## Facts

- A nonprofit private liberal arts college owned 87 parcels of real estate within a Pennsylvania city and used them in connection with its educational operations.
- The county board granted real estate tax exemptions for the parcels, finding the college qualified as an institution of “purely public charity.”
- The city challenged the exemptions, asserting the college’s tuition charges and student demographics prevented it from qualifying as a purely public charity.
- Evidence showed tuition and fees did not cover the full cost of education and that endowment income, gifts, grants, and scholarships substantially subsidized operations.
- The record indicated the typical student received about half of the cost of education without charge when comparing tuition paid to educational costs covered by charitable sources.
- The trial court reversed and denied the exemptions; the intermediate appellate court reversed and reinstated the exemptions.

## Issues

1. Whether the college qualified as an “institution of purely public charity” under the Pennsylvania Constitution, making its 87 parcels exempt from local real estate taxation.
2. Whether the college satisfied each element of the five-part test for purely public charity status set out in *Hospital Utilization Project v. Commonwealth*.

## Decision

- The Supreme Court of Pennsylvania affirmed the intermediate appellate court’s order reinstating the tax exemptions.
- The court held the college met all five prongs of the *Hospital Utilization Project* (HUP) test and therefore qualified as a purely public charity.
- The court rejected the city’s argument that charging substantial tuition and not serving only the indigent defeats charitable status where charitable resources substantially subsidize services.
- The exemptions for the 87 parcels remained in effect.

## Legal Principles

- An entity qualifies as an institution of purely public charity only if it satisfies all five HUP factors:
  - Advances a charitable purpose.
  - Donates or renders gratuitously a substantial portion of its services.
  - Benefits a substantial and indefinite class of persons who are legitimate subjects of charity.
  - Relieves the government of some of its burden.
  - Operates entirely free from private profit motive.
- Education may constitute a charitable purpose for purposes of constitutional tax exemption.
- “Gratuitous” service may be shown by a substantial subsidy between the cost of providing services and the amount charged, funded through endowments, gifts, grants, and similar charitable sources; complete free service is not required.
- Providing privately funded higher education can relieve government burden by reducing the need for comparable public expenditures.
- Nonprofit corporate form, lack of shareholders, and reinvestment of surplus in the charitable mission support the absence of private profit motive.

## Conclusion

The court held that a nonprofit private college may qualify as a purely public charity despite charging tuition when charitable resources materially subsidize educational costs and the institution satisfies all five HUP criteria, entitling its properties used for the charitable purpose to real estate tax exemption.


City of Washington v. Bd. of Assessment Appeals, 550 Pa. 175, 704 A.2d 120 (Pa. 1997)