Taryn Phaneuf May 13, 2016, 1:17pm


HARRISBURG — The Pocono Community Theater should be exempt from property taxes in Monroe County, the Commonwealth Court ruled in April after concluding that the theater relieves the government’s burden of providing arts and culture activities.

The ruling constituted a shift in the way the court interprets a standard used to determine whether a nonprofit is a “purely public charity,” which would qualify it for exemption. Previously, the court had read the rules more narrowly, James Malone, an attorney at Post & Schell in Philadelphia, told the Pennsylvania Record.

As municipalities struggle for revenue, officials have turned to charitable organizations to collect, Malone said. He represents clients in disputes with federal, state and local tax authorities. Though he hasn't been involved with a property tax exemption case like this, he follows them.

“There’s a lot of litigation about this in Pennsylvania,” Malone said. “The cases are very unpredictable.”

To be exempt from paying property taxes, a charity is held to five factors in a test established by the case, Hospital Utilization Project v Commonwealth. The factors require that the nonprofit advances a charitable purpose; donates a substantial portion of its services; benefits a substantial group of people who are legitimate subjects of charity; relieves the government of some of its burden; and operates entirely free from private profit motive.

The Pocono Community Theater was established to preserve a historic movie theater in East Stroudsburg. It shows first-run studio, independent and art house films every day. It also promotes local visual and performing artists and hosts approximately 100 programs and events each year, including lectures and artist receptions.

In 2013, the theater requested exemption from paying property taxes, but was denied by the Monroe County Board of Assessment. The dispute went to the Court of Common Pleas in Monroe County, where the county argued that the community theater “provides laudable, but ultimately ordinary services" and shouldn't qualify for exemption, according to court documents.

The theater appealed the decision to the Commonwealth Court, which reversed the previous decision. The judges said the trial court interpreted the Hospital Utilization Project test too narrowly.

The theater may not provide services that the government is mandated to provide, but it does “support and advance causes the government has chosen to support,” including at the state and municipal levels.

It’s a different decision than was reached in other cases. In particular, Malone recalls summer camps for orthodox Jewish children whose property tax exemption was challenged.

In those cases, the rule about government burden was interpreted to mean “local government,” Malone said. Because the summer camps are mostly attended by children living outside Pennsylvania, they didn't qualify.

“They probably are relieving government in a general way, otherwise they’d be relying on local activities at home,” he said.

Malone doesn’t think the courts' conclusions will become predictable any time soon. With the issue coming up frequently, he said it’s important for nonprofits to be prepared to prove their case.

“Demand for tax revenue is such that sooner or later, they’re going to be challenged,” he said. “If they’re not ready, they can be at a big disadvantage.”

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