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Is Relief From Taxing Body Assessment Appeals On The Way for Commercial Property Owners?

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Michael A. Micsky is an associate at MacDonald Illig Attorneys and a member of the firm’s Banking & Real Estate and Business Transactions Practice Groups.

Whether you have recently purchased real estate for your business or your business has owned property for years, the thought of a local taxing body challenging the assessed value of your property has likely crossed your mind. Despite lingering economic uncertainty surrounding the COVID-19 pandemic, many properties have recently experienced significant increases in value. Rising property values may incentivize local taxing bodies to file real estate tax assessment appeals, seeking to increase revenue by increasing a property’s assessed value resulting in a higher real estate tax bill. A tax assessment appeal can have a significant financial impact on a business, particularly if the business owns valuable commercial property.

Current Law
Under the Consolidated County Assessment Law, local taxing bodies in Pennsylvania are afforded the same statutory right to file a tax assessment appeal as the owner of the property. If a taxing body files tax assessment appeals selectively by choosing properties likely to result in the greatest increase in revenue, such as valuable commercial property, it raises concerns under the Uniformity Clause of the Pennsylvania Constitution, which requires that all taxes be “uniform” upon the same class of subjects within the same taxing district.

This statutory and constitutional conflict has resulted in much litigation over the years as local taxing bodies, most often school districts, have increased their tax assessment appeals, largely targeting commercial and industrial properties.

In 2017, in Valley Forge Towers Apartments N, LP v. Upper Merion Area School District, the Pennsylvania Supreme Court held that taxing bodies cannot single out a specific class of properties, such as commercial or industrial, for appeal. The Supreme Court explained that any disparate treatment between different classes of property by any “intentional or
systematic enforcement of tax laws” was unlawful.

While taxing bodies cannot choose only certain classes of properties to appeal, the Supreme Court in Valley Forge did not prohibit the “use of a monetary threshold … or some other selection criteria” by its ruling because those practices were not before the Court. As a result of the Valley Forge decision, local taxing bodies have largely adopted monetary threshold selection criteria, the most common being the difference between a property’s recent sale price and its assessed value. The Pennsylvania Commonwealth Court has consistently upheld such “monetary threshold analysis” as a basis for selecting properties to appeal, as it did in 2020 in Kennett Consolidated School District v. Chester County Board of Assessment Appeals.

Changes on the Way?
The tides may be turning in favor of property owners. The Supreme Court
agreed to review Kennett to consider whether a monetary threshold of $1 million, which would predominantly result in commercial or industrial properties being selected for appeal, was constitutional. The Court heard argument on April 13, 2021. Additionally, the Commonwealth Court recently held, in Duffield House Associates, L.P. v. City of Philadelphia, that Philadelphia discriminated against commercial taxpayers when the practical outcome of their selection criteria was to target commercial properties.

In reviewing Kennett, the Supreme Court will hopefully provide clarification about the interplay of a property owner’s constitutional right to be uniformly taxed, under the Uniformity Clause, and the statutory right of a taxing body to file a tax assessment appeal. Such a ruling has the potential to severely limit the ability of a local taxing body to selectively file assessment appeals, which could be good news for owners of commercial property.

If you need assistance with a tax assessment appeal, whether filed by a local taxing body or by you as a property owner, please contact Michael Micsky or any MacDonald Illig attorney at 814/870-7600.