Supreme Court of Pennsylvania Bans Tax Assessment Appeals Targeting Commercial Properties, but Provides Roadmap on How School Districts May Lawfully Initiate Appeals
On July 5, 2017, the Supreme Court of Pennsylvania struck down as unconstitutional a practice by Upper Merion Area School District that targets commercial properties for district-initiated tax assessment appeals. In a unanimous 7-0 decision in Valley Forge Towers Apartments N, LP v. Upper Merion Area School District, the Supreme Court reversed a lower-court decision by the Commonwealth Court.
The Supreme Court held that pursuant to the Uniformity Clause of the Pennsylvania Constitution, a taxing entity cannot discriminate by selecting only under-assessed commercial properties for tax assessment appeals, while ignoring other classes of under-assessed properties such as residential parcels. The Supreme Court indicated, though, that it would be permissible to use a classification-neutral approach in deciding which parcels to appeal, such as using a dollar-threshold where a school district appeals any property that sells for (or is valued at) a certain dollar amount above the implied fair market value of its assessment.
In Upper Merion Area School District, the Montgomery County Court of Common Pleas had dismissed a lawsuit filed by a group of apartment complex owners. According to the lawsuit, the most recent countywide assessment in Montgomery County had occurred in 1996, and the common level ratio for Montgomery County (which essentially compares the “base year” market value of 1996 to current market values) was 60%. The lawsuit alleged that Upper Merion Area School District, through use of a consultant, was initiating tax assessment appeals only on under-assessed commercial properties, even though the vast majority of residential properties were similarly under-assessed.
The trial court ruled it was permissible for the school district to select for appeal only commercial properties that were under-assessed, because the school district was not the entity that had established the assessments, and thus could not be accused of discriminatory assessment practices. In addition, relying on a 2014 Commonwealth Court decision, the trial court held that “the Uniformity Clause does not require equalization across all sub-classifications of real property.” The Commonwealth Court upheld the trial court’s decision.
The Supreme Court, though, stated that the trial court and the Commonwealth Court misunderstood Pennsylvania law concerning the Uniformity Clause. Holding that the Uniformity Clause requires both the county establishing assessments and taxing authorities to treat all sub-classifications of real property equally, the Supreme Court ruled Upper Merion Area School District violated the Uniformity Clause by singling out under-assessed commercial properties for appeals while ignoring other classifications of under-assessed properties: “[A] taxing authority is not permitted to implement a program of only appealing the assessments of one-sub-classification of properties, where that sub-classification is drawn according to property type – that it, its use as commercial, apartment complex, single-family residential, industrial, or the like.”
The Supreme Court did indicate, though, that it would not violate the Uniformity Clause for a school district to initiate tax assessment appeals for any classification of property based upon a “dollar-threshold” approach, such as where a property is sold for or is valued at a certain dollar amount above its implied value based upon the tax assessment: “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 . . . .”
As a result of the Supreme Court’s ruling, which is based upon the allegations in the complaint, the case was remanded back to the Montgomery County Court of Common Pleas, for a determination of the actual facts.
In terms of the broader picture, this decision by the Supreme Court was issued in the midst of debate within the Pennsylvania General Assembly on proposed legislation that would impose restrictions on the ability of school districts and municipalities to initiate tax assessment appeals. It remains to be seen whether this Supreme Court ruling will be viewed by the General Assembly as obviating the need for legislative action.
We hope you find this issue of KKAL’s Education Law Watch helpful and informative. Please understand that the Law Watch is designed to provide information about current developments and required actions. It does not constitute legal advice, and school districts should consult a lawyer knowledgeable in this area of the law prior to taking specific actions on the issues addressed.
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