In an unreported opinion, the Commonwealth Court held that a nonprofit corporation with the sole purpose to support the educational mission of a charter school was not entitled to an exemption for real estate that it leased to the school. In re Appeal of Friends of Pennsylvania Leadership Charter School, No. 808 C.D. 2009 (Pa. Cmwlth. Jan. 7, 2010) (unreported). While the decision is consistent with a statutory provision, it avoids the difficult issue presented.

The statute provides:

(b) Except as otherwise provided in clauses (11) and (13) of this section [relating to libraries and fire and rescue stations], all property real or personal, other than 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.

72 P.S. § 5020-204(b). The statute requires that the institution occupy the real estate, but the Commonwealth Court has stretched the meaning of that requirement in sympathetic cases. For example, in Borough of Homestead v. St. Mary Magdalen Church, 798 A.2d 823 (Pa. Cmwlth. 2002), the court permitted an exemption for property owned by the Diocese of Pittsburgh that was used by both nonprofit and profit entities that provided services to persons displaced by the closing of a nearby steel mill. The court permitted the exemption because the users were licensees, not tenants, and the diocese continued to have active control of the premises and maintained the interior and exterior. The distinctions are not convincing. A lessor frequently will maintain the premises to a greater or lesser degree, depending on the terms of the lease, and will often maintain the structure. The result in St. Mary Magdalen seems instinctively correct, because the reality was that the property was used for charitable purposes. However, the same is true with respect to the nonprofit that provided real estate to the charter school. A key piece of information is missing from the opinion. It does not state whether the lease was for $1, market rates, or something in between. If the lease was for below-market or de minimis rentals, the court should have explored the application of St. Mary Magdalen to the appeal.

The real solution lies with the General Assembly. It makes no tax policy sense to deprive a property of an exemption if it is owned by a charity and leased to another charity, not for profit purposes, but in order to support the other charity. The statute should say so.

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