Maryland’s highest court recently held that the tax court can value a property by relying on sale prices of comparable properties bought soon after a cutoff date for the assessment. In Ann Lane v. Supervisor of Assessments of Montgomery County, the Maryland Court of Appeals concluded that the Maryland Tax Court had properly taken into account sales of comparable properties that occurred a few months after the so-called date of finality when determining the value of a condominium. The date of finality is a Maryland assessment tool used to determine the value of a property once every three years and is defined as “January 1, immediately before the 1st taxable year to which the assessment based on the new value is applicable.”
PA’s Commonwealth Court found that Fayette County waited to assess a property owned by Duke Energy Corp until a tax abatement ended instead of assessing it when Duke Energy upgraded the property because it lacked the money to conduct a proper assessment and wanted to wait until the property was taxable. The Court overturned a trial court’s opinion, saying state law is clear that property assessments must occur when improvements are made on the property, not after. “Here, although an outside appraiser would have been necessary and costly, the costs of the appraisal at the proper time is not a factor which the board had the luxury of weighing,” the Commonwealth Court explaine.
Duke used 60 acres to build a gas-fired electric-generating station and applied to enroll those acres in the Keystone Opportunity Zone tax abatement program. Duke finished construction on the station in 2003 and told Fayette County. But the county waited to assess the property because it felt the assessment would be expensive — about $25,000 to $50,000 — and it didn’t want to expend funds until the property became taxable and it could see a return on its investment.
We recently had a significant victory in a large tax appeal case in Allegheny County, PA. The property included 2 office buildings that were being transitioned from a single tenant to a multi-tenant property. There were 2 years under appeal and, prior to our challenge, the assessed fair market value was $49 million. Our appraised values were $16.7 million and $21 million. The taxing authority’s appraised values were $20 million and $30.9 million. I attempted to settle the case, but the taxing authorities were not interested in a reasonable resolution. It went to a full hearing and the award was for our exact values. The taxing authorities did not appeal the decision.
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.
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.”