University Fights School District Over Amusement Tax
By Lisa M. Rosellini, Intercom editor12-11-97
University officials filed suit on Dec. 4 against the State College Area School District to protect the tax-exempt status of Penn State.
On Monday, Nov. 24, school board members voted to adopt an amusement tax that will impose a 5 percent fee on all forms of entertainment, diversions, sports and pastimes for which an admission of $10 or more is charged, including Penn State football games. University officials say the move not only violates a 1992 tax agreement between Penn State and the school district, but is also unenforceable with regard to Penn State.
As an instrumentality of the state, the University is immune from local taxation, according to Gary C. Schultz, senior vice president for finance and business/treasurer for the University. Recent legislation clarifying Penn State's tax-exempt status bolsters that position. The legislation, expected to be signed by the governor, outlines standards that charities and other nonprofit groups must meet to qualify as tax-exempt. State-related institutions like Penn State are considered public property for purposes of taxation.
The school district's success at collecting an amusement tax from the University would nullify a 1992 tax settlement agreement among Penn State, five local governing bodies and the school district. Under the agreement, Penn State pays out about $1 million per year in cash and in-kind services to Centre County, Ferguson, Patton and Harris townships, and State College Borough, plus the State College Area School District.
The agreement, which includes an inflationary clause, had previously been among six local governments and the school district, until April 1996 when College Township officials pulled out to enact a 5 percent amusement tax on events held at Penn State. At that time, University officials also challenged the validity of the tax and filed suit. That case was withdrawn after Penn State and College Township entered into an agreement that provided for Penn State to make impact payments related to non-university events held in The Bryce Jordan Center.
Earlier last month, school board members rejected an offer from Penn State to increase the total annual payment from the University and University-related properties from $375,000 to $490,000 - which represents the full local cost of educating children living in University housing. The University intends to honor the current tax settlement agreement with the five remaining local governments, but the school district will no longer be eligible to receive payments due to its attempt to impose and collect a tax on the University.
"We are disappointed that the school board has taken this action, particularly when Penn State made a generous and unprecedented offer to compensate the school district fully for the cost of educating children living in University housing," said Stephen J. MacCarthy, director of University Relations. "There was no effort on the part of the school board to hold any kind of public hearing or discussion on the proposal. We had hoped to work out an amicable agreement with the district, but now we have little recourse other than the courts."
Schultz said court action is obviously not the route University officials had hoped to go, but all previous court cases relating to taxation have ruled in favor of the tax-exempt status of state-related universities.
"We continue to be committed to the importance of maintaining the tax-exempt status of Penn State," Schultz said. "Penn State brings many beneficial things to the community, some that cannot be quantified. The benefits to the local economy from one home football game alone are significant and cannot be discounted."
The Board of Directors of the Chamber of Business & Industry of Centre County agreed and made a point of telling school board members - to no avail - in a Nov. 6 letter that it questioned "the prudence" of their actions to enact an amusement tax.
"We believe the enactment of such a tax would irrevocably impair what has been a very positive relationship between Penn State and the school district," the CBICC directors said. "A better course of action would be to continue to negotiate with Penn State during the remaining years of the agreement while receiving your annual payment."
Just a few examples of benefits Penn State provides that are not often taken into account include the community's use of Pattee Library, Recreation Building, the Intramural Building, the Palmer Museum of Art and other museums on campus, the playing fields, skating and tennis facilities, the Natatorium, speech and hearing clinics and the Stone Valley Recreation Area.
****