By: Pamela A. Lee, Esquire
In a petition to enforce an order adopting a PILOT (payment in lieu of taxes) agreement, the Law Firm of DiOrio & Sereni, LLP successfully preserved a $400,000 plus verdict for a local school district on appeal before the Commonwealth Court.
In Pennsylvania, our law provides for the “principle that a taxpayer should pay no more or no less than his proportionate share of the cost of government.” Our Supreme Court has explained that taxes are not penalties but are contributions which all are expected to make to fund the cost of government.
However, certain organizations in Pennsylvania—such as so-called “purely public charities”—may be exempt from real estate tax based upon the traditional premise that they are given a “quid pro quo” for providing services which the government would otherwise have to provide. Because taxation is the rule, the organization seeking real estate tax exemption has the affirmative burden to prove it is entitled to exemption. For obvious reasons, for-profit organizations are, on the other hand, never given the benefit of real estate tax exemption.
Rather than litigate a tax exemption appeal, taxing authorities and an organization purporting to be a purely public charity may choose to enter into an agreement whereby the organization makes voluntary payments in lieu of paying taxes—called a PILOT agreement. PILOT agreements are contracts between the organization and the taxing authorities.
The taxing authorities in In re: Springfield Hospital[i] sought to enforce a 1994 trial court order approving a PILOT agreement whereby Springfield Hospital—a tax exempt organization—made payments in lieu of taxes for a period of time and then gave the property tax exempt status only so long as the entity that owned the property operated it as a hospital and held tax-exempt status. When the property sold to a for-profit organization in 2016, the taxing authorities sought to enforce the 1994 order requiring the immediate cessation of tax exempt status.
The property owner absurdly argued before the trial court that it was entitled to tax exempt status indefinitely under the terms of the PILOT agreement because it still operated the property as a hospital and chose to keep the name as “Springfield Hospital.” The trial court found in favor of the school district and municipality holding that the clear and unequivocal intent of the parties, based upon the plain language of the 1994 PILOT Order, was for the property to remain tax exempt only so long as the entity that operated it as a hospital held tax-exempt status.
On appeal, the for-profit property owner abandoned its argument that the property remains wholly tax exempt—despite being owned by a for-profit entity— in favor of arguing that the trial court chose the wrong date for when the property became taxable and, in so doing, allegedly violated a plethora of laws.
First, the Commonwealth Court held that the for-profit property owner waived the issue of whether the PILOT agreement purportedly prohibited the trial court from enforcing the PILOT Order because the property owner had not raised the issue below. The Springfield Hospital Court then held that the trial court did not just enforce an agreement between parties but enforced the trial court’s 1994 Order and a trial court’s order has to be enforced.
More importantly, the Court in Springfield Hospital held that “an agreement to pay taxes if the property is not being used for tax-exempt purposes is not illegal.” The Court specifically noted that the General Assembly empowered taxing authorities and property owners to enter into voluntary agreements. The Court further noted that it was the General Assembly’s intent to encourage institutions of purely public charities and taxing authorities to enter into such PILOT agreements or to maintain existing agreements.
Thus, the Springfield Hospital Court’s ruling expressly upholds taxing authorities’ and institutions of purely public charities’ statutory right to enter into PILOT agreements and that those agreements can be—and will be—enforced by our courts.
The Law Firm of DiOrio & Sereni, LLP is a full-service law firm in Media, Delaware County, Pennsylvania. We strive to help people, businesses and institutions throughout Southeastern Pennsylvania solve legal problems – and even prevent legal problems before they occur. To learn more about the full range of our specific practice areas, please visit www.dioriosereni.com or contact Pamela A. Lee, Esquire at 610-565-5700 or at firstname.lastname@example.org.
[i] In re Springfield Hospital, Folio No. 42-00-06625-01, 179 A.3d 632 (Pa. Cmwlth. 2018).