Legal Developers

History Has Its Eyes on You: Historic Preservation as the Basis for Property Tax Exemption

Earlier this year, the Pennsylvania Commonwealth Court concluded that historic preservation alone could serve as the basis for a property tax exemption. In other words, if an owner preserves a historic building, that act can be considered a charitable deed sufficient for the property to receive a real estate tax exemption, unaccompanied by any additional altruistic purpose served by the property. This decision broadens the circumstances in which such an exemption can be granted.

In the case of In re Coastesville Area School District,[1] the property at issue was originally an office building belonging to the Bethlehem Steel Corporation.  When the current owner purchased the property in 2000, it came with a deed restriction that the building could only be used for purposes consistent with its preservation and conservation as a historic structure.  It is entered in the National Register of Historic Places and located in a historic overlay district designed by the City of Coatesville to protect historic resources. 

The owner applied for and was granted a partial tax exemption, and the Coatesville Area School District appealed the decision.  The trial court sided with the property owner, concluding that, while the owner provides no direct services to the City, it serves the community by maintaining the historic structure of the property.  The School District again appealed to the Commonwealth Court.

In Pennsylvania, courts determine whether an entity qualifies as a public charity (and hence qualifies for tax-exempt status) by asking a series of questions first laid out in the Pennsylvania Supreme Court case Hospital Utilization Project v. Commonwealth[2] — better known as the “HUP test”:

1. Does the entity advance a charitable purpose?

2. Does the entity donate or render gratuitously a substantial portion of its services?

3. Does the entity benefit a substantial and indefinite class of persons who are legitimate subjects of charity?

4. Does the entity relieve the government of some of its burden?

5. Does the entity operate entirely free from private profit motive?

Pennsylvania is unique in that it has an Environmental Rights Amendment to its constitution, as well as a set of laws known as the History Code. Under both, the Commonwealth has established the right of preservation of structures of historic and aesthetic value.  Based upon those laws, the Commonwealth Court has held, in general, that the preservation and maintenance of a historic structure or property qualifies as a charitable purpose.  In the Coatesville decision, the Court found that the fashion in which the building was operated by its owner was such use and, accordingly, determined that it satisfied the first requirement of the HUP test.  As the Commonwealth Court had already found that the preservation of the property advances a charitable purpose, it further held that preservation and maintenance of a historic structure constitutes “services” for purposes of the second HUP test prong.

As the Coatesville building sometimes held community band concerts and was located in the heart of the City where residents could view and appreciate its architectural and historic features, the Court found that it benefited the public at large and satisfied this third HUP test prong.  Crucially, the Court warned that, while public entry into an entire building is always not required, in other circumstances, where access to the entire property is “confined to privileged individuals” – such as to for-profit businesses located within the structure — a property would not satisfy this third requirement and, consequently, would not qualify for a tax exemption. 

By paying for a historic preservation that may otherwise have required public funding, the owner satisfied the fourth HUP condition.  Finally, the parties in Coatesville did not dispute that the property satisfied the fifth element, and, therefore, the Commonwealth Court did not provide any insight into this final factor.  For these reasons, the Commonwealth Court granted the owner a full property tax exemption.

All owners of historic properties should be aware of this expanded access to a property tax exemption.  The attorneys at Obermayer can examine your property on a case-by-case basis to determine whether it would satisfy all of the prerequisites to qualify as a purely public charity and thus benefit from a real estate tax exemption.

[1] 280 A.3d 1152 (Pa. Cmwlth. 2022).

[2] 487 A.2d 1306 (Pa. 1985).

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.