Appeal from the Order of the Commonwealth Court dated September 15, 1995 at No. 2052 C.D. 1994, reversing the order of the Court of Common Pleas of Washington County, Civil Division, dated August 5, 1994, at No. 93-7033.
Composition OF The Court: Mr. Chief Justice John P. Flaherty, Zappala, Cappy, Castille, Nigro, JJ. Madame Justice Newman did not participate in the consideration or decision of this case. Mr. Justice Zappala concurs in the result. Mr. Justice Nigro files a Dissenting opinion.
The opinion of the court was delivered by: Flaherty
MR. CHIEF JUSTICE FLAHERTY
DECIDED: NOVEMBER 20, 1997
This is an appeal by allowance from an order of the Commonwealth Court which reversed an order of the Court of Common Pleas of Washington County. The court of common pleas had reversed determinations of the Board of Assessment Appeals of Washington County that eighty-seven properties owned by Washington & Jefferson College (W&J) were exempt from real estate tax. The City of Washington, appellant, challenges W&J's tax-exempt status.
W&J is a private, coeducational, nonsectarian, four-year liberal arts college in Washington County. It claims exemption from tax pursuant to the General County Assessment Law, 72 P.S. § 5020-204(a)(3), which provides that all universities and colleges, "with the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed, and maintained by public or private charity" shall be exempt from all county, city, borough, town, township, road, poor, and school taxes. *fn1 The exemption was enacted pursuant to a provision of the Pennsylvania Constitution which gives the legislature power to exempt from taxation "institutions of purely public charity, but in the case of any real property tax exemptions only that portion of real property of such institution which is actually and regularly used for the purposes of the institution." Pa. Const. art. VIII, § 2(a)(v) (emphasis added). At issue in this appeal is whether W&J meets the constitutional prerequisite of being a "purely public charity" so that it can claim the statutory exemption.
In Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (HUP), we set forth the test that determines whether an entity constitutes a purely public charity. The test requires that the entity 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. *fn2 Id. at 21-22, 487 A.2d at 1317. Here, the record demonstrates that W&J fulfills all of these requirements.
With regard to the first prong of the HUP test, an institution advances a charitable purpose if it benefits the public from an educational, religious, moral, physical or social standpoint. HUP, 507 Pa. at 18, 487 A.2d at 1315. Institutions that provide education have long been regarded by this court as serving to advance the public good and as being charitable in nature. Hill School Tax Exemption Case, 370 Pa. 21, 26, 87 A.2d 259, 262 (1952) (education of youth and the support of schools are charitable functions that promote the public good); Ogontz School Tax Exemption Case, 361 Pa. 284, 309, 65 A.2d 150, 160 (1949) (advancement of education deemed a charitable purpose); Episcopal Academy v. Philadelphia, 150 Pa. 565, 573, 25 A. 55, 56 (1892) ("The education of youth and the support of schools are for the advancement of public good . . . ."); Price v. Maxwell, 28 Pa. 23, 34 (1857) (charitable nature of educational institutions); Haverford College v. Rhoads, 6 Pa. Super. 71 (1897) (college qualified as a purely public charity). W&J provides education for youths in this Commonwealth and thereby serves a charitable purpose.
The next element of the HUP test is satisfied in that W&J donates or renders gratuitously a substantial portion of its services. It does so by absorbing massive tuition charges that would otherwise be charged to the students. This results in an annual disbursement of substantial amounts of essentially free, or partially free, education for the approximately 1,100 students that comprise W&J's student body. *fn3
For example, W&J awards numerous scholarships based on academic merit. There were 151 scholarships totaling $615,343, 141 totaling $547,800, and 126 totaling $436,385 for the academic years 1993-94, 1992-93, and 1991-92 respectively. W&J also contributes prodigious amounts of aid to students via grants that are based on financial need. There were 758 grants totaling $5,443,870, 769 totaling $4,482,568, and 681 totaling $3,065,024 for the academic years 1993-94, 1992-93, and 1991-92 respectively. *fn4 Approximately 845 students were recipients of scholarships, grants, and related aid from W&J in 1993-94; 850 were recipients in 1992-93; and 762 were recipients in 1991-92. *fn5 Scholarships, grants, and aid amounted to 30.5% of the college's total operating budget for 1992-93, and to 25.2% thereof for 1991-92.
In addition, W&J contributes large sums from its endowment to sustain its educational programs. In the academic years 1992-93 and 1991-92, at least 23% of W&J's operating budget was paid from endowment funds. By using these funds to finance educational programs rather than raising tuition prices to reflect true operating costs, W&J effectively subsidizes each and every student for a portion of the cost of his or her education. Further, W&J incurred operating losses in 1993-94, 1992-93, and 1991-92, respectively, in the amounts of $1,071,959 (projected), $470,631, and $939,848. These losses were covered by funds from the endowment, rather than by tuition increases. This demonstrates W&J's charitable character. See Ogontz School Tax Exemption Case, 361 Pa. at 295-96, 65 A.2d at 154-55 (schools which use endowment funds to cover part of their operating costs rather than charge all such costs to the students are charitable in character).
Due to the extensive use of scholarships, grants, and endowment funds, the typical student at W&J receives approximately 50% of his or her education without charge. In 1992-93, student tuition payments covered only 46.8% of the college's operating budget. In 1991-92, such payments covered only 51.7% of the budget. As we stated in Pittsburgh Institute of Aeronautics Tax Exemption Case, 435 Pa. 618, 624, 258 A.2d 850, 853 (1969), "if the tuition only pays for one half the operating expenses, then every student is effectively getting a 50% scholarship irrespective of the number of formal scholarships offered."
Inasmuch as W&J collects only about half of its operating costs from its students, it essentially provides half of its educational services for free. *fn6 This level of assistance is well above what we have deemed adequate to qualify as a purely public charity. See St. Margaret Seneca Place v. Board of Property Assessment Appeals and Review, 536 Pa. 478, 486, 640 A.2d 380, 384 (1994) (nursing home that collected fees for its services and absorbed only one-sixth of its costs qualified for tax exemption as a purely public charity); Presbyterian Homes Tax Exemption Case, 428 Pa. 145, 153, 236 A.2d 776, 780 (1968) (rest home that collected fees from its residents and absorbed only one-fifth of its costs was a purely public charity).
The fact that tuition charges are levied by W&J does not negate the college's status as a charity. See St. Margaret Seneca Place, 536 Pa. at 486, 640 A.2d at 384 (collection of fees is appropriate since charities need not provide services that are wholly gratuitous); Presbyterian Homes Tax Exemption Case, 428 Pa. at 154, 236 A.2d at 780-81 (receipt of payment for services does not conflict with status as a purely public charity); Hill School Tax Exemption Case, 370 Pa. at 27, 87 A.2d at 263 (educational institution that levies tuition charges does not thereby lose its status as a purely public charity). See also HUP, ...