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decided: June 21, 1983.


Appeal from the Order of the Board of Finance and Revenue in case of In Re: Petition of Hospital Utilization Project, No. RST-4370.


Joyce McKeever, Kirkpatrick, Lockhart, Johnson & Hutchison, for petitioner.

Paul S. Roeder, Deputy Attorney General, with him LeRoy S. Zimmerman, Attorney General, for respondent.

Judges Rogers, Blatt and Doyle, sitting as a panel of three. Opinion by Judge Doyle.

Author: Doyle

[ 75 Pa. Commw. Page 155]

The Hospital Utilization Project appeals here a decision of the Board of Finance and Revenue (Board) which denied its application for tax-exempt status and its petition for refund of sales and use taxes paid in the purchase of supplies and equipment. We affirm.

The Hospital Utilization Project (HUP) was created in 1963 as a joint project funded by the Hospital

[ 75 Pa. Commw. Page 156]

Council of Western Pennsylvania with contributions from the Allegheny County Medical Society Foundation, thirty-three private and corporate foundations, and "in kind" donations of computer services from Blue Cross of Western Pennsylvania. HUP provides statistical analyses of patient treatment and cost data and offers these analyses to hospitals and other health care providers to assist in their efforts to maintain efficiency and ultimately reduce health care costs.

In 1967, the Hospital Council withdrew from the project and HUP was funded through direct payment from hospitals for HUP services. In 1969, HUP was organized as a non-profit corporation under Pennsylvania law.*fn1

In 1965, when HUP was operated as a joint venture by the Hospital Council and the Medical Society Foundation, the Department of Revenue (Department), by letter, granted HUP tax-exempt status. HUP was permitted to use the Council's and Foundation's tax-exemption numbers to avoid payment of sales and use taxes. In 1980, apparently as part of an internal monitoring procedure, the Department directed HUP to apply for its own tax-exemption number. HUP's application was then rejected. HUP thereafter filed for a refund and appealed its denial to the Board. This appeal followed affirmance of the denial by the Board.

HUP claims to qualify for the charitable exemption provided in Section 204(10) of the Tax Reform Code of 1971 (Code),*fn2 which provides in pertinent part:

[ 75 Pa. Commw. Page 157]

The tax imposed by section 202 shall not be imposed upon

(10) The sale at retail to or use by (i) any charitable organization . . . or nonprofit educational institutional. . . .

72 P.S. § 7204(10). The code does not define "charitable organization." There is no dispute, however, that Article VIII, § 2(a)(v) of the Pennsylvania Constitution of 1968 is controlling. Commonwealth v. The American Anti-Vivisection Society, 32 Pa. Commonwealth Ct. 70, 377 A.2d 1378 (1977), aff'd per curiam, 487 Pa. 41, 407 A.2d 1308 (1979); Maxwell Memorial Football Club, Inc. v. Commonwealth, 18 Pa. Commonwealth Ct. 464, 336 A.2d 460 (1975). Article VIII, § 2(a)(v) empowers the legislature to exempt from taxation "[i]nstitutions of purely public charity."

[ 75 Pa. Commw. Page 158]

HUP urges that it qualifies as an "institution of purely public charity"*fn3 and relies on American Society Page 158} for Testing and Materials v. Board of Revision of Taxes, 423 Pa. 530, 225 A.2d 557 (1967). In that case, the Society was a non-profit organization which kept abreast of scientific developments in the field of engineering and materials, and conducted research and tests, gave lectures and seminars, and published papers and reports relating to the standardization of engineering specifications and the development of methods for testing materials such as steel, iron, rubber, asphalt and the like. The City of Philadelphia contended that the Society was not a "purely public charity" because industry was the primary beneficiary of the Society's efforts. The Supreme Court found that whatever gain accrued to industry eventually accrued to the benefit of the public as well. HUP argues that its services similarly, although not provided directly to the public, eventually benefit the public through reduced medical costs.

While it is undeniable that the public ultimately benefits from increased hospital efficiency and reduced medical costs, and HUP's statistical services are directed toward this goal, ultimate public benefit is not the single criterion by which a "purely public charity" is identified for purposes of tax exemption. See Robert Morris College v. Board of Property Assessment Appeals and Review, 5 Pa. Commonwealth Ct. 648, 291 A.2d 567 (1972).

"[A]n institution claiming to be benevolent or charitable . . . must possess an eleemosynary characteristic not possessed by institutions . . . devoted to private gain or profit. What is 'given' must be more nearly gratuitous than for a price which impresses one as being proportionate to the services rendered." (Emphasis in original.)

[ 75 Pa. Commw. Page 159]

    operations and qualifies under Section 201(k)(8)(ii) of the Code, 72 P.S. § 7201(k)(8)(ii). The argument is specious. HUP provides health care data processing and reporting services. Its clients purchase the compilation and analysis of individualized statistical data. This is a service not a manufactured product.


Now, June 21, 1983, the order of the Pennsylvania Board of Finance and Revenue in the above referenced matter, dated May 27, 1981, No. RST-4370 is hereby affirmed.



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