PA Commonwealth Court Flatlines Nonprofit Hospitals Exempt Status For Real Property Taxes

• Jurisdiction: Pennsylvania,United States
• Author: Paul R. Morcom
• Law Firm: McNees Wallace & Nurick
• Published date: 13 March 2023

On February 10, 2023, in a much-anticipated group of Opinions, the Pennsylvania Commonwealth Court ("Court") held that four separate Tower Health hospitals (one in Montgomery County and three in Chester County) did not qualify as institutions of purely public charity and thus, the hospitals were not entitled to real property tax exemptions for the 2018 through 2021 tax years.

Relevant Background

In 2017, Reading Health System, n/k/a Tower Health, LLC ("Tower Health"), purchased several for-profit hospital facilities from Community Health Systems ("CHS"), a for-profit entity, in Montgomery and Chester Counties. Tower Health, a nonprofit 501(c)(3), created separate LLCs (Chester Hospitals and Montgomery Hospital) to run each of the purchased hospital facilities as nonprofit entities. Those LLCs were: Pottstown Hospital, LLC ("Montgomery Hospital"); and Brandywine Hospital, LLC, Jennersville Hospital, LLC and Phoenixville Hospital, LLC ("Chester Hospitals").

Chester Hospitals and Montgomery Hospital filed real property tax exemption appeals for the 2018 tax year in their respective county. The Montgomery County Board of Assessment Appeals ("Montgomery Board") granted Montgomery Hospital real property tax exemption as a nonprofit entity for tax years 2018 through 2021. However, the County of Chester Board of Assessment Appeals ("Chester Board") denied Chester Hospitals real property tax exemptions for tax years 2018 through 2021.

The Pottstown School District appealed the Montgomery Board decision to the Court of Common Pleas of Montgomery County ("Montgomery trial court"). After a de novo trial, the Montgomery trial court granted the real property tax exemption for Montgomery Hospital.

Likewise, Chester Hospitals appealed the Chester Board decisions to the Court of Common Pleas of Chester County ("Chester trial court"). After a de novo trial, the Chester trial court denied the real estate tax exemptions for Chester Hospitals.

The Court reviewed the Montgomery trial court decision and record, and reversed the trial court's order granting the real property tax exemption for Montgomery Hospital¹. Additionally, in a surprise plot twist, the Court reviewed the Chester trial court decision and record, and instead of affirming the Chester trial court's order denying real property tax exemption for Chester Hospitals, the Court dismissed Chester Hospitals' appeals because all the issues on appeal were waived². The Court could have ended its Chester Hospitals opinions...