Property Tax Alert
July 2007
Authors:
Jacqueline E. Bedard
+1.717.231.5877
jacqueline.bedard@klgates.com
Evan A. Bloch
+1.412.355.6234
evan.bloch@klgates.com
David R. Cohen
+1.412.355.8682
david.cohen@klgates.com
Raymond P. Pepe
+1.717.231.5988
raymond.pepe@klgates.com
www.klgates.com
Don’t Miss Your Chance To Appeal Your
Company’s Real Property Tax Assessment
Introduction
Are you aware that every taxpayer may file an appeal each year challenging the assessment
of real property for local tax purposes in Pennsylvania?
It is that time of year again. It is the time of year when your company should consider
whether to file an appeal of your tax assessments. You do not need to wait for the county
to conduct a reassessment. Instead, you may file an appeal by the deadline indicated in
the attached table from the tax assessment to be effective for the next tax year. If a tax
assessment appeal is filed by the deadline, any redetermination will generally be effective
for the 2008 county and municipal taxes and the 2008-2009 school taxes.
Tax Assessments
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In order to determine whether it is desirable to file an assessment appeal, you need to
consider whether your property is over-assessed relative to comparable properties located in
the county municipality and/or school district; whether your property is correctly described
in the county’s assessment rolls; whether your assessment properly has excluded interests
in property not subject to local realty taxation; and whether any savings possible due to
an assessment appeal justify the cost of pursuing the appeal. To evaluate these issues, it is
helpful to understand concepts like “predetermined ratio,” “common-level ratio,” “base-year
value” and “fair market value.”
When you hear these terms, do your eyes glaze over or does your head begin to hurt?
We’ve attempted below to provide some common sense explanations we hope you will
find helpful.
Common-Level Ratio, Predetermined Ratio, and Base-Year Value.
What do these words mean to you or your company?
The common-level ratio reflects a comparison of a previous year’s actual sales prices in
each county to the assessed value of the properties established in the respective county.
Predetermined ratios, in contrast, represent the percentage of market values at which counties
announce that they intend to set assessed values. To the extent reassessments have not been
recently conducted, there are often substantial differences between the two amounts. Since
1947, an obscure agency known as the State Tax Equalization Board annually compiles
surveys of property sales for each county and municipality. For example, if assessed values
are on average half of sales prices, the common level ratio would be 50.
The assessed value is relevant to the amount of taxes that you pay. Each county in
Pennsylvania is responsible for determining the assessed value of property within its
boundaries. The assessed values determined by the County Tax Assessment Office are then
utilized by the county, cities, boroughs, townships and school districts to levy real property
taxes. Tax rates are stated in millage rates that are one-tenth of a percent of assessed value.
For example, a 16-mill tax is equivalent to a tax of 1.6% of assessed value. To determine
Property Tax Alert
the tax that you would pay, in a county that has a 100%
predetermined ratio (and a common-level ratio that is
within 15% of the predetermined ratio), a commercial
or industrial property that has a market value of $2.5
million also would have an assessed value of $2.5
million. A 16-mill property tax on that property results
in an annual payment of $40,000, i.e., $2,500,000 x
.016.
To the extent you believe that the true value of your
property is less than its assessed value divided by
the common level ratio or that it is over assessed in
comparison to comparable properties in the taxing
districts, it may be beneficial to pursue an assessment
appeal.
Base-year value. Some counties have sought to assess
properties as of a “base-year” when they conducted a
reassessment. When reassessing properties following
the completion of improvements or subdivisions,
assessors in “base-year” counties are to seek to value
the improved properties “as of” the base year. A
very recent opinion by Judge R. Stanton Wettick, Jr.
of the Allegheny County Court of Common Pleas,
discussed in more detail below, suggests that base-year
valuation systems violate the Equal Protection clause
of the Pennsylvania Constitution. As a result, counties
that have not conducted recent reassessments and
instead rely on old base-year valuations may present
particularly attractive venues for assessment appeals.
How Do I Know What My Assessment Is?
In most counties, each spring taxpayers should receive
a notice from the tax collector informing them of the
assessment(s) on their property and corresponding
taxes. However, if you are not sure of your assessment
or taxes, that is generally easy to check on-line or
through your county assessment office, based on the
property addresses or parcel numbers. If you are in
a county where the predetermined ratio varies from
the common-level ratio by less than 15%, divide your
assessment by the predetermined ratio to determine
indicated fair market value of the property. Otherwise,
divide by the applicable common-level ratio to
determine the indicated value. If you believe that
your property is worth less than the indicated fair
market value, you should consider an appeal. Further,
under recent case law, if you believe that the indicated
fair market value of your property is higher than the
indicated values of similar properties in the county,
municipality or school district, you may challenge the
value of your property on a uniformity basis. Appeals
based on uniformity alone, however, tend to be more
difficult and expensive to pursue.
Assessment Appeals – Who?
Assessment appeals may be filed by property
owners, their authorized representatives, or lessees
responsible for the payment of property taxes. Only
lawyers licensed to practice law in Pennsylvania may
appear as representatives of property owners at appeal
hearings, and testimony regarding valuation may only
be provided by property owners or licensed real estate
appraisers or brokers. At assessment hearings, property
owners are required to make a “full and complete
disclosure” of all information bearing on the market
value of the property.
Assessment Appeals – How?
Once a property owner has determined to appeal an
assessment, the appeal is filed with the county’s board
of assessment appeals. The appeal must be filed within
the applicable deadlines, which vary from county to
county. The table at the conclusion of this article
indicates the applicable statutes. Any municipalities
or school districts in which the real property that is the
issue of the appeal is located may also file an appeal or
may oppose an appeal filed by the taxpayer.
After an appeal is filed, the county board of assessment
appeals is responsible for scheduling a hearing. The
board may schedule the hearings as early as 30 days
after mailing the notice. In smaller counties, hearings
must be scheduled and the boards must act no later
than October 31, 2007. 72 P.S. § 5453.701(6); 72 P.S.
§ 5453.702a.
Board-level hearings tend to be informal. To prepare
for a hearing before the Board of Assessment Appeals,
owners of commercial and industrial properties should
consider obtaining an independent professional
appraisal of the real property at issue. Due to the
short time frame, it can be wise to commission such
an appraisal well in advance of a hearing and possibly
prior to even filing the tax assessment appeal.
After hearing the appeal, the Board may raise, lower
or not change the reassessed value. If the taxpayer or
any taxing authority does not agree with the Board’s
decision, they may file an appeal with the county court
July 2007 | Property Tax Alert
of common pleas. The appeal typically must be filed
within 30 days of the mailing date of the decision form,
but legal counsel should be consulted about the form
and timing of a court appeal. The courts hear such
appeals on a “de novo” basis, affording no weight to
the determination of the Board so long as any party
produces at the hearing independent credible evidence
of the actual property value.
Pending the outcome of any appeal, the taxpayer is
responsible to pay all taxes that have been levied.
If the appeal is successful, the taxpayer will then be
entitled to a refund of any excess taxes paid.
Other Relevant Issues To Consider
A. Machinery and Equipment
For owners of industrial facilities, some of your
property may be excluded from taxation. Section
201(a) of the General County Assessment Law provides
that tax assessments may not include the value of
machinery, equipment and other improvements used
in an industrial establishment. The State Supreme
Court has recognized that the scope of exclusion from
taxation provided to machinery, equipment and other
improvements used in an industrial establishment is
“at least concurrent” with the assembled industrial
plant doctrine. In BFC Hardwoods, Inc. v. Board
of Assessment Appeals of Crawford County 1, the
Supreme Court reviewed the historical context in
which the machinery and equipment exclusion was
adopted, concluding that the context compelled a broad
interpretation of the exclusion.
The basic long-standing test is if the “improvements,
whether fast or loose, … are used directly in …
manufacturing the product that the establishment is
intended to produce, … are necessary and integral
parts of the manufacturing process and are used solely
for effectuating that purpose.” If so, then they “are
excluded from real estate assessment and taxation.”
Jones & Laughlin Tax Assessment Case.2
B. Personalty v. Realty
Real property tax assessments must be based upon the
actual value of real property and permanently attached
improvements to real property. 72 P.S. §§ 5020-201(a),
5020-402(a), 5348(c). While the degree of permanency
with which an item is attached or installed upon real
property and whether the item can removed from real
property without permanent damage to the land or the
fixture is relevant to classifying an attachment as real
or personal property. Ultimately, how the property is
classified depends upon objective evidence regarding
whether it was intended to remain permanently affixed
to the realty for its useful life. As a result, depending
upon relevant facts and circumstances, equivalent
items may constitute either taxable real property or
non-taxable personal property.
C. Environmental Contamination and Casualty
Losses
A property that is environmentally contaminated is
adversely impacted by that contamination. Often, the
existence of substantial contamination, if supported
by evidence, reduces the market value of the property
significantly. Likewise, if the value of property has
been impaired by a fire or other casualty, it may be
eligible for a reduced assessment.
D. Oil, Gas and Mineral Interests
In Independent Oil and Gas, the Pennsylvania Supreme
Court held that oil and gas interests are not subject to
tax because they do not constitute one of the subjects
of tax specifically enumerated as subject to taxation
by Section 201 of the General County Assessment
Law. Independent Oil and Gas v. Board of Assessment
Appeals of Fayette County.3 In contrast, a few years
later, the Commonwealth Court held that limestone
that had not been removed from the ground constituted
an interest in land, a subject of tax that is specifically
enumerated in the General County Assessment Law.
Coolspring Stone Supply v. County of Fayette.4
E. Other Improvements to Real Property
One of the consequences of the Independent Oil
and Gas and Coolspring Stone Supply litigation
has been a renewed focus on whether and to what
extent improvements to real property are taxable. The
Supreme Court has stressed that, because tax laws are
to be strictly construed against the government and in
1
771 A.2d 759 (Pa 2001).
2
175 A.2d 856 (Pa. 1961).
3
814 A.2d 180 (Pa. 2002).
4
879 A.2d 323 (Pa. Cmwlth. 2005), allocatur granted, 892 A.2d 824 (Pa. 2005).
July 2007 | Property Tax Alert
favor of taxpayers, only the types of improvements
made explicitly subject to assessment may be taxed.
These improvements are generally limited to houses,
house trailers, permanently attached mobile homes,
parking lots and trailer parks, “manufactories,”
wharves, offices, and enclosures for machinery and
equipment. While the issue continues to be fraught with
controversy, most other types of improvements, unless
incorporated into or associated with otherwise taxable
improvements, may be excluded from assessment and
taxation. These concepts have generated disputes
concerning the taxation of billboards, windmills,
amusement park rides and cell towers and seem
likely to spread to other classes of improvements to
realty. As a result, it is important for a taxpayer, when
evaluating the taxable nature of the company’s land
and improvements, to determine whether they fall
within the list of enumerated items subject to tax under
the assessment laws.
Recent Case Law
A. Uniformity Challenges
You may file an appeal if you believe that your
property’s fair market value is too high. You also may
file an appeal if you believe that your assessment-tovalue ratio is higher than that of similar properties.
Until a recent decision by the Pennsylvania Supreme
Court in Downingtown Area Sch. Dist. v. Chester
County Bd. of Assessment Appeals,5 it was questionable
whether taxpayers could challenge assessments on
uniformity grounds beyond seeking application of
the applicable common-level ratio in counties where
it differed from the predetermined ratio by more than
15%. The Downingtown decision, however, has
opened up new avenues for uniformity challenges.
The Dowingtown litigation addressed a situation in
Chester County in which the predetermined ratio
was 85.2% and the common-level ratio was 100%.
The litigation addressed the question of whether in
these circumstances there should be a presumption of
uniformity simply because the difference between the
predetermined ratio and the common-level ratio was
less than 15% or whether a taxpayer may demonstrate
a lack of uniformity of taxation with respect to the
property if it can prove that similar properties are
5
6
assessed at a lesser value than that of the subject
property. The Pennsylvania Supreme Court held that
“in the context of a uniformity challenge, the parties
and the trial court may rely upon evidence concerning
the assessment-to-value ratio of similar properties.”
What does this decision mean to your company as
the taxpayer? After Downingtown¸ to prove lack
of uniformity your company may not be limited
to reliance upon common-level ratios and may not
need to do a complicated countywide study of ratio
comparisons. Rather, if after reviewing the assessmentto-market value ratio of properties that are similar (i.e.,
warehouse to warehouse), you determine that the ratio
of assessment-to-market value of your property is
much greater than that of similar properties, you may
file a uniformity challenge to the assessment. This
gives taxpayers a second method by which to attack
their property assessments.
B. Use of Base Year
In a landmark 94-page opinion (not including a 17-page
attachment) dated June 6, 2007, Allegheny County
Court Judge R. Stanton Wettick, Jr. voided Allegheny
County’s entire county assessment system. Clifton v.
Allegheny County and Pierce v. Allegheny County.6
In Clifton, Judge Wettick found that the Pennsylvania
assessment laws that permit counties to use a base-year
system indefinitely to assesses property values violate
the Pennsylvania Constitution’s Uniformity Clause. Pa.
Const. Article III, § 1. The Uniformity Clause requires
that all taxes must be uniform upon the same class of
subjects. Relying on empirical evidence and expert
testimony, Judge Wettick determined that base-year
valuation methods inevitably produce unacceptable
inequalities.
It is not yet clear what impact this decision will have
beyond Allegheny County. Although Judge Wettick
condoned continued use of the base-year system in
Allegheny County for a limited time while appellate
courts and/or the legislature have time to review his
decision and implement alternatives, some taxing
authorities in Allegheny County are now arguing that
2007 market values, rather than 2002 base year values,
should be applied to current-year assessment appeals
within the county. Further, according to Isobel Storch,
913 A.2d 194 (Pa. 2006).
No. GD05-028638 and No. GD05-028355, respectively.
July 2007 | Property Tax Alert
Solicitor for the Allegheny County Board of Property
Assessment Appeals and Review, the Board plans
to continue considering only evidence of base-year
values, unless the taxpayer (not the taxing authorities)
bases his/her tax appeal on current market value.
Allegheny County officials have announced their
intention to appeal Judge Wettick’s determination.
Absent new legislation, the Pennsylvania appellate
courts’ determination will guide assessment law
throughout Pennsylvania. In the meantime, however,
Pennsylvania’s General Assembly may act to clarify
current assessment law.
Regardless of the outcome of the appeal of Judge
Wettick’s decision, by focusing attention on the
inequities inherent in the use of a base year to reassess
new improvements to property, the decision may
open up new avenues of relief for taxpayers to pursue
appeals using base-year values versus current market
values as adjusted by common-level ratios. A review
of both base-year and current year values may be
particularly advisable in portions of counties that
have experienced comparatively rapid growth and
development since the base year because the use of a
base-year valuation would magnify the current impact
of any over assessment that occurred in the base year
and has not been previously appealed and corrected.
The Role of Legal Counsel in Assessment
Appeals
As you consider whether to pursue a property tax
assessment appeal, it is important to be cognizant
of the governing and emerging law. Property tax
assessment appeals, especially for commercial and
industrial properties, often can result in substantial
valuation adjustments and tax savings. The assistance
of counsel may be critical in the effective pursuit of
negotiations or appeals. Lawyers experienced with
assessment appeals can assist taxpayers in retaining and
working with professional appraisers and can ensure
that all appropriate tax exemptions and exceptions
are claimed in appeals, including exemptions for
charitable organizations and exclusions for machinery
and equipment issued in industrial establishments.
Effective representation by counsel also can help
protect taxpayers against attempts by municipalities
and school districts to increase assessments.
Our firm’s Harrisburg and Pittsburgh offices have
significant experience with taxation issues, including
complex appeals from real estate property assessments
of commercial and industrial properties. Our lawyers
have successfully appealed or negotiated favorable
resolutions of the assessment of various industrial,
power generation, office, retail, storage, utility and lowincome properties across the state. Several examples of
K&L Gates’ recent tax assessment appeal issues include
challenging whether a county may assess billboards as
real property; challenging the method by which lowincome and senior housing may be taxed; negotiation
of multi-million dollar reductions in assessments for
various industrial, utility, hotel and office properties;
successfully litigating in Pennsylvania appellate courts
the scope of the machinery and equipment exclusion
and the application of obsolescence in computing the
assessed value and value reductions or zero values
based on environmental issues. We have handled
assessment appeals in counties across Pennsylvania,
including Allegheny, Armstrong, Beaver, Berks,
Bradford, Bucks, Clinton, Dauphin, Franklin, Indiana,
Lancaster, Lawrence, Lycoming, Mercer, Montgomery,
Reading, Warren, Washington, and Westmoreland.
July 2007 | Property Tax Alert
COUNTY
TAX ASSESSMENT APPEAL
COMMON-LEVEL RATIO
BASE-YEAR
9/1/07 To be established for 2008
9/1/07
9/1/07
9/1/07
8/15/07
9/1/07
9/1/07
8/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
8/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
8/1/07
8/1/07
9/1/07
8/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
22.1 87.3
35.8
29.3
17.2
68.1
8.2
37.3
9.1
9.6
31.1
33.8
32.1
29.3
51.8
17.7
17.4
22.4
28.2
32.9
82.0
71.3
61.1
37.7
83.3
85.4
19.2
9.8
33.4
86.4
12.7
16.2
53.5
1991
2002
1997
1982
2001
1994
1958
1999
2005
1969
2005
1986
2001
1995
1998
1998
1989
1995
1992
1971
2005
2002
2000
2006
2003
2003
1974
2001
1990
2003
1978
1998
2005
Adams Allegheny
Armstrong
Beaver
Bedford
Berks
Blair
Bradford
Bucks
Butler
Cambria
Cameron
Carbon
Centre
Chester
Clarion
Clearfield
Clinton
Columbia
Crawford
Cumberland
Dauphin
Delaware
Elk
Erie
Fayette
Forest
Franklin
Fulton
Greene
Huntingdon
Indiana
Jefferson
DEADLINE
July 2007 | Property Tax Alert
Juniata
COUNTY
9/1/07
16.0
2003
TAX ASSESSMENT APPEAL
COMMON-LEVEL RATIO
BASE-YEAR
Lackawanna
Lancaster
Lawrence
Lebanon Lehigh
Luzerne
Lycoming
McKean
Mercer
Mifflin
Monroe
Montgomery
Montour
Northampton
Northumberland
Perry
Philadelphia
Pike
Potter
Schuylkill
Snyder
Somerset
Sullivan
Susquehanna
Tioga
Union
Venango
Warren
Washington
Wayne
Westmoreland
Wyoming
York
DEADLINE
9/1/07
8/1/07
9/1/07
9/1/07 8/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
10/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
9/1/07
8/1/07
14.1
76.6
87.8
13.6
27.9
5.0
86.2
89.8
27.3
45.4
12.8
50.8
87.5
29.1
22.1
73.3
28.4
16.2
35.7
38.2
14.1
34.4
71.5
33.8
75.0
88.8
88.7
34.1
13.3
75.7
19.8
20.2
76.1
1973
2005
2003
2005
1991
1965
2005
2005
2002
1999
1989
1998
2005
1995
2005
2001
Ongoing
1996
2002
1997
1997
1998
2004
1994
2002
2006
2005
1989
1985
2005
1972
1997
2006
July 2007 | Property Tax Alert
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July 2007 |