Charter Schools and Their Non-profit Landlords Gain Real Estate Tax Exemption

As the 2009-2010 session came to a close in Pennsylvania, a lame duck General Assembly voted by large margins to override Governor Rendell's veto of an omnibus education bill known as House Bill 101. The veto override was the final step required to turn this bill into law and is good news for charter schools in Pennsylvania.

House Bill 101 amended, among other things, the Charter School Law, 24 P.S. §§ 17-1701-A, et seq., to provide that real property owned and used by a charter school is expressly exempt from real estate taxation. It also provided that real estate owned by a non-profit entity and leased to and used by a charter school (or a related nonprofit foundation) is exempt from real estate taxation, provided that the charter school pays rent at or below fair market value.
 
This is a positive development for charter schools, as prior to House Bill 101 it was unclear whether charter schools were entitled to a real estate tax exemption, particularly where the charter school operated in rented space. This provision of House Bill 101 appears to have been a legislative reversal of the Pennsylvania Commonwealth Court’s decision in In Re: Appeal of Friends of Pennsylvania Leadership Charter School, in which a tax exemption was denied for a charter school that rented space from a nonprofit landlord.

In support of his veto, which was later overridden, Governor Rendell took the position that House Bill 101 contravened the Pennsylvania Constitution by enabling otherwise non-exempt entities (i.e. entities that were not purely public charities) to claim a real estate tax exemption by leasing real estate to a charter school. He also indicated that House Bill 101's special treatment of certain classes of landlords (i.e. non-profits landlords) violated the Uniformity Clause of the Pennsylvania Constitution. Governor Rendell's position may be a harbinger of legal challenges to exemptions granted under House Bill 101.

House Bill 101 also contains provisions that may retroactively impact existing payment in lieu of taxes (PILOT) agreements and assessment appeals involving charter schools and/or their nonprofit landlords.

To benefit from House Bill 101, qualifying charter schools and non-profit landlords must file exemption applications. The 2011 deadline for these applications is fast approaching in many Pennsylvania counties.