Purely Public Charity In Pennsylvania? Retirement Home Fails Tests In Dunwoody

The Pennsylvania Commonwealth Court recently upheld a decision that denied a property tax exemption to a continuing care retirement community in Dunwoody Village, Inc., 52 A. 3d 408 (Pa. Commw. Ct. 2012). The court ruled that since the retirement community catered to seniors who could afford the substantial entry fee, the monthly fees, and other charges, the retirement community failed every one of the five prongs of the relevant test for a purely public charity.

Dunwoody Village

Dunwoody Village, Inc. (DVI) operates a continuing care retirement community with three levels of care: independent living, assisted living, and skilled nursing. DVI is exempt from federal tax under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. DVI originated from a testamentary trust of William Hood Dunwoody. In 1972, the Delaware County Orphan's Court granted a petition to build a retirement home on the grounds, with the understanding that a person could not be forced out of the retirement home for financial reasons once admitted. In the 1990s, this retirement home was demolished and replaced with a modern assisted living facility.

Applicants for the facility sign a life care contract and pay a fee of $1,000 to be put on the DVI waiting list. Accepted applicants pay a one-time entrance fee, which may be nonrefundable or partially refundable at the resident's option. At the time the case was litigated, no resident had opted for the more expensive partially refundable fee. The entrance fees ranged from approximately $80,000 to $240,000. In addition, residents pay a monthly fee, which ranged, at the time of litigation, from $2,200 per month to $6,700 per month. Monthly fees remained the same regardless of the level of care that a resident required. DVI residents are never evicted for inability to pay; however, they may be evicted for willful refusal to pay when they have the ability to pay. Residents can "graduate" from the independent living facilities, to the assisted living program, and finally to a skilled nursing unit. Non-residents may also be admitted directly to the assisted living program or the skilled nursing unit.

DVI residents are urged to contribute to a reserve fund to help fund those residents who can no longer afford the monthly fee. DVI itself does not contribute to this reserve fund. At the date of the hearing, two residents were receiving funds from the reserve fund. The Dunwoody Trust, which is a separate entity, also provided financial support to residents in need. As of the date of litigation, there were approximately eight or nine residents getting assistance from the Dunwoody Trust.

DVI sought a property tax exemption...