA leased office space solely to raise revenue, this was outside the purpose of SEPTA which was to operate a transportation system for southeastern Pennsylvania.
The Supreme Court affirmed and found that SEPTA's property was presumed to be immune because it was organized under 74 Pa.C.S. §1711(a) which provides that metropolitan transportation authorities shall exercise the public powers of the Commonwealth as an agency and instrumentality thereof. In applying the government use test, the Supreme Court next found that while
Here, this Court must, in the same way, look to PASSHE's authorized powers
Section 20-2003-(A)(b)(3) of the Public School Code, 24 P.S. §20-2003-A(b)(3).
Clearly, PASSHE has been given the "power" to own, lease (as lessee and lessor), and to sell real property and use all monies "for the use of the system." The question remains, however, whether PASSHE's lease of portions of the Property to commercial tenants in exchange for rental income is consonant with its "purpose."
PASSHE's enabling legislation states that its purpose is "to provide high quality education for the Commonwealth at the lowest possible cost to its students."
Respondents request this Court to deny the Petition for Review so the Board can hold an evidentiary hearing on whether PASSHE is leasing portions of the Property to third party commercial entities and receiving rental income. This Court agrees that this is the proper course. It is unclear whether PASSHE leases a portion of the Property to the Incubator
To the extent that the Property houses classrooms, laboratories, libraries, study halls, auditoriums, workshops, etc., which are used by the university, its faculty, employees and students, for teaching and educational purposes, then it shall not be subject to real estate taxes. However, those portions of the Property which are leased to any third party
Respondents' Application for Summary Relief in the above-captioned case is hereby
AND NOW, this 5