Judge rules on a tax exemption that Erie's Jefferson Educational Society has long desired
- Oops!Something went wrong.Please try again later.
The Jefferson Educational Society has described itself in a number of ways since it was founded in Erie 15 years ago.
"Erie's think tanks for community progress," is a main definition.
It is a nonprofit, also according to the society, designed to "promote an interest in, and an appreciation of, the history of Erie County."
And, according to the society, it is a place meant to promote Erie's "civic progress through research and public dialogue of civic issues."
A judge has ruled, however, that all those descriptions — as well as the Jefferson Educational Society's various activities, including its well-known Global Summit speaker series — are not enough to define the society as tax exempt.
In court: Jefferson Educational Society's request for tax exemption goes before Erie County judge
Capping a case that has been on the docket for nine years, Erie County Judge David Ridge has rejected the Jefferson Educational Society's request that its building at 3207 State St. be declared exempt from property taxes, a designation that would have spared the society an annual property tax bill of about $33,800.
Ridge sided with the city of Erie, the Erie School District and the Erie County Board of Tax Assessment Appeals in ruling against the Jefferson Educational Society, or JES. Ridge based his decision on evidence he heard at a two-day nonjury trial on the exemption request in June as well as briefs filed after the trial.
"The JES has not met its burden of establishing that it is a purely public charity, and therefore is not entitled to a real estate tax exemption," Ridge said in a 25-page opinion filed late Tuesday.
Ridge said the society fell short of hitting three of the five standards that a nonprofit must meet to be designated as exempt from property taxes in Pennsylvania. The standards are part of what is known as the HUP test, named after a seminal Pennsylvania Supreme Court ruling on tax-exempt properties.
Ridge said the society failed to show that it relieves the government of a burden, that it donates or renders gratuitously a substantial portion of its services and that its work benefits a substantial and indefinite class of people who are legitimate subjects of charity.
A 'positive' institution, but still taxable, judge rules
The Jefferson Educational Society, named after Thomas Jefferson, was founded in 2008. It puts on lectures and programs that are open to the public, and it produces publications on community issues. Its marquee program is its Global Summit, which brings internationally known speakers to Erie. They have included former President George W. Bush, who spoke at the Bayfront Convention Center in 2021.
Big speakers: Former President Bush to headline Jefferson Educational Society Global Summit XIII
The Jefferson Educational Society gets money from memberships, admission fees and other charges. It also receives a large number of grants and puts on free events.
Ridge acknowledged the work and achievements of the Jefferson Educational Society in his ruling. But he said he grounded his evaluation of the society's tax status on well-established legal precedent.
Since its founding, the Jefferson Educational Society has established itself as "a nationally respected institution which has a positive niche in Northwest Pennsylvania," Ridge said in his ruling. "However, the issue before this Court is whether it has met its burden to show that, above and beyond its contributions to our community, it has established that it is a 'purely public charity' that would relieve it of paying property taxes."
The Jefferson Educational Society could appeal Ridge's decision to state Commonwealth Court.
"We appreciate Judge Ridge's careful study of the record and his recognition of the contributions the Jefferson makes to the Erie community," said the society's lawyer on the tax case, Gary Eiben. "We are committed at this point to carefully reviewing our options."
Erie schools Superintendent Brian Polito said the decision does nothing to take away from the Jefferson Educational Society's programs but follows the law.
"They are a phenomenal organization and an asset to the community," Polito said of the society. "But unfortunately they do not meet all five standards of the HUP test. We as a school district have to treat all the community organizations consistently in terms of their tax status."
David Rhodes, the lawyer for the Assessment Board, whose 2014 ruling Ridge upheld, could not be immediately reached for comment.
The other lawyers on the case are Andrew Schmidt for the Erie School District and Ed Betza, the solicitor for the city of Erie.
"The city is very pleased with the decision," Betza said. "It reduces the burden on our taxpayers and is in the best interest of the city."
A drawn-out court case with major tax ramifications
The dispute over the exemption dates to 2014, making it one of the most drawn-out cases of its kind in Erie County Common Pleas Court. The three-member Erie County Assessment Board in March 2014 unanimously denied an exemption for the Jefferson Educational Society, saying it failed to meet all five criteria in the HUP test.
The criteria most in dispute for the board — and the criteria that were among those that proved pivotal in Ridge's decision — were whether the society relieves the government of a burden and whether the society's work benefits those who are legitimate subjects of charity.
The society in April 2014 appealed the Assessment Board's ruling to Common Pleas Court, where the society asked a judge to overturn the Assessment Board's denial of an exemption. The case sat inactive for years as the society attempted to negotiate a deal with the three taxing authorities — the city, school district and county — to make payments in lieu of taxes.
The talks yielded no deal. The school district and the city joined the Assessment Board in fighting the society's exemption request. The district and city have sought more revenue by reducing the number of tax-exempt properties in the city, where about 30% of the assessed value of all property is exempt or immune from property taxes.
The Jefferson Educational Society's case restarted in September 2021, when the society renewed its request before Ridge, who was elected in 2019 and was assigned the case. The previous judge on the case was John Garhart, who retired in 2018.
Back on track: Erie's Jefferson Educational Society renews push for property tax exemption; trial nears in case
Society wanted to stop paying taxes on building at 3207 State St.
The Jefferson Educational Society occupies most of the building that is at the center of the case — 3207 State St. It bought the building for $750,000 in 2013 from the Jewish Congregation Brith Sholom, which continues to use some of the space as its temple.
The society has been paying taxes on the entire building since it was denied an exemption in 2014. It would have been entitled to a refund of nearly $300,000 if it had won an exemption, according to county assessment records.
The current tax bill is $33,828.75, according to assessment records. About half that amount — $16,656.75 — goes to the Erie School District. The city of Erie receives $11,808, about 35% of the total, and Erie County government receives the rest, at $5,364.75.
Another big tax case: State appeals court affirms exemptions for Sheraton, Marriott in Erie bayfront hotels tax case
The Assessment Board did give the Jefferson Educational Society a break even as it rejected the request for a tax exemption. The board in 2014 still granted society's request to reduce the assessed value of the society's 44,000-square-foot building, erected in 1950, and the 1.6 acres on which it sits. The board dropped the assessed value to $900,000 from $2 million, which halved the society's previous annual property tax bill of $66,000.
Ruling focuses on HUP test, a landmark in Pennsylvania law
As the Assessment Board did in its ruling in 2014, Ridge in his decision focused on the HUP test, which sets the standards for granting property tax exemptions in Pennsylvania. The test is named after a 1985 state Supreme Court case, Hospital Utilization Project v. Pennsylvania. Under the HUP test, a tax-exempt organization must
Advance a charitable purpose.
Donate or render gratuitously a substantial portion of its services.
Benefit a substantial and indefinite class of people who are legitimate subjects of charity.
Relieve the government of some of its burden.
Operate entirely free of the private profit motive.
An institution must meet all five criteria of the HUP test to be declared tax exempt. In the case of the Jefferson Educational Society, all the lawyers in the case did not challenge that the society advances a charitable purpose and operates entirely free of a private property motive, according to Ridge's ruling.
Attempted resolution: Jefferson Society seeks tax deal
The lawyers disagreed over whether the society met the other three criteria. Ridge agreed with the lawyers for the taxing authorities and the Assessment Board. He said the Jefferson Educational Society and its witnesses, including its executive director, Ferki Ferati, had not proved the society met any of the other three criteria.
At the nonjury trial, Ferati testified that the goal of the Jefferson Educational Society is to provide "general knowledge that affects humanity. All topics that affect humanity."
Other advocates for the society whom Ridge mentions in his ruling are former Erie Mayor Joyce Savocchio and former Erie County Executive Judy Lynch. Both are on the society's board of trustees.
Regarding donations of the society's services, Ridge found the society "has not met its burden of establishing it provides a substantial portion of its services gratuitously," with the word "substantial" underlined in his ruling.
He said the society presented "little information" on how much of its memberships — they range from lifetime memberships of $10,000 to annual memberships of $5,000 to $25, according to the ruling — "were provided gratuitously or what the value of those services was."
Well-known speakers: Erie's Jefferson Educational Society sets sights on Michelle Obama for 2023 summit
Ridge used the same reasoning regarding the Jefferson Educational Society's failure to show its services benefit a substantial and indefinite class of people who are legitimate subjects of charity.
"There was very little substantive evidence about the recipients of JES's services," Ridge said in his ruling. "Although JES adduced evidence that it made a number of lectures and materials 'free to all' and made provisions to provide certain individuals free access to other services for which there is a charge, there was again insufficient evidence to identify that JES's services were, in fact, provided to legitimate subjects of charity."
Jefferson Educational Society and government's 'burden'
At the nonjury trial, the Jefferson Education Society listed the programs it offers as evidence it could meet the prong of the HUP test that requires a tax-exempt institution to relieve the government of some of its burden. The programs include the Global Summit, other lectures and the annual Jefferson Civic Leadership Academy, in which 25 to 30 people meet with state and federal elected officials and develop projects meant to help Erie.
Ridge characterized the programs as worthwhile. But he said the none of the programs relieve the government of a burden.
"Despite those positive aspects," Ridge said in his ruling, "the Court notes that there was no evidence or specific examples of times when a political agency or body specifically reached out to JES to request a study or paper on a topic."
His ruling continues: "The educational programs and lectures, which are a positive part of the fabric of our community, are not the types of academic programs which a school's curriculum requires. It is the responsibility of government to provide a fundamental curriculum from kindergarten to 12th grade. Many of the topics and programs ... have many have similar themes and interests, but they are not a substitute for the educational requirements that governments (school districts) are mandated to provide."
Agreeing with the Assessment Board, Ridge said "JES is unable to offer any evidence that 'but for' JES's programs or publications, the government would have to 'step in' to provide the same."
Ridge turned the Jefferson Educational Society's definition of itself as a "think tank." He said in his ruling:
"There is no requirement for a governmental entity to provide a 'think tank" or formally sponsor any type of discussion about issues in the community, no matter how important those issues may be or no matter how the dialogue may end up resulting in the advancement of ideas which a governmental entity might then put in place."
Ridge also said the lawyers for the Assessment Board and the taxing authorities "properly note that the JES does not provide 'charity,' rather it encourages the government or other entities to do so."
"Those initiatives and involvements are laudable and provide a positive contribution to the community," Ridge said in his ruling. "However, this Court is constrained to determine that they do not rise to the level of relieving the government of a burden."
Contact Ed Palattella at epalattella@timesnews.com. Follow him on Twitter @ETNpalattella.
This article originally appeared on Erie Times-News: Judge rules on tax exemption for Erie's Jefferson Educational Society
