Commonwealth Court Finds FLB Client Exempt from Business Privilege Tax

FLB Law      Aug. 13, 2021

 

Image of Marie McConnell and Gretchen Petersen

Fitzpatrick Lentz & Bubba shareholders Marie K. McConnell and Gretchen L. Petersen recently delivered a win to client Phoebe Services Inc., an affiliate of Phoebe Ministries, in a Business Privilege Tax exemption matter. The Commonwealth Court affirmed the finding of the Lehigh Court of Common Pleas that Phoebe Services, Inc. is exempt from business privilege tax.  Phoebe Services, a nonprofit corporation, was created to enhance the charitable mission of Phoebe Ministries, a nonprofit corporation formed in 1903 that provides healthcare and housing services to the elderly in seven counties across eastern Pennsylvania.  Phoebe Services provides management, administrative and other back-end services including fundraising, human resources, payroll, finance, accounting and budgeting, financial reporting, auditing and legal services, purchasing, marketing, data processing, billing and IT  to the affiliate organizations of Phoebe Ministries.  This structure exists for efficiency purposes and avoids having duplicative positions and departments across Phoebe Ministries and its campuses and facilities, reducing service costs and allowing more revenues to be used towards Phoebe Ministries’ charitable mission. Phoebe Services also provides religious and spiritual services to those served by Phoebe Ministries and pastoral care and training.

In 2017, the City of Allentown attempted to impose business privilege tax on Phoebe Services pursuant to the City’s Business Privilege Tax Ordinance.  The Ordinance exempts from business privilege tax organizations (1) that do not conduct business, and (2) qualify as institutions of purely public charity.  The Ordinance further defines “business” as “any activity carried on or exercised for gain or profit in the City . . . .”  The City sought to retroactively collect ten years’ worth of taxation from Phoebe Services.  Following the City of Allentown Tax Appeal Board’s affirmation of the imposition of business privilege tax, Phoebe Services filed an appeal with the Lehigh County Court of Common Pleas (the “Trial Court”).  After a multi-day non-jury trial, the Trial Court, by the Honorable Melissa T. Pavlack, determined that Phoebe Services did not conduct business activities and, therefore, was not responsible for paying business privilege tax.

The City appealed the Trial Court’s decision to the Commonwealth Court, arguing that Phoebe Services does conduct business and is not an institution of purely public charity.  In the recently published Opinion of Phoebe Services, Inc. v. City of Allentown, et al., 706 C.D. 2020 (Pa. Commw. Aug. 12, 2021), the Commonwealth Court affirmed the Trial Court’s determination that Phoebe Services is exempt from business privilege tax.  Specifically, the Commonwealth Court agreed with the Trial Court that Phoebe Services does not conduct business and is not operating for profit or gain. The Commonwealth Court additionally found that Phoebe Services also qualifies as an institution of purely public charity and, therefore, was also exempt from business privilege tax on that basis.


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