Local tax assessment appeals and what you need to know

On July 5, the Pennsylvania Supreme Court handed down an important decision in Valley Forge Towers Apts. N, LP v. Upper Merion Area School District that has the potential to bring major changes to local tax assessment appeals.

The Upper Merion Area School district hired a consultant to review property assessments and develop a list of possible assessment appeals. During this process, the district decided to appeal only commercial properties, though more than 80 percent of the residential properties had assessment ratios below the county’s common level ratio. This was done both to increase the return on those appeals and to avoid possibly upsetting residential property owners who would vote in the local school board elections.

The owners of some of those commercial properties filed suit, claiming that selectively appealing only a particular sub-class of properties was a violation of the uniformity clause in the Pennsylvania Constitution. Among other arguments, the district argued that state law allowed assessment appeals and that prior court cases allowed these sorts of sub-classifications.

The county court agreed with the school district and dismissed the case early in the process. The Commonwealth Court upheld that decision. In those opinions, the courts interpreted earlier Supreme Court cases to say that the Uniformity Clause doesn’t require equal treatment across every sub-classifications of property, so there was no problem with appealing only one particular property type.

The Supreme Court, however, reversed those decisions and sent the case back to county court to move ahead on its merits. In large part, the Supreme Court case said that the lower courts had misinterpreted its prior decisions regarding property classification, and therefore got this case wrong. Without getting into the gory details, the basic holding is that while property owners may be able to sub-classify property for analysis during assessment appeals (i.e., comparing their home against only other residential properties instead of all properties), the government doesn’t get that same leeway and must treat properties the same across the board.

Does this decision stop municipal and school district assessment appeals? In a word, no. But it does mean that local taxing authorities may have to change their approach to use methods that don’t cause these constitutional concerns. What might that look like?

The Supreme Court gave a serious hint about their thought process with this statement: “We pause at this juncture to clarify that nothing in this opinion should be construed as suggesting that the use of a monetary threshold… or some other selection criteria would violate uniformity if it were implemented without regard to the type of property in question or the residency status of its owner.” That is, they’d consider some sort of selection criteria to be acceptable, so long as it’s not explicitly based on property classification.

And while taxing authorities might try to find other ways to focus their appeals on higher-value commercial properties without being so obvious, it’s also entirely possible that their tactics might include increased residential appeals as a way to avoid claims of targeting a particular category of properties. Regardless of the approach, this issue isn’t going away any time soon and further litigation is inevitable.

All of this is why PAR is involved in several assessment-related legislative initiatives. The association is involved in a coalition supporting bills that would limit the appeal rights of taxing authorities (HB1213 and SB586), and is actively monitoring the work of the Assessment Reform Task Force of the Local Government Commission. Stay tuned as this important issue continues to develop.