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IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Borough of Homestead,
:
Appellant
::
v.
:
No. 1010 C.D. 2001
:
St. Mary Magdalen Church,
:
Argued: February 11, 2002
The Diocese of Pittsburgh
:
and Board of Property
:
Assessment and Review
:
BEFORE: HONORABLE BERNARD L. McGINLEY, Judge
HONORABLE ROBERT SIMPSON, Judge
HONORABLE JOSEPH F. McCLOSKEY, Senior Judge
OPINION
BY JUDGE SIMPSON
FILED: May 21, 2002
The Borough of Homestead (Borough) appeals from the order of the
Court of Common Pleas of Allegheny County (trial court) that found certain real
property owned by St. Mary Magdalen Church and the Diocese of Pittsburgh
(collectively Diocese) exempt from taxation under Section 204 of The General
County Assessment Law (Law), Act of May 22, 1933, P.L. 853, as amended,
72 P.S. §5020-204. We affirm.
The property is located in the Borough and, prior to 1987, had been a
high school operated by the Diocese. Following the closure of a local steel mill
which caused the loss of approximately 12,000 to 15,000 jobs, enrollment at the
high school dropped, and the Diocese closed the school. It converted the school
into an office building known as the Bishop Boyle Center in which it operated a
job center to assist displaced workers. The job center occupies 5% of the Center's

space. The remaining space is available to for-profit1 and non-profit entities2
(Licensees) whose missions involve helping the unemployed and generating new
businesses for the local economy. Licensees' occupancy of the Bishop Boyle
Center is governed by license agreements that are reviewed yearly by the Diocese.
Under the terms of the agreements, the Licensees pay fees for occupancy. The
Diocese provides janitorial services, snow removal, maintenance of common areas,
as well as the interior and exterior of the premises, and it pays all utilities. The for-
profit entities occupy 16% of the Center's space and the non-profit entities occupy
79% of the Center's space. The Diocese also allows various local groups and
governmental units, including the Borough Council and zoning board, to use space
in the Bishop Boyle Center at no cost.
As early as 1995, the Borough sought to collect from the Diocese real
property taxes on the Bishop Boyle Center. Sometime prior to March 1999, the
Board of Property Assessment and Review determined that the property remained
exempt from taxation. The Borough appealed.
Following a bench trial, the trial court sustained the tax exemption. It
concluded that the Licensees pay fees below market value when the costs of the
services provided by the Diocese are considered. Although some Licensees made

1 The for-profits included companies such as Giant Eagle, McDonald's and Lowes, who
used space to interview prospective employees for their operations in a new residential and
commercial development in the Borough.
2 The non-profits included: Mon Valley Supports Coordination Program, a program that
provides support services to individuals with disabilities; Just Harvest, an arm of the Pittsburgh
Food Bank; the Mon Valley Unemployed Committee, a welfare reform advocacy group; CATY
Services, a government funded program for people with addictions; and Turtle Creek MH/MR
office.
2

improvements at their own expense, such as new carpeting, electrical wiring and
converting a storage area into drafting room, these improvements are mainly
cosmetic and insubstantial. Also, the trial court found that, since its inception in
1987, the Bishop Boyle Center never generated a profit; rather, the Bishop Boyle
Center operated under an $800,000 deficit in the 1990s, and the Diocese subsidizes
its operation. The trial court further found that the for-profit entities operate in
conformity with the mission of the Bishop Boyle Center in that they use the space
to facilitate recruitment efforts and to provide jobs in the local community. Timely
appeal was taken by the Borough.3
I.
The Borough contends that under the analyses set forth in Hospital
Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985), commonly
referred to as the HUP test, the trial court erred in concluding that the Diocese met
its evidentiary burden. In particular, the Borough contests the trial court's finding
that the Licensees made nominal payments. It argues that payments are close to
the going commercial rental rate and that the Bishop Boyle Center received
approximately $1,178,983 in steadily rising gross income, thereby evidencing a
private profit motive.

3 This Court's scope of review in a tax assessment appeal is limited to a determination of
whether the trial court abused its discretion, committed an error of law or whether its decision is
supported by substantial evidence. Wilson Area School Dist. v. Easton Hospital, 708 A.2d 835
(Pa. Cmwlth. 1998), affirmed, 561 Pa. 1, 747 A.2d 877 (2000). The trial court is the finder of
fact and resolves all matters of credibility and evidentiary weight. Its findings are binding on
this Court if supported by substantial evidence. St. Margaret Seneca Place v. Bd. of Property
Assessment, Appeals and Review, 536 Pa. 478, 640 A.2d 380 (1994).
3

Under Art. VIII, §2(a)(v) of the Pennsylvania Constitution, the
General Assembly is empowered to confer tax-exempt status to institutions of
purely public charity. In Hospital Utilization Project, our Supreme Court found
that an entity qualifies as a purely public charity if it:
(a)
Advances a charitable purpose;
(b)
Donates or renders gratuitously a substantial portion of its
services;
(c)
Benefits a substantial and indefinite class of persons who are
legitimate subjects of charity;
(d)
Relieves the government of some of its burden; and
(e)
Operates entirely free from private profit motive.
It is the burden of the party claiming exemption from taxation who must
demonstrate that it meets these criteria. Wilson Area School Dist. v. Easton
Hospital, 561 Pa. 1, 747 A.2d 877 (2000).
We agree with the trial court that the Bishop Boyle Center is an
institution of purely public charity. The Restatement (Second) of Trusts, §368
provides us guidance in determining what purposes are charitable under the first
prong of the HUP test. The Restatement identifies charitable purposes as including
the relief of poverty, the promotion of health, governmental and municipal
purposes and other purposes the accomplishment of which is beneficial to the
community.
The programs offered directly by the Diocese and through its
Licensees benefit the community by providing employment services to thousands
of unemployed and underemployed workers in the Mon Valley following the close
4

of the local steel mill. The programs also provide support services to those with
mental and physical disabilities and addictions, and provide access to food and
other social services programs to members of the community. Even the services
the Diocese provides through the for-profit Licensees benefit the entire
community. It offers space to those bringing employment opportunities to the area
to interview prospective employees from the pool of the locally unemployed.
There is no fixed standard to determine what purposes are of social
interest to the community; the interests of the community vary with time and place.
Restatement (Second) Trusts, §368, Comment b. The activities at the Bishop
Boyle Center serve a socially important need in this economically depressed area,
benefit a substantial and indefinite class of persons and relieve the government of
some of its burden in providing the services. We agree with the trial court that the
Bishop Boyle Center satisfies the first four prongs of the HUP test.
As to the fifth prong of the HUP test, the Borough contends that
because the Bishop Boyle Center generated gross revenue from Licensees, the
Diocese did not operate entirely free from private profit motive. Recently
addressing this issue, the Supreme Court in Wilson Area School Dist. reminded us
that the appropriate inquiry is whether the surplus revenue is being utilized in
furtherance of the entity's charitable purpose. Further, as the Supreme Court held
in St. Margaret Seneca Place v. Bd. of Property Assessment, Appeals and Review,
536 Pa. 478, 640 A.2d 380 (1994), surplus revenue is not synonymous with a
private profit motive, especially where the surplus revenue is utilized to cover
operating expenses and increase efficiency, facilities, grounds and buildings.
Moreover, surplus revenue would not affect the eleemosynary motive of the
5

institution, especially when any surplus would have been offset by the entity's
substantial indebtedness. Id.
Here, the trial court found that the space is provided at below the
going market rate, and that the Diocese operates the Bishop Boyle Center at a
substantial loss. Any revenue generated by the license payments is returned to the
operation and maintenance of the Bishop Boyle Center. The trial court noted that
this testimony was uncontradicted. Not only the parties, but we, too, are bound by
those findings. St. Margaret Seneca Place. We agree with the trial court's
conclusion that the Diocese operated the Bishop Boyle Center free of private profit
motive. In summary, there is substantial evidence to support the trial court's
finding that the Bishop Boyle Center is an institution of purely public charity.
II.
The Borough also contends that Section 204(b) of the Law relating to
rental income precludes tax exemption. Citing the Appeal of the Archdiocese of
Philadelphia, 617 A.2d 821 (Pa. Cmwlth. 1992), the Borough argues that Section
204(b) prevents exemption unless the taxpayer can prove: (1) that the premises are
not the source from which any income or revenue is derived; (2) that any rent paid
is merely nominal; and (3) that the tenant was itself the recipient of the owner's
charity. See id. at 823. The Borough contends that the premises were the source
of income or revenue, that more than nominal rent was paid and that Licenses were
not themselves the recipients of the Diocese's charity.
Section 204(b) provides:
(b) Except as otherwise provided in clauses (11) and (13)
of this section, all property real or personal, other than
6

that which is actually and regularly used and occupied for
the purposes specified in this section, and all such
property from which any income or revenue is derived,
other than from recipients of the bounty of the institution
or charity, shall be subject to taxation, except where
exempted by law for State purposes, and nothing herein
contained shall exempt same therefrom.
We agree with the trial court that Licensees here are the recipients of
the Diocese's bounty. As a result, we agree that income or revenue generated by
the Bishop Boyle Center does not preclude a continuation of the tax exemption.
In Archdiocese of Philadelphia, the charitable owner leased its
property to another charitable organization under a lease that was "an arm's-length
transaction between landlord and tenant for market value." Id. at 824. In addition
to annual rent of $12,000, the tenant paid all utilities, maintained the interior and
exterior of the property and made a "substantial investment" in improvements
which reverted to the Archdiocese. We noted that "[u]nder these lease terms, it is
difficult to envision a cost to Lessor that is not either to be paid directly by Lessee
or reimbursed as additional rent." Id. at 824. Declining to examine the overall
profitability of the arrangement, we held that the tenant was not the recipient of the
bounty of the Archdiocese. Thus, the rental income prevented the tax exemption
pursuant to Section 204(b).
In contrast, the trial court here found that Licensees are recipients of
the bounty of the Diocese. It noted that the fees charged Licensees are below
market value. This determination reflects the Diocese's significant responsibilities
to the Licensees, including interior and exterior maintenance and payment of all
utilities. Also, the trial court found that improvements by Licensees are mainly
cosmetic and relatively insubstantial. Importantly, the trial court found that the
7

Diocese never derived net income or surplus revenue from the Bishop Boyle
Center. Rather, the Diocese continues to subsidize the operation. These findings
are supported by substantial evidence and are binding on us. St. Margaret Seneca
Place. Moreover, these findings distinguish this case from Archdiocese of
Philadelphia.4
Licensees receive the bounty of the Diocese by their subsidized use of
the Bishop Boyle Center; however, they are not the ultimate target of the Diocese's
charity. The intended beneficiary of the Bishop Boyle Center is the demoralized
community impoverished by the loss of employment and the loss of tradition. That
the Diocese uses Licensees to transform, multiply and deliver its charity to the
community supports our conclusion that Licensees are necessary recipients of the
Diocese's bounty. Under this arrangement, receipt of some gross revenue from
Licensees does not preclude tax exemption pursuant to Section 204(b).
III.
The Borough contends that two statutory requirements relating to
owner occupancy preclude tax exemption. In particular, the Borough contends that
Section 204(a)(9) and Section 204(c) of the Law prevent tax exemption because
the Diocese does not sufficiently occupy or possess the Bishop Boyle Center. 72
P.S. §§ 5020-204(a)(9), 204(c).
Once an entity seeking tax exemption is able to establish that it is a
purely public charity within the meaning of Article VIII of the Pennsylvania

4 These findings also distinguish our decision in In re Tax Assessment of Real Estate of
Greater Erie Economic Development Corp., 433 A.2d 568 (Pa. Cmwlth. 1981), in which the
(Footnote continued on next page...)
8

Constitution, it must next establish that it meets the statutory requirements of
Section 204 of the Law. Wilson Area School Dist. Taxation of property is the
rule; therefore, statutory exceptions must be strictly construed. Archdiocese of
Philadelphia. Section 204(a)(9) of the Law provides that certain property shall be
exempt from taxation, specifically:
(9) All real property owned by one or more
institutions of purely public charity, used and occupied
partly by such owner or owners and partly by other
institutions of purely public charity, and necessary for the
occupancy and enjoyment of such institutions so using it.
Section 204(c) of the Law precludes tax exemption in certain situations:
(c) Except as otherwise provided in clause (10) of this
section, all property, real and personal, actually and
regularly used and occupied for the purposes specified in
this section shall be subject to taxation, unless the person
or persons, associations or corporation, so using and
occupying the same, shall be seized of the legal or
equitable title in the realty and possessor of the personal
property absolutely.
Relying on Archdiocese of Philadelphia, the Borough contends that in
order to meet the criteria of 204(a)(9) or to clear the hurdle of 204(c), the property
owner must prove its continuing right of possession and control, significant
occupancy and active use of the major portion of the premises for its own
charitable work in order to sustain an exemption when some portion of the
property is rented to another charitable entity. Archdiocese of Philadelphia, 617
A.2d at 825. The Borough assigns as error the trial court's findings that the

(continued...)
owner charity rented its property to another charity at a profit.
9

Diocese has a continued right to possession and to control over the Licensees'
areas and that the Diocese significantly occupies and actively uses a major portion
of the property for its own charitable work.
The trial court found that the Diocese maintains a physical presence at
the Bishop Boyle Center both as building administrator and as operator of the job
center. The Diocese permits other organizations to occupy space as Licensees not
as tenants. Further, the Diocese did not give up its right to possession and control
of the property. The licenses are reviewed on a yearly basis to ensure that each
occupant furthered the Bishop Boyle Center's mission in some manner. Also, the
Diocese maintains both the interior and exterior of the premises. As these findings
are supported by substantial evidence, they bind us. St. Margaret Seneca Place.
In Archdiocese of Philadelphia, this Court concluded that the
Archdiocese's "use and occupancy based merely on its bus being parked in the
garage and its having furniture stored in the basement does not satisfy the criterion
of owner occupancy under 204(c)." Archdiocese of Philadelphia, 617 A.2d at 824.
The facts in Archdiocese of Philadelphia, involving minimal, passive possession,
are significantly different from the situation at the Bishop Boyle Center, where the
Diocese maintains active, daily possession with some control over all activities on
the property. At the Bishop Boyle Center, Licensees are the necessary recipients
of the Diocese's bounty and active participants in its charitable mission. We,
therefore conclude that Archdiocese of Philadelphia does not control the outcome
of the present controversy.
Nor does Young Men's Christian Ass'n v. Reading, 402 Pa. 592, 167
A.2d 469 (1961), compel a different result. Our Supreme Court determined that
10

the portion of the Reading YMCA which was leased to other charities (3,900 sq.
ft.) was not tax exempt, while the remainder of the property (115,100 sq. ft.)
remained tax exempt. In Young Men's Christian Ass'n there was no question that
the owner charity occupied the property. There was a question, however, about its
receipt of income from the leases to the other charities. The Court held, "[w]e are
of the opinion that this subsection [granting tax exemption] was not meant to apply
to cases where the owner charity realized a rental income from the leasing of the
property." Id., 402 Pa. at 598-99, 167 A.2d at 472 (emphasis added).5 Unlike the
income realized by the Reading YMCA, the Diocese here sustained a loss from its
arrangement with Licensees. Also, the Licensees are themselves recipients of the
Diocese's bounty and active participants in its charitable mission. These factual
distinctions render Young Men's Christian Ass'n inapposite.
Accordingly, we affirm the trial court.

ROBERT SIMPSON, Judge

5 We note that this 1961 decision specifically refers to subsection (i) of §204 of the Law.
The 1972 amendment to the Law rearranged the section and the text of previous subsection (i)
now appears in subsection (a)(9). Therefore, while the subsections are identified differently, the
discussion still pertains to the same subject matter.
11

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Borough of Homestead,
:
Appellant
::
v.
:
No. 1010 C.D. 2001
:
St. Mary Magdalen Church,
:
The Diocese of Pittsburgh
:
and Board of Property
:
Assessment and Review
:
O R D E R
AND NOW, this 21st day of May, 2002, the order of the Court of
Common Pleas of Allegheny County is affirmed.

ROBERT SIMPSON, Judge