- Erie School District, City of Erie, contested property tax exemption for two hotel complexes connected to the Bayfront Convention Center
- The case began in 2016 when the County Assessment Board ruled on the Erie County Convention Center Authority, saying that Sheraton and Marriott are exempt
- School District, City lost further challenges in Erie County Court in 2019 and in State Commonwealth Court on Wednesday
A state appeals court has upheld property tax exemptions for the Sheraton and Marriott hotel complexes on Erie Bay, which contributed to the defeats for the Erie School District and the city of Erie in the nearly five-year battle for some of the most valuable real estate in the region.
In a unanimous decision on Wednesday, the Pennsylvania Commonwealth Court dismissed the school district and city’s arguments, ruling that hotels and their parking garages should remain tax-free.
The decision saves the hotels and the Erie County Convention Center Authority, which owns the interconnected hotels and Bayfront Convention Center on Presque Isle Bay, from paying hundreds of thousands of dollars in property taxes to the school district, city, and Erie County.
A panel of seven of the nine Commonwealth Court justices upheld an October 2019 ruling by Senior Erie County Judge John A. Bozza. In a decision he stated that the hotel properties are exempt under state law and, in his assessment of the disputed state law, described it as the first of its kind in the entire country.
The Commonwealth Court and Bozza found that state law clearly classifies the hotels as property tax exempt or immune because they are “convention center facilities” that are part of the adjacent Bayfront Convention Center, the exemption of which has never been contested. The school district and city questioned the applicability of the law, saying that the use of the hotel properties should determine their tax status.
Listen to the appeal:The appeals court takes an unusual move to establish a hearing in a tax proceeding over hotels in Erie Bay
Like Bozza, the Commonwealth Court also dismissed the school district and city’s argument that hotels should pay taxes based on how many of their lodgers are not hosting events at the Bayfront Convention Center and the other three from the Convention Center Authority: UPMC Park, Erie Insurance Arena and the Warner Theater.
The city and school district argued, using government records, that at least 63% of annual hotel guests were in Erie to attend events unrelated to the Convention Center Authority buildings. The activities of the guests have no influence on the tax status of the hotels under state law, wrote Bozza in his decision, in which he rejected the case of the school district and the city.
The Commonwealth Court followed this rationale in its 13-page decision, in which it referred to the Bayfront Convention Center as the BCC.
“Mixing the use of the Sheraton and Courtyard hotel rooms by the general public with those used for BCC-related functions in no way affects the immunity of the Convention Authority’s hotel properties therein,” the Commonwealth Court said – Judge Michael H. Wojcik. “All of these uses are a necessary and essential part of the constitutional purpose of the Convention Authority to promote tourism and related activities for the common good, and are directly related to it.
Reactions to decision
Casey Wells, executive director of the Erie County Convention Center Authority, known as Erie Events, said, “We are delighted with the unanimous decision of the court.” Erie attorney Patrick Delaney handled much of the case for the agency.
Judge Bozza’s decision:Two hotels on the Bay of Erie remain tax-free
Although Erie School District and the City of Erie are jointly challenging the exemptions, the school district led the effort, with the district keeping Erie attorney Michael Agresti on the case.
“The court’s decision is very disappointing,” said Brian Polito, superintendent of the Erie Schools. “With the additional tax revenue, we could have added the urgently needed support for our students on a permanent basis.”
Agresti said, “The Erie School District is disappointed it failed to prevail in Commonwealth Court. The Bayfront Sheraton and Courtyard (by Marriott), which have annual sales of nearly $ 20 million, continue to thrive on businesses that have nothing to do with conventions. ” or the convention center. The Erie School District is reviewing its options. “
The school district pays Agresti a flat fee of at least $ 10,000, with a cap of $ 15,000 if the case ends with a final order from the state Supreme Court. The city’s in-house lawyers handled the case for the city.
In 2000, the General Assembly passed the law at the center of the case and amended it in 2004 to equate hotels as convention center facilities and thus convention centers. Convention centers and their facilities are exempt from property tax or immune by law. By law, the Erie County Convention Center Authority exists “for the public purpose of promoting, attracting, stimulating, developing and expanding business, industry, trade and tourism in this Commonwealth.”
The Bayfront Convention Center opened in 2007, the 200-room Sheraton Complex in 2008 and the 192-room Marriott Complex in 2016.
The Sheraton and Marriott complexes, including their parking garages, are estimated to total $ 49 million. If they were fully taxable, their combined property tax bills would be approximately $ 1.8 million, according to tax records. The Erie School District would receive about half the tax revenue, or about $ 900,000 annually; the city about 34%, or about $ 612,000 per year; and the county about 16%, or about $ 288,000 annually.
The Erie County’s Board of Tax Assessment Appeals ruled in December 2016 that the hotels and convention center are exempt under the State Convention Center Act. The school district and the city appealed the decision to the Erie County Court in January 2017.
The case stalled as the parties argued over the release of the property information. With this data, Bozza decided on October 11, 2019 for the Convention Center Authority. The school district and the city appealed to the Commonwealth Court in November 2019, which argued orally on the case in October.
Hotels as legal “core functions”
The city and school district could ask the state Supreme Court to hear an appeal against the Commonwealth Court’s decision, although the unanimous decision of the Commonwealth Court limits the chances of the Supreme Court hearing the case.
The school district and city were pursuing their challenges in the hotel case as part of a strategy to generate more revenue and reduce the number of tax-exempt properties in the city, where approximately 30% of the estimated value of all properties is tax-free or immune from the city Property tax.
The Convention Center Authority argued that an obligation to pay property tax on the hotel would be damaging to their finances, and that the law clearly isolates the properties from property taxes.
In its ruling, the Commonwealth Court focused on the Convention Center Act and how it would benefit hotels, rather than how tax revenue would benefit the Erie School District and the City of Erie.
The Commonwealth Court found that the law does not distinguish between rooms that hotels rent for purposes related to Convention Center Authority events and other purposes. In each case, the court said the hotels operated as part of the Convention Center Authority.
Citing the wording of the law, the Commonwealth Court said in its ruling: “The operation of hotels falls under the broad definition of ‘convention center’ or ‘convention center facilities’ so that the rental of rooms to the general public does not fall outside of their core functions ‘Commonwealth Agency and Instrumentality’. “
According to the decision, Bozza “did not commit any errors of law or abuse of discretion” in the decision against the school district and the city.
Contact Ed Palattella at [email protected]. Follow him on Twitter @ETNpalattella.