Fox Rothschild has filed a class action on behalf of the owners of approximately 1,240 properties located in Philadelphia challenging recent legislation which “adopts” an artificially high Established Predetermined Ratio (EPR) for the 2013 tax year. Significantly, while the legislation expressly recognizes that real estate tax assessment in the City has become “increasingly at variance with principles of uniformity and sound assessment,” 53 Pa.C.S.A. § 8565(a)(1), it arbitrarily incorporates knowingly inaccurate 2011 property values and 2009 sales data as the foundation for the new EPR. In so doing, we allege that the legislation undermines the integrity of the assessment process by eviscerating Taxpayers’ fundamental rights to uniformity in taxation. More information about this case can be found at ww.foxrothschild.com/newspubs/newspubsArticle.aspx
The Pennsylvania House of Representatives’ bipartisan House Select Committee on Property Tax Reform held two days of hearings in Harrisburg to review local government property tax collection, reassessments and local tax structures. The committee is conducting a review of Pennsylvania’s local tax structure. According to an article in PA Law Weekly, State Representative Tom Quigley, R-Montgomery, chairman of the committee, said, “When you mention property taxes, most people think about the school property tax, but county and municipal governments also levy proper taxes so it is important for us to talk about the local government tax structure. County governments play a very large role in property tax policy because they are responsible for reassessments. County and local governments also deliver many of the services on which citizens rely.”
More hearing days are being scheduled.
PA Court Rules That "Ongoing Subdivision Concerns" Should Not Be Considered In Valuing Individual Subdivision Lots
In Greth Development v. Berks County Board of Assessment Appeals, the Berks County trial court considered whether the tax assessment of individual lots of a residential subdivision should take into account “ongoing subdivision concerns, including cash flow, absorption rate of lot sales, and ongoing expenses.” The case involved a residential subdivision in which 25 lots remained unsold. The property owner argued that “to obtain an appropriate value, the assessment should take into account the owner’s ongoing concerns relating to the subdivision, including the time and cash flow considerations. While the subdivision has been divided into individual lots, improvements have been made and a few lots have been sold, there remains an extensive inventory of remaining lots, which likely will be sold over the course of several years, particularly given the current state of the economy. . . . During the pendency of the sales, [the property owner] would continue to be saddled with taxes, maintenance, and other subdivision costs.”
The taxing authority argued that “one the subdivision has been divided into individual lots, each lot becomes an independent entity, subject to its own assessment. [The property owner’s] subdivision costs become irrelevant, for those costs do not affect what a buyer of a lot would be willing to pay.”
The court agreed with the taxing authority and held that the lots should be assessed on an individual basis and, therefore, the considerations that would impact the valuation of a subdivision do not necessarily apply to the valuation of individual lots. “A prospective buyer of an individual lot of that subdivision, however, even assuming the lot would be purchased for income producing purposes, would not be concerned with the ongoing subdivision costs, or the time lag in sales of neighboring lots, for that would have no effect on his income projections, capital expenses incurred in preparing the lot to produce income, or the ongoing expenses incurred thereafter.”
Lehigh County has extended the deadline for filing informal reassessment challenges. The revised deadline is Thursday, March 22. Informal reviews give property owners the chance to sit down with an assessor and dispute the record. They can be requested online, in person, over the phone or by mail. More than 10,000 challenges were filed as of Wednesday evening. The appointments will be scheduled from late March through mid-June.
The Philadelphia’s Board of Revision of Taxes (BRT) recently decided to apply the County of Philadelphia Common Level Ratio (CLR)–which had been reduced by Pennsylvania’s State Tax Equalization Board (STEB) from 32 percent to 18.1 percent–to property values as certified by the City of Philadelphia’s Office of Property Assessment (OPA). Our firm filed a Petition to Intervene before the STEB in the appeal of the City of Philadelphia (the City) on behalf of approximately 173 Philadelphia taxpayer clients (taxpayers) who own property in Philadelphia and filed tax appeals. The taxpayers seek to intervene to ensure that the certified 18.1 percent CLR will be vigorously defended.
The suit alleges that if the CLR is altered by the STEB, the taxpayers will suffer a significant, adverse impact. If the petition is granted, the taxpayers intend to actively participate in this proceeding. We await the STEB’s ruling and will continue to monitor this important issue.
A Philadelphia judge recently dismissed a challenge by a group of Philadelphia taxpayers challenging the city’s tax assessment practices. The suit alleged that properties were “over assessed” due to alleged illegal and unconstitutional City Property Tax practices. The complaint took issue with the citywide moratorium on property tax reassessments that went into effect in January 2010. It also alleged that the City violated the General County Assessment Law and PA Constitution. The taxpayers accused the city of unequal taxation of similar properties, spot reassessment, failure to assess all properties at the actual values, failure to perform annual assessments and failure to correct all assessment errors.
Trial Judge Idee C. Fox dismissed the suit. She found that the plaintiffs did not prove the necessary element that their properties were assessed at a higher level than the majority of other properties in their municipality. Therefore, the Court ruled, the plaintiffs cannot claim to have suffered an “adverse action” and have no standing.
The Pennsylvania Commonwealth Court recently decided a tax assessment appeal involving a 486,086 square foot industrial facility in Erie County. The Court considered a number of important issues including:
1. Whether the taxpayer’s appraiser utilized a “value-in-use” methodology?
2. Whether the Court was entitled to split the difference between the appraiser’s values?
3. Whether the lower court was entitled to establish a value for tax year 2010 when the taxpayer’s appraiser did not offer an opinion of value for that year?
First, the Commonwealth Court found that the taxpayer’s appraiser did not improperly utilize a “value-in-use” methodology in valuing the property. The court reaffirmed the law in Pennsylvania that “an appraiser applies the improper value-in-use methodology when he or she develops a valuation based on the productivity of a business located on the real estate.” The Commonwealth Court found that the taxpayer’s appraiser did not utilize a “value-in-use” methodology when he considered the property’s actual rents under the income approach. It found that the lower court erred in finding that the utilization of actual rents was “value-in-use” methodology since the appraiser was utilizing income that was generated from the real estate as compared to income that was generated from the business.
Second, the Commonwealth Court affirmed the right of a lower court to “split the baby.” In this case, the lower court was entitled to disregard the final value conclusions of the experts and it was proper for the trial court to exercise its discretion and “to select a value for the property in the mid-range of the experts’ appraisals.”
Finally, the Commonwealth Court found that the trial court did not err when it set a value for the 2010 tax year despite the fact that the taxpayer’s appraiser did not offer an opinion of value for that year. The court indicated “here, the trial court had extensive expert testimony regarding the value of the property over the course of many years, and we conclude that the trial court properly relied upon that evidence to determine a value for 2010.”
The deadlines to file a real estate tax assessment appeal are right around the corner. Below are some of the deadlines for Pennsylvania counties:
Philadelphia October 3 (first Monday in October)
Berks August 15
Bucks August 1
Chester August 1
Dauphin August 1
Delaware August 1
Lackawanna September 1
Lancaster August 1
Lehigh August 1
Luzerne September 1
Montgomery September 1
Monroe September 1
Northampton August 1
(changed from September 1)
York August 1
Western Pennsylvania state legislators are advocating the creation of a uniform, statewide process to update property values. Pennsylvania is one of only two states in the country that does not have a statewide process and, instead has separate procedures for each of its 67 individual counties. A similar measure successfully passed the PA House but was passed by the Senate.
A nominating panel submitted 21 names to Philadelphia Mayor Michael Nutter as candidates for the Board of Property Assessment Appeals. The Mayor will review these names and select seven individuals to eventually serve on the Board, pending City Council confirmation.
Under a recently enacted Philadelphia law, the current Board of Revision of Taxes ceased to exist on September 1, 2010 and the Board of Property Assessment Appeals has now assumed all property tax appeals functions. The separate and independent Office of Property Assessment will assume property tax assessment functions. The nominating panel consists of John McDaniel (Chair) selected by the Housing Association of the Delaware Valley, Tim Roseboro (Vice Chair) selected by City Council President Verna, Jack Malloy selected by the Greater Philadelphia Association of Realtors, David Perlman selected by Building Industry Association of Philadelphia, Joanne Phillips selected by the Philadelphia Bar Association, Michael Piper selected by the Southeast Chapter of the Assessors’ Association of Pennsylvania, and Denise Joy Smyler selected by the Mayor.
The seven selected to serve on the Board of Property Assessment Appeals must fit the following criteria under the law. All seven members must be residents of the City of Philadelphia. Two members must be a real estate appraiser or real estate assessor certified by the Commonwealth of Pennsylvania, with at least ten years’ experience in that role. Two other members must have at least ten years’ experience as a practicing attorney with residential or commercial valuation expertise. Of the three remaining positions, at least one must be a homeowner and/or commercial property owner within the City.
The following names were submitted by the Nominating Panel:
John Adams, IV
John F. Szymanski
Philadelphia voters yesterday approved a charter change abolishing the 156-year-old Board of Revision of Taxes. The BRT sets the value of all properties in Philadelphia which determines the amount a property owner must pay in property taxes. Voters approved the ballot question by a more than 7-3 ratio. Mayor Nutter, most of City Council, newspaper editorial boards, and the Committee of Seventy all came out in favor of abolishing the BRT. "This is a very important moment in Philadelphia's history. We've dissolved an entity that is a throwback to the 1800s, an entity that needed to be put out of business so that we can move forward with the hard work of reform," Mayor Nutter said.
Members of the BRT challenged the legality of the ballot questions. Although the PA Supreme Court declined to intervene in the election, the court's ruling did not address the merits of the case. It is still possible for those BRT members to renew the suit.
At this point,, the BRT will no longer exist as of Oct. 1. A new Office of Property Assessment (OPA) will be responsible for making and supervising all assessments and valuations of residential and commercial real estate in Philadelphia.
On May 18, 2010 (PA Primary Election Day), Philadelphia voters will decide whether the City’s Board of Revision of Taxes should be abolished. The BRT is an independent agency that sets the value of all properties in Philadelphia which determines the amount a property owner must pay in property taxes. The BRT has been under attack since the spring of 2009 when the Philadelphia Inquirer began a series of investigative reports sharply criticizing the agency.
Mayor Michael Nutter demanded the resignation of its seven members. The members refused to resign and the Mayor and others set into motion attempts to abolish the BRT. However, City Council cannot abolish the BRT without voter approval. On May 18th, the City will have the following ballot question:
“Shall the Board of Revision of Taxes be abolished, and its powers, functions and duties be reassigned to a new Office of Property Assessment (with respect to the making of assessments) and to a Board of Property Assessment Appeals (with respect to appeals from such assessments), with the members of the Board appointed from nominations made by a Board of Property Assessment Appeals Nominating Panel?
Five BRT members filed a lawsuit asking the Pennsylvania Supreme Court to prevent the question from appearing on the ballot. The Court rejected the members’ claims and the question will appear on the ballot. If the ballot question passes, the changes would go into effect on October 1, 2010. As of October 1, 2010, a new Office of Property Assessment (OPA) will be responsible for making and supervising all assessments and valuations of residential and commercial real estate in Philadelphia.
The Philadelphia Board of Revision of Taxes remains at the center of controversy. Last week, Richard Negrin, the BRT's interim executive director, announced that the BRT will freeze reassessments on most Philadelphia properties for up to two tax years, or until every parcel can be reassessed. Mr. Negrin stated that after only one month as its head, he had discovered numerous errors in the BRT’s data and as well as other problems with the agency. He stated last week that he could not "in good conscience" continue to value properties in Philadelphia using the "bad data."
City Council recently passed legislation that will replace the BRT with two new entities Oct. 1. This must be approved by the voters in the May 18 primary.
The moratorium will freeze property taxes through at least the 2011 tax year unless City Council raises the property-tax rate. Exceptions will include new construction and rehabilitated properties. Most importantly, the 18,000 city properties that received reassessment notices in 2009 will still be required to pay the higher assessments.