Thanks to a recent decision by the Supreme Court of Pennsylvania, the test to qualify for a property tax exemption as a nonprofit organization has been clarified—in a manner that is favorable to school districts and that will help narrow the group of organizations that qualify for tax exemption.  

On April 25, 2012, in Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals, the Supreme Court formally held what it has previously suggested – to qualify for tax exempt status as a purely public charity, an entity must (1) as a threshold matter satisfy all five prongs of the HUP Test announced by the Supreme Court in 1985, and also (2) pass the legislative test for a purely public charity under Act 55.  

 Some confusion regarding the purely public charity test began in 1997, when the General Assembly passed the Institutions of Purely Public Charity Act, 10 P.S. §§371-385, commonly referred to as Act 55 or the “Charity Act.”  Prior to the passage of Act 55, the test applicable to the purely public charity exemption was the HUP Test, set forth by the Supreme Court of Pennsylvania in its decision in Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985). 

The HUP Test required an entity to satisfy five factors to qualify as an institution of purely public charity: 

  1. Advance a charitable purpose;
  2. Donate or render gratuitously a substantial portion of its services;
  3. Benefit a substantial and indefinite class of persons who are legitimate subjects of charity;
  4. Relieve the government of some of its burden; and
  5. Operate entirely free from private profit motive.

The Act 55 test developed by the General Assembly uses the same five criteria from the HUP Test.  However, in several respects, the Act 55 test provides objective standards for the five factors that are evaluated subjectively under the HUP Test, and also defines some of the five factors more expansively than the HUP Test.  Accordingly, although an entity that satisfies the HUP Test will most likely satisfy the Act 55 test, satisfaction of the Act 55 test does not guarantee satisfaction of the HUP Test.   

As a result of such differences, following passage of Act 55, the question arose whether Act 55 replaced the HUP Test in determining whether an entity qualifies for the purely public charity exemption, or instead simply added a second test that must be achieved to qualify for tax exemption as a purely public charity.

The Supreme Court has said previously in non-binding dicta (a statement in a court decision that is not part of the formal holding of the case) that the HUP Test remains applicable notwithstanding the adoption of Act 55, and that both tests must be satisfied.  For instance, in Community Options, Inc. v. Board of Property Assessment, 813 A.2d 680, 685 (Pa. 2002), after concluding that a non-profit entity qualified as a purely public charity under the HUP Test, the Supreme Court said “the question then becomes whether Appellant meets the qualifications for tax-exempt status under the Charity Act.” 

The relationship between the HUP Test and the Act 55 test was placed squarely before the Supreme Court for a binding decision in the recent Mesivtah case. 

Mesivtah, a not-for-profit religious entity related to the Bobov Orthodox Jewish community in Brooklyn, operates a summer camp in Pike County, Pennsylvania.  The camp provides lectures and classes on the Orthodox Jewish faith, along with recreational activities.  The camp serves students from New York, Canada, England and Israel.  The camp argued that it qualifies for satisfaction of the Act 55 test without the need to prove it satisfied the HUP Test. The Court of Common Pleas and Commonwealth Court denied Mesivtah’s request for exempt status on the basis that it failed to satisfy prong four of the HUP Test; it did not relieve the government of some of its burden.  Mesivtah appealed to the Supreme Court, and the Court allowed the appeal to address the limited issue of whether the courts must defer to the General Assembly’s statutory definition of the term “purely public charity” as set forth in the Act 55 test.  The Supreme Court answered this question in the negative, holding that the HUP Test remains applicable along with Act 55. 

The crux of the Supreme Court’s decision is that “purely public charity” is a constitutional term.  Because the courts have the final say regarding the proper interpretation of constitutional terms, the courts are not bound by acts of the General Assembly that effectively define constitutional terms.  Moreover, the Court noted that Article VIII, §2 of the Pennsylvania Constitution, which includes the permissible exemption for “institutions of purely public charity,” was enacted to eliminate the General Assembly’s ability to create exemptions through favoritism and special legislation.  Accordingly, without judicial interpretation of the Constitution as the initial stepping stone to satisfaction of the exemption, the will and whim of the legislature would be left unchecked. 

Although the Supreme Court’s decision is not surprising in light of its prior dicta, it is important.  It is now clear to taxpayers and taxing authorities alike that the Act 55 test for a purely public charity merely supplements, and does not supplant, the HUP Test, and that an entity must meet both tests to qualify for a tax exemption as a purely public charity. 

If you have questions regarding the Mesivtah decision, or wish to have further dialogue regarding its impact on your school district, please feel free to contact Howard Kelin, Denise Elliott, Rhonda Lord, Clarence Kegel, Jason Confair, or Jeff Litts at (717) 392-1100.

We hope you find this issue of KKAL’s Education Law Watch helpful and informative.  Please understand that the Law Watch is designed to provide information about current developments and required actions.  It does not constitute legal advice, and school districts should consult a lawyer knowledgeable in this area of the law prior to taking specific actions on the issues addressed. 

If you have any questions regarding any education law matter, including the issues discussed in this newsletter, please do not hesitate to contact us at 717/392-1100, or email us at the following addresses:


Education Law Group

(717) 392-1100 

Clarence C. Kegel, Jr.                   

Howard L. Kelin                           

Jeffrey D. Litts                               

Rhonda F. Lord                              

Amy G. Macinanti                 

Denise E. Elliott                          

Jason T. Confair