Assessment Law & Procedure in Pennsylvania [17 ed.] 9781578042845, 9781578042852

Citation preview

Assessment Law & Procedure in Pennsylvania 17th Edition

Assessment Law & Procedure in Pennsylvania 17th Edition—current through April 21, 2022

Paul R. Morcom Adam M. Koelsch Meghan E. Holjes McNees Wallace & Nurick LLC

A NOTE TO THE USER This edition is current through April 21, 2022, and includes the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq., effective January 1, 2011, which repealed and/or consolidated the former Second Class A and Third Class County Assessment Law at 72 P.S. § 5342 et seq., and the Fourth to Eighth Class County Assessment Law at 72 P.S. § 5453 et seq.

© 2022, McNees Wallace & Nurick LLC All rights reserved. Printed in the United States of America. ISBN 978-1-57804-284-5 ISBN 978-1-57804-285-2 [EPUB] PBI Number 11480 PENNSYLVANIA BAR INSTITUTE 5080 RITTER ROAD MECHANICSBURG, PENNSYLVANIA 17055 800/932-4637 OR 717/796-0804 E-MAIL: [email protected] WEBSITE: http://www.pbi.org The Pennsylvania Bar Institute does not render any legal, accounting, or other professional services. The Institute’s programs and publications are designed solely to help attorneys maintain their professional competence. Commentary, opinions, or views expressed by the author are not necessarily the views of PBI. In dealing with specific legal matters, the attorney using PBI publications should always research original sources of authority.

This book is included in PBI’s automatic update service (note: this service does not apply to electronic book purchases). PBI will periodically publish new editions to keep the book up to date. Unless you have opted out when ordering the book, we will send you a notice when the book is being updated. You will then have the option of returning the notice declining the update; if we do not receive the cancellation notice from you, you will receive the update at a reduced price with an invoice. If you do not want to keep the update, you may return it to us with no further obligation. It is PBI’s mission to provide Pennsylvania lawyers with continuing legal education that is timely, practical, cost-effective, and of the highest possible quality. You can count on us to keep you up to date in this important area of practice. If you do not want to be part of this service, please call Customer Service at 800-932-4637 and ask that we remove your name from the list of those who will receive updates to this book, or go to your online account at www.PBI.org under Account Home, Automatic Updates and uncheck this book.

Pennsylvania Bar Association

Board of Governors MAY 2021-2022 OFFICERS President: President-Elect: Vice President: Immediate Past President: Chair, House of Delegates:

Kathleen D. Wilkinson, Philadelphia County Jay N. Silberblatt, Allegheny County Michael J. Mcdonald, Lackawanna County Anne N. John, Fayette County Jonathan D. Koltash, Dauphin County

Secretary:

Beverly H. Rampaul, Lancaster County

Treasurer:

James R. Antoniono, Westmoreland County

YLD OFFICERS Chair, YLD

Chair-Elect, YLD

Immediate Past Chair, YLD

Paul D. Edger

Patrice M. Turenne

Colin J. O’Boyle

Dauphin County

Montgomery County

Montgomery County

GOVERNORS MINORITY

WOMAN

UNIT COUNTY

Rodney R. Akers

Amy J. Coco

Melinda C. Ghilardi

Dauphin County

Allegheny County

Lackawanna County

Jennifer S. Coatsworth

James P. Valentine

Carolyn R. Mirabile

Philadelphia County

Luzerne County

Montgomery County

Jonathan M. Huerta

Damon J. Faldowski

Melissa Merchant-Calvert

Northampton County

Washington County

Mercer County

Lisa M. Benzie

John F. Alcorn

Kelly A. Mroz

Dauphin County

-HɣHUVRQ&RXQW\

Centre County

John P. Pietrovito

Mary E. Schellhammer

Lawrence R. Chaban

Lycoming County

Somerset County

Allegheny County

Philip H. Yoon Philadelphia County

ZONE GOVERNORS

Foreword

Assessment Law and Procedure in Pennsylvania not only guides you through each step of the assessment process, but also provides the essential context in which the assessment principles are applied. Originally written by Mr. Bert M. Goodman, this outstanding reference is a comprehensive manual incorporating his years of practical experience in this specialized area of law. First circulated informally and published by PBI in 1994, this reference has become relied upon by counsel both for municipalities and for taxpayers, as well as assessment appeal board members, assessors, and appraisers. For the 13th and 14th editions, Randy L. Varner, Esq., a member with McNees Wallace & Nurick LLC, joined Mr. Goodman as co-author. Upon Mr. Goodman’s retirement at the end of 2015, Mr. Varner collaborated with Paul R. Morcom, Esq., a member of McNees Wallace, for the 15th and 16th editions. For the 17th edition, Mr. Morcom collaborated with Adam M. Koelsch, Esq., of counsel with McNees Wallace, and Meghan E. Holjes, Esq., an associate with the firm, to update this valuable reference. This edition is current through April 21, 2022. The authors and PBI are committed to updating this book with new editions, as appropriate. We welcome your comments and suggestions for incorporation in future editions. Kevin McVeigh, Content Attorney Pennsylvania Bar Institute April 2022

vii

About the Authors

Paul R. Morcom, Esq. Mr. Morcom, a Dauphin County attorney, is a member of McNees Wallace & Nurick LLC in Harrisburg. He represents commercial and industrial entities in all areas of state and local tax litigation, focusing on real estate tax assessment appeals, as well as state corporate net income, capital stock/foreign franchise, sales and use, PURTA, and gross receipts taxes. He has worked at the Board of Finance and Revenue and has interned at the Office of Attorney General Tax Litigation Section. He has extensive experience before the Pennsylvania Board of Appeals, Pennsylvania Board of Finance and Revenue, county assessment appeals boards, county courts of common pleas, and the Commonwealth Court. He is a member of the Pennsylvania Bar Association and the Institute for Professionals in Taxation. He is also past chair of the Pennsylvania Bar Association’s Tax Law Section. He earned his undergraduate degree from King’s College and his law degree from Widener University School of Law. Mr. Morcom may be contacted at: McNees Wallace & Nurick LLC 100 Pine Street, P.O. Box 1166 Harrisburg, PA 17108-1166 717-237-5364 Fax: 717-237-5300 Email: [email protected] Adam M. Koelsch, Esq. Mr. Koelsch, a Dauphin County attorney, is of counsel at McNees Wallace & Nurick LLC in Harrisburg, focusing on state and local tax litigation. Before joining McNees, he was senior counsel at Chamberlain Hrdlicka. Mr. Koelsch also acted as deputy city solicitor for the Philadelphia Law Department’s Tax Unit, where he represented the city in highdollar-value/complex local tax cases at administrative hearings at the Philadelphia Tax Review Board, in agency appeals and tax collection actions at the court of common pleas, and in tax appeals at the Commonwealth Court. Mr. Koelsch previously worked at the Kings County District Attorney’s Office in Brooklyn, New York—one of the largest prosecutor’s offices in the country—where, as a senior appellate attorney, he routinely ix

About the Authors

argued in the state appellate courts, including the Court of Appeals, the state’s highest court. Mr. Koelsch may be contacted at: McNees Wallace & Nurick LLC 100 Pine Street, P.O. Box 1166 Harrisburg, PA 17108-1166 717-237-5305 Fax: 717-237-5300 Email: [email protected] Meghan E. Holjes, Esq. Miss Holjes, a Dauphin County attorney, is an associate at McNees Wallace & Nurick LLC in Harrisburg. Her practice focuses on corporate and tax issues, both at the federal and state and local level, with an emphasis on corporate governance in the for-profit and nonprofit sectors, sales and use tax, and real estate tax assessment appeals. She is a member of the Dauphin County and Pennsylvania Bar Associations. She earned her undergraduate degree from Penn State University, her JD from the Charleston School of Law, and her LLM. in taxation from Georgetown University Law Center. Miss Holjes has worked in York County as a judicial law clerk and interned at a large firm in Washington, D.C., before joining McNees. She may be contacted at: McNees Wallace & Nurick LLC 100 Pine Street, P.O. Box 1166 Harrisburg, PA 17108-1166 717-237-5390 Fax: 717-237-5300 Email: [email protected]

x

Summary of Contents

Foreword ........................................................................................................vii About the Authors .......................................................................................... ix Table of Contents ..........................................................................................xiii 1

Introduction ................................................................................. 1

2

Assessment Appeal Boards........................................................ 3

3

Assessment Appeal Hearing and Procedures .......................... 15

4

Assessment Trial....................................................................... 89

5

Post-trial Motions and Appellate Review and Procedure........ 143

6

Assessment Valuation Law ..................................................... 151

7

Uniformity, Equalization, and Ratio Law ................................. 257

8

Tax Payments and Assessment Settlements .......................... 307

9

Countywide Reassessment .................................................... 331

10

Spot Assessment and Selective Reassessment..................... 355

11

Exemption Law and Procedure............................................... 401

12

Assessment Procedure........................................................... 527

13

Preferential Land Assessments .............................................. 573

14

Tax Abatements and Miscellaneous Exemptions.................... 627

Statutory Index................................................................................. 653 Index of Cases................................................................................. 659 Subject Matter Index........................................................................ 707

xi

Table of Contents

Foreword ........................................................................................................vii About the Authors .......................................................................................... ix Summary of Contents .................................................................................... xi 1

Introduction

2

Assessment Appeal Boards

2-1 2-2 2-3 2-4

3 3-1

3-2 3-3 3-4 3-5

1 3

The Interrelationship between the General County Assessment Law and the Specific Class County Codes 3 The Powers and Duties of the First Class County Board of Revision of Taxes 3 The Powers and Duties of the Second Class County Board of Property Assessment Appeals and Review 4 Powers and Duties of County Assessment Appeals Boards under Consolidated County Assessment Law 7 Assessment Appeal Hearing and Procedures

15

Assessment Procedure 15 3-1.1 Appeal Hearing and Procedure 15 3-1.2 Due Process of Law and the Assessment Hearing 15 3-1.3 Appeal of the Base-Year Value 21 3-1.4 County Limit of Appeals Exclusively to Base-Year Value 23 3-1.5 Jurisdiction of an Assessment Appeals Board 26 3-1.6 Standing to Appeal in a Tax Assessment Case 27 3-1.7 Findings of Fact by an Assessment Appeals Board 36 3-1.8 Post-hearing Procedure 37 Technical Defects in Assessment Appeals 37 Remedy for Notice Violation of Assessment Board Hearings 40 Class Actions in Assessment Appeals 41 Civil Rights Actions and Assessment Appeals 44 xiii

Table of Contents

3-5.1

Federal Civil Rights Actions Challenging Tax Assessments 44 3-5.2 Common Pleas Court Jurisdiction over Civil Rights Actions Challenging Tax Assessment Appeals 45 3-5.3 Civil Rights Liability of Municipalities and School Districts for the Illegal Acts of Assessment Boards 49 3-5.4 Civil Rights Challenges to Assessment Methods in Fourth to Eighth Class Counties 52 3-6 Court Intervention in Tax Assessment Cases 54 3-6.1 Equitable Relief in Tax Assessment Cases 54 3-6.2 Writs of Prohibition 61 3-6.3 Collateral Estoppel and Tax Assessment Appeals 62 3-6.4 Nunc Pro Tunc Petitions for Appeal 65 3-6.5 Nunc Pro Tunc Appeals and Mandatory Appeal Filing Dates 67 3-7 The Scope of Discovery as to Assessment Appeals Board Members 68 3-8 Due Process Rights of Municipalities in Assessment Appeals 72 3-9 Admissibility of Evidence Presented by Contingent-Fee Appraisers 73 3-10 Representation of Taxpayers before Assessment Boards 74 3-11 Board Cannot Sua Sponte Extend the Statutory Appeal Filing Deadline 85 4 4-1

xiv

Assessment Trial

89

Pretrial Pleadings 89 4-1.1 Thirty-Day Time Limitation on Appeals to Court 89 4-1.2 Statutory Filing Deadlines 90 4-1.3 Timely Filing of Appeal to the Common Pleas Court 91 4-1.4 Service of Process in an Assessment Appeal to the Court of Common Pleas 93 4-1.5 Pleadings in Assessment Cases 95 4-1.6 Defects in Pleadings 96 4-1.7 Local Rules of Civil Procedure and the Perfection of Assessment Appeals to Court 100 4-1.8 Sua Sponte Dismissals of Assessment Appeal for Lack of Activity 103 4-1.9 Necessity to Appeal Subsequent Year’s Assessment 105

Table of Contents

4-1.10

4-2 4-3

4-4

4-5 4-6 4-7 5 5-1 5-2

Commencement of Included Appeal Years under the Automatic Statutory Appeal Rules 108 4-1.11 The Appeal of an Interim Assessment Appeal for All Subsequent Years 109 4-1.12 Appeal Valuation Dates 111 4-1.13 Withdrawal of Appeals 112 Discovery 113 4-2.1 Discovery of Appraisal Reports Prepared by Non-trial Witnesses 115 Trial De Novo of Assessment Appeals 117 4-3.1 Trial Procedure 118 4-3.2 Appraisal Report Exchanges 119 4-3.3 Burden of Proof 120 4-3.4 Role of the Trial Judge 120 4-3.5 Motion for View 121 4-3.6 Failure to Rebut Valuation Evidence 121 4-3.7 Adverse Party Overcoming the Assessment Presumption 124 4-3.8 The Burden of Presenting Evidence Outside the Board’s Assessment to Rebut Taxpayer’s Presentation of Evidence 126 4-3.9 Surrebuttal Evidence in Assessment Cases 128 4-3.10 The Court’s Inherent Statutory Power to Increase Assessments after Trial 128 4-3.11 Findings of Fact in the Trial of an Assessment Appeal Case 130 4-3.12 Motions In Limine in Tax Assessment Trials 132 4-3.13 Objections to Assessment Evidence 132 Evidentiary Issues 133 4-4.1 Hearsay Exception—Appraisal Reports 133 4-4.2 Weighing Credibility of Expert Witnesses 135 4-4.3 Evaluation of Expert Testimony 135 4-4.4 Use of Federal Income Tax Depreciation Schedules as Evidence in an Assessment Trial 136 4-4.5 Admission of Evidence on Expert Opinions 137 Arbitration of Tax Assessment Cases 138 Class Actions in Assessment Matters before Courts of Common Pleas 139 Attorneys’ Fees and Costs in Assessment Appeals 140 Post-trial Motions and Appellate Review and Procedure 143 Appellate Court Appeals Post-trial Motions 143

143

xv

Table of Contents

5-3 5-4 5-5 5-6

6 6-1 6-2

6-3

6-4

6-5 6-6

xvi

Post-trial Appellate Procedure 144 Standard of Appellate Review in Assessment Cases 145 Timeliness of a Taxing Authority’s Appeal to Commonwealth Court 147 Res Judicata and Collateral Estoppel in Assessment Appeals 148 Assessment Valuation Law

151

Tax Assessment and Real Estate Transfers 151 General Valuation Law 152 6-2.1 Statutory Authority under the Consolidated County Assessment Law 152 6-2.2 Subjects of Taxation under the Consolidated County Assessment Law 153 6-2.3 Exclusions from Taxation 154 Market Value 155 6-3.1 Highest and Best Use 156 6-3.2 Comparable Properties 158 6-3.3 The Cost Approach to Value 158 Income Approach to Value 162 6-4.1 Use of Economic Rent in the Income Approach to Value 163 6-4.2 Impact of Long-Term Leases on Market Value 168 6-4.3 The Economic Reality Test 170 6-4.4 Valuation and Assessment of Leasehold Interests 171 6-4.5 Income Approach—Country Club Subsidies 181 6-4.6 Business Income versus Real Estate Income 181 Reconciliation of the Three Approaches to Value 185 Valuation Issues 186 6-6.1 Valuation of Machinery and Equipment 186 6-6.2 Real Estate versus Personalty 188 6-6.3 Equipment versus Realty Test 190 6-6.4 Application of the Industrial Equipment Exclusion 192 6-6.5 Valuation Exclusion of Machinery and Equipment at Power Generation Facilities 194 6-6.6 Information Processing and the Industrial Equipment Exclusion 200 6-6.7 Taxation of Cellular Towers 201 6-6.8 Valuation of Land under Power Generation Facilities 203 6-6.9 Owners as Potential Purchasers of Real Estate 205

Table of Contents

6-6.10 6-6.11 6-6.12 6-6.13 6-6.14 6-6.15 6-6.16 6-6.17 6-6.18 6-6.19 6-6.20 6-6.21 6-6.22 6-6.23 6-6.24 6-6.25 6-6.26 6-6.27 6-6.28 6-6.29 6-6.30 6-6.31 6-6.32 6-6.33 6-6.34 6-6.35

7 7-1 7-2

Hypothetical Highest and Best Use and Assessment Valuation 206 Hypothetical Highest and Best Use Appraisals Are Improper Valuation Tools 209 Evidence of Property Sale versus Expert Appraisal Evidence of Property Value 210 Necessity to Value a Property as an Economic Whole 212 Evidence of the Tax Consequences of a Sale 213 Valuation of Federally Subsidized Housing Projects 215 Valuation of Subsidized Housing and Tax Credits 218 Valuation of Property Subject to Federal Tax Credits 221 Valuation of Environmentally Contaminated Real Estate 223 Valuation of Amusement Parks 227 Valuation of Coal Properties 227 Taxation of Oil and Gas Lease Interests 229 Taxation of Subsurface Limestone 230 Taxation of Wind Energy Generation Equipment and Structures 232 Taxation of Signs and Billboards 232 Taxation of Greenhouses 234 Valuation of Wetlands 235 Valuation of Air Rights 238 Valuation of Condominium Appurtenant Easements 238 Taxation of Planned Community Common Areas 240 Valuation of Manufactured Homes 246 Valuation of Marinas 248 Taxation of Storage Sheds 249 Taxation of Petroleum Storage Facilities 251 Interpretation of Taxation Exclusions 253 Assessment Law Overrides USPAP in Valuation Cases 255

Uniformity, Equalization, and Ratio Law

257

Assessment Uniformity Challenges 257 Assessment Uniformity Tests 261 7-2.1 Hromisin—The Parameters of Nonuniformity

261

xvii

Table of Contents

7-2.2

7-3 7-4 7-5 7-6 7-7

7-8 7-9

Downingtown—Resurrecting Common-Law Uniformity Challenge Procedures 264 7-2.3 Uniformity Decisions Post-Downingtown 268 7-2.4 Valley Forge—Uniformity of Taxing Authorities’ Assessment Appeals 274 7-2.5 Post-Valley Forge—Equity Actions in Lieu of Appeals to a Board 276 7-2.6 Post-Valley Forge—School District Appeal Policies Based on Monetary Thresholds 278 Assessment Equalization 287 General Ratio Law 289 Determining Common-Level Ratio by Splitting the Difference Between Each Side’s Evidence 291 Attacking the Mechanics of the STEB Ratio 291 Appellate Court Interpretation of the STEB Ratio Law 293 7-7.1 Constitutionality of the STEB Statute—Uniformity and Equal Protection 293 7-7.2 Application of the STEB Ratio 298 7-7.3 Use of the STEB Ratio 299 Ratio Applications to Third Class City Assessments 303 The Relationship of Third Class City and County Predetermined Ratios 305

8 8-1 8-2 8-3 8-4 8-5 8-6 8-7 8-8 8-9 8-10 8-11 8-12 8-13

xviii

Tax Payments and Assessment Settlements

307

Payment of Taxes During an Assessment Appeal and Tax Payments under Protest 307 Payment under Protest in Order to Obtain Cash Refunds 308 Implementation of Assessment Appeal Reductions 309 Interest on the Overpayment of Taxes and the Taxpayer’s Bill of Rights 309 Settlement of Tax Assessment Cases 310 Limitation of Court Stipulations in Assessment Appeals 311 A Taxing Body’s Approval of Assessment Settlements 312 Senior Citizen Tax Deferral 313 Taxes and Reassessments 314 Reassessment and School Districts of the First Class 316 Calculation of Taxes for Nonpayment of Taxes During Pendency of an Appeal 318 Tax Refund Statute 318 Retroactive Refund Requests Due to Allegedly Unconstitutional Assessment Procedures 319

Table of Contents

8-14 8-15 8-16 8-17 8-18 9 9-1

9-2 9-3 9-4 9-5 9-6 9-7

10

Tax Refund Law Cannot Be Used for Retroactive Assessment Appeals 321 Interpretations of the Fiscal Code Refund Act 323 PURTA and Interim Tax Changes 325 Limitation of Payments in Lieu of Taxes 326 Enforcement of Payments in Lieu of Taxes 328 Countywide Reassessment

331

Countywide Reassessment 331 9-1.1 Notices of Countywide Reassessment 335 9-1.2 Reassessment Appeal Process 336 9-1.3 Auxiliary Boards of Assessment Appeals 337 9-1.4 Informal Taxpayer-Designee Meetings During Countywide Reassessments 338 Validity of the Base-Year Assessment System 338 Reassessment and Ratio 341 Mass Appraisal Companies and the Assessors Certification Act 342 Reassessment by Court Order 344 Petition to Reassess a County is Not a Nonjusticiable Political Question 351 Equity Action Attacking the Mechanics of a Countywide Reassessment 353 Spot Assessment and Selective Reassessment

355

10-1 Litigation Approaches to Spot Assessment Cases 355 10-1.1 State Equity Action 355 10-1.2 Action for Declaratory Judgment 357 10-1.3 Action under Spot Reassessment Statute— Retroactivity 357 10-1.4 Action for Assessment Rollback 358 10-1.5 Applicability of the Refund Statute 359 10-2 Constitutional Prohibition against Spot Assessing 360 10-3 What Constitutes Spot Assessing 362 10-4 The Death Knell of Spot Assessment 366 10-5 Spot Assessment and Building Renovations 369 10-5.1 Timing of Assessment Due to Building Renovations 372 10-6 Reassessment after Condominium Declarations 374 10-7 Assessment Freeze and Spot Assessments 376 10-8 Class Actions Attacking Court-Ordered Across-the-Board Assessment Increases 377 10-9 Spot Assessment under the Guise of Correction of Mathematical and Clerical Errors 379 xix

Table of Contents

10-10

Additions to the Assessment Rolls and Spot Assessment 382 10-11 Illegality of De Facto Reassessments 384 10-12 Court-Mandated Remedies for De Facto Reassessment 386 10-12.1 Lancaster County Reassessment 386 10-12.2 Dauphin County Reassessment—Croasdale II 388 10-13 Can a Municipality Appeal Valuations of Multiple Real Estate Parcels to the Assessment Appeals Board? 391 10-14 Premature Appeal Review in Spot Assessment Case 396 10-15 Taxing District Appeals and Spot Assessments 399 11

Exemption Law and Procedure

401

11-1 General Exemption Law 401 11-1.1 Constitutional and Statutory Authorization 401 11-1.2 Burden of Proof 402 11-1.3 Purely Public Charity—Overview 402 11-1.4 Purely Public Charity—Constitutional Test 404 11-1.5 Purely Public Charity—Case Law Definition 406 11-1.6 Stare Decisis in Tax Exemption Cases 406 11-2 Institutions of Purely Public Charity Act 407 11-2.1 Legislative Findings of Fact 408 11-2.2 Legislative Intent 409 11-2.3 The New Five-Point Test 410 11-2.4 What Constitutes a Nonprofit Entity 417 11-2.5 Exemption Presumptions 417 11-2.6 Assessment Administration and Appeals 418 11-2.7 Discovery Proceedings 419 11-2.8 Voluntary Agreements 419 11-2.9 Unfair Competition with Small Business 420 11-2.10 Mandatory Arbitration 421 11-2.11 Supreme Court Decisions Since the Institutions of Purely Public Charity Act 423 11-2.12 Commonwealth Court Interpretations of the Institutions of Purely Public Charity Act 428 11-2.13 Scope of Statutory Requirements to Amend Purely Public Charity Articles of Incorporation 431 11-2.14 Allegations of Unfair Competition 432 11-3 Exemption Procedures 434 11-3.1 Exemption Hearing Procedures before an Assessment Appeals Board 434 11-3.2 Filing Deadlines under the Consolidated County Assessment Law 437 11-3.3 Burden of Proof in Exemption Appeals 437 xx

Table of Contents

11-3.4 11-3.5

Effective Date of Exemption 438 Equity Proceeding Is Inappropriate to Obtain Tax Exemption 441 11-3.6 Institution Seeking Tax Exemption Must Exhaust Administrative Remedies 443 11-3.7 Uniformity of Tax Exemptions 445 11-3.8 Quashing of Pro Se Exemption Appeal by the Commonwealth Court 446 11-3.9 Chief County Assessor’s Lack of Authority to Remove an Exemption 447 11-4 Exemption Implementation 448 11-4.1 Partial Exemptions 448 11-4.2 Governmental Demands for Money in Lieu of Taxes in Exchange for Retention of Tax-Exempt Status 450 11-4.3 Exempt Status of Leasehold Property Owned by One Charity Leased to Second Charity 452 11-4.4 Examination of Purely Public Charities 455 11-4.5 Exemption of Subsidiaries of Charitable Entities 456 11-4.6 Independent Examination of Charitable Corporations in Determining Tax-Exempt Status 458 11-4.7 Exemption of Government-Funded Charities 461 11-4.8 Charitable Exemption During Construction 463 11-4.9 Places of Regularly Stated Worship 465 11-4.10 Services to the Elderly 465 11-4.11 Requirement of Charitable Use in Order to Obtain Tax Exemption 466 11-4.12 Relieving Government of Some of Its Burden 467 11-4.13 Use and Occupancy Requirement 469 11-4.14 Equitable Ownership Can Qualify Charity for Tax Exemption 470 11-5 Exemption for Governmental Purpose 471 11-5.1 Municipal Authorities’ Immunity from Taxation 471 11-5.2 Municipal Exemption Procedures 471 11-5.3 Exemption from Taxation—Public Purpose 474 11-5.4 Lease of Public Property for Public Use 475 11-5.5 Equitable Estoppel in Exemption Cases 476 11-5.6 Community College Property 477 11-5.7 Apartment Building Owned by Volunteer Fire Company 478 11-5.8 Ownership and Commencement of Municipal Exemption Appeal 479 xxi

Table of Contents

11-5.9 Exemption of U.S. Property 480 11-5.10 Immunity of Governmental Agencies 481 11-5.11 Taxation of Municipal Airports 483 11-5.12 Governmental Trustees and Exemptions 484 11-6 Immunity of State-Owned Universities 484 11-7 Exemption of Hospitals 485 11-7.1 ‘Purely Public Charity’ Test 487 11-7.2 Mathematical Test for Hospital Exemption 488 11-7.3 Employees’ Compensation Based on Productivity and Exemption Eligibility 489 11-8 Exemption of Nursing and Retirement Homes 490 11-9 Post–Act 55—Exemption of Homes for the Elderly 496 11-10 Exemption of Educational Facilities 499 11-10.1 Exemption of Private Schools 499 11-10.2 Exemption of Liberal Arts Colleges 499 11-10.3 Exemption of Educational Faculty and Staff Residences 504 11-10.4 Exemption of Charter Schools 508 11-11 Exemption of Sports and Recreational Facilities 508 11-11.1 Exemption of Religious Summer Camp 508 11-11.2 Exemption of YMCA Facilities 510 11-12 Exemption of Federally Subsidized Housing 513 11-13 Exemption of All-Boys School as Public Charity 515 11-14 Exemption of Parish Houses 516 11-15 Exemption of Spiritual Retreats 517 11-16 Taxation of a Multiuse Religious Building 518 11-17 Exemption of Church Parking Lots 519 11-18 Taxability of Noncontiguous Religious Property 521 11-19 Qualification of Illegally Zoned Church for a Tax Exemption 523 11-20 Exemption of Professional or Occupational Organizations 524 12

Assessment Procedure

12-1 12-2

527

Real Property Taxation 527 Assessment Appeals Boards—General Powers and Functions 528 12-2.1 Administrative and Quasi-judicial Functions 528 12-2.2 Handling Alleged Conflicts of Interest 530 12-2.3 Appointment of Solicitor 530 12-2.4 Scope of Attorney/Client Privilege in Assessment Matters 531 12-2.5 The Impropriety of Informal Assessment Hearings Held by Nonmembers of an Assessment Board 531

xxii

Table of Contents

12-2.6

Power of a County Council to Dissolve a Board of Assessment Appeals in a Second Class County 534 12-2.7 Due Process and Assessment Board Hearings 536 12-3 Assessors and Appraisers 537 12-3.1 Appointment of Assessors 537 12-3.2 Assessors Certification Act 538 12-3.3 Appraisers Are Not Required to Be Real Estate Brokers 543 12-4 Assessment Notices and Changes 544 12-4.1 Interim Assessment Change 544 12-4.2 Retroactivity of Assessments 545 12-4.3 Service of Notice 546 12-4.4 Timely Mailing of Assessment Change Notices 547 12-4.5 Assessment Notification Procedures— Incorrect Addresses 548 12-4.6 Assessment Notices and the Pennsylvania Mailbox Rule 549 12-4.7 Assessment Hearing Decision Notices 550 12-5 Special Assessment Issues 551 12-5.1 Catastrophic Losses 551 12-5.2 Assessment Error—Refunds and Increases 552 12-5.3 Temporary Tax Exemption for Residential Construction 553 12-5.4 Temporary Sewer Ban 554 12-5.5 Assessment Treatment of Subdivisions and Improvements of Vacant Land 554 12-5.6 Assessment of Mobile Homes 556 12-5.7 Taxability of Mobile Homes as Real Estate 558 12-5.8 Reassessment of Property Sold from County Land Repository 559 12-5.9 Interim Assessments at School District Request 560 12-5.10 Assessment of Lands Divided by Boundary Lines 561 12-5.11 Separate Assessment of Coal and Surface 563 12-5.12 Assessment of Real Estate Subject to Ground Rent or Mortgage 563 12-5.13 Taxing District Lying in More Than One County and Choice of Assessment Ratio 563 12-6 Assessment Records 564 12-6.1 Building and Demolition Permits 564 12-6.2 Obligation of the Recorder of Deeds to Furnish Records to Board of Assessment Appeals 565 12-6.3 Grantees of Real Property to Register Deed With Chief Assessor 565 xxiii

Table of Contents

12-6.4 Public Access to Board of Assessment Records 12-6.5 Retention of Assessment Records 569 12-7 Collateral Board Functions 571 12-7.1 Deed Registration 571 12-7.2 Tax Mapping 572 13

Preferential Land Assessments

566

573

13-1

Pennsylvania Farmland and Forest Land Assessment Act—Act 319 573 13-1.1 1998 Amendents under Act 156 579 13-1.2 2004 Amendments 586 13-1.3 Special Situations 588 13-1.4 Mixed Use of a Tract of Land 592 13-1.5 Termination of Preferential Tax Treatment 594 13-1.6 Operation of a Bed-and-Breakfast 596 13-1.7 Contiguous Land and Rollback Taxes 597 13-1.8 Transfers of Title and Rollback Taxes 599 13-1.9 Assessment Rollback Notice 600 13-1.10 Land Separation and Assessment Rollback 602 13-1.11 Involuntary Land Separation and Assessment Rollback 604 13-1.12 Cellular Communications Facilities 605 13-1.13 Change-in-Use Determinations 606 13-1.14 Timing of Assessment Changes 609 13-1.15 Appropriate Jurisdiction for Challenging Use Value Determinations 611 13-1.16 Farmstead Valuations 615 13-1.17 Calculation of Acreage 616 13-1.18 Forestland Valuations 619 13-2 Covenants Preserving Open Space—Act 515 621 13-2.1 Breach 623 13-2.2 Scope of Activities Constituting a Breach 624 14 14-1

Tax Abatements and Miscellaneous Exemptions

627

Local Economic Revitalization Tax Assistance Act (LERTA) 627 14-1.1 General Provisions 627 14-1.2 Case Law 630 14-1.3 Commencement Time for LERTA Exemptions 632 14-2 Improvement of Deteriorating Real Property or Areas Tax Exemption Act 633 14-2.1 Improvement of Deteriorated Dwellings 634 14-2.2 Improvement of Deteriorating Areas 637 14-3 New Home Construction Local Tax Abatement Act 639 xxiv

Table of Contents

14-4

First and Second Class County Property Tax Relief Act (Gentrification) 641 14-5 Enterprise Zones 642 14-6 Exemption of Industrial Development Authority Property 643 14-7 Exemption of Property Owned by a Metropolitan Transportation Authority 644 14-8 Public Utility Realty Tax Act (PURTA) 645 14-8.1 Railroad Right-of-Way 647 14-9 Property Tax Exemption for Disabled Veterans 648 14-10 Exemption of Multipurpose Sports and Entertainment Facilities in First Class Counties 651 14-11 Charter Schools 652 Statutory Index

653

Index of Cases

659

Subject Matter Index

707

xxv

1 Introduction

Assessment law in Pennsylvania is a statutory enactment codified in the General County Assessment Law, 72 P.S. § 5020 et seq., and the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq. Courts have found these laws to be in compliance with the due process and uniformity provisions of the Pennsylvania Constitution. The General Assembly has developed a statutory assessment scheme, the Consolidated County Assessment Law, that applies to all counties of the second class A, third, fourth, fifth, sixth, seventh, and eighth class of the Commonwealth. 53 Pa.C.S. § 8801(b). The legislature has codified Pennsylvania assessment law into the following additional categories: (1) counties of the first class, 72 P.S. § 5341 et seq., and (2) counties of the second class, 72 P.S. § 5452.1 et seq. The General County Assessment Law now only applies to Philadelphia and Allegheny counties. The above categories of assessment law contain similarities and variations in the administration of assessments in each of the political subdivisions. Therefore, it is impossible to speak of a totally uniform scheme of assessment law in Pennsylvania. The Consolidated County Assessment Law has merged many of the provisions of the former Second Class A and Third Class County Assessment Law with the Fourth to Eighth Class County Assessment Law. The purpose of an assessment is to place a value on real property in order to have a basis for real property taxation. The Commonwealth’s legislature and appellate courts have decreed that all real property situated in each county must be uniformly assessed. Pennsylvania’s Constitution has been interpreted to provide that the burden of real property taxation not be placed unduly on commercial or residential real estate, but must be an equal burden on both. No problems of uniformity exist in counties where all real property is assessed at 100 percent of market value. Uniformity issues arise in counties that use a predetermined ratio of assessment to market value. The law clearly suggests that a county cannot discriminate in its application of a predetermined ratio between residential and commercial real estate. There-

1

Introduction

fore, if a county establishes a predetermined ratio, it must apply that ratio equally to all real property within the borders of the county. In the area of current market value, the General Assembly mandated that a board of assessment appeals must consider, in conjunction with each other, three methods of arriving at actual value: (1) cost (reproduction or replacement, as applicable, less depreciation, and all forms of obsolescence), (2) comparable sales, and (3) income. Based on the above, the six salient issues in assessments in Pennsylvania are valuation, the applicable ratio, reassessment, spot assessment, equalization, and uniformity. In summary, each board of assessment appeals must use the three valuation methods mandated by the law for a subject property and then apply either the predetermined ratio or, in certain cases, the common-level ratio in order to arrive at the proper assessment. Countywide reassessment has been made enforceable through taxpayer actions before the court of common pleas, while the use of spot or de facto reassessment has been outlawed by case law and statute. The statute and case law also provide that a taxpayer is entitled to both equalization and uniformity of assessment. In the area of charitable exemptions from real estate taxation, the General Assembly has provided several mutually interrelated statutes that carve out specific categories of exempt real estate. The legislature has exempted several types of properties, such as churches, public schools, and nonprofit hospitals, and also established the category of real estate owned by a “purely public charity.” A large body of litigation has arisen as to the exact definition of this term. The courts have ruled that exemption statutes must be strictly construed and that the taxpayer has the burden of proving that he or she comes within the statutory ambit of the exemption. Therefore, each exemption action becomes a mixed case of fact and law in which the taxpayer must prove, by a preponderance of evidence, his or her entitlement to a real estate exemption under the applicable statutory law. At the end of 1997, the General Assembly passed the Institutions of Purely Public Charity Act, which totally revamped the exemption law in Pennsylvania. Act of November 26, 1997 (P.L. 508, No. 55).

2

2 Assessment Appeal Boards

2-1

The Interrelationship between the General County Assessment Law and the Specific Class County Codes

The assessment law in Pennsylvania is divided into the General County Assessment Law; the First Class County Assessment Law, applicable to Philadelphia County; the Second Class County Assessment Law, applicable to Allegheny County; and the Consolidated County Assessment Law, applicable to the 65 counties in the second class A, third, fourth, fifth, sixth, seventh, and eighth class counties. In first and second class counties, when there is a conflict between the specific county assessment law and the General County Assessment Law, statutory construction mandates that the specific county law applies. In all other cases, the specific class county code and the provisions of the General County Assessment Law are both applicable. McKinney v. Board of Comm’rs of Allegheny County, 385 A.2d 596 (Pa.Cmwlth. 1978); Truck Terminal Motels of America v. Berks County Bd. of Assessment Appeals, 561 A.2d 1305 (Pa.Cmwlth. 1989). It should be noted that the Consolidated County Assessment Law provides that the General County Assessment Law is repealed for all counties except the first and second class counties. 53 Pa.C.S. § 8801(b)(2). Act 2010-93, which created the Consolidated County Assessment Law, also provides that the first and second class counties must use their own class codes and the General County Assessment Law, with the exception that they must use two portions of the Consolidated County Assessment Law: (1) section 8811(b)(5), and (2) section 8842(b)(2). See 53 Pa.C.S. § 8801(b)(2). 2-2

The Powers and Duties of the First Class County Board of Revision of Taxes

According to statute, the board of revision of taxes will consist of seven members appointed for six-year terms by the majority of judges of the court

3

Assessment Appeal Boards

of common pleas of the county. 72 P.S. § 5341.1. The board will organize and select a chairman, vice chairman, and secretary. The board will appoint all assessors, clerks, stenographers, or other office employees, whose salaries will be fixed by the tax levying authority of the county. 72 P.S. § 5341.4. The board will divide the county into real estate districts and may from time to time change the number of districts and assign and unassign appropriate personnel to those districts. 72 P.S. § 5441.6. On or before the third Monday of September, the board must complete the revision of the assessment roll. These assessments, as supplied by the assessors and revised by the board, constitute the assessed value for tax purposes of real property within the county. The assessment roll must be posted and be made available for public inspection in the county, at places determined by the board. At least 10 days beforethe first Monday of October, the board must give written notice to any owners of real property where the assessment, valuation, and ratio have been increased or decreased from the preceding assessment roll. This notice must indicate the type of change and inform the property owner that any appeal to the board must be filed on or before the first Monday in October. All property within the county will be valued by the assessors and assessed by the board at the actual value of the property. In arriving at actual value, the county may use the current market value or a base-year value. The board will assess real property at a value based upon an established predetermined ratio that may not exceed 100 percent. The predetermined ratio in a first class county is determined by the governing body rather than by the board. In arriving at actual value, the board must consider three approaches to value: cost, income, and market data. The board will apply the established predetermined ratio to the actual value of the property in formulating the assessment roll. Any person aggrieved by any assessment may file an appeal with the board on or before the first Monday of October. Other appeals may be filed within the time fixed by law, or in cases in which no time is provided by law, within a time prescribed by the board. The board must complete its hearings of appeals and dispose of all appeals as promptly as possible. 2-3

The Powers and Duties of the Second Class County Board of Property Assessment Appeals and Review

The board of property assessment appeals and review will consist of seven members appointed by the county commissioners for six-year terms. 72 P.S. § 5452.2. All members of the board must have resided within the county for at least 10 years before their appointment. Four of the members 4

2-3

are required to have a minimum of five years’ practical experience as a registered real estate broker or a real estate appraiser or assessor. One member must have at least five years’ practical experience in securities transactions, with a knowledge of the values of stocks, bonds, and other securities. One member is required to have five years’ practical experience as a building construction engineer, civil engineer, general contractor, or assessor. Finally, one member is required to have five years’ experience as a practicing attorney at law, registered real estate broker, real estate appraiser, or assessor. 72 P.S. § 5452.2(a). The board members are to hold staggered terms of appointment. 72 P.S. § 5452.2(c). Significantly, this means that under Pennsylvania case law, they cannot be removed by the appointing authority. A board member can only be removed by impeachment procedure instituted by the state government in Harrisburg. The board will organize on the first Monday of January every third year, by electing one member as chairman and one as vice chairman and secretary. Both officers must have at least five years’ practical experience as registered real estate brokers or real estate appraisers or assessors. 72 P.S. § 5452.2(d). No board member may engage in the real estate or insurance business or hold an office or position of employment in any such business. 72 P.S. § 5452.2(e). Board members may not hold any political office. 72 P.S. § 5452.3. The board has the power to appoint all assessors and subordinate employees of the board. The salaries of these employees are to be set by the county salary board, with the chairman of the assessment board sitting as a member. The assessment board may set standards for the employees and veto by majority vote any potential employees who do not meet these standards. 72 P.S. § 5452.3. The board has the following duties and powers under 72 P.S. § 5452.4: (a)

To make and supervise the making of all assessments and valuations of all subjects of taxation in the county as required by existing law. (a.1) The board shall assess real property at a value based upon an established predetermined ratio which may not exceed one hundred percent (100%) of actual value. Such ratio shall be established and determined by the board of property assessment, appeals and review after proper notice has been given. In arriving at actual value the county may utilize the current market value or it may adopt a base year market value. (a.2) In arriving at actual value, the price at which any property may actually have been sold, either in the 5

Assessment Appeal Boards

base year or in the current taxable year, shall be considered but shall not be controlling. In arriving at the actual value, all three methods, namely, cost (reproduction or replacement, as applicable, less depreciation and all forms of obsolescence), comparable sales and income approaches, must be considered in conjunction with one another. (b)

To revise and equalize all such assessments and valuations.

(c)

To hear all cases of appeals from assessments, and all complaints as to assessments, errors, exonerations and refunds.

(d)

To pass upon and determine the amount of property of any organization or institution which is under the provisions of existing law entitled to exemption from taxation.

(e)

To establish and maintain in its office records of cubical contents of buildings, surveys, maps, sales and assessments and with the exception of the cubical contents, records and sales records, to permit inspection thereof by the public at all times during office hours.

On June 27, 2000, the Allegheny County Council enacted Ordinance No. 15, which replaced the existing board of assessment appeals with separate entities to perform the functions assigned to an assessment board by the Second Class County Assessment Law. 72 P.S. §§ 5452.1–5452.20. This assessment scheme is included here because it is the currently operating assessment system within Allegheny County. A property oversight board was created with the following duties: (1) making recommendations to the county council regarding assessment standards and practices, (2) confirming or rejecting the county manager’s appointment of the chief assessment officer, and (3) certifying that the assessments have been made in accordance with the Allegheny County Assessment Standards and Practices Ordinance. The members of this board are the president of the county council, or a designee, the chief executive or a designee, and a person with at least 10 years experience as a real estate broker appointed by the county executive with the consent of the county council. Allegheny County also created a seven-member board of property assessment appeals and review. The board oversees assessment appeals, holds hearings, and certifies the assessment appeals decisions. The members serve staggered three-year terms and must meet certain qualifications. County council appoints four of the members and the chief executive appoints the other three subject to the council’s consent. An office of property assessments was created within the executive branch of county government. The duties of this office include the making 6

2-4

of all assessments and valuation of real property and the supervision of the assessments and making recommendations to the board of property assessment appeals and review concerning the tax-exempt status of real property. The county manager appoints a chief assessment officer, with consent of the oversight board. The chief assessment officer reports to the county manager. The chief assessment officer must be an International Association of Assessing Officers (IAAO) Certified Assessment Evaluator (CAE) or hold the highest-ranking Commonwealth appraiser’s license and must have at least 10 years of progressively responsible experience in the management of property valuation. Local ordinances should be checked annually to determine the appeal filing deadlines. 2-4

Powers and Duties of County Assessment Appeals Boards under Consolidated County Assessment Law

Second class A and third class counties must establish boards of assessment appeals, while counties of the fourth to eighth class may establish such boards. The county commissioners will appoint three members to serve four-year terms. Vacancies on the board must be filled by the county commissioners for the unexpired term. The board members’ salaries must be fixed by the county salary board. 53 Pa.C.S. § 8851(a)(1). Counties of the fourth through eighth class that have not created a separate board of assessment appeals must establish a board of assessment revision. The county commissioners must serve as its members. The commissioner holding the oldest certificate of election must serve as the chair. 53 Pa.C.S. § 8851(a)(2). The board of assessment appeals has the following powers under 53 Pa.C.S. § 8851(b): (1)

to appoint, with the county commissioners’ approval, clerks, engineers, and other employees who are deemed necessary;

(2)

to promulgate regulations as provided in 53 Pa.C.S. § 8852;

(3)

to hear and determine appeals, as provided in 53 Pa.C.S. § 8844;

(4)

to establish the form of the assessment roll, as provided in 53 Pa.C.S. § 8841;

(5)

to prepare annually and submit to the county commissioners an estimate of the expense to be incurred incidental to the carrying out of the provisions of this chapter; and

(6)

to establish a permanent system of records as required by 53 Pa.C.S. § 8834.

7

Assessment Appeal Boards

The county commissioners must appropriate annually to the board funds necessary for the payment of salaries, wages, and other expenses incurred in carrying out the duties imposed on the board and its employees. 53 Pa.C.S. § 8851(c). 53 Pa.C.S. § 8851(d) provides for the following organization of board meetings. (1) The members of the board shall meet and organize as a board at the same time and place as the county commissioners meet for the purpose of organizing. The board shall meet from time to time at the call of the chairman or of any member, upon personal notice to each member. No action shall be taken by the board except by a majority vote of all the members of the board, and all actions of the board shall be recorded in writing. (2) The county commissioners shall appoint a chairman of the board unless the county commissioners serve as the board of assessment revision, in which case the commissioner holding the oldest certificate of election shall be the chairman. 53 Pa.C.S. § 8852 provides that the board may make regulations in the following manner: Subject to the approval of the county commissioners, the board may adopt, amend, alter and rescind regulations for the administration of and the conduct of business and proceedings for itself and for auxiliary appeal boards. The regulations may require a witness providing testimony at a hearing relative to any aspect of the value of the real estate which is the subject of the assessment or reassessment appeal to disclose, under oath, whether any compensation paid for the testimony is contingent on the result obtained. The regulations shall be in writing and shall be a public record open to examination, inspection and copying in accordance with the act of February 14, 2008 (P.L. 6, No.3), known as the Right-to-Know Law. It should be noted that the county commissioners must approve all regulations. That had not been the uniform practice in the past, because many assessment boards passed their own regulations sua sponte, without any approval. 53 Pa.C.S. § 8831 provides for the appointment, qualifications, and compensation of the chief assessor of each county and reads as follows: (a)

8

Appointment.—In each county, a chief assessor shall be appointed. The chief assessor shall be appointed by the county commissioners with the advice of the board.

2-4 (b)

Qualifications.—Any person appointed as a chief assessor under this chapter shall be a Certified Pennsylvania Evaluator pursuant to the act of April 16, 1992 (P.L. 155, No. 28), known as the Assessors Certification Act. Any person employed as a chief assessor on the effective date of this chapter shall obtain certification in accordance with the Assessors Certification Act.

(c)

Duties of chief assessor.—It shall be the duty of the chief

assessor to:

(d)

(1)

Hire subordinate assessors under section 8832 (relating to subordinate assessors).

(2)

Prepare and submit to the board for its approval regulations in accordance with this chapter.

(3)

Prepare and maintain a permanent records system and other maps, plans, surveys and records as may be deemed necessary to secure a proper and equitable assessment.

(4)

Prepare an assessment roll in accordance with this chapter.

(5)

Supervise and direct the activities of the subordinate assessors and other employees subject to regulations prescribed by the board.

(6)

Perform all duties imposed upon the chief assessor by this chapter.

(7)

Compile and periodically update a list of the names and mailing addresses of each taxing district within the county. The list shall be published, with the assistance of the county commissioners, on the county’s publicly accessible Internet website and shall be made available in printed form in a manner consistent with the act of February 14, 2008 (P.L.6, No.3), known as the Right-to-Know Law. Content or omissions in a list assembled and distributed in accordance with this paragraph shall not affect the validity of any appeal or give rise to any action in law or equity.

Compensation.—The chief assessor shall receive compen-

sation as determined by the salary board of the county.

9

Assessment Appeal Boards

53 Pa.C.S. § 8832 provides for the subordinate assessors and states: (a)

Hiring and compensation.—The chief assessor, with the approval of the board, shall hire subordinate assessors subject to any applicable county personnel policy and regulations of the board, as necessary in carrying out the duties imposed by this chapter. A subordinate assessor shall receive compensation as determined by the salary board of the county.

(b)

Duties of subordinate assessors and other employees.—In

order to carry out the provisions of this chapter, subordinate assessors and other employees shall perform those duties as may be assigned to them by the chief assessor. (c)

Certification of assessors—The act of April 16, 1992 (P.L.

155, No.28), known as the Assessors Certification Act, shall apply to any person responsible for the valuation of real property for ad valorem taxation purposes in accordance with this chapter. (d)

Elected assessors abolished.—The office of local elected as-

sessor in all taxing districts subject to this chapter is hereby abolished. 53 Pa.C.S. § 8833 provides for the appointment of a solicitor as follows: The board may appoint an attorney as solicitor to the board and assessment office to advise on all legal matters and appear for and represent the board on all appeals taken from its decisions or orders to all courts of competent jurisdiction. The salary of the appointed solicitor shall be fixed by the salary board of the county. If the board does not appoint a solicitor in accordance with this section, the county solicitor must serve as solicitor to the board and assessment office to the extent that there is not a conflict of interest. 53 Pa.C.S. § 8834 provides that it will be the duty of the county assessment office to maintain a permanent records system consisting of the following: (1) Tax maps of the entire county drawn to scale or aerial maps, which maps shall indicate all property and lot lines, set forth dimensions or areas and identify the respective parcels or lots by a number system. (2) Property record cards identifying the property location on the tax maps and any uniform parcel identifier which may have been assigned, and acreage or dimensions, de10

2-4

scription of improvements, if any, the owner’s name and mailing address and date of acquisition, the purchase price, if any, set forth in the deed of acquisition and the assessed valuation. (3) Property owner’s index consisting of an alphabetical listing of all property owners, cross-indexed with the property record cards or electronic or computerized method of searching for property owners by name. The assessment roll is to be made and published pursuant to 53 Pa.C.S. § 8841. The board must make and supervise all assessments within the county. On or before July 1, the board must examine and revise the annual assessments and valuations, increasing or decreasing them for the following calendar and fiscal tax years, and may add and assess any property that may have been admitted. Added assessments may be used for the taxation of property and persons for the following calendar and fiscal year for which the assessment roll is being prepared and for the current year and for the preceding three years, if there is liability for such taxes under existing law. The provisions also mandate the following: (b)

Form of assessment roll.—The board shall determine the

form of the assessment roll which shall include the following for each taxing district:

(c)

(1)

The name of the last known owner of record of each parcel with the last known address of the owner.

(2)

The location of each parcel and the uniform parcel identifier or reference to the tax map.

(3)

The assessment of each parcel of land and the assessed value of any improvements.

(4)

The aggregate assessments for each municipality.

(5)

The assessment of each parcel exempted from local taxation.

Interim revisions to assessment roll.—The county assess-

ment office is authorized to make additions and revisions to the assessment roll at any time in the year to change the assessments of existing properties pursuant to section 8817 (relating to changes in assessed valuation) or add properties and improvements to property mistakenly omitted from the assessment roll as long as notice is provided in accordance with section 8844 (relating to notices, 11

Assessment Appeal Boards

appeals and certification of values). All additions and revisions shall be a supplement to the assessment roll for levy and collection of taxes for the tax year for which the assessment roll was originally prepared. (d)

Public inspection of assessment rolls.—

(1)

(2)

The assessment roll shall be open to public inspection at the county assessment office during ordinary business hours. Within 15 days after completion of the assessment roll, the county assessment office, by publication in one or more newspapers of general circulation in the county, shall give notice of the following: (i)

The fact that the assessment roll has been completed.

(ii)

The place where and time when the assessment roll will be open for inspection.

(iii)

The right to file in writing an appeal from an assessment, on or before the first day of September, or an earlier date designated by the county commissioners, in accordance with section 8844.

This subsection shall be not be construed to limit the right of any resident of this Commonwealth to access public records in accordance with the act of February 14, 2008 (P.L. 6, No. 3), known as the Right-to-Know Law.

53 Pa.C.S. § 8842(a) provides for the valuation of property. Predetermined ratio.—The county assessment office shall assess

real property at a value based upon an established predetermined ratio which may not exceed 100% of actual value. The ratio shall be established and determined by the board of county commissioners by ordinance. In arriving at actual value, the county may utilize the current market value or it may adopt a base-year market value. When any assessment is changed or added to the assessment roll by the board, any aggrieved party has 40 days from the mailing date of the notice to file a written appeal with the board containing the assessment by which such person feels aggrieved and the address to which the board will mail notice of the time and place of the hearing.

12

2-4

53 Pa.C.S. § 8844(c) states: (1) Any person aggrieved by any assessment, whether or not the value thereof shall have been changed since the preceding annual assessment, or any taxing district having an interest in the assessment, may appeal to the board for relief. Any person or taxing district desiring to make an appeal shall, on or before September 1 or the date designated by the county commissioners if the option under paragraph (3) is exercised, file with the board an appeal in writing, identifying the following: (i)

Appellant.

(ii)

Property location.

(iii) Owner. (iv) Assessment or assessments by which the person is aggrieved. (v)

Address to which notice of the time and place for a hearing shall be mailed. *

*

*

(3) The county commissioners may designate a date no earlier than August 1 as the date on or before which any person desiring to appeal from any assessment shall file with the board an appeal as long as the notice by publication required under section 8841(d)(1) is given at least two weeks prior to the date designated in accordance with this paragraph. 53 Pa.C.S. § 8844(e)(1) states: The board shall meet for the hearing of appeals and shall meet for this purpose until all appeals have been heard and acted upon. The board shall have the power to compel the attendance of witnesses and the furnishing of documents. For the purpose of examining witnesses, any member of the board may administer oaths. All appeals other than appeals brought under section 8841(c) shall be heard and acted upon no later than October 31. When an appeal has been filed, the board shall notify the appellant, property owner and each affected taxing district of the time and place of the hearing. Each party attending the hearing shall have the right to examine any witness. The notice shall be mailed to the appellant at the address designated in the appeal. Notices required by this section shall be mailed no later than 20 days preceding the appeal. Any appel13

Assessment Appeal Boards

lant who fails to appear for the hearing at the time fixed shall be conclusively presumed to have abandoned the appeal unless the hearing date is rescheduled by the mutual consent of the appellant and the board. The board of assessment appeals must prepare three copies of the assessment roll and deliver them on or before November 15 with a certificate that they are a true and correct copy of the original assessment roll to the following: (1) a copy to the chief clerk of the county commissioners, (2) one copy of the portion of the roll that contains the assessment of persons and property within each school district to the secretary of the board of school directors of the respective school district, and (3) one copy of the portion of the roll that contains the assessment of persons or property within each township or borough to the borough secretary or township secretary. All copies of the furnished roll will be, for all purposes, considered as originals. The original assessment roll and the true copies may be corrected, amended, or changed after November 15 as circumstances may require. These copies, in addition to the information required to be shown on the original assessment roll, will provide space to the right of each assessment for the entry of all taxes that may be levied thereon by the respective political subdivision. The original assessment roll as corrected must be preserved in the office of the chief assessor or of the assessment appeals board and must be available for public inspection subject to any regulations prescribed by the board for the preservation and safekeeping of the roll. 53 Pa.C.S. § 8844(f)(2). On or before November 15, the board must certify to the clerk or secretary of each taxing district coming within the county the assessed value of real property, the value of occupations, and the number of persons subject to personal taxes appearing in the assessment roll and taxable by the respective taxing districts. 53 Pa.C.S. § 8844(f)(3).

14

3 Assessment Appeal Hearing and Procedures

3-1 3-1.1

Assessment Procedure Appeal Hearing and Procedure

The hearing should begin with the assessor’s placing into the record the official assessment and location of the subject property. Under Pennsylvania law, the official assessment is to be considered prima facie valid. The burden of proof then automatically shifts to the taxpayer. The taxpayer must present sufficient admissible evidence to rebut the prima facie validity of the assessment. The taxpayer may present testimony and/or documentary evidence to meet this burden. All evidence presented is subject to cross-examination by the appropriate parties to the proceeding. If the board finds that the taxpayer has failed to meet the burden of proof, the case then concludes. If the taxpayer meets the burden of proof, the assessor and the taxing authorities then have the right to present evidence to rebut that presented by the taxpayer. This evidence is also subject to cross-examination by the taxpayer. The board members may ask any relevant question that will aid in their determination of the case. At the conclusion of the hearing, the board will dismiss all parties, deliberate, and render a decision. The notice of decision must be mailed to all parties to the proceeding. The notice will state the date of the decision and must contain a mailing date for the notice. The taxpayer and the taxing authorities have 30 days to appeal the decision to the court of common pleas. 3-1.2

Due Process of Law and the Assessment Hearing

Boards of assessment appeals throughout Pennsylvania have been deluged with assessment appeals for the last several years, with the volume of residential as well as commercial and industrial appeals reaching record numbers. There are many reasons for this increase in appeals activity: the 15

Assessment Appeal Hearing and Procedures

economy, increased taxpayer awareness, anti-tax sentiment, reassessment publicity, inequitable assessments, nonuniform assessments, and mass solicitations of homeowners and businesses by lawyers, appraisers, and tax consultants. Because of this increased appeal activity, governmental leaders have seen their tax bases erode significantly. In some situations, the loss to the assessment base due to successful appeals has exceeded the additions to the base for new construction and improvements. The sure remedy for this condition is a countywide reassessment, which often sends the local politicos running for cover. Local government officials seem to have a pathological fear of the effects of reassessment on their political futures. Therefore, to slow the rising crescendo of appeals, many assessment boards have developed elaborate rules and regulations that tend to discourage the fainthearted from entering the appeal process. These rules tend to have a chilling effect on taxpayers’ due process rights. Under the evolving assessment law in Pennsylvania, an assessment appeals board that places roadblocks in the way of a taxpayer exercising the right to be heard in a fair and impartial hearing is taking a perilous legal stance. A governmental entity’s systematic violation of civil rights is a serious matter that is now actionable under the federal civil rights statute, 42 U.S.C. § 1983, via the state courts. The issue discussed here is the applicability of basic due process of law entitlements to litigants who appear before a local assessment appeals board or tax revision board. A board of assessment appeals is a local agency under the definition of the term in 2 Pa.C.S. § 101: “a government agency other than a Commonwealth agency.” The statute further defines the term “adjudication” as: Any final order, decree, decision, determination or ruling by an agency affecting personal or property rights, privileges, immunities, duties, liabilities or obligations of any or all of the parties to the proceeding in which the adjudication is made. A decision reached via a hearing held by an assessment appeals board or tax revision board to determine either market value or the taxable status of a property is an adjudication under the Local Agency Law. The Pennsylvania Supreme Court, in Soja v. Pennsylvania State Police, 455 A.2d 613, 615 (Pa. 1982), held: The principle that due process is fully applicable to adjudicative hearings involving substantial property rights before administrative tribunals is well established. Conestoga Nat’l Bank of Lancaster v. Patterson, 442 Pa. 289, 275 A.2d 6 (1971); Wiley v. Woods, 393 Pa. 341, 141 A.2d 844 (1958); Commonwealth ex rel. Chidsey v. Mallen, 360 Pa. 606, 63 A.2d 49 (1949); Pennsylvania State Athletic Comm. v. Bratton, 177 Pa.Super.Ct. 598, 112 A.2d 422 (1955). 16

3-1.2.2

The court enumerated these due process rights as follows: [The] essential elements [of due process] are “notice and opportunity to be heard and to defend in an orderly proceeding adapted to the nature of the case before a tribunal having jurisdiction of the cause” . . . Moreover, “[i]n almost every setting where important decisions turn on questions of fact, due process requires an opportunity to confront and cross-examine adverse witnesses.” Goldberg v. Kelly, 397 U.S. 254, 269, 90 S.Ct. 1011, 1021, 25 L.Ed.2d 287 (1970). Id. at 615–16. Therefore, local assessment appeals boards must afford all litigants the basic rights to due process. Boards cannot deny, by local written rules or through custom and usage, these basic and fundamental rights to the parties who appear before them. 3-1.2.1

Ex Parte Proceedings

The board of assessment appeals may not take any evidence outside the scope of the hearing. The provision of reports to the board from its assessors or independent appraisal contractors outside the hearing is strictly prohibited. Obviously, if after the completion of the formal hearing an employee or contractor reports his or her opinion of the subject property to the board outside the presence of the taxpayer or the taxpayer’s counsel, there is no right to confront the adverse witness and cross-examine his or her testimony. These ex parte procedures clearly violate fundamental constitutional rights of due process as protected by the Fifth and Fourteenth Amendments to the U.S. Constitution as well as the applicable portions of the Pennsylvania Constitution. Furthermore, any communications in which relevant evidence affecting the adjudication process is received by a board must be made in the presence of all parties, who then must be given the right to cross-examine the maker of the report. A violation of this fundamental constitutional right is actionable in state courts under Pennsylvania law. 3-1.2.2

Continuances

The case law is legion that if an attorney is attached in another court proceeding, a second court cannot dismiss his or her client’s case because the attorney is unable to be present. Furthermore, if a nonrepresented party has a legitimate excuse for nonattendance such as illness, vacation, or business travel out of the jurisdiction, reasonable rescheduling would be required. The courts likely would find a blind adherence to a no-continuance policy to violate due process of law by denying the litigants the right and opportunity to be heard. Any rule of assessment board procedure must allow continuances to be granted where good cause is shown to the satisfaction of the board. 17

Assessment Appeal Hearing and Procedures 3-1.2.3

Prehearing Discovery

Any board of assessment appeals procedural rules that sanction dismissal of the appeal without a hearing for noncompliance with the prehearing discovery rules are in clear violation of statutory and constitutional enactments. Under 53 Pa.C.S. § 8844(c)(1) of the Consolidated County Assessment Law: (1) Any person aggrieved by any assessment, whether or not the value thereof shall have been changed since the preceding annual assessment, or any taxing district having an interest in the assessment, may appeal to the board for relief. Any person or taxing district desiring to make an appeal shall, on or before September 1 or the date designated by the county commissioners if the option under paragraph (3) is exercised, file with the board an appeal in writing, identifying the following: (i)

Appellant.

(ii)

Property location.

(iii) Owner. (iv) Assessment or assessments by which the person is aggrieved. (v)

Address to which notice of the time and place for a hearing shall be mailed.

The statute clearly indicates that an appellant is required only to identify the assessment, state that he or she is aggrieved by the assessment, and inform the board where to send the notice of hearing. The legislature did not contemplate any elaborate procedure beyond these prerequisites for a hearing to be held before a local assessment appeals board. It can be assumed that any rule that adds more requirements to secure a hearing violates the statute. Mandatory prehearing discovery requirements appear to contradict the intent of the General Assembly, which mandated a simple people’s-type court on the administrative level to hear appeals. 3-1.2.4

Prehearing Discovery and Uniformity

A constitutional uniformity challenge exists, under Article VIII, section 1 of the Pennsylvania Constitution when types of real estate are stratified through the use of different categories of rules. The case law has long held that in Pennsylvania all real estate is one class and therefore entitled to uniform procedural and substantive treatment in assessment matters. Therefore, if discovery rules exist, they must be applied uniformly to all classes of real estate. A board cannot require a commercial property owner

18

3-1.2.5

seeking an appeal to produce an appraisal but not require the same for residential property owners. Similarly, if the board requires an appraiser of commercial property to appear and testify, it cannot allow into evidence a residential appraisal without the attendance of its author at the hearing. 3-1.2.5

Abandonment of Appeals

Any sanctions for failure to provide prehearing discovery that could be construed as attempting to artificially cause the abandonment of an appeal under the provisions of 53 Pa.C.S. § 8844 are an invitation for a civil rights suit. This scenario occurs when a board provides in its rules that failure to comply with its prehearing discovery requirements will result in either a nonscheduled or abandoned appeal. This sanction deprives the taxpayer of an assessment hearing and exhausts the taxpayer’s statutory administrative remedies, thus preventing him or her from appealing to the court of common pleas. This is a serious problem—a conscious policy of preventing certain classes of realty from having their day in court may be a due process of law violation under the Fifth and Fourteenth Amendments of the U.S. Constitution and the applicable provisions of the Pennsylvania Constitution. In light of the potential costly litigation, boards should carefully consider establishing such rules. Any sanction for noncompliance with the prehearing discovery rules should exclude the party’s expert and his or her report from the hearing. This suggested procedure will allow litigants unprepared at the hearing to have the ability to exercise their right to a de novo trial in the court of common pleas and thus not violate any due process rights. Where the taxpayer timely filed his or her appeal to the assessment board and appears before the appropriate administrative agency (i.e., a county board of assessment appeals), the taxpayer has not abandoned his or her appeal, as he or she is physically before the board. There are numerous scenarios in which the taxpayer cannot obtain a completed appraisal in time for the hearing in counties that refuse to grant any continuances. In this situation, counsel for the taxpayer should inform the board that he or she is representing a taxpayer with an uncompleted appraisal and, rather than continue, suggest that without sufficient evidence a party cannot overcome the presumption of the assessment. It would be a needless and futile gesture for any counsel to present an opinion of value in such a circumstance. The timely filing of the appeal to the board and counsel’s appearance before the board likely are sufficient to exhaust administrative statutory remedies. To require more than that would go beyond the statutory language and require all taxpayers to have appraisals at the board hearing or be found to have abandoned the appeal even though they were physically at the hearing. This would clearly frustrate taxpayers’ rights to pursue a challenge to the assessment.

19

Assessment Appeal Hearing and Procedures 3-1.2.6

Appeal Fees

There is no authority in Pennsylvania for a board of assessment appeals to impose any fee or charge to appeal an assessment. A local agency must have legislative authorization to levy a tax, fee, charge, or any other monetary payment. In Pennsylvania, the General Assembly has not given this authority to boards of assessment appeals; to the contrary, the legislative scheme provides that a taxpayer merely send a letter indicating that he or she is aggrieved by the assessment, and then the taxpayer is to be promptly scheduled for a hearing by the board. A fee to appeal an assessment is simply a tax by another name and cannot be imposed without statutory authority. It is evident that taxing statutes must be strictly construed, and unless a fee is specifically enacted by the General Assembly, it is illegal. If a governmental authority attempts to collect an illegal fee or tax under the color of law, it directly violating the Fifth and Fourteenth Amendments to the U.S. Constitution via an illegal taking of property without due process of law. In Cryan (EA Media) v. Snyder County Board of Assessment Appeals, 29 A.3d 873 (Pa.Cmwlth. 2011), the Commonwealth Court addressed the board’s imposition of a fee for the filing of the appeal. The appellate court summarized the trial court’s holding that the fee was proper: [T]he trial court concluded that the general authority granted in Section 508 of The Second Class County Code . . . permitted the Snyder County Board of Commissioners to implement a fee for the processing of assessment appeals. The trial court found that the Commissioners approved a fee schedule that included the fee for the processing of assessment appeals, which fee is received and collected by the County Chief Tax Assessor and deposited into the Snyder County Treasury pursuant to Section 1601 of The County Code. . . . Section 1601 specifies that all fees received by a county officer legally authorized to charge or receive the fee belong to the county. The trial court concluded that the assessment and taxation of real property are certainly affairs of the county. Accordingly, the trial court approved the $75 assessment appeal fee charged to [the taxpayer] as lawfully imposed. Id. at 875 (statutory citations omitted). Before the Commonwealth Court, the taxpayer again objected to the imposition of the filing fee. Rather than decide whether the fee was proper, however, the appellate court held that the trial court lacked jurisdiction to consider that issue. The Commonwealth Court explained: The right to appeal a tax assessment of personal or real property to either the county tax assessment board or the court of 20

3-1.3

common pleas is by virtue of an express statutory grant. Section 701 of the Assessment Law provides persons aggrieved by a personal or property assessment with the right to appeal to the county board of assessment. Section 701 of the Assessment Law bestows jurisdiction upon the courts of common pleas over appeals from the determinations of county tax assessment boards. Therefore, the relief sought comes, if at all, as a matter of right. Thus, a hearing by a court of common pleas on such an appeal must be one within the contemplation of the statute. The assessment appeal fee at issue herein was established by the Snyder County Board of Commissioners at a public meeting, wherein the Commissioners approved a general fee schedule, which included a fee for the processing of tax assessment appeals. A review of the Assessment Law reveals that the statute does not authorize the Board or the trial court to determine whether an assessment appeal fee established by the municipality’s governing body is lawful. The Assessment Law limits both the Board and the trial court to determining whether a property’s tax assessment is proper and in accordance with the law. Id. at 878–81. In light of the court’s decision, a challenge to the imposition of a filing fee in connection with an assessment appeal can be made in one of two ways: (1) by refusing to pay the fee and then seeking relief upon the rejection of the appeal or (2) by filing a separate action to contest the imposition of the fee. 3-1.3

Appeal of the Base-Year Value

The General Assembly has provided an alternate means of attacking an assessment beyond that of challenging a property’s fair market value as of the date the appeal was filed before the board of assessment appeals. The appropriate language in 53 Pa.C.S. § 8844(e)(2) is: Nothing in this paragraph shall prevent an appellant from appealing a base-year valuation without reference to ratio. The term “base year” is defined at 53 Pa.C.S. § 8802 as: The year upon which real property market values are based for the most recent countywide revision of assessment of real property or other prior year upon which the market value of all real property of the county is based for assessment purposes. Real property market values shall be equalized within the county and any changes by the board shall be expressed in terms of base-year values. 21

Assessment Appeal Hearing and Procedures

The provisions authorize an assessment appeals board to hear an appeal solely on the issue of whether the base-year value is correct. The taxpayer may appeal the base-year value independent of the present market value. To accomplish this, the taxpayer must provide expert testimony and/or other relevant evidence to establish a lower property value in the base year. If the taxpayer is successful, the board must lower the assessment to the correct base-year value. The board should then make an assessment on the property by determining what a similarly valued property would be assessed for in the base year. The theory appears to be that if the property was incorrectly valued in the base year, it must be corrected to reflect what the appropriate value would have been in that year. The Commonwealth Court addressed this issue in Monroe County Board of Assessment Appeals v. Miller, 570 A.2d 1386 (Pa.Cmwlth. 1990). In this case, the taxpayer claimed that the lower court erred when it applied the State Tax Equalization Board (STEB) common-level ratio for the county to the fair market value rather than the predetermined ratio. The court stated: With regard to Section 704 of the Law, subsections (b) and (c) of that Section require the common pleas court to make the determinations noted supra. However, subsection (d) of Section 704 expressly provides that “[n]othing herein shall prevent any appellant from appealing any base year valuation without reference to ratio.” (Emphasis added.) The statute thus specifically allows a taxpayer to appeal an assessment based solely upon the valuation of property, or solely upon assessed ratio, or both. To interpret Section 704 in any other manner would effectively read subsection (d) out of existence and render it mere surplusage contrary to 1 Pa.C.S. §§ 1921(a) and 1922(2), which provide respectively that every statute shall be considered, if possible, to give effect to all its provisions, and that the General Assembly intends the entire statute to be effective. Id. at 1389. The appellate court held that unless the taxpayer raises the issue of fair market value multiplied by the common-level ratio (CLR), the trial court must use the base-year value multiplied by the existing predetermined ratio (EPR). The court stated: Therefore, we hold that the common pleas court erred when it sua sponte applied the STEB CLR rather than the County’s EPR to [the taxpayer’s] appeal. We further hold that in a case such as this, where a determination of the ratio issue is not necessary to resolve the matter, a common pleas court is required to determine the applicable ratio pursuant to Section 704(b) and (c) only when that issue is raised. Id. 22

3-1.4

The Commonwealth Court followed Miller in Monroe County Board of Assessment Appeals v. Karlin, 631 A.2d 1062 (Pa.Cmwlth. 1993). There, the board appealed from the trial court’s sua sponte application of the STEB common-level ratio rather than the county’s EPR. The board argued that the taxpayer waived the application of the CLR by failing to plead or raise it at any stage of the proceeding and further because her counsel stipulated before the trial court that the CLR was inapplicable. The Commonwealth Court found that the trial court improperly applied the CLR, stating: We are thus left to decide, however, whether the common pleas court, notwithstanding that waiver, was statutorily required to apply the STEB CLR rather than the County EPR. Aside from the stipulation, the waiver issue in this case is virtually identical to that in Monroe County Board of Assessment Appeals v. Miller, 131 Pa. Commonwealth Ct. 538, 570 A.2d 1386 (1990). There, as here, the taxpayer failed to raise the ratio issue. The common pleas court, believing that it had an affirmative statutory duty to do so, sua sponte addressed that issue and applied the STEB CLR rather than the County EPR. We held in Miller that it was error for the court to address sua sponte the ratio issue where that issue had been waived and it was not necessary to the resolution of the case. Here, the waiver is even more compelling in light of the stipulation that the STEB CLR was not an issue. Therefore, we deem Miller to be controlling and accordingly reverse the order of the common pleas court on this issue. See also, Dilliplaine v. Lehigh Valley Trust Company, 457 Pa. 255, 322 A.2d 114 (1974). Id. at 1064. 3-1.4

County Limit of Appeals Exclusively to Base-Year Value

Can a county limit appeals to base-year value exclusively? In Daugherty v. County of Allegheny, 920 A.2d 936 (Pa.Cmwlth. 2007), the Commonwealth Court affirmed a trial court order striking down an assessment appeals board rule that limited the scope of a taxpayer’s appeal to whether the base-year market value assigned to the property by the board in the last countywide reassessment was correct. The local rule had prohibited taxpayers from challenging any assessment on the basis that it exceeded the property’s current fair market value. The rule in question was Rule IV, section 3, which stated: For appeals of assessments of tax years prior to 2006, the determination of value will be based on the fair market value of the property for the tax year in question.

23

Assessment Appeal Hearing and Procedures

In accordance with the Administrative Code, as amended, for appeals filed for assessments of 2006 and subsequent years, the determination of value will be based on the prevailing base year value as established by the County. The taxpayers in this case owned residential property that they purchased for $31,500 and carried an assessment for the countywide reassessment of $66,900. They appealed the assessment for tax year 2006, alleging that the purchase price for the property reflected its current fair market value because it was established in an arm’s-length transaction. While the appeal was pending before the board, the rule in question was enacted. The rule would have prevented the taxpayers from presenting evidence of the current fair market value of the property as evidenced by their sale price. The taxpayers filed a declaratory judgment action, arguing that Rule IV violated the Second Class County Charter Law and the uniformity provisions of the Pennsylvania Constitution, Article VIII, section 1. The trial court found that Rule IV violated the taxpayers’ right to appeal the assessment based on the fair market value of the property. The court also found that the Allegheny County Home Rule Charter did not give the county the right to legislate with respect to the substantive rules governing the making of assessments. The issue was framed as whether the statutory scheme allows a taxpayer to challenge an annual assessment as exceeding the property’s fair market value, regardless of what method has been used in the most recent countywide reassessment. The county contended that it was necessary to preserve the method it had chosen: the base-year market value. Further, it argued that to allow a taxpayer to appeal using the current fair market value nullified the county’s right to choose an assessment system. The appellate court reviewed the applicable statutory law, the Second Class County Assessment Law, 72 P.S. § 5452.4, which allows a county to adopt a base-year market value. The General County Assessment Law provides at 72 P.S. § 5020-402(a) that the county assessor must rate or assess property at its current market value or base-year value. Allegheny County, by law, is allowed to reassess properties using a current market value or a base-year value. The taxpayer, by statute, is allowed to file an appeal to the board of this value under 72 P.S. § 5452.10, which provides that the assessment board must determine the current market value for the tax year in question and then apply the applicable ratio to arrive at the assessment. Subsection (e) of this statute states: Nothing herein shall prevent any appellant from appealing any base year valuation without reference to ratio. These provisions require the board to first determine the property’s fair market value regardless of the method that has been used by the assessor. The court found that the issue raised by Allegheny County had 24

3-1.4

been resolved by its decision in In re Appeal of Armco, Inc., 515 A.2d 326 (Pa.Cmwlth. 1986). The court in Armco stated: [S]ection 602 provides an efficient administrative method of assessing real estate by permitting a county to use a base year market value which may or may not reflect the property’s current year market value, and for the sake of constancy with respect to ratio . . . permits the county to use a predetermined ratio not exceeding 75%. However, section 704 provides counties with an incentive to maintain the consistency and integrity of their administrative assessments by establishing a method of reviewing administrative assessments that is based upon applying the STEB common level ratio to a property’s current market value. Id. at 329 (emphasis in original). The Armco court pointed out that any other reading of the statute could lead to distorted assessments. The statute injected flexibility into the process so that the assessor’s actual value could be corrected where it was wrong either because the base-year market value was incorrect or because the market had changed. The Commonwealth Court found that the statutory scheme under the Fourth to Eighth Class County Assessment Law involved in Armco was virtually identical to the one statutorily ordained in Allegheny County. In Daugherty, the Commonwealth Court affirmed the lower court and stated: We hold that Section 10 of the Second Class County Assessment Code gives the taxpayer the ability to challenge its assessment for the reason that the base year market value no longer reflects the property’s current market value. It is the taxpayer’s decision which theory to pursue in its assessment appeal, i.e., that the assessment exceeds the current market value or the assessment is based upon an incorrect base year market value. Once that valuation is determined in accordance with the appeal it “shall stand as the [valuation] for the [assessment] of all county . . . taxes . . . .” Section 10(f) of the Second Class County Assessment Code, 72 P.S. § 5452.10(f). The trial court did not err in declaring Rule IV’s limitation on assessment appeals to be invalid. Rule IV impermissibly circumscribed the taxpayers’ appeal rights that are guaranteed in Section 10 of the Second Class County Assessment Code. Daugherty, 920 A.2d at 943. This case is a clear example of governmental overreaching. The county failed to follow the mandates of the General Assembly, and local officials attempted to superimpose their whims for their own political needs. The 25

Assessment Appeal Hearing and Procedures

county’s prohibition on current market values had the effect of freezing the assessments and setting up a stagnant assessment system that created a total climate of nonuniformity of taxation. By limiting appeals to the base-year value, the county would be able to ignore the ebb and flow of the real estate markets. Property values are dynamic and constantly changing; a base-year value can become obsolete very quickly in an everchanging real estate market. The county’s argument that a taxpayer appealing for tax year 2006 could hire an expert to review comparable sales and then adjust those values backward in time to what they would have been in 2002, accounting for inflation and economic forces, was a flawed approach, and the court called it a “meaningless exercise.” Id. at 942. The court further pointed out that the county’s system created a strong disincentive for the county to ever do a countywide reassessment. If the county officials had clearly read the applicable statutes, this litigation would have been avoided. The case law pertaining to base-year value is in an evolutionary state, and therefore practitioners must be aware of the need to carefully plead an appeal to the court of common pleas. At present, a failure to request in the pleading the ratio treatment sought could result in waiver of that issue. 3-1.5

Jurisdiction of an Assessment Appeals Board

Pennsylvania’s appellate courts have held that an assessment appeals board’s jurisdiction is not limited by the relief the appellant sought in the original appeal. The board has an inherent power to change an assessment once a case is placed before it by any statutorily permitted appellant or intervenor. A proceeding before the board is in the nature of a de novo hearing, with the board having the latitude to revise the assessment. In re Appeal of Municipality of Penn Hills, 546 A.2d 50 (Pa. 1988). A board must determine the propriety of a tax assessment and exercise its limited power to alter the assessment if the facts so mandate. An appeal invokes that power, and the tax assessment may go up or down as justice requires. The Pennsylvania Supreme Court has stated that assessment appeals boards will be given great latitude to interpret their own rules of administrative procedure. In Norfolk & Western Railway Co. v. Public Utility Commission, 413 A.2d 1037, 1047 (Pa. 1980), the court stated: Our courts must proceed with caution where the judgment of an administrative body properly interpreting its own regulation is at issue. The Supreme Court has adopted a twofold approach when reviewing an administrative agency’s interpretation of its own regulations. In such a case, the court determines whether (1) the agency’s interpretation is consistent with the regulation and (2) the regulation is consistent with the stat26

3-1.6

ute under which it is promulgated. Pelton v. Department of Pub. Welfare, 523 A.2d 1104 (Pa. 1987). The General Assembly created assessment appeals boards to more efficiently and equitably assess and value persons, property, and subjects of taxation for county purposes. 72 P.S. § 5452.1. In keeping with the expressed purpose, the statute further requires the board to revise and equalize all such assessment in valuations. 72 P.S. § 5452.4(b). The board’s clear statutory purpose, as evidenced by this enabling language, is to ensure that assessments are both accurate and equitable. Penn Hills, 546 A.2d 50 (Pa. 1988). 3-1.6

Standing to Appeal in a Tax Assessment Case

To be heard before an assessment appeals board, an individual must be the “person aggrieved” and have the requisite legal standing to challenge the tax assessment. The Commonwealth Court, in In re Appeal of Marple Newtown School District, 453 A.2d 68 (Pa.Cmwlth. 1982), defined a “person aggrieved” in the following manner: “Any person who has a direct immediate, pecuniary and substantial interest in the subject matter is a person aggrieved. Louden Hill Farm, Inc. v. Milk Control Commission, 420 Pa. 548, 217 A.2d 735 (1966).” The Pennsylvania Supreme Court has consistently interpreted the real estate tax laws to tax the real owner (see North Philadelphia Trust Co. v. Heinel Bros., Inc., 172 A. 692 (Pa. 1934)), which need not be the record owner, but may be the equitable owner (see Appeals of Baltimore & Ohio Railroad, 175 A.2d 841 (Pa. 1961); Marcus Hook Dev. Park, Inc. v. Board of Assessment Appeals of Delaware County, 449 A.2d 70 (Pa.Cmwlth. 1982)). The general rule in Pennsylvania is that tax liability follows ownership. Colonial Lodge & Banquet Ctr. v. Lancaster County Bd. of Assessment Appeals, 44 Pa.D.&C.3d 115 (C.P. Lancaster 1986). In the case of a contract for the conveyance of land, the burden of taxation as between the parties follows possession or the right to the land. United States v. Certain Parcels of Land in Philadelphia, 130 F.2d 782 (3d Cir. 1942). Therefore, if the burden of taxation inures to the land, the right to appeal the assessment of the land should follow the possession or rights to the land. This position is buttressed by Pennsylvania Rules of Civil Procedure 2351 et seq., which provide for the court to allow the substitution of parties to a pending legal action. These rules are not binding on a local assessment appeals board but are merely mentioned here for guidance purposes. In summary, standing to appeal should vest in any owner of real estate. The term “ownership” may be interpreted to mean not only the real owner but also the equitable owner.

27

Assessment Appeal Hearing and Procedures 3-1.6.1

Before a Board of Assessment Appeals

Statutory language dealing with the standing issue can be found at 53 Pa.C.S. § 8844(c)(1), which reads: Any person aggrieved by any assessment, whether or not the value thereof shall have been changed since the preceding annual assessment, or any taxing district having an interest in the assessment, may appeal to the board for relief. In Marple Newtown School District, 453 A.2d 68, the courts dealt with a situation in which Pennsylvania Plazas, Inc., was the lessee of a shopping center in Marple Township and was responsible under its 25-year lease for paying real estate taxes. It filed an appeal of the assessment of the shopping center with the Delaware County Board of Assessment Appeals. The board ordered a reduction in the assessment. The taxing authorities appealed the reduction, asserting that a tenant lacked standing to appeal an assessment to the board. They took the position that only the owner of a property under 72 P.S. § 5350 (now repealed) has standing to appeal. The common pleas court agreed. The Commonwealth Court ruled that the lessee was an aggrieved party within the ambit of 72 P.S. § 5349(c) (now repealed), which was less restrictive than 72 P.S. § 5350 (now repealed). The court stated: The statute applicable to appeals of an assessment to the Board of Assessment Appeals is Section 8 of the Act of June 26, 1931, P.L. 1379, as amended, 72 P.S. § 5349(c), and this provides that “any person aggrieved” may appeal his assessment to the Board. This is obviously a less restrictive standard than that imposed by Section 9, which the court thought was at issue. The question was therefore whether Pennsylvania Plazas, Inc. was a “person aggrieved.” Any person who has a direct immediate, pecuniary and substantial interest in the subject matter is a person aggrieved. Louden Hill Farm, Inc. v. Milk Control Commission, 420 Pa. 548, 217 A.2d 735 (1966). It would seem that Pennsylvania Plazas as a tenant required to pay the local taxes would meet this description and was entitled to appeal the assessment to the Board of Assessment Appeals. But we will leave this decision to the court of common pleas. Marple Newtown, 453 A.2d at 69. Therefore, the legislature in its assessment scheme set a less restrictive standing requirement for appeals to a board than to the trial court.

28

3-1.6.2 3-1.6.2

Before the Court of Common Pleas

The Pennsylvania Supreme Court dealt with the issue of legal versus equitable owner of real estate in Baltimore & Ohio Railroad, 175 A.2d 841, where the railroad reached an agreement with the Commonwealth by which the commonwealth was to acquire land through condemnation for the relocation of railroad facilities. Subsequently, the railroad took possession of the property and built improvements. The city of Pittsburgh then assessed city taxes against the property although the title remained in the name of the Commonwealth. The issue before the court was whether the property was subject to taxation. The Supreme Court found that the Baltimore & Ohio Railroad was the actual and the real owner of the property, although the naked title remained in the Commonwealth. In this case, the railroad had the right to occupy and use the property, as well as the power to force the Commonwealth to execute and deliver the deed to the railroad. There were no antecedent conditions remaining unperformed as to the conveyance of the fee. The Commonwealth had no actual estate in the property; it held a mere naked title. The court said that nothing in the General County Assessment Law requires real estate taxes to be levied only against the recorded owner of the fee. In general, taxes are determined by ownership, and it has long been the policy of law that real owners should be taxed. North Philadelphia Trust, 172 A. 692. The actual owner who is not the record owner may be assessed unless exempt from taxation. Pennsylvania Stave Co.’s Appeal, 84 A. 761 (Pa. 1912); Bemis v. Shipe, 26 Pa. Super. 42 (1904). The actual owner of realty, whether registered or not, is liable for the taxes. FidelityPhiladelphia Trust Co. v. Land Title Bank & Trust Co., 192 A. 121 (Pa. 1937). The taxing authority’s right to collect unpaid taxes from the registered owner is not exclusive and may be exercised against the real or beneficial owner. Also, equitable interest in real estate is subject to taxation. City of Philadelphia v. Myers, 157 A. 13 (Pa.Super. 1931). The Commonwealth Court followed the Baltimore & Ohio Railroad case when dealing with standing to appeal in Marcus Hook Development Park, 449 A.2d 70. There, Marcus Hook Borough was the real owner of real estate property leased to Marcus Hook Development Park, Inc. (MHD). The court found MHD, although obligated by lease to pay the taxes to or on behalf of the borough, did not become the taxpayer in place of the borough. The borough was the real owner, as well as the beneficial owner, of the property. MHD had appealed to the assessment appeals board and was denied for lack of standing. The Commonwealth Court stated: Accordingly, the borough as owner has the exclusive right to challenge the assessment, but, in these circumstances, obviously has not chosen to do so. We have been shown no authority giving a lessee such as MHD any basis for appealing in its 29

Assessment Appeal Hearing and Procedures

own right. Lessees are left to protecting themselves in the negotiation of the lease provisions with a municipality or other public agency. We therefore must disagree with the court of common pleas that the appeals filed by MHD with respect to the entire property and with respect to the borough parcel were effective to bring up for review before the board or court that part of the property held by the borough as owner. Id. at 73. In Filbern Manor Apartments v. Board of Assessment Appeals of Westmoreland County, 589 A.2d 279 (Pa.Cmwlth. 1991), the court found that the terms of a lease vest ownership of the leasehold improvements in the lessee and thus give the lessee standing to appeal the assessment. In this case, West Newton Borough was the owner in fee of certain real estate it leased to Claridge Properties, a New York partnership. The lease agreement was signed in 1977 and provided for a 99-year term. Claridge properly assigned the lease to Claridge Associates, a Pennsylvania limited partnership. Filbern Manor is an unregistered fictitious name used by Claridge Associates. West Newton Borough leased the subject real estate with the understanding that the lessee would build housing for elderly and other citizens through its connection with state and federal housing programs. The lessee began building apartments on the premises shortly after the lease was executed. For several years afterward, the taxing authorities issued tax assessments for the approved property in Filbern Manor’s name, and Filbern Manor paid the taxes. Filbern Manor appealed the assessment on the property for the year 1986 to the assessment appeals board and eventually to the court of common pleas. The lower court found that Filbern Manor was not the owner of the property for local tax purposes and therefore had no standing to appeal to the court. Filbern Manor appealed the dismissal to the Commonwealth Court. The issue raised here was whether the lessee, Filbern Manor, was the owner of the property in question and as such was a proper party to an appeal to the common pleas court. The Commonwealth Court distinguished this case from Marcus Hook Development Park, 449 A.2d 70, on the basis that the leasehold improvements were owned by the lessee of the land, not by the lessor in that case. Here, the land was leased from the borough, but the buildings belonged to the lessee. The Commonwealth Court found that the terms of the lease vest ownership of the leasehold improvements in Filbern Manor. The court cited In re Blue Knob Recreation, Inc., Assessment Appeal, 551 A.2d 9 (Pa.Cmwlth. 1988), for the proposition that a municipality has authority to tax improvements made on government property where there are no provisions in the lease as to the payment of taxes on the improvements.

30

3-1.6.3 3-1.6.3

Subtenant Standing in Appeals to the Common Pleas Court

In West Mifflin Area School District v. Board of Property Assessment, Appeals & Review of Allegheny County, 802 A.2d 687 (Pa.Cmwlth. 2002), the court held that a subtenant had standing to appeal to the trial court. The taxpayer in the case, Tech One Associates, owned property that it subdivided into a series of distinct, contiguous parcels, many of which were occupied by commercial tenants with varying degrees of responsibility for the payment of real estate taxes. Tech One filed tax assessment appeals with the common pleas court for tax years 1986 through 1999. The trial court consolidated the appeals. A number of Tech One’s tenants, including Ames Department Store and its subtenant Giant Eagle, intervened in the appeals because their leases required them to pay additional rent based on the tax assessments. Ames settled its dispute shortly after it intervened and thus was no longer a party to the appeals. The trial court appointed masters, who conducted three evidentiary hearings on the matter. Tech One, West Mifflin Borough, and the taxing school district presented a stipulation of the fair market value and assessment for each parcel from 1986 to 1999. The intervenors offered expert testimony as to the value of their own individual parcels. After reviewing the evidence, the masters accepted the intervenors’ expert testimony and recommended fair market values and assessed values on the intervenors’ properties that were less than those set forth in the stipulation. As for the other parcels, the masters adopted the stipulation and incorporated it into their report. The trial court dismissed Tech One’s objections. Tech One then filed an appeal with the Commonwealth Court. One intervenor, Giant Eagle, then filed an application to participate as a real party in interest in the appeal. Tech One filed objections, arguing that Giant Eagle lacked standing in the appeal before the trial court once Ames discontinued its claim because Giant Eagle was a subtenant of Ames. As to whether Giant Eagle had standing as a subtenant to appeal a tax assessment, the court looked to the General County Assessment Law, 72 P.S. § 5020-518.1(a), which states: Any owner of real estate or taxable property in this Commonwealth, who may feel aggrieved by the last or any future assessment or valuation of his real estate or taxable property, may appeal from the decision of the county commissioners, acting as a board of revision, or the board of revision of taxes, or the board for the assessment and revision of taxes, or the Board of Property Assessment, Appeals and Review. The court noted that Pennsylvania courts have determined that the word “owner” includes not only the registered owner of the real estate, but also an equitable owner or owner of a taxable interest in the property. See Baltimore & Ohio Railroad, 175 A.2d 841; Filbern Manor, 589 A.2d 279;

31

Assessment Appeal Hearing and Procedures

Blue Knob, 551 A.2d 9. Additionally, the court cited to a then-recent decision, Appeal from Decision of Board of Property Assessment, Appeals, Review & Registry of Allegheny County, 797 A.2d 414, 418 (Pa.Cmwlth. 2002), which found that the holder of a commercial sublease that obligates the sublessee to pay the real estate taxes had standing to challenge a tax assessment. The court stated in that case that the sublessee “is the ‘owner’ of a non-freehold, possessory interest in the taxable property for a term of years, something less than legal or equitable ownership, but ownership nonetheless for the purposes of Section 518.1.” Id. at 418. Accordingly, the court held that Giant Eagle had standing as a subtenant of Ames under section 518.1. 3-1.6.4

Standing to Appeal in Municipal Ownership Cases

In Appeal from the Decision of Board of Property Assessment, 797 A.2d 414, the Commonwealth Court ruled on a party’s standing to appeal under the exemption laws. The case stemmed from an attempt to obtain a tax exemption by several food and beverage establishments in the Pittsburgh International Airport. Allegheny County owned all the real estate parcels constituting the Midfield Terminal complex and leased the property to a private entity called BAA Pittsburgh. In turn, BAA subleased this property to food and beverage concessionaires. The lease between the county and BAA stated that BAA would indemnify the county from assuming all liability for taxes and assessments on the property. The lease further provided that BAA could contest the applicability, legality, or validity of any such taxes or assessments and that the county would execute any documents necessary to allow BAA to contest or appeal its taxes or assessments. BAA’s subleases with its subtenants contained identical provisions that passed the tax on to the subtenants and also allowed them to contest their taxes and assessments. Under the terms of the sublease, upon expiration or termination of the lease term, improvements made by the sublessee became the property of the county as record owner of the terminal and remained in place unless the county asked the subtenant to remove them. The assessments in this case were issued in the sublessees’ names, and each sublease area was given a separate tax identification number. When the airport opened for business in 1992, all the parcels in question were tax exempt. A local school district and township contested this status for the airport’s commercial food and beverage subtenants. In 1999, the assessment appeals board made all the properties operated by those businesses taxable, while all other parcels remained exempt. The school district and township argued that the subtenants had no standing under the law to appeal from the assessments because they were not, in fact, the legal owners of the property. The common pleas court disagreed and held that the parcels used for the sale of food and beverages were reasonably necessary for the efficient operation of the airport.

32

3-1.6.5

On appeal, the Commonwealth Court examined the standing issue in reference to 72 P.S. § 5020-518.1(a), which states, “[a]ny owner of real estate or taxable property in this Commonwealth, who may feel aggrieved . . . may appeal from the decision of the . . . Board of Property Assessment, Appeals and Review, in counties of the second class, . . . to the court.” Consequently, the court also asked whether, under this statute, a holder of a commercial lease that obligates the lessee to pay the real estate taxes has standing to appeal. The court considered the most recent assessment standing cases at the time—Blue Knob, 551 A.2d 9, and Filbern Manor, 589 A.2d 279—and stated: Although the facts of this case stand in marked contrast with those of Filbern and Blue Knob, the facts still support a conclusion that the parties to the lease agreements intended that the sublessee is the owner of the parcel for tax purposes because the seven-year commercial sublease indicates that the title to the improvements, as well as the leasehold itself, remain in the lessee during the term. As in Blue Knob, each of the sublessees of public property in this case, is the “owner” of a non-freehold, possessory interest in the taxable property for a term of years, something less than legal or equitable ownership, but ownership nonetheless for the purposes of Section 518.1. Appeal from Decision of Board of Property Assessment, 797 A.2d at 418. 3-1.6.5

Standing of Lessees of a Commonwealth Agency to Seek Tax Immunity and Exemption

In Bay Harbor Marina L.P. v. Erie County Board of Assessment Appeals, 177 A.3d 406 (Pa.Cmwlth. 2018), the court held that lessees of a Commonwealth agency had standing to challenge the denial of tax immunity. Here, the Erie-Western Pennsylvania Port Authority, which was organized under the Third Class Port Authority Act, leased two parcels of its property, called Bay Harbor West and Bay Harbor East, to Marina Holdings Ltd. and Bay Harbor Marina L.P. Both parcels operated as private gated marinas. Bay Harbor West consisted of 8.8 acres, including water lots, with 229 slips available for lease. Bay Harbor Marina leased portions of two buildings on the property to a restaurant and a mechanic’s business. Bay Harbor East consisted of 12 acres, with three docks and 236 slips, as well as a parking lot, bathhouse, and vending area for tenants. The leases required port authority approval of an existing fence at Bay Harbor East and installation of a fence at Bay Harbor West. Parking for marina members was located within the fenced areas at both sites, and access required a key device. Public parking at Bay Harbor West was located outside the fenced area. Use of both marinas was limited to members and their family and friends, except for limited public access areas. Member

33

Assessment Appeal Hearing and Procedures

amenities, including bathhouse facilities, picnic shelters, a fish cleaning station, and portable toilets, were not available to the general public. Furthermore, various signs at both properties excluded entry by the general public. Public access to the water at Bay Harbor West included a boat launch and a walkway along the edge of the property. Public transient boaters who used the boat launch could not moor their boats in the marina area, although they could use slips for a fee. Bay Harbor had a courtesy dock allowing members and the general public to briefly dock their boats while they moved their trucks/trailers to the launch. Public access to Bay Harbor East consisted of a walkway maintained by Bay Harbor along the perimeter of the property. There was no public boat launch. For a fee, transient boaters could use six open slips. The port authority did not use or occupy the parcels and was not involved in the lessees’ daily operations, decision-making, policy administration, rule enforcement, or membership criteria/approval Under the Third Class Port Authority Act, 55 P.S. § 573, an authority has the power to lease real estate. Additionally, an authority is immune from taxation under section 12 of the act, 55 P.S. § 582, which states that the authority “shall not be required to pay any taxes or assessments upon any property acquired or used by it for such purposes.” Each of the Bay Harbor lessees’ leases stated: The Lessee shall pay all taxes (including but not limited to real estate taxes) and assessments, if any, upon or against the [l]eased [p]remises by any governmental entity by reason of occupancy of the [l]eased [p]remises by the Lessee. . . . . . . The Lessee shall have the right in good faith to contest or review by legal proceedings or in such other manner as it deems suitable, which proceedings, if instituted, shall be conducted promptly at Lessee’s expense and free of expense to the Lessor, any taxes or assessments imposed upon or growing due and payable by reason of said [l]eased [p]remises or any part thereof. Bay Harbor, 177 A.3d at 411. In 2012, the lessees applied to the Erie County Board of Assessment Appeals for tax immunity and/or exempt status for the parcels. The board declared that the parcels remained taxable. The lessees appealed to court of common pleas, which held that they had standing to pursue an exemption, but not immunity. On appeal, the Commonwealth Court reviewed the following Consolidated County Assessment Law sections pertaining to appeals to the assessment appeals board and appeals from the board to the trial court: 53 Pa.C.S. § 8844(c)(1): Any person aggrieved by any assessment, whether or not the value thereof shall have been 34

3-1.6.5

changed since the preceding annual assessment, or any taxing district having an interest in the assessment, may appeal to the board for relief. 53 Pa.C.S. § 8854(a)(1): Following an appeal to the board, any appellant, property owner or affected taxing district may appeal the board’s decision to the court of common pleas in the county in which the property is located in accordance with 42 Pa.C.S. § 5571(b) (relating to appeals generally) and local rules of court. The court noted that these sections do not specify whether a Commonwealth agency lessee is a “person aggrieved by an assessment.” The court looked to Pennsylvania Medical Society v. Department of Public Welfare, 39 A.3d 267 (Pa. 2012), which held: “[W]here a person is not adversely affected in any way by the matter challenged, he is not aggrieved and thus has no standing to obtain a judicial resolution of that challenge.” Hosp. & Healthsystem Ass’n of Pennsylvania v. Department of Public Welfare, 585 Pa. 406, 888 A.2d 601, 607 (Pa. 2005) (citing William Penn Parking Garage, Inc., v. City of Pittsburgh, 464 Pa. 168, 346 A.2d 269, 280 (Pa. 1975)). Moreover, in order to be aggrieved, a party must show that it has a substantial, direct and immediate interest in the claim sought to be litigated. Id.; William Penn, 346 A.2d at 280–83. We have defined these requirements as follows: a “substantial” interest is an interest in the outcome of the litigation which surpasses the common interest of all citizens in procuring obedience to the law; a “direct” interest requires a showing that the matter complained of caused harm to the party’s interest; an “immediate” interest involves the nature of the causal connection between the action complained of and the injury to the party challenging it, and is shown where the interest the party seeks to protect is within the zone of interests sought to be protected by the statute or constitutional guarantee in question. Hosp. & Healthsystem Ass’n, 888 A.2d at 607; South Whitehall Township Police Service v. South Whitehall Township, 521 Pa. 82, 555 A.2d 793, 795 (Pa. 1989). Id. at 278 (emphasis added). The Commonwealth Court examined the factors established in Pennsylvania Medical Society and found that the lessees were aggrieved because: (1) they had a substantial interest in the litigation’s outcome because of their interests in relief from taxes imposed on the parcels, (2) they had direct interests because the board’s decision triggered their lease obligations, and (3) they had an immediate interest because as lessees of the authority’s 35

Assessment Appeal Hearing and Procedures

property, which was purportedly used to further the authority’s authorized purposes under the Consolidated County Assessment Law, they would be included within section 12 of the act’s “zone of interest.” Accordingly, the court held that the lessees had standing to challenge the denial of tax immunity and that the trial court erred when it held otherwise. It is important to note that the cases discussed above covered new ground regarding the determination of standing to appeal and loosened some of the more restrictive standing rules. This new interpretation of standing likely will be argued by attorneys in valuation cases where the tenants, rather than title holders, wish to appeal their assessments to their boards of assessment appeals and subsequently to the common pleas courts. Practice Tip: Keep in mind that the standing rules for board appeals and court appeals are different in Philadelphia County and Allegheny County compared with the other 65 counties in Pennsylvania, which are subject to the Consolidated County Assessment Law, specifically 53 Pa.C.S. §§ 8844(c) and 8854(a).

3-1.7

Findings of Fact by an Assessment Appeals Board

The Consolidated County Assessment Law, at 53 Pa.C.S. §§ 8844(e)(2) and 8844(e)(2.1), states: (2) In any assessment appeal, the board shall determine the market value of the property as of the date such appeal was filed before the board and shall apply the established predetermined ratio to that value, unless the common level ratio last published by the State Tax Equalization Board varies by more than 15% from the established predetermined ratio, in which case the board shall apply that same common level ratio to the market value of the property. Nothing in this paragraph shall prevent an appellant from appealing a base-year valuation without reference to ratio. (2.1) When the board has completed the appeal hearings, it shall make the appropriate changes in the assessment roll to conform to the decision of the board and, no later than November 15, provide written notice of its decision to the appellant, property owner and taxing districts.

36

3-2

The legislature has provided that in the first year after the county has performed a countywide reassessment, special rules pertaining to findings of fact shall apply. 53 Pa.C.S. § 8848(d) states: (d)

Common level ratio—If a county has effected a countywide

revision of the assessments, which was used to develop the common level ratio last determined by the State Tax Equalization Board, the following shall apply:

3-1.8

(1)

If a county changes its assessment base by applying a change in predetermined ratio, the board shall apply the percentage change between the existing predetermined ratio and newly established predetermined ratio to the county’s common level ratio to establish the certified revised common level ratio for the year in which the assessment was revised.

(2)

If the county performs a countywide revision of assessments by revaluing the properties and applying an established predetermined ratio, the board shall utilize the established predetermined ratio instead of the common level ratio for the year in which the assessment was revised and until the time that the common level ratio determined by the State Tax Equalization Board reflects the revaluing of properties resulting from the revision of assessments. Post-hearing Procedure

As stated in 53 Pa.C.S. § 8844(e), when the board has heard all appeals, it must make such changes in the assessment roll so that it conforms to the board’s decisions. Section 8844(f) states that the county assessment office then must prepare three copies of the assessment roll and deliver them on or before November 15 to the chief clerk of the county commissioners, the secretary of the board of school directors of each respective district, and the borough or township secretary of the respective municipalities. 3-2

Technical Defects in Assessment Appeals

In F&M Schaefer Brewing Co. v. Board of Assessment Appeals of County of Lehigh, 502 A.2d 310 (Pa.Cmwlth. 1985), the Commonwealth Court examined whether an assessment appeals board may dismiss a taxpayer’s appeal when the application for appeal contains a technical defect. In this case, the taxpayer was the record owner of real property operating as Stroh Brewing Co. On August 29, 1983, an appraisal firm filed a state37

Assessment Appeal Hearing and Procedures

ment of intention to appeal the taxpayer’s 1984 real property assessment with the board. At some point between September 1 and October 7, 1983, an officer of the taxpayer filed an updated letter, written on Stroh stationery, with the board. The letter stated that the appraisal firm was authorized to act on Stroh’s behalf concerning real estate assessments for 1983. On September 28, 1983, a Stroh vice president filed an amended statement of intention to appeal the taxpayer’s 1984 assessment with the board. At a hearing on the appeal on October 27, 1983, the board, without taking any testimony, ruled that the August 29 statement of intention to appeal violated the board’s regulations because the taxpayer itself did not file the document. Also, the board held that the September 28 statement of intention to appeal was not filed within the statutorily prescribed time period. The board, therefore, dismissed the appeal as untimely filed. A written notice of the board’s decision was sent to the taxpayer on October 31, 1983. The taxpayer appealed, and the court of common pleas vacated the board’s dismissal and ordered it to hold a hearing. The board then appealed, arguing that the failure to have a proper party execute the appeal notice was a fatal error. The Commonwealth Court stated: On August 29, 1983, taxpayer did file an appeal with the Board which set forth the challenged assessment and an address to which the Board was to mail notice of the time and place of a hearing. Thus, taxpayer did comply with the requirements of Section 5349(c). The Board, however, has adopted rules and regulations which provide, in pertinent part: 1.

All notices of property assessment appeal shall be executed by an aggrieved party of record. In cases in which a corporation shall be aggrieved party, all property assessment appeals shall be executed by an officer of said corporation, stating the title of such officer, or by a duly authorized employee of the aggrieved corporation which shall be accompanied by a notarized certification that he is authorized to act on behalf of the corporation.

It is undisputed that taxpayer’s August 29, 1983 Statement of Intention to File an Appeal was executed neither by an officer of the corporation, nor by an employee accompanied by a notarized certificate of authorization. The County contends that this defect is fatal to taxpayer’s appeal and that taxpayer’s attempts to correct the flaw by filing an authorization, and later,

38

3-2

a Statement of Intention to Appeal signed by an officer of the corporation cannot be accepted. We disagree. Id. at 312. The court further found that the defect in the appeal application was a technical defect that was remedied by the filing of an amended statement. The court held: The situation presented by the case at bar is analogous to a situation where a technical defect is made in a pleading before a trial court. Taxpayer did not comply with the technical requirement that an officer or employee of the corporation execute the Statement of Intention to Appeal. Neither the Board nor the County were prejudiced by this error because at all relevant times they were aware of the identity of the party appealing its assessment. Taxpayer attempted to amend its Statement by filing an Amended Statement which was properly executed. For the Board to reject the Amended Statement contravenes the policy of the courts of the Commonwealth to liberally grant the right to amend pleadings. Connor v. Allegheny General Hospital, 501 Pa. 306, 461 A.2d 600 (1983). This is especially true when no prejudice would result to the other party, Lincoln Intermediate Unit No. 12 v. Bermudian Springs School District, 65 Pa. Commonwealth Ct. 33, 441 A.2d 813 (1982), or when the amendment is requested to cure a technical defect, Hayes v. School District of Pittsburgh, 33 Pa. Commonwealth Ct. 71, 381 A.2d 193 (1977), Liquor Control Board v. Rapistan, 14 Pa. Commonwealth Ct. 501, 323 A.2d 410 (1974). We conclude that taxpayer’s failure to have its August 29, 1983, Statement of Intention to Appeal its 1984 real property tax assessment executed by an officer of the corporation is a technical defect which would not cause the Board or the County any prejudice to allow it to be amended. Therefore, we affirm the trial court’s order vacating the Board’s dismissal of taxpayer’s appeal and remand the case to the Board for a hearing on the merits. Id. at 313. F&M Schaefer holds that only a substantive violation of a board’s rules and regulations is grounds for denial of appeal. A mere technical defect of the rules and regulations is not grounds for a dismissal of an appeal where the taxpayer moves to cure or amend the defect.

39

Assessment Appeal Hearing and Procedures

3-3

Remedy for Notice Violation of Assessment Board Hearings

In re Appeal of Penn-Delco School District, 903 A.2d 600 (Pa.Cmwlth. 2006), involved the appropriate remedy for a procedural due process violation of a taxpayer’s rights before an assessment appeals board. Here, the school district appealed the assessment of a taxpayer’s property to the Delaware County Board of Assessment Appeals, which heard the school district’s evidence and denied the appeal. The assessment remained unchanged. The taxpayer claimed that it never received notice of this hearing either from the board or from the school district. The school district appealed the board’s decision to the common pleas court and served the taxpayer with the notice of appeal by mail. The trial court ruled for the school district and increased the assessment. The taxpayer contended that the school district’s failure to serve notice of the hearing before the assessment board divested the court of jurisdiction for a de novo appeal. The Commonwealth Court refused to accept this argument and outlined the law in this area: [I]t is not the responsibility of the School District to provide notice. On the contrary, it is the Board’s responsibility to provide notice of any hearing it schedules. Section 8(d) of the statute known as the Second Class A and Third Class County Assessment Law (Law), 72 P.S. § 5349(d). Thus, any defect in hearing notice was not the result of a failure of the School District to perform a legal duty. Concomitantly, the remedy sought by Taxpayer, dismissal of the School District’s de novo appeal to the trial court and loss of its statutory appeal rights, is not appropriate. [T]he appropriate remedy for proved defective service is remand for a new hearing before the Board. Section 11 of the Law, 72 P.S. § 5350b, provides in pertinent part: “[n]o defect in service of any such notice shall be sufficient ground for setting any assessment aside, but upon proof thereof being made, the taxable person or taxing district shall have the right to a hearing before said board relative to said assessment . . . .” Significantly, Taxpayer spurned this statutory remedy, preferring instead to seek outright dismissal. Having failed to request a remand for a Board hearing, it cannot now complain that it did not participate in a hearing before the Board. Id. at 604. The court also found that any lack of notice did not prejudice the taxpayer and was harmless because the board denied the school district’s appeal. Therefore, when a hearing is held before an assessment board without proper notice to a party, the appropriate remedy is for that party to request a remand for a new hearing before the board. 40

3-4

3-4

Class Actions in Assessment Appeals

The Consolidated County Assessment Law, at 53 Pa.C.S. § 8844(d), states that for the purpose of assessment appeals, “the term ‘person’ shall include, in addition to that provided by law, a group of two or more persons acting on behalf of a class of persons similarly situated with regard to an assessment.” As noted in Garrett v. Bamford, 582 F.2d 810 (3d Cir. 1978), the legislature specifically added this section to provide for class-action assessment appeals before an assessment appeals board. In many circumstances, the parties in assessment proceedings prefer that class-action procedures be used to resolve the matter. Class actions are extremely efficient vehicles to dispense justice for groups of similarly situated taxpayers. For example, a 300-unit condominium project with three distinct models would normally require 300 separate hearings, sets of notices, and decisions, consuming an enormous amount of staff and board time as well as necessitating the appearances of the 300 taxpayers. A class-action proceeding would require that one attorney attend a single board hearing and present expert testimony on the three distinct models only once. The board then could determine the appropriate assessment for all the units without having to hear the same testimony in 300 different renditions. If used correctly, the class-action procedures mandated by section 8844(d) are valuable tools in an assessment appeals board’s rendering of fair, expeditious decisions. In the area of constitutional challenges to tax procedures that are now required to be heard by assessment boards, class actions are essential to the handling of the cases. Section 8844(d) does not require that the initial action contain each and every class member’s name or that each potential class member initiate a separate appeal before September 1. To the contrary, as the Garrett court noted, where one member has filed a timely appeal, section 8844(d) “makes the entire class the beneficiaries of the action.” Id. at 817. In summary, the board is specifically authorized by statute to consider and decide a class action challenging the issue of spot assessment or de facto reassessment of properties. See Lower Merion Sch. Dist. v. Montgomery County Bd. of Assessment Appeals, 642 A.2d 1142 (Pa.Cmwlth. 1994). Section 8844(d) also provides that assessment appeals boards may adopt rules and regulations that establish additional criteria for a group of two or more persons to act on behalf of a class. These criteria can include a deadline for any person desiring to be a member of a class to file a written election with the board to be included within the class. Each board should promulgate rules and regulations pertaining to perfection of taxpayer class actions. These rules and regulations should enumerate the manner of filing the appeal, the filing parties’ notification responsibilities, the evidentiary procedures required at the hearing, and any pertinent matters.

41

Assessment Appeal Hearing and Procedures

The Commonwealth Court in 1997 definitively interpreted class-action assessment suits brought under 72 P.S. § 5349(c) (now 53 Pa.C.S. § 8844(d)) and laid out procedures for local assessment appeals boards to use in such cases. In re Class Action Appeal of Mackey, 687 A.2d 1186 (Pa.Cmwlth. 1997), involved a class action filed with the Chester County Board of Assessment Appeals on behalf of thousands of taxpayers under 72 P.S. § 5349(c) (now 53 Pa.C.S. § 8844(d)). The appellants owned property in 19 townhouse and condominium developments in the county. These developments contained 165 types of units, varying by model, size, and layout and comprising a total of 3,632 dwelling units. The board had no local rules pertaining to class-action certification when the appeals were filed. But before a hearing in the case scheduled for December 1994, the board adopted rules and conducted the hearing in accordance with these newly enacted rules. In February 1995, the board granted class certification to some groups of property owners and denied certification to others. Subsequently, 12 of the denied groups of taxpayers appealed to the court of common pleas. The court consolidated the 12 cases and denied all the appeals. The taxpayers then appealed to the Commonwealth Court. The issue before the court was whether an assessment appeals board can establish and adopt rules relating to class certification for class-action assessment appeals under section 5349(c). The statute at the time stated: For the purpose of assessment appeals, the term “person” shall include, in addition to that provided by law, a group of two or more persons acting on behalf of a class of persons similarly situated with regard to the assessment. The appellate court first disposed of the appellants’ argument that the board had no authority to adopt rules and regulations on class certification. The court pointed out that the Pennsylvania Rules of Civil Procedure governing class actions do not apply to assessment appeals boards. The court stated: [A]s our Supreme Court held in Appeal of Borough of Churchill, 525 Pa. 80, 575 A.2d 550 (1990), the Pennsylvania Rules of Civil Procedure do not apply to tax assessment appeals, or to statutory appeals in general. See also Leasure v. Borough of Trafford, 109 Pa. Commw. 456, 531 A.2d 559 (Pa. Cmwlth. 1987). Furthermore, requiring that a class action tax assessment appeal be instituted by filing a complaint with a county prothonotary would directly contradict Section 933 of the Judicial Code, 43 Pa. C.S. § 933, as well as the provisions of the Third Class County Assessment Law and the General County Assessment Law, which specifically establishes that the court of common pleas has appellate jurisdic42

3-4

tion over tax assessment appeals. Moreover, a class action suit commenced by filing a complaint with the prothonotary pursuant to Rule 1703 of the Rules of Civil Procedure initiates an original civil action, and, of course, where an adequate and exclusive administrative remedy exists, that procedure must first be followed. Lilian v. Commonwealth, 467 Pa. 15, 354 A.2d 250 (1976). Thus, it is clear that Pa. R.C.P. No. 1703 does not apply to class certification in tax assessment appeals. Mackey, 687 A.2d at 1190 (emphasis in original). The court noted that the Pennsylvania Supreme Court had ruled in Stevenson v. Department of Revenue, 413 A.2d 667 (Pa. 1980), that an administrative agency may enact class-certification rules. The Commonwealth Court stated that because 72 P.S. § 5349(c) required assessment appeals boards to hear class actions, it was only logical to conclude that the boards have jurisdiction to take the steps necessary in handling these appeals and, therefore, the duty to establish and carry out the legislative mandate. The court thus held that the board had the authority to institute the rules and regulations. The Commonwealth Court next discussed whether the trial court was obligated to hear the appeal of the board’s class certification decisions on a de novo basis. Section 754 of the Local Agency Law, 2 Pa.C.S. § 754, provides that the court may hear an appeal from an administrative agency de novo only where there is an incomplete record; otherwise, where a complete record exists, the court can review the record certified by the agency only for errors of law or of a constitutional nature. The appellate court found that since the board had made an extensive and detailed record of its proceedings, the trial court was not required to review the board’s certification decisions de novo. The appellate court ordered that where the record is complete, the applicable standard of review by a trial court is the same as that of the Commonwealth Court reviewing a class-action determination of the court of common pleas. The court held: In both situations, the class certification decisions of a lower tribunal are being considered at the first stage of appellate review. It just so happens that, in the case of class certification decisions by county boards of assessment, the first stage of appellate review lies with the court of common pleas. The standard of review applicable to appeals from certification decisions of courts of common pleas was articulated by the Superior Court in Janicik v. Prudential Insurance Company of America, 305 Pa. Super. 120, 127, 451 A.2d 451, 454 (1982): A lower court’s decision concerning class certification is a mixed finding of law and fact entitled to “appropriate def43

Assessment Appeal Hearing and Procedures

erence” upon appeal. . . . “Trial courts are vested with broad discretion in determining [the] definition of the class as based on commonality of the issues and the propriety of maintaining the action on behalf of the class.” . . . Consequently, a lower court’s order concerning class certification will not be disturbed on appeal unless the court failed to consider the requirements of the rules or abused its discretion. (Citations omitted.) Mackey, 687 A.2d at 1192. Therefore, assessment appeals boards have the power to promulgate rules and regulations for class certification for appeals filed under what is now 53 Pa.C.S. § 8844(d) and to hold certification hearings. Mackey provides that the board should make a record of its proceedings and that the trial court may reverse the board’s ruling for errors of law or constitutional abuse. 3-5 3-5.1

Civil Rights Actions and Assessment Appeals Federal Civil Rights Actions Challenging Tax Assessments

Generally, the federal courts will not consider federal civil rights suits under 42 U.S.C. § 1983 challenging assessment practices in Pennsylvania. The federal courts have found that state administrative bodies and courts can provide adequate remedies to protect the rights of taxpayers who claim discrimination. In Behe v. Chester County Board of Assessment Appeals, 952 F.2d 66 (3d Cir. 1991), the U.S. Court of Appeals for the Third Circuit remanded to state court a suit filed by homeowners alleging that Chester County and its assessment appeals board failed to revise property assessments annually, as required by Pennsylvania law. The suit claimed that this failure led to unfair results because (1) the assessed values of newer properties and the resulting taxes on these properties were much higher than those of older properties and (2) as the values of older properties remained artificially deflated, the county was forced to raise everyone’s property tax rate in order to collect enough money. The homeowners claimed that this alleged failure to reassess property values on an annual basis violated their Fifth Amendment substantive due process rights and Fourteenth Amendment due process rights under the U.S. Constitution, as well as the uniformity clause of the Pennsylvania Constitution. The district court dismissed the complaint for lack of subject matter jurisdiction and held that the Tax Injunction Act, 28 U.S.C. § 1341, bars taxpayers from challenging the validity of a state tax system in federal court if the state could provide a “plain, speedy and efficient” remedy. Behe, 952 F.2d at 67. The district court also found that the principle of co44

3-5.2

mity barred the court from asserting jurisdiction and that the court, even if it did have jurisdiction, would decline to exercise it here. The Third Circuit had found in Garrett, 582 F.2d 810, that the Pennsylvania Constitution provides as much protection against unequal taxation as the U.S. Constitution. The court in Behe stated: [N]othing prevents Homeowners from suing in state court pursuant to the U.S. Constitution. “The power to tax, in Pennsylvania, is . . . limited by the Pennsylvania and United States Constitutions.” Commonwealth v. Schellenberger, 390 Pa. Super. 413, 568 A.2d 968 (Pa.Super. 1990). The Supreme Court of Pennsylvania has stated that “absent the uniformity clause in our State Constitution, the 14th Amendment of the Federal Constitution would protect taxpayers of the same class from discriminatory treatment in violation of their right to equal treatment in violation of their right to equal protection of the laws.” McKnight Shopping Center, Inc., 209 A.2d at 392 n.4. See also Rochester & Pittsburgh Coal Co. v. Bd. of Assessment & Revision of Taxes, 438 Pa. 506, 266 A.2d 78, 79 (Pa. 1970) (plaintiff taxpayers may raise federal constitutional claims in Pennsylvania state court so long as they first appeal to the appropriate state agency); Consolidated Gas Supply Corp. v. Clinton County, 80 Pa. Commw. 10, 470 A.2d 1113, 1114 (Pa.Cmwlth. 1984) (same); Concerned Taxpayers of Beaver County v. Beaver County Bd. of Assessment Appeals, 75 Pa. Commw. 443, 462 A.2d 347 (Pa.Cmwlth. 1983) (same); Sunderland Properties, Inc. v. County of Berks, 750 F.Supp. 704, 710 (E.D. Pa. 1990) (“Numerous Pennsylvania decisions stand for the proposition that a taxpayer can challenge the constitutional application of real estate taxes during the property assessment appeal procedure before the Board of Assessment Appeals, and then appeal to the Court of Common Pleas.”). Behe, 952 A.2d at 69. Therefore, the cases cited in Behe lead to the conclusion that federal courts will not exercise jurisdiction under 42 U.S.C. § 1983 in Pennsylvania because adequate state remedies exist in the Commonwealth to litigate constitutional claims of unequal taxation of real property. See Kowenhoven v. County of Allegheny, 901 A.2d 1003 (Pa. 2006). 3-5.2

Common Pleas Court Jurisdiction over Civil Rights Actions Challenging Tax Assessment Appeals

An important issue in assessment cases is whether class-action plaintiffs alleging spot assessment must exhaust their administrative remedies at an assessment appeals board before filing suit. In Greenwich Township v. Murtagh, 601 A.2d 1352 (Pa.Cmwlth. 1992), a class of recent purchasers 45

Assessment Appeal Hearing and Procedures

of real property in Berks County alleged that the county and its assessment appeals board had adopted a so-called “welcome stranger” policy. The complaint alleged that under this policy, recently purchased properties were reassessed at fair market value, resulting in significantly higher tax assessments than those of other comparable longer-held neighboring properties that were not reassessed under the practice. The suit claimed that the county and board violated the plaintiff taxpayers’ equal protection rights under the Fourteenth Amendment because the reassessments were performed under color of state law and therefore violated 42 U.S.C. § 1983. The taxpayers relied on Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, 488 U.S. 336 (1989), in which the U.S. Supreme Court held that this type of “welcome stranger” policy violated the equal protection clause of the Fourteenth Amendment. In Murtagh, the taxpayers went directly to the Berks County Court of Common Pleas on the constitutional issue, skipping the assessment appeals board. The taxing authorities argued in preliminary objections that the taxpayers did not exhaust their administrative remedies before the board and that the state courts do not have jurisdiction over federal civil rights actions. The common pleas court dismissed the objections but certified the issue for appeal. The Commonwealth Court found that state courts do have jurisdiction to hear federal civil rights actions. The U.S. Supreme Court held in Howlett v. Rose, 496 U.S. 356 (1990), that a state court had no discretion not to hear a federal civil rights action that was maintainable in state court because of comity. The Commonwealth Court held that an assessment appeals board can make constitutional rulings and that unless taxpayers exhaust their administrative remedies before the board, they have no access to the court system. The appellate court ordered the common pleas court to dismiss the case. The Pennsylvania Supreme Court reversed. Murtagh v. County of Berks, 634 A.2d 179 (Pa. 1993), cert. denied, 511 U.S. 1017 (1994). The court defined the issue as whether state courts must entertain section 1983 class actions challenging the constitutionality of a county’s tax assessment procedure where plaintiffs have not exhausted state administrative and judicial remedies. The court rejected the taxing authorities’ argument that administrative remedies must be exhausted before a common pleas court can entertain jurisdiction in section 1983 challenges to the real property system of taxation. The court stated: The Supreme Court of the United States has consistently affirmed the duty of state courts to entertain section 1983 actions, except where a valid excuse exists, regardless of whether plaintiffs have exhausted state administrative and 46

3-5.2

judicial remedies. Municipalities may be sued under section 1983 when a municipal policy, ordinance, regulation or custom inflicts constitutional injury. Monell v. New York City Department of Social Services, 436 U.S. 658, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). Since 1980, the Supreme Court of the United States has made clear that state courts have concurrent jurisdiction with federal courts to hear section 1983 claims. Maine v. Thibout, 448 U.S. 1, 100 S. Ct. 2502, 65 L. Ed. 2d 555 (1980). When state courts entertain federal causes of action, the rights of, and the defenses to, a federal cause of action are defined by federal law so that the outcome of federal causes of action would be the same, regardless if decided in a state or federal forum. Howlett v. Rose, 496 U.S. 356, 375, 110 S. Ct. 2430, 2442, 110 L. Ed. 2d 332, 353 (1990). Also, in the absence of a valid excuse, state courts have no discretion to decline to accept jurisdiction when the parties and controversy are properly before the state court. Id. at 182–83. The Supreme Court cited Borough of Greentree v. Board of Property Assessment, Appeals & Review of Allegheny County, 328 A.2d 819 (Pa. 1974), for the proposition that common pleas courts have equitable jurisdiction to hear cases alleging violations of the uniformity provisions of the Pennsylvania Constitution, even where the statutory appeal procedure has been bypassed. This rationale was based upon the premise that the statutory appeal procedure would be of little benefit or utility in determining constitutionality of the statute and would apply where any benefit derived from filing individual appeals with the assessment board would be far outweighed by the inconvenience, delay, and costs involved. The court found that exhaustion of administrative and judicial remedies is not required in a class action challenging the constitutionality of a system of property tax assessment in Pennsylvania. The court stated: Further, this resolution will not, as local governments contend, disrupt state and local tax administration because, as the taxpayers argue, constitutional challenges such as the taxpayers’ class action challenge probably will, in the long run, significantly reduce the inconvenience, inefficiency, delay and expense involved in countless individual lawsuits over the same issue in many different administrative and judicial forums. Murtagh, 634 A.2d at 185. The court then held that where plaintiffs are a class of taxpayers challenging the constitutionality of the system by which property tax assessments are made, they can maintain section 1983 suits in the common pleas court without first exhausting their statutory remedies.

47

Assessment Appeal Hearing and Procedures

It must be noted that in a footnote in National Private Truck Council, Inc. v. Oklahoma Tax Commission, 515 U.S. 582 (1995), the U.S. Supreme Court disapproved of the holding of Murtagh. The case dealt with whether certain taxes imposed in Oklahoma violated the dormant commerce clause of the U.S. Constitution, requiring the state to provide relief under 42 U.S.C. § 1983. The Supreme Court held that it was not necessary for states to provide civil rights relief where there is an adequate remedy under state law. The issue left unresolved is whether the courts in Pennsylvania will find that there is no adequate remedy under state law to protect civil rights in matters dealing with local taxation. At present time, an attorney should be aware that the law in this area could be subject to change. In Garrett Group, L.P. v. County of Schuylkill, 667 A.2d 255, 257, n.5 (Pa.Cmwlth. 1995), the court noted in a footnote that the taxpayers had withdrawn their section 1983 claim in light of the decision in National Private Truck Council, and therefore the court did not deal with this issue. The Pennsylvania courts’ amenability to the filing of federal civil rights cases under Murtagh is in question. As mentioned previously, this case had enabled federal civil rights actions for tax assessment abuses to be filed in Pennsylvania courts and allowed those courts to apply the federal civil rights law. The Commonwealth Court handed down its latest installment in the Murtagh saga in 1998 and rolled back the case law to reflect its 1992 decision. Murtagh v. County of Berks, 715 A.2d 548 (Pa.Cmwlth. 1998). This time, the court dealt with the results of its remand of the case in Greenwich Township v. Murtagh, 659 A.2d 1083 (Pa.Cmwlth. 1995). After remand, the county and its assessment appeals board filed a motion for judgment on the pleadings on the basis that National Private Truck Council overruled the Pennsylvania Supreme Court’s 1993 decision in Murtagh, 634 A.2d 179. The lower court granted the motion, and the case was then appealed to the Commonwealth Court. The Pennsylvania Supreme Court had held originally that where taxpayers are challenging the constitutionality of a county’s tax assessment system, they do not have to exhaust administrative and statutory remedies before filing a section 1983 civil rights derivative action. Then came National Private Truck Council, which criticized Murtagh and held that taxpayers challenging state taxes have no viable cause of action under 42 U.S.C. § 1983 when adequate state remedies exist. The Commonwealth Court, in interpreting the Pennsylvania and U.S. Supreme Court decisions in this matter, held: We acknowledge that National Private Truck Council does not specifically address whether state courts are precluded from awarding monetary damages in state tax cases pursuant to Section 1983. The Supreme Court, however, relied heavily on 48

3-5.3

its reasoning in Fair Tax Assessment [in Real Estate Association v. McNary, 454 U.S. 100 (1981),] in determining that Section 1983 does not provide a basis for state courts to award injunctive relief when an adequate state remedy exists. National Private Truck Council, 515 U.S. at 590. As we previously noted, Fair Assessment stands for the proposition that actions for equitable relief and monetary damages from a state property assessment procedure are barred in the federal courts by comity, equitable restraint and federal noninterference in state tax actions. The holding in National Private Truck Council removes the limitation to federal courts present in Fair Assessment and precludes a Section 1983 action for monetary damages in state courts when state remedies afford the taxpayer an opportunity for plain, adequate and complete relief. Accordingly, we conclude that Taxpayers are unable to bring their Section 1983 action for money damages in state court since adequate statutory remedies exist. Murtagh, 715 A.2d at 551. The Commonwealth Court stated that the Second Class A and Third Class County Assessment Law, 72 P.S. § 5342–5350 (now repealed), provided an adequate statutory remedy for the petitioners to challenge the county tax assessment procedures. The right to be heard before a threemember assessment appeals board and the right to a de novo appeal to the court of common pleas provide appropriate avenues of relief to taxpayers. Therefore, since there was an adequate administrative process for attacking the assessment system, the trial court did not have subject matter jurisdiction to consider a section 1983 action, unless the administrative and judicial remedies were exhausted. After a decade of litigation, we have returned to square one in this matter. and the Pennsylvania Supreme Court still has not weighed in on the ultimate outcome for 42 U.S.C. § 1983 derivative civil rights actions in tax assessment cases. 3-5.3

Civil Rights Liability of Municipalities and School Districts for the Illegal Acts of Assessment Boards

The Commonwealth Court, on remand from the Pennsylvania Supreme Court, clarified the issue of liability for spot assessment actions under derivative federal civil rights law in Murtagh, 659 A.2d 1083, in 1995. The taxpayers in the case challenged a purported policy that reassessed recently purchased properties at their fair market value, leading to higher assessments than those on other comparable longer-held neighboring properties. The taxpayers alleged that Berks County and its assessment appeals board violated their rights under 42 U.S.C. § 1983.

49

Assessment Appeal Hearing and Procedures

The defendants filed preliminary objections on the basis that the plaintiffs had failed to implead in excess of 100 boroughs, townships, and school districts. The trial court sustained these objections and ordered the plaintiffs to file amended complaints joining all the necessary municipalities and school districts. Subsequently, the municipalities and school districts filed preliminary objections to the amended complaints on the basis that they failed to state a cause of action against the local governments for violating the civil rights of the plaintiffs. The lower court dismissed these objections on the grounds that, while the municipalities and school districts did not participate in the spot assessments, they were recipients of the increased tax revenue. The Commonwealth Court reversed this finding and held that the local governments did not violate section 1983. The court first looked at the statute in question, which states: Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress. The operative question was what conduct, if any, the townships, boroughs, and school districts engaged in that was prohibited under section 1983. The county and assessment appeals board had argued that if the local governments were dismissed from the case, the county might be liable to pay money that the local governments collected and spent. Further, the county and board had argued that the local governments, by approving budgets based on the alleged spot assessment increases, were participating in the board’s claimed constitutional violations. The appellate court rejected these arguments on the premise that only the Berks County Board of Assessment Appeals, an agency of the county, had the power to set, administer, and supervise the assessment system. The court stated: The County and the Board argue that the Local Governments possess the final policymaking authority with regard to property assessments based on the notion that the General Assembly has delegated that authority to the Board and the County on behalf of the Local Governments. We disagree. Clearly, the provisions of the [General County Assessment Law] and [Third Class County Assessment Law] reveal that the General Assembly, by legislative enactment, has granted directly to the Board and the County the authority to make municipal 50

3-5.3

policy with respect to the supervision and method of real property assessments levied by the Local Governments. While the Local Governments do have a choice as to whether to levy their taxes based on county assessments, they elect to do so without also being the official governmental body responsible for establishing the supervision or method of assessment. Under the [Third Class County Assessment Law], each local government entity, as a taxing district, is provided with the value of the assessments by the board. Although the value of that assessment may be challenged and appealed to the board by the Local Governments as taxing districts, it is the Board and not the Local Governments, which has the final determination, subject to further court appeal, as to the value of any assessment of real property. Therefore, the trial court’s determination that the Local Governments can be held liable under section 1983 because they accepted the Board’s actions without question and made no effort to require the Board to change its policy is incorrect. By virtue of the fact that the Board and the County are responsible for making and setting the policy as to the manner and method of assessments to be utilized, only the Board’s and the County’s decisions in this area of governmental business can provide a basis for municipal liability. Plainly stated, the decisions of the Board and the County to act unlawfully are not the decisions of the Local Governments when it comes to the supervision or method of assessing real property in the County. Murtagh, 659 A.2d at 1089. The holding in this case directly relates to liability under 42 U.S.C. § 1983 and exonerates local governments for claimed violations of taxpayers’ federal civil rights when they close their eyes and ignore alleged illegality and constitutional trespass by the assessment appeals boards. The court’s decision requires county officials to place increased scrutiny upon many of the assessment practices of their respective appeals boards that cross the line of constitutional trespass. The Murtagh decision not only places liability on the county coffers for these violations, but makes the county potentially liable for revenue collected by municipalities and school districts due to illegal assessment practices. In Berman Properties, Inc. v. Delaware County Board of Assessment & Appeals, 658 A.2d 492 (Pa.Cmwlth. 1995), the Commonwealth Court explored the scope of municipal liability for an assessment appeals board’s spot assessment practices. In this case, Berman Properties, Inc., bought an apartment complex in Delaware County in January 1988 and subsequently converted all the units to one- and two-bedroom condominiums. 51

Assessment Appeal Hearing and Procedures

The county’s assessment appeals board reassessed 157 of 188 units after the sale of the first renovated unit in 1988. Berman filed a 42 U.S.C. § 1983 derivative civil rights action in state court against the county, the board, a township, and a school district. The township and school district filed motions for summary judgment and/or a compulsory nonsuit, arguing that they had not engaged in any of the actions that allegedly harmed Berman. The court of common pleas granted the motion and removed the township and school district from the case. Berman then appealed to the Commonwealth Court. The appellate court sustained the lower court and held that there were insufficient facts in the record to show that the township or school district had participated in any of the board’s allegedly illegal conduct. The standard for a compulsory nonsuit to lie is when, after the plaintiff is given the benefit of every fact and reasonable inference arising from the evidence, and all conflicts in the evidence are resolved in favor of the plaintiff, there is still an absence of liability. See McKenzie v. Cost Bros., Inc., 409 A.2d 362 (Pa. 1979). The court held: The trial court’s later opinion in support of its order noted that Berman’s Counts I through IV do not identify the Township or the District as parties responsible for the injuries claimed and that, in a County of the Second Class A such as is involved here, the power to conduct assessments lies in the Board of Assessment Appeals under the Assessment Law. The Township and the District lack the power to influence policies with respect to assessments or reassessments; hence Berman could not be afforded equitable relief against them. Berman, 658 A.2d at 494. This case is unique on its own facts but does buttress the Murtagh decision in regard to liability of municipalities and school districts when brought into civil rights actions stemming from alleged illegal acts of assessment appeals boards. The one issue that has not been resolved is the liability of municipalities and school districts to refund taxes overpaid by taxpayers due to the illegal conduct and/or actions of the boards. Can they keep the money they were not legitimately entitled to, or must they refund it to the individuals who were bilked by the actions of the assessment boards? In light of the most recent Murtagh case, this issue may be rendered moot. 3-5.4

Civil Rights Challenges to Assessment Methods in Fourth to Eighth Class Counties

The Commonwealth Court in Jordan v. Fayette County Board of Assessment Appeals, 782 A.2d 642 (Pa.Cmwlth. 2001), considered the applicability of derivative federal civil actions in state courts in fourth to eighth 52

3-5.4

class counties. In this case, taxpayers sued the county commissioners, the assessment appeals board, and the county’s chief assessor. The class-action complaint alleged that the board used different assessment methods for properties purchased or improved since the mid-1970s than for other properties, causing the owners of recently purchased or improved properties to pay a disproportionate share of property taxes. The taxpayers did not initiate the action with the board, but filed directly in court under the equal protection clause of the Fourteenth Amendment to the U.S. Constitution, 42 U.S.C. § 1983, and the uniformity clause of the Pennsylvania Constitution. The trial court sustained the defendants’ preliminary objections and dismissed the suit for lack of subject matter jurisdiction. The Commonwealth Court addressed two issues: (1) whether the Fourth to Eighth Class County Code provides adequate remedies under state law and precludes the federal challenges under the doctrine of comity and (2) whether the challenge under the Pennsylvania Constitution should be denied because the taxpayers did not exhaust their administrative remedies. The appellate court found that the U.S. Supreme Court’s decision in National Private Truck Council, 515 U.S. 582, as followed in Pennsylvania by Murtagh, 715 A.2d 548, applied to this case and held that the taxpayers had an adequate remedy at law under the Pennsylvania statutes. The taxpayers had contended that since the anti–spot assessment statute, 72 P.S. § 5348.1 (now repealed), did not apply in fourth to eighth class counties, there was no adequate remedy at law to secure refunds for the alleged harm done, and therefore, this class was distinguishable from Murtagh, which dealt with issues in Berks County, a third class county where section 5348.1 was applicable. The court disposed of this argument and stated: Notably, our decision in Murtagh made no mention of the spot reassessment provision of [the Third Class County Assessment Law] which specifically entitles a property owner to a refund of excess tax payments where the board finds that the owner has been subjected to a spot reassessment. Nevertheless, we note that taxpayers are not without recourse for overpayment of taxes. If taxpayers’ appeal is found meritorious, the board is empowered by the [General County Assessment Law] to “grant such relief as to them shall appear just and reasonable.” 72 P.S. § 5020-511. Additionally, Section 703.3 of [the Fourth to Eighth Class County Assessment Law] provides that “whenever through mathematical or clerical error an assessment is made more than it should have been, and taxes are paid on such incorrect assessment, the board, upon discovery of such error and correction of the assessment shall so inform the appropriate taxing district or districts, which shall make a refund to the taxpayers or taxpayers for a period not in 53

Assessment Appeal Hearing and Procedures

excess of six years from the date of the application for refund or discovery of such error by the board.” 72 P.S. § 5453.703c. Finally, under Section 1 of the Act of May 21, 1943, P.L. 349, as amended, 72 P.S. § 5566b, where a taxpayer has paid taxes to which a political division is not entitled, and no other remedy exists, the taxpayer may file a claim for refund of the payment. 72 P.S. § 5566b(a). Upon the filing of such a claim, the political subdivision must refund the taxes to which it is not legally entitled. 72 P.S. § 5566b(b). We conclude that these statutory remedies adequately address taxpayers’ interest in obtaining redress for the payment of excess taxes, and therefore, that the trial court properly sustained the preliminary objection to taxpayers’ Section 1983 claim. Jordan, 782 A.2d at 645. The court found that the taxpayers’ stated claim had to be dismissed because they did not begin the legal process at the assessment appeals board and therefore did not exhaust their state administrative remedies. The court cited Rochester & Pittsburgh Coal Co. v. Indiana County Board of Assessment & Revision of Taxes, 266 A.2d 78 (Pa. 1970), and Shenango Valley Osteopathic Hospital v. Department of Health, 451 A.2d 434 (Pa. 1982), for the proposition that administrative remedies must be exhausted when there is a constitutional attack on the application of a tax. This is in contrast with the decision in Borough of Greentree, 328 A.2d 819, which allowed deliberate bypass of administrative remedies where the issue is the constitutionality of the tax itself. Therefore, the general rule is that challenges to the legality of the tax may be initiated in the courts, but, with challenges to the application of the tax, administrative remedies must be exhausted before taking an action to court. Also, Jordan and the other cases discussed above make clear that if an adequate state remedy exists, there is no cause of action under 42 U.S.C. § 1983 in tax matters. 3-6 3-6.1

Court Intervention in Tax Assessment Cases Equitable Relief in Tax Assessment Cases

The Pennsylvania Supreme Court has long held that equity has no jurisdiction where the complaint is overassessment. In Dougherty v. City of Philadelphia, 171 A. 583, 584 (Pa. 1934), the court stated: Equity has jurisdiction to restrain attempted taxation for total want of power to tax: White v. Smith, 189 Pa. 222, 42 A. 125; Barnes Foundation v. Keeley, Receiver of Taxes et al., 314 Pa. 112; American Sunday-School Union v. Phila., 161 Pa. 307, 29 A. 26; Miller v. Northampton Co., 307 Pa. 550, 558, 162 A. 209. But, where the power to tax appears, and the complaint is 54

3-6.1

over-assessment, or, inadequate exemption, the remedy is by appeal to the common pleas from the action of the board of revision. U. of P. Christian Assn. v. Phila., 75 Pa. Superior Ct. 516; Phila. v. Kolb, 288 Pa. 359, 136 A. 239; Miller v. Northampton Co., supra. Twenty years later, the court followed the Dougherty decision with approval in Pittsburgh Public Parking Authority v. Board of Property Assessment, Appeals & Review of Allegheny County, 105 A.2d 165 (Pa. 1954). There, the court addressed equitable jurisdiction in tax assessment cases and stated: Where a property owner denies the power to levy a tax on his property equity affords the remedy, but where there is merely an over-assessment [or] inadequate exemption the sole remedy is by appeal from the assessment as provided by statute: Dougherty v. Philadelphia, 314 Pa. 298, 301, 171 [A.] 583; First Baptist Church of Pittsburgh v. Pittsburgh, 341 Pa. 568, 574, 20 A.2d 209, 212; Kittanning Borough v. Armstrong County, 347 Pa. 108, 109, 110, 31 A.2d 710, 711; Wynnefield United Presbyterian Church v. City of Philadelphia, 348 Pa. 252, 253, 35 A.2d 276, 277. Id. at 169–70. In Rochester & Pittsburgh Coal Co., 266 A.2d 78, the Pennsylvania Supreme Court examined specific issue of the applicability of equitable jurisdiction to a tax assessment case. Here, Rochester & Pittsburgh Coal Co. brought an action in equity to enjoin the application of a revised method of taxation by the Indiana County assessment board. The company contended that the classifications and the rates applied under the tax method violated the equal protection and uniformity clauses of the state constitution and the Fourth to Eighth Class County Assessment Law. The board filed preliminary objections arguing that the company had an adequate remedy at law. The trial court sustained the objections and dismissed the case. The Supreme Court stated: To support its contention that equity has jurisdiction in this matter, appellant cites Lynch v. O.J. Roberts School District, 430 Pa. 461, 244 A.2d 1 (1968); Studio Theaters, Inc. v. Washington, 418 Pa. 73, 209 A.2d 802 (1965), and Young Men’s Christian Association v. Reading, 402 Pa. 592, 167 A.2d 469 (1961). In Y.M.C.A. we did state (402 Pa. 598), that “absent a challenge to the constitutionality of a statute or of official action thereunder, equity has no jurisdiction to restrain the collection of taxes” and that the complaint should be dismissed because of the absence of such an allegation. Appellant argues that the presence of an allegation of unconstitutionality in its 55

Assessment Appeal Hearing and Procedures

complaint cures the defect this court emphasized in Y.M.C.A. That decision, however, does not state that a mere allegation of unconstitutionality is sufficient to confer jurisdiction on a court of equity. It only states in a negative way one set of circumstances in which equity does not have jurisdiction. In a positive sense, what is required to confer jurisdiction on an equity court is the existence of a substantial question of constitutionality (and not a mere allegation) and the absence of an adequate statutory remedy. Appellant contends that Lynch and Studio Theaters hold that equity has jurisdiction even if a specific statutory remedy exists. Neither of those cases, however, involved a real estate tax as this one does. In the real estate tax area most of the grave constitutional questions have already been decided, and most of the actions, including this one, question not the underlying statute but rather its application. In such a situation, the administrative body which has responsibility for applying the statute on a day-by-day basis should have the first opportunity of studying and ruling on any new application. It may well be that all problems will be worked out at that stage, and neither party will be required to resort to the judicial system. Id. at 79. In Lilian v. Commonwealth, 311 A.2d 368 (Pa.Cmwlth. 1973), the Commonwealth Court examined the issue of an adequate statutory remedy preventing equitable jurisdiction. In this case, the plaintiffs filed a complaint in equity against the Commonwealth and the secretary of revenue to compel an accounting and to pay to the plaintiffs and the class they allegedly represented a certain portion of the state sales tax attributable to the federal manufacturers’ excise tax. The Commonwealth filed preliminary objections arguing that the court was without jurisdiction to entertain this action in equity. The court sustained the objections and dismissed the case, stating: In Rochester & Pittsburgh Coal Co. v. Indiana Board of Assessment & Revision of Taxes, 438 Pa. 506, 508, 266 A.2d 78, 79 (1970) our Supreme Court delineated the prerequisites of equity jurisdiction in cases involving actions by taxing authorities: “In a positive sense, what is required to confer jurisdiction on an equity court is the existence of a substantial question of constitutionality (and not a mere allegation) and the absence of an adequate statutory remedy” (Emphasis supplied.) See also Allegheny County, Southern District Tax Assessment Appeals, 7 Pa. Commonwealth Ct. 291, 298 A.2d 643 (1972). Although Plaintiffs fail to allege a constitutional question, and 56

3-6.1

thus do not satisfy the first jurisdictional requirement enunciated in Rochester & Pittsburgh Coal Co., we base our dismissal of the Complaint on a finding that Sections 252 to 255 of the Tax Reform Code of 1971 provide Plaintiffs with an adequate and complete remedy at law. *

*

*

In considering the adequacy of this statutory remedy, we start with the proposition, well established under Pennsylvania law, that a refund of taxes voluntarily paid is a matter of legislative grace. Universal Film Exchanges, Inc. v. Board of Finance and Revenue, 409 Pa. 180, 185 A.2d 542 (1961); Longstreth, et al. v. Kane and Sloan, 3 Pa. Commonwealth Ct. 311 (1971). And where such refund has been statutorily authorized, strict compliance with the procedures so established is required. Box Office Pictures, Inc. v. Board of Finance and Revenue, 402 Pa. 511, 166 A.2d 656 (1961); Land Holding Corp. v. Board of Finance and Revenue, 388 Pa. 61, 130 A.2d 700 (1957); Statutory Construction Act of Dec. 6, 1972, P.L. ___ (Act No. 290) 1 P.S. § 1504. Id. at 93. The Commonwealth Court followed the precedent set in Lilian in Aldine Apartments, Inc. v. Commonwealth, 379 A.2d 333 (Pa.Cmwlth. 1977), stating: Respondent, Department of Revenue, argues that our decision in Lilian v. Commonwealth, 11 Pa. Cmwlth. 90, 311 A.2d 368 (1973), aff’d, 467 Pa. 15, 354 A.2d 250 (1976), is controlling as to its preliminary objections regarding jurisdiction of a court of equity. We agree. In Lilian v. Commonwealth, supra, we sustained the Commonwealth’s preliminary objections to a class action in equity filed to compel refund of disputed payments of Pennsylvania sales tax. Citing Rochester & Pittsburgh Coal Co. v. Indiana County Board of Assessment & Revision of Taxes, 438 Pa. 506, 266 A.2d 78 (1970), we stated that the prerequisites of equity jurisdiction in cases involving actions against taxing authorities are “ ‘. . . the existence of a substantial question of constitutionality (and not a mere allegation) and the absence of an adequate statutory remedy.’ ” Lilian v. Commonwealth, supra at 92, 311 A.2d at 369 (emphasis in original). We based our holding in Lilian on the fact that “Sections 252 to 255 of the Tax Reform Code of 1971 provide Plaintiffs with an adequate and complete remedy at law.” Lilian v. Commonwealth, supra at 92, 311 A.2d at 369.

57

Assessment Appeal Hearing and Procedures

Likewise, in the case at bar, petitioners have available to them the statutory refund procedure set forth in Sections 252, 253, 254 and 255 of the Code, 72 P.S. §§ 7252–7255. Petitioners’ argument that “[i]t is a vain and futile act to pursue the administrative and statutory procedures set forth in the Tax Reform Code of 1971 and pursuing such procedures serves no useful purposes except to delay the resolution of Petitioners’ claims” is totally without merit. Indeed, the named petitioners, notwithstanding their asserted class action on behalf of all taxpayers similarly situated, have each pursued the statutory refund procedure, and appeals by each of them are presently pending in this Court from adverse determinations by the Board of Finance and Revenue. In pursuing this statutory refund procedure and by attempting to maintain this suit at the same time, not only petitioners’ qualifications to maintain a class suit placed in grave doubt but their actions belie their assertion that the remedy at law is inadequate. Id. at 335. In Borough of Greentree, 328 A.2d 819, the borough and several residential taxpayers filed a complaint in equity against the Allegheny County assessment appeals board, challenging the constitutionality of the Second Class County Assessment Law, 72 P.S. § 5452.1 et seq. The statute mandated the division of the county into three districts for purposes of alternating triennial assessments. The plaintiffs claimed that this system violated the uniformity clause of the Pennsylvania Constitution and the equal protection clause of the U.S. Constitution. The salient issue was whether an equitable plaintiff must use the statutory appeal remedy contained in 72 P.S. § 5452.11. The Pennsylvania Supreme Court drew a clear and definitive line between cases challenging the constitutionality of the underlying statutory authority to tax and cases challenging the mechanics and application of the assessment process. The court said that precedent in the Commonwealth had always been that equitable jurisdiction does not lie where the attack is on the application and mechanics of the assessment. The court stated: The approach customarily taken by this Court in the past, when faced with a question such as the one before us today, has been to require litigants to conform with the desires of the legislature by following the statutorily-prescribed route of appeal. We have, however, at the same time recognized that the above rule is not to be unthinkingly applied, but rather that exception will be made where the statutory remedy is pointless or inadequate. Rochester, supra; Studio Theatres, Inc. v. City of [Washington], supra, 418 Pa. at 79, 209 A.2d at 58

3-6.1

805–806 (“Whether a court of equity, having such jurisdiction to act, should act] in view of the presence of an adequate remedy at law or for some other valid reason is another matter altogether”); Bliss Excavating Co. v. Luzerne County, 418 Pa. 446, 451, 211 A.2d 532, 535 (1965) (“The statutory procedure need not be followed only if is inadequate to the task of resolving plaintiffs’ objections or its pursuit will cause them irreparable harm”); (“Equity will afford relief if the statutory remedy is inadequate or its pursuit would work irreparable harm”); Philadelphia Life Ins. Co. v. Commonwealth, 410 Pa. 571, 580, 581, 190 A.2d 111, 116 (1963) (“the remedy must be adequate and complete”; it is not adequate “Where a challenge is made not to the mechanics of tax calculations but to the power of the legislature to levy any tax . . .”; Y.M.C.A. v. Reading, 402 Pa. 592, 595, 167 A.2d 469, 471 (1961), (“The efficacy of the rule that a statutory remedy must be pursued, if one exists, is hardly questionable.”) Our approach has been, in effect, a flexible one, such as that advocated by Prof. Jaffe: “Where the administrative process has nothing to contribute to the decision of the issue and there are no special reasons for postponing its immediate decision, exhaustion should not be required.” L. Jaffe, Judicial Control of Administrative Action 440 (1965). Id. at 824. The court allowed equitable jurisdiction to attach because the equitable plaintiffs were suing on the basis of a violation of their constitutional rights due to the legislative enactment. The court stated: Appellants have made here a frontal attack on the constitutionality of section 7 of the Second Class County Assessment Law, 72 P.S. § 5452.7, alleging that the statute authorizes the division of Allegheny County into three triennial districts (it plainly does), and that such a division violates the Pennsylvania and U.S. Constitutions. Id. at 825. In Consolidated Gas Supply Corp. v. County of Clinton, 470 A.2d 1113 (Pa.Cmwlth. 1984), the Commonwealth Court delineated the jurisdiction of law versus that of equity in a tax assessment situation. Here, the appellant leased real estate that was used to store natural gas. The company received a real estate revaluation notice indicating that the property had been reassessed as real property as of January 1, 1982. The appellant then filed a complaint in equity asking the court to preliminarily enjoin the assessment board from making an assessment or valuation of appellant’s leasehold interest. The complaint alleged that the board lacked the authority to assess the appellant’s interests because they were personalty, 59

Assessment Appeal Hearing and Procedures

not real estate, and that such assessment violated the uniformity clause of the Pennsylvania Constitution and the equal protection clause of the U.S. Constitution. The board filed preliminary objections challenging jurisdiction, arguing that the assessment law provided an adequate remedy at law. The common pleas court dismissed the complaint because the appellant failed to satisfy the two elements established in Borough of Greentree, 328 A.2d 819, to confer equitable jurisdiction: The appellant did not make a direct constitutional attack on the tax statute or show that a statutorily created remedy, if one existed, was inadequate. The Commonwealth Court affirmed and stated: In Shenango Valley Osteopathic v. Department of Health, 499 Pa. 39, 48, 451 A.2d 434, 438 (1982), our Supreme Court noted that the Borough of Green Tree test for equitable jurisdiction is whether there are “both a substantial question of constitutionality and the absence of an adequate statutory remedy.” While we agree with Appellant that the common pleas court should have used the “substantial constitutional question” language as the first prong of the test, we are of the opinion that Appellant has not raised a substantial constitutional question. Appellant has not challenged the constitutionality of the tax statute authorizing the reassessment; rather, Appellant attacked the application of the statute, that is, whether the Board of Assessment Appeals (Board) properly categorized the leasehold interests as realty. When a constitutional attack is brought against the application of a tax statute, the board is the proper authority to hear the challenge. Rochester & Pittsburgh Coal Co. v. Board of Assessment, 438 Pa. 506, 266 A.2d 78 (1970). Appellants also failed to show absence of an adequate statutory remedy. Section 701 of the Act, 72 P.S. 5453.701(b) specifically provides that “any person aggrieved by any assessment whether or not the value thereof shall have been changed since the preceding annual assessment, or any taxing district having an interest therein may appeal to the board for relief.” It is clear from this section that Appellant had a statutorilyprescribed remedy and should have brought its appeal to the Board. Appellant further alleges that the appeal process of Section 701 of the Act was inadequate because Appellant will incur a financial burden preparing for the hearing and because the Board has no authority to hear its challenge. As previously stated, the Board was the proper authority to hear the Appellant’s appeal and we do not find that Appellant’s financial bur-

60

3-6.2

den renders the statutorily-provided remedies of Section 701 inadequate. Consolidated Gas, 470 A.2d at 1114–15. The court’s decision reaffirms the proposition that equity has no jurisdiction in a tax assessment case where the attack is upon the mechanics and application of the assessment process and holds that mere financial expenditure is not synonymous with a lack of an adequate remedy at law. Therefore, no equitable remedy or relief exists in a tax assessment case. 3-6.2

Writs of Prohibition

Under Pennsylvania law, a court may enter a writ of prohibition to stop an inferior tribunal from exercising jurisdiction it does not possess or from taking some action that constitutes an abuse of its jurisdiction. Commonwealth v. Mullen, 333 A.2d 755 (Pa. 1975). See, generally, 18 Standard Pennsylvania Practice 2d § 100:3 (1983) (“The general rule is that prohibition does not lie where the inferior tribunal has jurisdiction over the proceeding which is sought to be restrained. Moreover, if the inferior tribunal has jurisdiction over the proceeding before it, prohibition does not lie to correct an error made in the proceeding, no matter how gross the error is.”). The Pennsylvania Supreme Court explained in Akron v. Pennsylvania Public Utility Commission, 310 A.2d 271 (Pa. 1973), that a writ of prohibition is an exceptional remedy and should be granted only when a failure to restrain an inferior tribunal from proceeding will undoubtedly foreclose the objecting party from raising its objections in the future: The writ of prohibition is one which, like all other prerogative writs, is to be used only with great caution and forbearance and as an extraordinary remedy in cases of extreme necessity, to secure order and regularity in judicial proceedings if none of the ordinary remedies provided by law is applicable or adequate to afford relief. It is a writ which is not of absolute right but rests largely in the sound discretion of the court. It will never be granted where there is a complete and effective remedy by appeal, certiorari, writ of error, injunction, or otherwise. Id. at 274 (quoting Carpentertown Coal & Coke Co. v. Laird, 61 A.2d 426, 430 (Pa. 1948)). Prohibition is appropriate only when the tribunal that is sought to be restrained has absolutely no power or authority to deal with the subject matter that has been brought before it. The Pennsylvania Supreme Court has explained further that the purpose of a writ of prohibition is not to correct a court’s errors or irregularities, which are often simply grounds for additional review on appeal. Spykerman v. Levy, 421 A.2d 641 (Pa. 1980). See also Reading Anthracite Co. v. Rich, 577 A.2d 881, 886 (Pa. 1990)

61

Assessment Appeal Hearing and Procedures

(“Where relief may be sought through ordinary avenues of judicial review, the writ [of prohibition] is not appropriate”). As a general rule, the Pennsylvania Supreme Court has original jurisdiction to grant writs of prohibition in the Commonwealth. 42 Pa.C.S. § 721. See also 18 Standard Pennsylvania Practice 2d § 100:8. The Superior Court and Commonwealth Court also have authority to entertain petitions for writs of prohibition “where such relief is ancillary to matters within [their] appellate jurisdiction.” 42 Pa.C.S. § 741 (Superior Court); 42 Pa.C.S. § 761 (Commonwealth Court). An appeal must be pending in those courts before they can exercise jurisdiction to grant a writ of prohibition, and they cannot entertain petitions for writs of prohibition on the basis that the matter to be restrained could eventually be appealed to those courts. See, generally, Municipal Publ’ns, Inc. v. Court of Common Pleas, 489 A.2d 1286 (Pa. 1985) (discussing Superior Court); Columbia Gas of Pa., Inc. v. Pennsylvania Pub. Util. Comm’n, 521 A.2d 105 (Pa.Cmwlth. 1987) (discussing Commonwealth Court). 3-6.3

Collateral Estoppel and Tax Assessment Appeals

Hershey’s Mill Homeowners Association v. Chester County, 862 A.2d 146 (Pa.Cmwlth. 2004), the court addressed collateral estoppel in tax assessment cases. Here, the homeowners association for an age-restricted country club community with 1,500 homes appealed the issue of whether its golf course was a “common facility” exempt from taxation under the Uniform Planned Community Act, 68 Pa.C.S. § 5105(b)(1). The homeowners association had originally appealed the $2.5 million assessment of the golf course for tax years 1998 and 1999 and the reassessment of the course at $4.275 million. The homeowners association argued that the value of the golf course should not have been assessed because it does not have independent economic value from the rest of the property. The trial court ruled that the golf course was not “common” or “controlled” and must be separately assessed. The homeowners association appealed to the Commonwealth Court, which affirmed. Hershey’s Mill Homeowners Ass’n v. Chester County Bd. of Assessment Appeals, 764 A.2d 1153 (Pa.Cmwlth. 2000). The homeowners association then appealed the $4.275 million assessment for tax year 1999, as well as the years 2000 through 2003, making the same argument for exemption. The homeowners association argued that the law had changed due to Saw Creek Estates Community Ass’n, Inc. v. County of Pike, 808 A.2d 322 (Pa.Cmwlth. 2002), which held that a restaurant and a real estate office, operated in two buildings owned by a housing development association, were tax-exempt “common facilities.” The lower court denied the appeal, ruling that the doctrine of collateral estoppel prevented the taxpayer from relitigating the issue and that Saw Creek did not change the law in this area.

62

3-6.3

On appeal, the Commonwealth Court held: The question of whether collateral estoppel applies to prevent a party from relitigating an issue previously decided when 1) the law may have changed and 2) when additional tax years are involved that were not involved in the previous litigation was discussed at length in Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 92 L. Ed. 898, 68 S. Ct. 715 (1948), a case involving personal income tax liability. The Supreme Court first addressed the difference between the doctrines of res judicata and collateral estoppel, explaining that res judicata applied to repetitious suits involving the same cause of action, stating that once the court had entered a final judgment on the merits, the parties were bound by that decision. “The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment.” Id. at 597. The Court continued to explain: But where the second action between the same parties is upon a different cause or demand, the principle of res judicata is applied much more narrowly. In this situation, the judgment in the prior action operates as an estoppel, not as to matters which might have been litigated and determined, but “only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered.” (Citations omitted.) Since the cause of action involved in the second proceeding is not swallowed by the judgment in the prior suit, the parties are free to litigate points which were not at issue in the first proceeding, even though such points might have been tendered and decided at that time. But matters which were actually litigated and determined in the first proceeding cannot be relitigated. Once a party has fought out a matter in litigation with the other party, he cannot later renew that duel. In this sense, res judicata is usually and more accurately referred to as estoppel by judgment, or collateral estoppel. Id. at 597–598. Applying these concepts to the field of taxation, the Court began by stating that each tax year was the “origin of a new liability and of a separate cause of action,” Id. at 598, because income taxes were levied annually. It then explained that if a claim of non-liability regarding a specific tax year was litigated, a judgment on the merits was res judicata as to a subsequent proceeding involving the same claim and the same 63

Assessment Appeal Hearing and Procedures

tax year. However, if the subsequent proceeding involved a similar or different claim regarding a different tax year, the prior judgment would only act to collaterally estop those matters in the second proceeding that were actually presented in the first suit. However, recognizing that a change in the laws could have a deleterious effect on taxpayers, consequences not intended by the principles of collateral estoppel, the Court noted that a “subsequent modification of the significant facts or a change or development in the controlling legal principles may make [a previous determination] obsolete or erroneous, at least for future purposes. If such a determination is then perpetuated each succeeding year as to the taxpayer involved in the original litigation, he is accorded a tax treatment different from that given to other taxpayers of the same class. As a result, there are inequalities in the administration of the revenue laws, discriminatory distinctions in tax liability and a fertile basis for litigious confusion.” Id. at 599. The Court went on to state: And so where two cases involve income taxes in different taxable years, collateral estoppel must be used with its limitations carefully in mind so as to avoid injustice. It must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged. (Citations omitted.) If the legal matters determined in the earlier case differ from those raised in the second case, collateral estoppel has no bearing on the situation . . . As demonstrated by Blair v. Commissioner, 300 U.S. 5, 9, 81 L. Ed. 465, 57 S. Ct. 330, 1937-1 C.B. 175, a judicial declaration intervening between the two proceedings may so change the legal atmosphere as to render the rule of collateral estoppel inapplicable . . . In either event, the supervening decision cannot justly be ignored by blind reliance upon the rule of collateral estoppel. Of course, where a question of fact essential to the judgment is actually litigated and determined in the first tax proceeding, the parties are bound by that determination in a subsequent proceeding even though the cause of action is different. (Citations omitted). And if the very same facts and no others are involved in the second case, a case relating to a different tax year, the prior judgment will be con-

64

3-6.4

clusive as to the same legal issues which appear, assuming no intervening doctrinal change. Hershey’s Mill, 862 A.2d at 149–50 (emphasis in original). The court found that collateral estoppel barred the appeals of the 2000–2003 assessments and that there had been no change in law. This case could have significant ramifications in the area of tax exemption appeals because the evidence concerning one tax year is very similar to the next. Can a county remove a tax exemption during a revaluation year and not be subject to collateral estoppel, where there has been no significant change of facts since the time the original exemption had been granted? The application of this doctrine to exemptions could be a stretch, but based on Hershey’s Mill, it could be raised. It will not have any application to value cases because property value must be redetermined each year pursuant to statute. 3-6.4

Nunc Pro Tunc Petitions for Appeal

An action nunc pro tunc is an equitable device that allows a court to consider cases when the equities require special consideration beyond the bounds of a limiting statute. The phrase “nunc pro tunc” means “now for then” and is applied to acts allowed to be performed after the time they should have been done with the same effect as if they had been performed originally. The assessment law’s time limit for filing an appeal is mandatory, and generally, judicial extensions of a limitations period will not be granted. Appeal of Cedarbrook Realty, Inc., 395 A.2d 613 (Pa.Cmwlth. 1978). A petition for appeal nunc pro tunc may be granted, however, when extraordinary circumstances involving fraud or its equivalent, duress, or coercion have delayed the filing of an appeal. Sewickley Valley Hosp. v. Deparment of Pub. Welfare, 550 A.2d 1351 (Pa.Cmwlth. 1988); Academy Plaza Assocs., Ltd. v. Board of Revision of Taxes of City of Philadelphia, 503 A.2d 1101 (Pa.Cmwlth. 1986). Moreover, for appeal purposes, an administrative official’s negligence may be deemed the equivalent of fraud, and the wrong thus committed may be corrected by means of a petition for appeal nunc pro tunc filed within a reasonable time. See Connor v. Westmoreland County Bd. of Assessment Appeal, 598 A.2d 610 (Pa.Cmwlth. 1991). The burden to prove a public official’s negligence or fraud is upon the taxpayer. Appeals nunc pro tunc are appropriate in light of an administrative agency’s negligence or fraud because actions that impair a citizen’s ability to appeal violate that person’s constitutional rights. To justify relief nunc pro tunc, the public official’s conduct need only be misleading and have the effect equivalent to fraud. The conduct need not be proven to have been intentionally or actually fraudulent. See Miller, 570 A.2d 1386. The Commonwealth Court in Academy Plaza Associates, 503 A.2d 1101, addressed whether a court could extend the time period for filing ap65

Assessment Appeal Hearing and Procedures

plications for tax exemptions and whether the notice given to the taxpayer of the right to seek tax exemption satisfied procedural due process requirements. The appellant, Academy Plaza Associates, was issued a building permit on November 18, 1983. On July 27, 1984, it filed for a tax exemption. The Philadelphia Board of Revision of Taxes denied the application as untimely. Academy Plaza then filed a petition with the common pleas court for permission to file an application for exemption nunc pro tunc. The court denied permission, and the Commonwealth Court affirmed. The court dealt with the timeliness issue by stating: A court may not extend the time period within which an applicant may ask for an exemption by permitting a petition nunc pro tunc absent a showing of fraud or its equivalent, except in some very unique and exceptional instances. Philadelphia v. Rohm & Haas Co., 5 Pa. Commonwealth Ct. 287, 290 A.2d 428 (1972); Yatzor v. Washington Township Commissioners, 2 Pa. Commonwealth Ct. 614, 280 A.2d 130 (1971). Timeliness of such a request goes to jurisdiction and affects the competency of the appellate court to act. The court has no jurisdiction to set back and to resurrect the question of an exemption. In Re: Petition of Mausoleum Construction Co., 55 Pa. Commonwealth Ct. 504, 423 A.2d 809 (1980). Furthermore, where the applicant has failed to voice his objection to the failure to grant an exemption within the proper time, he must be deemed to have waived all right to assert any constitutional objections which might have afforded him protection had he chosen to invoke it at the proper time. Wilson v. Philadelphia School District, 328 Pa. 225, 195 A. 90 (1937). Id. at 1102–03. The court then explored Academy Plaza’s due process claim. The appellant argued that the board did not adequately inform it of its right to claim an exemption from taxation. The court stated: The notice on the application was clear and had the appellant simply contacted the Board of Revision of Taxes [it] would have been adequately informed of the necessary information pertaining to [its] claim for an exemption. It is the burden of the taxpayer when he seeks an exemption to make an application to the Board of Revision of Taxes. Four Freedoms House, Inc. v. City of Philadelphia, 443 Pa. 215, 279 A.2d 155 (1971). This burden does not offend due process procedurally since the municipality may reasonably regulate procedures under which

66

3-6.5

its laws are carried out. Speiser v. Randall, 357 U.S. 513 (1958). Id. at 1103. The Commonwealth Court repeated the often-stated proposition in assessment law that statutorily mandated filing deadlines are absolute, and only in the case of fraud or its equivalent, or in an exceptional factual situation, can those deadlines be extended. Further, the court found that this general proposition conforms with constitutional due process. 3-6.5

Nunc Pro Tunc Appeals and Mandatory Appeal Filing Dates

The Commonwealth Court in Hanoverian, Inc. v. Lehigh County Board of Assessment Appeals, 701 A.2d 288 (Pa.Cmwlth. 1997), dealt with whether a tax assessment nunc pro tunc should be permitted when the appealing taxpayer bought the property after the statutory dates for filing an assessment appeal had passed and the price paid for the property was grossly disproportionate to the assessed value. The appellant, Hanoverian, Inc., purchased the property at a judicial sale for a high bid of $500 on September 25, 1995. As of that date the property value was assessed at $7.9 million. In addition to the bid price, Hanoverian was required to pay realty transfer taxes of $158,771 based on the assessed value. Hanoverian attempted to challenge the accuracy of the tax assessment, but the deadlines for appealing the 1995 and 1996 assessments were September 1, 1994, and September 1, 1995, respectively. The appellant filed a petition for appeal nunc pro tunc to establish its right to file an untimely assessment appeal. The common pleas court denied the petition. In analyzing this issue on appeal, the Commonwealth Court explained the basic law in this area: When a statute fixes the time within which an appeal may be taken, a court may not extend that time period or allow an appeal nunc pro tunc absent a showing that extraordinary circumstances involving fraud or its equivalent, duress, or coercion caused the delay in filing an appeal. Connor [v. Westmoreland County Bd. of Assessment Appeal, 598 A.2d 610 (Pa.Cmwlth. 1991)]; Yatzor v. Showman, 2 Pa. Commw. 614, 280 A.2d 130 (Pa. Cmwlth. 1971). Courts have held, for appeal purposes, that negligence on the part of administrative officials may be deemed the equivalent of fraud. Connor; Sewickley Valley Hospital v. Department of Public Welfare, 121 Pa. Commw. 337, 550 A.2d 1351, 1353 (Pa. Cmwlth. 1988), petition for allowance of appeal denied, 524 Pa. 614, 569 A.2d 1372 (1989). Additionally, courts have held that an appeal nunc pro tunc may be granted in a unique case upon a showing 67

Assessment Appeal Hearing and Procedures

that unusual circumstances prevented a party from timely filing in order to prevent injustice. Philadelphia v. Rohm & Haas Company, 5 Pa. Commw. 73, 290 A.2d 428 (Pa. Cmwlth. 1972); Academy Plaza Associates, Ltd. v. Board of Revision of Taxes, 94 Pa. Commw. 517, 503 A.2d 1101 (Pa. Cmwlth. 1986). In the present case, there have been no allegations that fraud or its equivalent, duress, or coercion caused the delay in filing an appeal. Rather, Hanoverian argues that the fact that it subsequently acquired interest in the property after the appeal bar dates had passed for a purchase price that was substantially less than the assessment value constitutes a “unique and exceptional circumstance” and, therefore, contends that the trial court erred in refusing to grant Hanoverian an appeal nunc pro tunc. While we agree that petitions nunc pro tunc may be granted upon a showing of unique and exceptional circumstances in order to prevent injustice, we find that there is nothing so unique or exceptional about the circumstances herein to justify an appeal nunc pro tunc. Id. at 289 (emphasis in original). The Commonwealth Court made it abundantly clear that the statutory deadlines are mandatory and will be enforced. The mere fact that a party is overassessed is not sufficient to permit an appeal nunc pro tunc if that party for one reason or another did not file a statutorily mandated appeal. The deadlines are important for administrative reasons because once the assessment rolls are formulated, the municipalities and school districts must base their budgets upon the assessed values in their districts. If the assessment rolls could be changed throughout the year without regard to the deadline requirements, it would cause havoc with municipal budgeting and finance. Therefore, even where a taxpayer is clearly overassessed and cannot appeal for reasons beyond his or her control, the taxpayer will not be granted the retroactivity of a tax assessment appeal, but must wait until the next calendar year to appeal that assessment. The certainty of the assessment roll clearly is deemed to outweigh any injustice the individual taxpayer may suffer. 3-7

The Scope of Discovery as to Assessment Appeals Board Members

An important issue in assessment litigation is the discoverability, through interrogatories or depositions, of the deliberations and mental processes of assessment appeals board members when ruling on a request for a reduction. The county board of assessment appeals is a statutory creation authorized by 53 Pa.C.S. § 8801. Under 53 Pa.C.S. § 8844 a hearing before the 68

3-7

board is a nonrecord proceeding. A party aggrieved by a board decision has an automatic right to file a timely appeal to the county court of common pleas and have the issue heard de novo. The trial court’s function in an assessment case was outlined in Albarano v. Board of Assessment & Revision of Taxes & Appeals of Lycoming County, 494 A.2d 47, 48 (Pa.Cmwlth. 1985): Once the Board established the prima facie validity of its assessment by placing its assessment record into evidence, the burden then shifted to Appellants to produce sufficient competent, credible, and relevant evidence to overcome the assessment’s prima facie validity. See Deitch Co. v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965) . In In re Appeal of M.W. Kellogg Co., 492 A.2d 130 (Pa.Cmwlth. 1985), the Commonwealth Court expounded on this principle of tax assessment litigation and held: It is well established that the trial court is the fact finder in a tax assessment appeal, and all matters of credibility and evidentiary weight are within the province of the fact finder. Mellon Bank, N.A. Appeal, 78 Pa. Commonwealth Ct. 463, 467 A.2d 1201 (1983). The findings of the trial court must be given great force and will not be disturbed absent a showing of clear error. Id. The proper order of proof in a tax assessment appeal was set forth by the Pennsylvania Supreme Court in Deitch Co. v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965), and is as follows: The proceedings in the trial court are de novo and the proper order of proof in cases such as the present one has long been established. The procedure requires that the taxing authority first present its assessment record into evidence. Such presentation makes out a prima facie case for the validity of the assessment in the sense that it fixes the time when the burden of coming forward with evidence shifts to the taxpayer. If the taxpayer fails to respond with credible, relevant evidence, then the taxing body prevails. But once the taxpayer provides sufficient proof to overcome its initially allotted status, the prima facie significance of the Board’s assessment figure has served its procedural purpose, and its value as an evidentiary device is ended. . . . Of course, the taxing authority always has the right to rebut the owner’s evidence and in such a case the weight

69

Assessment Appeal Hearing and Procedures

to be given to all the evidence is always for the court to determine. Id. at 132 (emphasis in original). Now that the role of the court is established and the order of proof is set, the question becomes whether the mental impressions of an administrative official acting in a quasi-judicial capacity are subject to discovery. It is reasonable to conclude that the decisional process of an administrative agency must be free from public or private inquisition in order to protect the integrity of the administrative fact-finding process. A long line of federal and state case law has analyzed this proposition and consistently held that administrative fact-finding personnel are quasi-judicial officials and are immune from the discovery process. The U.S. Supreme Court articulated this position in an opinion written by Justice Felix Frankfurter in United States v. Morgan, 313 U.S. 409, 421–22 (1941): Over the Government’s objection, the district court authorized the market agencies to take the deposition of the Secretary [of Agriculture]. The Secretary thereupon appeared in person at the trial. He was questioned at length regarding the process by which he reached the conclusions of his order, including the manner and extent of his study of the record and his consultation with subordinates. His testimony shows that he dealt with the enormous record in a manner not unlike the practice of judges in similar situations, and that he held various conferences with the examiner who heard the evidence. Much was made of his disregard of a memorandum from one of his officials who, on reading the proposed order, urged considerations favorable to the market agencies. But the short of the business is that the Secretary should never have been subjected to this examination. The proceeding before the Secretary “has a quality resembling that of a judicial proceeding.” Morgan v. United States, 298 U.S. 468, 480. Such an examination of a judge would be destructive of judicial responsibility. We have explicitly held in this very litigation that “it was not the function of the court to probe the mental processes of the Secretary.” 304 U.S. 1, 18. Just as a judge cannot be subjected to such a scrutiny, compare Fayerweather v. Ritch, 195 U.S. 276, 306–07, so the integrity of the administrative process must be equally respected. See Chicago, B. & Q. Ry. Co. v. Babcock, 204 U.S. 585, 593. It will bear repeating that although the administrative process has had a different development and pursues somewhat different ways from those of courts, they are to be deemed collaborative instrumentalities of justice and the ap-

70

3-7

propriate independence of each should be respected by the other. United States v. Morgan, 307 U.S. 183, 191. In Commonwealth v. Pennsylvania Public Utilities Commission, 331 A.2d 598 (Pa.Cmwlth. 1975), the court sustained the commission’s refusal to let the state government and a consumer rights group review its internal reports on a phone company’s proposed tariff changes. The reports analyzed and recommended positions developed or incorporated in the record, and the commissioners used them to decide whether to allow the tariff changes. The court held that it would be improper to probe the commissioners’ mental processes in reaching their decision. The court stated: The Federal judiciary has consistently followed the mandate of [United States v.] Morgan, [313 U.S. 409, 421–22 (1941),] see e.g., Braniff Airways v. C.A.B., 379 F.2d 453 (D.C. Cir. 1967); Great Lakes Airlines v. C.A.B., 291 F.2d 354 (9th Cir. 1961); T.S.C. Motor Freight Lines, Inc. v. United States, 186 F.Supp. 777 (S.D. Tex. 1960), by holding that on appeal the administrative decisional process should not be questioned. In no way can we ignore the clear and precise instruction written in these cases. We must recognize and respect the pronouncement that the decisional process of an administrative agency must be free from public or private inquisition either by the investigative or appellate device. This is the law and absent judicially authoritative direction otherwise, we are bound. Id. at 601. This holding was followed in Brady v. State Board of Chiropractic Examiners, 471 A.2d 572 (Pa.Cmwlth. 1984). In this case, the issue was whether the court acted correctly in refusing to hear an ex-officio board member’s testimony regarding the rationale for his vote on a matter. The court, in exploring this area, stated: As we stated in Coder [v. State Board of Chiropractic Examiners, 471 A.2d 563 (1984)], it is not the role of this court to explore the mental processes of administrative officials. See United States v. Morgan, 313 U.S. 409 (1941), Commonwealth v. Pennsylvania Public Utility Commission, 17 Pa. Commonwealth Ct. 351, 331 A.2d 598 (1975). The principle is applicable with particular force when an administrator seeks to volunteer a revelation of his mental processes. Id. at 578. The above cases hold that administrative officials’ mental processes are not subject to investigation or discovery. Applying this rationale com-

71

Assessment Appeal Hearing and Procedures

pels the court to prohibit any discovery of an assessment appeals board member’s mental impressions, deliberations, or rationale involving a vote. In each case, the board hears evidence presented by the appellant in a nonrecord proceeding. On the basis of this information, the board deliberates and renders a decision. It can be concluded, therefore, that it is improper discovery under the Pennsylvania Rules of Civil Procedure to inquire into the board members’ reasoning, mental impressions, and deliberations. Specifically, since the appellant is entitled to a de novo hearing before the common pleas court, the requested discovery is totally irrelevant to the appeal proceeding. Furthermore, Pennsylvania Rules of Civil Procedure 4011(b)–(e) in effect prevent inquiry into matters that are privileged or would require the appellee to conduct an unreasonably detailed investigation. A different outcome may result when the inquiry centers upon the board’s administrative functions rather than its judicial determinations. When an assessment appeals board takes action on one of its myriad nonjudicial administrative functions it is no longer protected from discovery. The assessment laws delegate many nonjudicial duties to the board, such as preparing the assessment roll, appointing the solicitor and assessors, ordering countywide reassessments, publishing notices of the assessment roll, supervising and making annual assessments, certifying values, making assessment error refunds, etc. It can be assumed, therefore, that interrogatories and depositions are allowable when the subject matter of the litigation pertains to the board’s administrative responsibilities as distinguished from its quasi-judicial value determinations. See Dana Corp. v. Wentz, 505 A.2d 639 (Pa.Cmwlth. 1986). 3-8

Due Process Rights of Municipalities in Assessment Appeals

Richland School District v. County of Cambria Board of Assessment Appeals, 724 A.2d 988 (Pa.Cmwlth. 1999), examined whether municipalities and school districts have the same procedural due process rights as taxpayers in assessment appeals. In this case, the taxpayer owned a shopping center that was assessed at $2.9 million for tax year 1997. In August 1996, the taxpayer and the Richland School District filed appeals to the assessment appeals board. The board did not consolidate the appeals. On November 25, 1996, even though the taxpayer had already withdrawn its appeal, the board issued an order sustaining the assessment for tax year 1997. On May 14, 1997, the board finally held a hearing on the school district’s appeal. In an order dated June 2, 1997, the board increased the assessment to $3.4 million for tax year 1997. The school district appealed to the court of common pleas, claiming that the property was still undervalued. The taxpayer moved to dismiss the appeal, arguing that the board’s actions were void ab initio be72

3-9

cause it had not ruled before the statutory deadline of October 31, 1996, to hear all 1997 assessment appeals. The court agreed with the taxpayer and dismissed the appeal. The operative statute here was 72 P.S. § 5453.702(a) (now repealed), which stated: The board shall meet for the hearing of appeals and shall continue to meet for such purpose from time to time, until all appeals have been heard and acted upon. All appeals . . . shall be acted upon not later than the last day of October. The school district appealed to the Commonwealth Court, arguing that the board’s deadline violation should not be used to penalize the school district by denying its fundamental due process right to a hearing on the merits of the case. The school district premised this right to be heard upon 72 P.S. § 5453.706 (now repealed), which stated: The corporate authorities of any county, borough, town, township or school district, which may feel aggrieved by any assessment of any property or other subject of taxation for its corporate purposes, shall have the right to appeal therefrom, in the same manner, subject to the same procedure and with like effect as if such appeal were taken by a taxable with respect to his assessment, and in addition may take an appeal from any decision of the board or court of common pleas as though it had been a party to the proceedings before such board or court, even though it was not such a party in fact. The Commonwealth Court reversed the lower court and held that this statute and earlier case law mandated that a municipality or school district is entitled to complete procedural due process rights in an assessment appeal. The clear implication of this case is that, where an assessment appeals board violates the statutory deadline to complete its hearings by October 31, a party cannot be stripped of its right to have its appeal heard on the merits. 3-9

Admissibility of Evidence Presented by ContingentFee Appraisers

An appraisal can be based on a contingent fee, in which the appraiser or appraisal firm receives a percentage of the tax savings reaped by the taxpayer due to the appraiser’s testimony of the fair market value of the property. There is no prohibition on this practice in Pennsylvania. The salient issue is whether the witness qualifies as an expert in the appraisal field. The mere fact that the appraiser is receiving a contingent fee does not disqualify or prevent his or her testimony before an assess73

Assessment Appeal Hearing and Procedures

ment appeals board or a trial court. The board or court must determine the credibility, if any, of an expert witness who is receiving a contingent fee. The fact finder must consider the witness’s bias or prejudice toward the outcome of the action in the matter of credibility. What bias, prejudice, or interest does any expert witness have when the witness’s compensation is based on the outcome of the litigation? Obviously, the witness has an interest in the litigation and, therefore, may shade the testimony in order to benefit that interest. The determination of the witness’s credibility is totally up to the fact finder, who can accept all, some, or none of the witness’s testimony. Regardless of credibility, the fact finder must listen to the testimony if the witness is a qualified expert. Amendments to the Third Class County Assessment Board Law via PA HB2002, 1995–1996 Reg. Sess., Printer’s No. 3089, effective September 1, 1996, provide that only in second class A counties may an assessment appeals board adopt rules and regulations relating to the testimony of witnesses appearing before the board. The legislation states that the board may require any witness who testifies as to the value of the real estate under appeal to disclose under oath whether any compensation paid to the witness is contingent upon the result obtained. This provision merely codifies existing evidentiary law in Pennsylvania that provides that a witness may be questioned as to any bias, prejudice, or interest. The statute supports the interpretation that such testimony is admissible if the witness has the necessary qualifications to testify as to the fair market value of a property even if he or she is being paid a contingent fee. The fact that the witness is receiving this type of compensation is an issue of credibility, rather than grounds for disqualification of the testimony. 3-10

Representation of Taxpayers before Assessment Boards

The matter of representation of taxpayers before assessment appeals boards in Pennsylvania has arisen recently in various areas of the state and has led to one appellate court decision. In some counties, only lawyers were permitted to represent taxpayers before the board, while other counties allowed a relative, real estate agent, or tax consultant to present the taxpayer’s case. The legislative purpose of an initial assessment proceeding is to provide a speedy, cheap, and effective forum to provide taxpayers an administrative remedy for incorrect assessments. The statute calls for a simple appeal letter and a very informal hearing process. It is important to note that the assessment statutes provide for a nonrecord hearing before a board of laypeople. This is significant because although the assessment hearing is a quasi-judicial proceeding, it is designed for the non-attorney to represent himself or herself before the board. The legislature provided 74

3-10

an informal, nonthreatening procedure for the individual property owner, but some boards have created elaborate rules and regulations for taxpayers to comply with before presenting their cases. The process has been one in which a taxpayer could seek rough justice without the necessity of counsel at board hearings. Any errors, problems, or abuses were deemed correctable through a de novo trial before a court of common pleas. The hearings were not envisioned as adversarial jousting events between governmental lawyers and those of the taxpayers. While some residential taxpayers brought attorneys to the hearings, most did not. The majority of cases with counsel for the taxpayer involved highvalue commercial and industrial properties or complicated exemptions. The assessment law states that the burden of proof at hearings rests on the taxpayer, who must present sound, credible evidence to overcome the prima facie validity of the assessment. Many taxpayers did their own research and presented testimony as to their findings on the property value. Other individuals obtained the assistance of appraisal experts or real estate agents familiar with the property. The real estate agents and appraisers started testifying at hearings and arguing in favor of their clients’ positions. This practice was logical in that most taxpayers were unskilled at questioning witnesses and arguing based on the facts presented by their experts. Over time, these real estate professionals began to research and appraise the properties, testify at hearings, protect the taxpayers’ interest, make quasi-legal arguments, and sum up the cases. Many boards allowed these professionals to appear along with the property owner, usually with a power of attorney document, but sometimes with no written authorization at all. In some respects these real estate professionals acted as both attorneys and expert witnesses for the taxpayer. This practice was popular with many taxpayers who did not want the expense of paying both an attorney and a real estate professional for an informal board hearing. Conversely, many attorneys would appear before boards and attempt to give expert testimony on property value or the similarities of comparable sales for uniformity purposes. This overlap of function between real estate expert and attorney has been an issue of disagreement for many years. Add to this mix tax consultants who offer to help taxpayers lower their assessments. These consultants use their knowledge and skill to research the records of realty within a county and determine which properties were overassessed. Abuses of the system are not limited to the governmental entities, however; there have been abuses by all parties connected to these actions. As mentioned before, questions have arisen as to where the role of the real estate professional and that of the attorney converge and overlap. Some of these issues have been addressed in Pennsylvania.

75

Assessment Appeal Hearing and Procedures

The Commonwealth Court examined some of these issues in Westmoreland County v. Rodgers, 693 A.2d 996 (Pa.Cmwlth. 1997). In this case, Larry Rodgers owned a tax consulting firm that provided services to residential, commercial, and industrial property owners. As part of these services, Rodgers contacted property owners that he believed had an overvalued real estate assessment. Once an owner agreed to hire Rodgers, the client signed a “consultant-agency agreement” stating that the client engaged Rodgers as his or her agent and consultant in the preparation of a real estate tax assessment appeal before a board of assessment appeals and trial court. The property owner granted Rodgers a “limited power of attorney” to act as a “lawful attorney in fact and on [the property owner’s] behalf do and perform certain matters and things which may be proper or requisite to [e]ffectuate real estate property tax appeals.” Id. at 997. The client also signed a fee agreement stating that Rodgers was to receive a specified percentage of the property owner’s tax savings. According to this agreement, Rodgers would provide appraisal services at his own cost and complete all the necessary paperwork for an owner to perfect his or her appeal to the board. He also would pay a real estate appraiser to testify before the board. While Rodgers would appear at the hearing to introduce the appraiser to the board, he never testified as to the value of real estate, questioned any witnesses, or made legal arguments. If the board ruled against his client, Rodgers would hire an attorney to pursue the matter in the court of common pleas and would pay the filing and attorneys’ fees and not bill the client. Throughout the course of the appeals, Rodgers would inform the clients of the status of the proceedings and procedural matters pertaining to the payment of taxes during the pendency of the appeal. Westmoreland County filed a complaint in equity against Rodgers, alleging unauthorized practice of law, as well as champerty and maintenance. The lower court granted the county summary judgment. On appeal, Rodgers argued that he had not engaged in the unauthorized practice of law but merely was standing in for his clients before the board. “Rodgers contends that he did not represent his clients in the legal sense, but instead, stood in his client’s shoes before the Board. In actuality, by introducing the testimony of the certified appraiser, Rodgers acted as the master of ceremonies of the proceedings before the Board.” Id. at 998, n.6. The Commonwealth Court noted that the the county assessment appeals board had adopted a local rule, Section 4(b), that stated: AUTHORIZED REPRESENTATIVE: When an aggrieved party is unable to appear at an appeal hearing, they may be represented by another party, other than an attorney, as long as the other party has written evidence of authorization signed by the aggrieved party. Only attorneys licensed to prac-

76

3-10

tice in the Commonwealth of Pennsylvania will be permitted to represent clients before the board. Id. at 999 (emphasis in original). Finding that this section precluded Rodgers’ conduct before the board, the court stated: [W]e observe that Section 4(b) permits a party to be represented only by another party, i.e., not a disinterested individual. Furthermore, Section 4(b) allows such representation only when the aggrieved party is physically unable to appear at an appeal hearing. It does not authorize the aggrieved party to, in effect, contract away his or her rights to pursue the tax appeal by simply hiring another individual, who is a stranger to the appeal, to represent him or her at the hearing. Id. (emphasis in original). The court also upheld the board’s right to issue these rules, stating: Additionally, Section 4(b) only allows attorneys licensed to practice law in the Commonwealth to represent clients before the Board. Local agencies, such as the Board, are vested with the authority to promulgate procedural rules to ensure the orderly administration of justice. 2 Pa. C.S. § 102(a); see Jones Motor Co. v. Public Utility Commission, 202 Pa. Super. 134, 195 A.2d 125 (1963). So long as those rules do not deprive a party of some substantive right and are not an abuse of discretion on the part of the agency, courts will not disturb those rules or the agency’s exercise of its discretion. Id.; see also Nolf v. Department of Public Welfare, 69 Pa. Commw. 398, 452 A.2d 574 (Pa. Cmwlth. 1982). A party does not have a right to be represented in administrative proceedings by an individual not licensed to practice law, and therefore, an agency, in the exercise of its discretion, can preclude a non-lawyer from representing a party before it . Id. Significantly, the court sua sponte stated in a footnote that Rodgers’ actions may not have been permitted even without a local rule. The court stated: This is not to say, however, that Rodgers’ conduct would have been permitted had the Board’s rules allowed him to represent his clients before it. Just as the attorney-in-fact provisions of the Probate Code, 20 Pa.C.S. §§ 5602, 5603, cannot empower an individual to engage in the unauthorized practice of law under 42 Pa. C.S. § 2524, any rules or regulations of an administrative agency likewise cannot confer the power to engage in conduct that is prohibited by that section of the Judicial Code. Kohlman v. Western Pennsylvania Hospital, 438 Pa. Super. 77

Assessment Appeal Hearing and Procedures

352, 652 A.2d 849 (1994), petition for allowance of appeal denied, 541 Pa. 640, 663 A.2d 692 (1995). Id. at n.10. Because of the above holding, the court never addressed the issue of champerty and maintenance. The clear holding of Rodgers is that an assessment appeals board may regulate who represents clients before it. If a board limits representation to attorneys, only that rule is enforceable. Also, a power of attorney under the Probate Code does not endow an individual with the power to practice law. Three years later, the court revisited in the same issues in Clark v. Cambria County Board of Assessment Appeals, 747 A.2d 1242 (Pa.Cmwlth. 2000). Here, six taxpayers who had hired Rodgers filed assessment appeals for tax year 1998. The board dismissed the appeals without reaching the merits of the cases. The taxpayers appealed to the common pleas court. The board filed to dismiss or stay the assessment appeals until the resolution of a complaint filed in equity against Rodgers that sought to enjoin him from participating in tax assessment appeals in the county, including the six mentioned above. The complaint alleged that Rodgers was a non-aggrieved third party who solicited property owners to file tax assessment appeals and that his business operations constituted champerty, maintenance, and the unauthorized practice of law. The lawsuit claimed that Rodgers filed the assessment appeals under champertous agreements, rendering the appeals void because they were not filed by the real parties. The common pleas court denied the board’s motion. The court then held hearings on the merits of the six assessment appeals and granted reductions to all the taxpayers. The board appealed to the Commonwealth Court, which reversed the reductions and ordered the cases thrown out. The appellate court found that the trial court erred in denying the motion to dismiss or stay and that the appeals were not filed by the real parties in interest. The court held that the appeals were prepared and filed by Rodgers, a non-aggrieved third party whose business activities constituted champerty, maintenance, and the unauthorized practice of law. The court stated: In the case before us, the Board has raised serious allegations about whether the “real parties in interest” were before the trial court. In the pre-trial motions, the Board alleged that Rodgers, not the property owners, filed the appeals based upon champertous agreements. In support of these allegations, the Board presented evidence of an assessment appeal application submitted by Rodgers on behalf of the property owners. The Board also submitted evidence that Rodgers funded and directed the litigation. The Board also informed the trial court of prior acts of champerty committed by Rodgers. Our review of the record before the trial court reveals that

78

3-10

Rodgers’ name appears on the tax assessment appeals filed with the Board in all six cases. The allegations raised by the Board, if proven, would have the effect of nullifying the trial court’s jurisdiction over the six tax assessment appeals. Kenrich [Corp. v. Miller, 377 F.2d 312, 314 (3d Cir. 1967)]. Based upon our review of the pre-trial motions and the evidence submitted in support thereof, we conclude that the trial court should not have proceeded on the merits of the underlying tax assessment appeals while the Complaint in Equity against Rodgers was still pending. By failing to grant the Motion to Stay pending resolution of the Complaint in Equity, we conclude that the trial court abused its discretion. Id. at 1246. In an interesting departure from normal procedure, the three-judge panel refused to remand the case to the lower court, but rather made a direct ruling in the case. The appellate court held: Ordinarily, we would vacate the orders of the trial court and remand the matter with directions that the trial court delay further action until the Complaint in Equity is resolved. However, at oral arguments conducted by this Court on November 3, 1999, the parties presented the Court with an adjudication and decree nisi entered against Rodgers on September 8, 1999 by the trial court. The decree nisi enjoined Rodgers from participating further in any of the tax assessment appeals before the court; from directly or indirectly soliciting Cambria County property owners for the purpose of filing tax assessment appeals; preparing tax assessment appeals in Cambria County; and from participating in any respect in pending or future tax assessment appeals in Cambria County, except as a witness offering opinion testimony. In the supporting opinion, the trial court found that Rodgers was engaged in the unauthorized practice of law and the illegal activity of champerty and maintenance in the six tax assessment appeals involved herein. The trial court found that Rodgers was not a person aggrieved by the assessments involved and therefore had no legitimate interest in the suit; the litigations were entirely financed by Rodgers and not by the property owners; and that Rodgers has or will share in the benefits of the appeals as Rodgers has received or will receive a fee, a portion (usually 100%) of the tax reduction for the first year. The trial court further found that Rodgers represented the property owners before the Board and that Rodgers pos79

Assessment Appeal Hearing and Procedures

sessed the sole discretion to determine whether an attorney should be hired and to decide how and whether to proceed with the appeals. Based upon the above findings, it is clear that Rodgers, not the property owners, filed the present tax assessment appeals under champertous agreements. As Rodgers is not a real party in interest and does not otherwise have standing to file the appeals, we conclude that the trial court was without jurisdiction to proceed on the merits of the six tax assessment appeals. Id. at 1246–47. The Clark case is the second case in the Rodgers saga to reach decision by the Commonwealth Court, which failed to provide any guidelines as to what taxpayers’ representatives are allowed to do. If Rodgers took only 50 percent of the first year’s tax savings, would that be allowable? If the taxpayer paid the legal or appraisal fees and Rodgers only received a percentage of the remaining savings, would that pass court muster? In Westmoreland County v. RTA Group, Inc., 767 A.2d 1144 (Pa.Cmwlth. 2001), the Commonwealth Court issued another opinion dealing with champerty, maintenance, and the unauthorized practice of law. In this case, RTA Group, Inc., ran a real estate consulting business that offered assessment reduction services. RTA operated on a contingent-fee basis and paid all the costs of the litigation. The property owner would sign an agreement authorizing RTA or its agents to represent the owner “on all matters pertaining to Ad Valorem taxes” and to appeal any assessment that, in RTA’s opinion, did not constitute the property’s fair market value. Id. at 1147. Also, the property owner was required to sign a power of attorney permitting RTA to employ attorneys if the company, in its sole discretion, deemed it advisable. Westmoreland County sued RTA, alleging champerty, maintenance, and the unauthorized practice of law. The trial court granted the county’s motion for summary judgment and prohibited RTA from soliciting any more assessment appeals in the county. RTA argued on appeal that its fee agreements gave the company an individual legitimate interest in any subsequent litigation because they granted RTA a power of attorney that authorized it to undertake the appeal. The Commonwealth Court disagreed and ruled that RTA was not permitted to act as an agent for its clients in pursuing assessment challenges. Citing Clark, 747 A.2d 1242, the court found that RTA’s actions met the elements of champerty and maintenance: (1) the party involved has no legitimate interest in the litigation, (2) the party spends its own money to pursue the suit, and (3) the party is entitled by the bargain to share in the proceeds of the litigation.

80

3-10

The court held that RTA had engaged in the unauthorized practice of law, stating: Activities before administrative boards or commissions constitute the practice of law when the application of legal knowledge is required. . . . In the instant matter, RTA represented to the property owners that it was experienced in county assessment procedures and the appeal system and that, in the past, it had been successful in obtaining assessment reductions. RTA obtained authorizations to represent property owners before the Board, prepared the appeal forms for the property owners, was present at the hearings held by the Board, and most important, its contract with the property owners provided that RTA had the sole discretion to determine whether an attorney should be hired to represent the property owner and whether an appeal should be taken. In addition, RTA advised the property owners on the necessity of and method of paying taxes under protest. RTA Group, 767 A.2d at 1150. The court found that filling out assessment appeals forms constitutes the unauthorized practice of law. It stated: While we agree with RTA that completion of the assessment appeal forms are relatively simple, the forms require that the grounds for the appeal be provided. In that respect, application of legal judgment is necessary to complete this part of the form as it requires familiarity with statutes and court rulings. In addition, for RTA to either determine or recommend whether an attorney is hired on behalf of the property owner, which it may do in its sole discretion, it must render legal judgment on behalf of the property owner. Finally, advising property owners concerning the necessity of and method of payment of taxes accrued during the pendency of the appeal constitutes legal counsel. Therefore, we must conclude that RTA engaged in the unauthorized practice of law. Id. at 1151. In two interrelated cases, Brandywine Heights Area School District v. Berks County Board of Assessment Appeals, 821 A.2d 1262 (Pa.Cmwlth. 2003), and Fleetwood Area School District v. Berks County Board of Assessment Appeals, 821 A.2d 1268 (Pa.Cmwlth. 2003), the Commonwealth Court expanded on its earlier decisions dealing with champerty and maintenance in tax assessment appeals. Both cases involved real estate consulting firm Weinstein Realty Advisors. In the Brandywine Heights case, the school district hired Weinstein to identify undervalued properties and coordinate valuation services and testimony before the assessment board and trial court. The agreement stated that Weinstein would, in its sole dis81

Assessment Appeal Hearing and Procedures

cretion, proceed with the appeal process, settle the matter, or drop the appeal. Weinstein would pay all appraisal expenses and coordinate all legal services with counsel for the districts. In exchange, the firm would receive a contingency fee of 40 percent of any tax increases for 2001. Weinstein identified an allegedly underassessed mobile home park called Mountain Village, and the school district approved the filing of an appeal, which was reviewed by the district’s solicitor. The Berks County Board of Assessment Appeals denied the appeal, and the school district appealed to the court of common pleas. The board filed an equity action alleging that the district’s agreement with Weinstein was champertous. Weinstein settled the case by agreeing not to enter into any similar consulting agreements with any school district in Berks County. In the meantime, Weinstein had entered into a second agreement with the Brandywine Heights school district under which the firm would provide “ongoing consulting regarding the merits of respective appeals” and the district would make all final decisions on an appeal. Brandywine Heights, 821 A.2d at 1264. Weinstein was to be compensated by a “commission” of 40 percent of the assessment increases on the properties. The second agreement stated that the district may deduct legal fees from the commissions. Under this agreement, the district challenged the assessment of the Mountain Village mobile home park for the 2002 tax year. The board refused to increase the assessment, and the district appealed. The common pleas court granted Mountain Village’s motion for summary judgment, concluding that both the first and second agreements were champertous. Further, the court found that Weinstein was the real party to the action and had no standing to bring the assessment appeal. Therefore, the trial court held that it lacked subject matter jurisdiction over the appeals for both the 2001 and 2002 assessments, and it consolidated the cases for appeal. The Commonwealth Court, citing its decisions in Clark, 747 A.2d 1242, and RTA Group, 767 A.2d 1144, found that Weinstein had engaged in champerty: In this case, the evidence of record indicates that Weinstein initiated the tax assessment appeal by directly contacting the District in late 1999 and by preparing the necessary forms. At that time, there is no dispute that Weinstein was not employed by the District, he was not involved in any case with the District as a property owner and he had no connection whatsoever to Mountain Village. Nor had Weinstein ever been previously contacted by the District to initiate such an appeal. In fact, [school district business manager Steve] Fischer testified before the trial court that between 1986, when he first began employment with the District, and 2000, the District had not initiated any tax assessment appeals. . . .

82

3-10

Instead, as the trial court so found, the Agreements between Weinstein and the District appear to have been motivated solely by Weinstein’s desire to turn a profit, i.e., “40%” of any tax assessment increase. . . . Moreover, the evidence of record indicates that Weinstein expended his own money in this appeal process with respect to the hiring of an appraiser. Mr. Fischer specifically testified that Weinstein was responsible for hiring an appraiser and that Weinstein was responsible for paying any appraisal fees. Mr. Fischer also indicated that the District was not involved in any way with the hiring of the appraiser and that the District neither directly paid the appraiser nor reimbursed Weinstein for the services of said appraiser. As the evidence of record reveals that each of the elements of champerty have been met, we cannot say that the trial erred as a matter of law in concluding that the First and Second Agreements were champertous. Thus, the order of the trial court in this regard must be affirmed. Brandywine Heights, 821 A.2d at 1265. The appellate court, however, agreed with the school district that the trial court erred as a matter of law in granting summary judgment and dismissing the underlying appeal based on the principles of champerty. The Commonwealth Court remanded the case for the trial court to determine the real party in interest. The appellate court stated: In the instant case, the District is the real party in interest. The question is whether the District or Weinstein directed and controlled the tax assessment appeals in question. If the District directed and controlled the tax assessment appeals, then the trial court had the jurisdiction to proceed with the appeals. Conversely, if Weinstein directed and controlled the tax assessment appeals, then the trial court was without jurisdiction to proceed and the granting of summary judgment would be proper. We disagree with the trial court, however, that the evidence supports the dismissal of the tax assessment appeals by way of a motion for summary judgment. In the First Agreement in this case, there are some serious questions as to who was in control of the prosecution of the case. Although [the school district solicitor] represented the District and he alone appeared before the Board, the First Agreement provided that Weinstein would “coordinate with an independent appraiser” and “pursue this appeal through all available legal channels, including the Court of Common Pleas, if necessary.” . . . Additionally, this First Agreement pro83

Assessment Appeal Hearing and Procedures

vided that “when the appropriate authorities propose an assessment which [Weinstein] deems reasonable, [Weinstein] in [his] sole opinion, will proceed toward its acceptance and discontinue the appeal process.” . . . The Second Agreement, however, superseded the First Agreement and attempted to clarify the responsibilities of the parties. Specifically, the Second Agreement contained significant modifications which essentially removed the decision-making authority granted to Weinstein as detailed above and placed such authority back in the District’s hands. For example, the Second Agreement provided that Weinstein would merely provide “ongoing consulting regarding the merits of respective appeals” and that the District could “solely conclude final decisions regarding an appeal.” . . . Upon review of the evidence of record, including this Second Agreement, one could argue that the District was in control of the prosecution of the tax assessment appeal. At the very least, the evidence of record raises genuine issues of material fact as to which party was directing and controlling the litigation, thereby precluding the grant of summary judgment and the dismissal of the underlying appeal by the trial court. Hence, the order of the trial court in this regard must be reversed and the case remanded for consideration of this issue as well as the merits of the underlying appeal. Id. at 1267. The facts and procedural history were similar in the Fleetwood Area School District case, which also involved the same two agreements. There, the Commonwealth Court remanded to the trial court to determine if, under the second agreement, Weinstein paid any expenses in a particular tax appeal. That is, there was still a question of fact unresolved when the lower court granted summary judgment to the property owners. Further, the appellate court ordered the lower court to determine if the school districts were directing and controlling the litigation and therefore were the real parties in interest. Brandywine Heights and Fleetwood Area revealed some potential cracks in the absolute prohibition against champerty and maintenance in Rogers and RTA Group. In the earlier cases, once the elements of champerty had been met, the assessment appeal was dismissed. Now, the Commonwealth Court seems to be indicating that there must be proof of total control of the litigation by the consultant. Obviously, if the consultant pays the appraiser and the attorney and controls all facets of the litigation, champerty is clear cut. But what if the consultant pays the appraiser, and the client pays the attorney with no offset of the payments, or what if the 84

3-11

client pays the appraiser and the consultant pays the attorney fees? What if the client makes all litigation decisions and the consultant obtains the appraiser? Brandywine Heights and Fleetwood Area leave these questions unanswered. 3-11

Board Cannot Sua Sponte Extend the Statutory Appeal Filing Deadline

In Union Electric Corp. v. Board of Property Assessment, Appeals & Review of Allegheny County, 721 A.2d 823 (Pa.Cmwlth. 1998), the Commonwealth Court addressed an issue unique to Allegheny County. In this case, the board, without stating any reason, extended the filing date for assessment appeals from February 29, 1996, to April 1, 1996. In counties of the second class such as Allegheny County, the statutory filing deadline for assessment appeals is the last day of February. 72 P.S. § 5452.11. The taxpayers in this case, relying on the board’s extension, filed their 1996 assessment appeals on March 27, 1996. After the board issued decisions on the assessment valuations, the taxpayers appealed to the trial court. The city of Pittsburgh, a party to the case, filed a motion to quash the appeals on the basis that they were untimely filed. The trial court granted the motion, finding that the board lacked jurisdiction to hear the taxpayers’ appeals. On appeal to the Commonwealth Court, the taxpayers argued that even if the board lacked the authority to extend the filing deadline, its action was a breakdown in the operation of the administrative agency, justifying a nunc pro tunc appeal. The appellate court pointed out that an administrative agency’s power to issue rules and regulations under a statute is not the power to make law, but only to adopt regulations to effect the will of the legislature. Volunteer Firemen’s Relief Ass’n of City of Reading v. Minehart, 227 A.2d 632 (Pa. 1967). The court further stated: “When an agency adopts regulations at variance with the statute, the regulations, and not the statute, fall by the wayside. See Xerox Corporation v. City of Pittsburgh, 15 Pa. Commw. 411, 327 A.2d 206 (Pa. Cmwlth. 1974); George A. Fuller Co. v. City of Pittsburgh, 15 Pa. Commw. 403, 327 A.2d 191 (Pa. Cmwlth. 1974).” Union Electric, 721 A.2d at 824. The court also rejected the taxpayer’s argument that there had been an administrative breakdown, stating: We were faced with a similar situation in In Re: Nomination Petition of Torres, 99 Pa.Cmwlth. 173, 512 A.2d 732 (Pa.Cmwlth. 1986). In that case, the Election Code provided that all objections to nomination petitions had to be filed within seven days of the last day in which nomination petitions could be filed. Without explanation, the trial court extended the period in which to file objections another seven days. The objectors then filed their petition to set aside the nomination petition on 85

Assessment Appeal Hearing and Procedures

the last day of the newly extended deadline, and the trial court granted the petition to set aside, finding that the nomination petition did not have enough valid signatures. The candidate filed an appeal to this court alleging that the administrative judge was without authority to extend the statutory deadline and, therefore, the trial court was without jurisdiction to hear the objectors’ petition to set aside the nomination petition. We agreed, holding that the common pleas court was without authority to extend the mandatory statutory deadline, and that the extension of time was not the type of fraud or breakdown in the operation of the court that would justify the grant of a nunc pro tunc appeal. We then declared the order extending the deadline null and void and concluded that the petition to set aside was not timely filed. Although negligence on the part of administrative officials, such as failing to mail assessment notice to an individual, would be a sufficient reason for allowing an appeal nunc pro tunc, Taxpayers have not introduced any evidence of fraud, a breakdown of the Board’s operations or negligence on the part of the Board that would justify allowing it to extend the deadline in which to file appeals. . . . Like the trial court in Torres, the Board was without authority to extend the deadline, and its extension of time to take an appeal deprived it of jurisdiction to hear the assessment appeals. While sympathizing with taxpayers that unfortunately relied on the Board’s unauthorized action in extending the deadline, like the objector in Torres who also relied on an unauthorized extension of time, Taxpayers’ appeals must be quashed because they were not filed within the time proscribed by statute. Accordingly, the order of the trial court is affirmed. Union Electric, 721 A.2d at 824–25. The Pennsylvania Supreme Court reversed the Commonwealth Court and greatly expanded the scope of nunc pro tunc petitions. Union Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 746 A.2d 581 (Pa. 2000). The high court distinguished Torres from this case: In Torres, the trial court extended the period for which objections to nomination petitions could be filed. The objectors filed their petition after the statutory deadline but within the extended deadline, and the trial court granted the petition to set aside the nomination petition. The candidate appealed, arguing that the judge was without authority to extend the statutory deadline. On appeal, the Commonwealth Court held that

86

3-11

the order extending the deadline was void and that the objections to the nomination petitions were untimely. . . . While this case may seem relevant at first glance, it is, in fact inapposite. Whether the Board had authority to extend the deadline is not at issue here. Rather, we must determine whether the Board’s unauthorized extension of the appeals filing deadline constitutes fraud or a breakdown in the court’s operations, thereby justifying an appeal nunc pro tunc. Noticeably absent from Torres is any discussion or analysis regarding nunc pro tunc appeals and what actions rise to the level of fraud or a breakdown in the court’s operations. Without such analysis, Torres is inapplicable. Id. at 583, n.4. All parties conceded that the board lacked the power to extend the statutory filing period. The issue was whether the board’s negligent conduct in doing so constituted a breakdown in its operations sufficient to justify nunc pro tunc relief. Such relief is intended as a remedy to vindicate the right to appeal where the right has been lost due to certain extraordinary circumstances. It is generally granted in civil cases only where there was fraud or a breakdown in an administrative body’s operations through a default of its officers. The Supreme Court reviewed the facts of this case in light of the case law and granted the nunc pro tunc relief. The court held: A careful reading of these cases demonstrates that there is a breakdown in the court’s operations where an administrative board or body is negligent, acts improperly or unintentionally misleads a party. Thus, where an administrative body acts negligently, improperly or in a misleading way, an appeal nunc pro tunc may be warranted. Here, the Board extended the filing deadline for tax assessment appeals in contravention of 72 P.S. § 5452.11. The Board acted without authority, in violation of express statutory language, and misled Appellants into believing that they had the ability to extend the filing deadline. Moreover, the Board was cloaked with the apparent authority to extend the deadline because it was the governmental reviewing body before which the appeals were filed and the Appellants reasonably relied on this appearance of authority. Under these circumstances, we find that the Board’s negligent action in extending the filing deadline constitutes a breakdown in the court’s operations such that Appellants’ appeals should be permitted nunc pro tunc. Id. at 487. 87

4 Assessment Trial

4-1 4-1.1

Pretrial Pleadings Thirty-Day Time Limitation on Appeals to Court

The Pennsylvania Judicial Code governs the timing of appeals from decisions of assessment boards to the court of common pleas. 42 Pa.C.S. § 5571(b) reads as follows: Other courts.—Except as otherwise provided in subsections (a)

and (c) and in section 5571.1 (relating to appeals from ordinances, resolutions, maps, etc.), an appeal from a tribunal or other government unit to a court or from a court to an appellate court must be commenced within 30 days after the entry of the order from which the appeal is taken, in the case of an interlocutory or final order. The case law in this area has consistently held that this statute governs assessment appeals. In Wilson Townhouses v. Berks County Board of Assessment Appeals, 535 A.2d 1226 (Pa.Cmwlth. 1988), the Commonwealth Court held that an appeal more than 30 days after the board of assessment appeals mailed its decision deprived the trial court of subject matter jurisdiction over the assessment appeal. The court stated: Whether an appeal is timely filed is a jurisdictional question that cannot be waived, Tarlo v. University of Pittsburgh, 66 Pa. Commonwealth Ct. 149, 443 A.2d 879 (1982), and it may be raised at any stage of the proceedings by any party, or a court may raise it sua sponte. See Federated Department Stores, Inc. Appeal, 78 Pa. Commonwealth Ct. 346, 467 A.2d 908 (1983). The law generally is that an appeal from a decision of a tax assessment board must be filed within thirty days after the entry of the board’s order. Section 5571(b) of the Judicial Code, 42 Pa. C.S. § 5571(b); Chartiers Valley School District Appeal, 501 Pa. 620, 462 A.2d 673 (1983). If the order is served by 89

Assessment Trial

mail, the date of mailing is deemed to be the date of entry of the order. Section 5572 of the Judicial Code, 42 Pa. C.S. § 5572; Federated Department Stores. Id. at 1227. The Pennsylvania Supreme Court held in Appeal of Chartiers Valley School District, 462 A.2d 673 (Pa. 1983), that the Judicial Code’s provisions pertaining to 30-day appeal periods govern all statutory appeals, overriding even specific provisions contained in the individual statutes. The decision reinforces the position that the 30-day appeal filing period is controlling and mandatory in all assessment cases. 4-1.2

Statutory Filing Deadlines

The Pennsylvania Supreme Court examined the practical application of statutory appeal deadlines in Bassett v. Bassett, 671 A.2d 661 (Pa. 1995). In this case, the Perry County Court of Common Pleas issued an order upholding a master’s recommendation on September 9, 1994. The appellant decided to appeal the order to the Superior Court. A notice of appeal must be filed with the county prothonotary within 30 days after the lower court’s order. The 30th day fell on October 9, 1994, a Sunday. Monday, October 10, 1994, was Columbus Day. The appellant’s attorney, assuming that the county courthouse was closed on Columbus Day, a state holiday, filed the notice of appeal on Tuesday, October 11, 1994. Unbeknownst to the appellant, the prothonotary’s office had been open on Columbus Day, October 10, 1994, because employees had elected to remain open that day and receive the day after Thanksgiving as a day off in exchange. Since it had been possible to file the notice of appeal on Columbus Day, October 10, 1994, the Superior Court quashed the appeal as untimely. The Supreme Court reversed and reinstated the appeal as timely filed. It held that 1 Pa.C.S. § 1908 provided that whenever the last day of a statutory filing period fell on a Saturday, Sunday, or any day made a holiday by the laws of Pennsylvania or the United States, that day will be omitted from the 30-day computation. The court stated: It is well recognized that the courts of common pleas have authority to operate their individual court systems in a fashion not contrary to the general rules adopted by this Court. Clearly, however, courts of common pleas do not have the power to contravene, by administrative rule, directive, or practice, the duly enacted laws of this Commonwealth and of the United States as to what constitutes a legal holiday. Our legislature has designated the second Monday in October, known as Columbus Day, a legal holiday. 44 P.S. § 11. The same day has been designated by the laws of the United States as a legal holiday. 5 U.S.C. § 6103(a). The mere fact that employees of 90

4-1.3

the prothonotary’s office elected to work on that day does not alter the status of the day as a legal holiday. Appellant’s counsel was entitled to rely on the fact that the day was a legal holiday without having to check with the prothonotary’s office to determine whether someone might be there to receive a notice of appeal. Bassett, 671 A.2d at 662. The Supreme Court stressed that appellate court uniformity would be destroyed if filing deadlines were allowed to vary from county to county depending upon the preferences of counties to choose to honor or ignore legal holidays. This holding is also applicable to the filing deadlines with local boards of assessment appeals. Appellants should be able to rely on the fact that legal holidays falling on the last day of a computation period will be excluded in determining the timely filing of assessment appeals. 4-1.3

Timely Filing of Appeal to the Common Pleas Court

In In re Appeal of J.C. Penney Co., 492 A.2d 1189 (Pa.Cmwlth. 1985), the Commonwealth Court dealt with the formalities of filing an appeal. In this case, the Allegheny County assessment appeals board turned down an appeal filed by J.C. Penney Co. The board mailed its notice of change in assessment on March 20, 1981. On April 20, 1981, at 2:45 p.m., the prothonotary received J.C. Penney’s timely petitions seeking review of the board’s assessment. Without filing them, however, the prothonotary returned the petitions to the appellant’s attorney because they did not conform to the requirements of Rule 198.6 of the Allegheny County Rules of Court. Specifically, they each lacked an attorney identification sheet and a piece of tape to cover the staples at the top of the front page. These adjustments were made, and the petitions were eventually filed on May 1, 1981. The common pleas court quashed the appeal on the basis that the appeals were not timely filed. The Commonwealth Court stated: No one disputes the fact that Section 5571(b) of the Judicial Code, 42 Pa. C.S. § 5571(b) requires an appeal to be commenced within thirty days from the entry of the order which is being appealed. Appellant argues, however, that its 1981 appeals were, in fact, received by the Prothonotary within thirty days from when the orders were entered. Therefore, this is not a situation where the court is asked to extend the filing time. Rather, it is simply a question of whether appellant substantially complied with the applicable filing rules. Appellant readily admits that its 1981 appeals did lack the required tape and attorney identification sheet. However, it argues that these omissions are de minimis and it urges this Court to reinstate its appeals. We agree. 91

Assessment Trial

*

*

*

Although we strongly believe that local rules of court must be adhered to because they serve very important functions, we must conclude that the omissions in question were truly of a de minimis nature and the petitions must, therefore, be deemed to have been properly filed on the date they were received by the Prothonotary. To do otherwise would be exulting form over substance. Id. at 1190. Therefore, in applying this case holding to the filing of appeals with the board, minor procedural variations from the rules are not in themselves grounds to quash an appeal before the board. Rather, major substantive issues and violations of the rules are necessary in order to quash an appeal before the board on technical grounds. The Commonwealth Court reviewed the question of the determination of the commencement date for appeal purposes in In re Appeal of Borough of West View, 501 A.2d 706 (Pa.Cmwlth. 1985). In this case, the North Hills School District appealed a decision of the Allegheny County property assessment board that reduced the real estate tax assessment of Westview Associates from $132,500 to $50,000. The board advised the taxing authorities of this final notice by mailing to the authorities a form dated December 23, 1981, and titled “Disposition of Appeal from Real Estate Assessment.” The taxing authorities filed an appeal to the court of common pleas on February 1, 1982. Nowhere on the disposition form mailed to the authorities was there a date designated as the mailing date. The form did, however, have a date stamped on it indicating the school district received it on January 4, 1982. The court ordered the appeal quashed as untimely. The Commonwealth Court reversed and reinstated the appeal for further proceedings. The court initially found that an appeal from an assessment board must be filed within 30 days as set forth in 42 Pa.C.S. § 5571(b), rather than being filed within 60 days as provided by the statute governing assessment in second class counties, 72 P.S. § 5452.12 (now repealed). The court found that the 30-day appeal time period is controlling but that the form titled “Disposition of Appeal from Real Estate Assessment” did not provide adequate notice of the mailing date that starts the running of the clock. In this case, the two dates appeared on the form. At the top was typed the date of the notice, December 23, 1981, and the stamped notice that it was received by the school district on January 4, 1982. The Commonwealth Court, addressing the necessity of an individual mailing date, stated: [B]ecause knowledge of a decision mailing date is essential when it commences an appeal period, the administrative agency is obligated to indicate it clearly on the decision notice. 92

4-1.4

Schmidt v. Commonwealth, 495 Pa. 238, 341, 433 A.2d 456, 458 (1981) (state tax case). “A disembodied date on the notice, as in this case, without any indication that it is the mailing date,” is not sufficiently informative. Federated Department Stores v. Board of Property Assessment Appeals and Review of Allegheny County, 78 Pa. Commonwealth Ct. 346, 351, 467 A.2d 908, 910 (1983) (local tax case); Hanna v. Zoning Board of Adjustment of Pittsburgh, 62 Pa. Commonwealth Ct. 620, 437 A.2d 115 (1981) (zoning case). In the instant case, the date on the department’s notice was not identified as a mailing date, but refers to the date of the execution of the determination, which is not necessarily the mailing date—a fact of public office life recognized by the Pennsylvania Supreme Court in Schmidt v. Commonwealth, 495 Pa. 238, 433 A.2d 456 (1981). It is the formal notice of the mailing date of the notification that triggers the period. “Without such notification a taxpayer can have no reliable basis for knowing the number of days remaining in which to file a petition for review.” Schmidt. Borough of West View, 501 A.2d at 707–08. The court held that without a formal indication of the mailing date on the document, the appeal period does not begin to run. To comply with the mandate of the opinion, it is necessary for the assessment appeals board, after it makes its decision on an appeal, to indicate the date of the mailing of the notice on its notice announcing the decision. If the document contains the date of mailing, the taxpayer then has 30 days in which to appeal. 4-1.4

Service of Process in an Assessment Appeal to the Court of Common Pleas

In Airo Die Casting v. Westmoreland County Board of Assessment Appeals, 706 A.2d 1279 (Pa.Cmwlth. 1998), the Commonwealth Court examined the appropriate service of process in an assessment appeal, specifically whether the filing of an appeal from a board decision constitutes original process, requiring an appellant to personally serve the board by sheriff under Pa.R.C.P. 400(a). In Airo, the appellants filed an appeal from the board’s notice of assessment valuation with the court of common pleas within 30 days after the mailing date of the board’s notice. The taxpayers served notice copies of their appeal to court upon all the parties by certified mail, return receipt requested. The board filed a motion for judgment on the pleadings, alleging that the taxpayers served their assessment appeals in a legally defective manner and failed to comply with Pa.R.C.P. 400(a). The court granted the board’s motion and dismissed the appeals. 93

Assessment Trial

The Commonwealth Court agreed with the taxpayers’ contention that an assessment appeal filed to the court of common pleas does not require a service of process by the county sheriff. The appellate court pointed out that the operative statute is section 752 of the Local Agency Law, 2 Pa.C.S. § 752, which states: Any person aggrieved by an adjudication of a local agency who has a direct interest in such adjudication shall have the right to appeal therefrom to the court vested with jurisdiction of such appeals by or pursuant to Title 42 (relating to judiciary and judicial procedure). The court interpreted this statute in the following manner: Since an appeal from a tax assessment is statutorily defined, Taxpayers’ respective appeals may not accurately be characterized as an original process requiring service by the sheriff of the Westmoreland County pursuant to Pa.R.C.P. No. 400(a). Moreover, it is well settled that statutory appeals are not governed by the Pennsylvania Rules of Civil Procedure. In re Appeal of the Borough of Churchill, 525 Pa. 80, 575 A.2d 550 (1990); McNeilis v. Commonwealth of Pennsylvania, Department of Transportation, 119 Pa. Cmwlth. 272, 546 A.2d 1339 (1988). Rather, the Pennsylvania Rules of Civil Procedure are applicable to all actions which are formally asserted as a civil action and other forms of action where the Supreme Court has incorporated the rules by reference. Pa.R.C.P. 1001; see also In re Appeal of the Borough of Churchill, 525 Pa. at 86, 575 A.2d at 553. We must, therefore, look to other sources in order to determine how a tax assessment appeal is to be served. Airo, 706 A.2d at 1282. The court pointed out that the Local Agency Law, the Pennsylvania Code, and the local judicial rules provide no guidance with regard to the manner of service of a tax assessment appeal, and therefore the court must be guided by its decisions in Gilmore v. Commonwealth, 590 A.2d 1369 (Pa.Cmwlth. 1991), and McNeilis v. Department of Transportation, 546 A.2d 1339 (Pa.Cmwlth. 1988). These two cases involved appeals from the Department of Transportation’s suspension of revocation of operating privileges. In McNeilis, service was sufficient where a copy of the appeal was served on the department at its stated address by certified mail, return receipt requested. In Gilmore, acceptable service would also include personal service by hand and acceptance of service by the defendant, as well as by certified mail, return receipt requested.

94

4-1.5

The Airo court justified the above methods of service by stating: The methods of service set forth in McNeilis and Gilmore are practical because, unlike an original process, a petitioner’s action is an appeal where all parties are known and the parties are aware of the pending legal issues. Therefore, a petitioner providing notice of an appeal by an acceptable method of service such as certified mail, return receipt requested, would not prejudice the government agency. Moreover, requiring a citizen of the Commonwealth to serve a notice of an appeal on the government unit by the sheriff places an unjustified economic burden on the citizen and is inefficient use of public resources. Airo, 706 A.2d at 1283. The case clearly holds that in an appeal from the assessment board to the court of common pleas, unless there is some local rule to the contrary, certified mail, return receipt requested, is an acceptable method of service. This decision is very logical and carries on the principle that the assessment appeals procedure should be a simple and efficient vehicle to get a fact finder’s determination of the fair market value of a property rather than a complicated legal joust on procedural matters. 4-1.5

Pleadings in Assessment Cases

In jurisdictions that have adopted Pennsylvania Rule of Civil Procedure 1026(a) pursuant to the decision in In re Appeal of Borough of Churchill, 575 A.2d 550 (Pa. 1990), an appellee has 20 days to answer an appeal. All well-pleaded facts must be answered or otherwise deemed admitted. Failure to file a responsive answer to an appeal could result in judgment on the pleading. For example, a well-pleaded fact that the value of a tax parcel is a certain amount must be specifically denied or it will be deemed admitted by the rules. In jurisdictions where the Pennsylvania Rules of Civil Procedure have not been adopted by local rule, there are no formulated rules to follow in regard to an assessment appeal. The only statutory guidance directs that an appeal be filed with the court within 30 days after the decision of the board of assessment appeals. In jurisdictions that apply the rules, attorneys should be aware of Pennsylvania Rule of Civil Procedure 1026(a), which states: Except as provided by Rule 1042.4 or by subdivision (b) of this rule, every pleading subsequent to the complaint shall be filed within twenty days after service of the preceding pleading, but no pleading need be filed unless the preceding pleading contains a notice to defend or is endorsed with a notice to plead.

95

Assessment Trial

4-1.6

Defects in Pleadings

In Wilkes-Barre Holiday Inn v. Luzerne County Board of Assessment Appeals, 674 A.2d 1181 (Pa.Cmwlth. 1996), the Commonwealth Court examined the scope of amending assessment appeals filed with the court of common pleas. In this case, the Holiday Inn filed an appeal with the assessment appeals board for tax year 1991 on August 31, 1990. The board affirmed the assessment on May 23, 1991, and the taxpayer filed a petition for review with the common pleas court on June 28, 1991, more than 30 days from the decision date. Holiday Inn’s verification and pleadings stated that the owner was “Wilkes-Barre Holiday Inn c/o American Motor Inns, a New Jersey Corporation” with its corporate business office located at the law office of the filing attorneys in New Jersey. The actual owner of the property was “Wilkes-Barre Holiday Inn, L.P., a Delaware limited partnership” with a different mailing address in New Jersey. The Wilkes-Barre School District filed a motion to strike the petition for review of real estate assessments on the basis that the true owner of the property did not file a timely appeal to court and that the New Jersey corporation did not in fact exist. Holiday Inn filed an answer and a motion to amend the pleading to reflect the correct ownership information. The lower court refused to grant the amendment of the pleading and struck the appeal. On appeal to the Commonwealth Court, Holiday Inn contended that the lower court erred in not permitting an amendment to correct a technical and nonprejudicial error in the verification and pleadings. The appellant further alleged that the court erred in dismissing its petition as untimely filed because the notice of the assessment board’s decision did not contain a mailing date. Holiday Inn also claimed it was unaware of the commencement of the time in which to file an appeal to court. Pennsylvania Rule of Civil Procedure 126 provides for a liberal construction of the rules, stating: The rules shall be liberally construed to secure the just, speedy and inexpensive determination of every action or proceeding to which they are applicable. The court at every stage of any such action or proceeding may disregard any error or defect of procedure which does not affect the substantial rights of the parties. Holiday Inn asserted that allowing it to correct its verification and pleading would not unduly prejudice the parties. The Commonwealth Court addressed this issue in the following manner: In the present case, Holiday’s proposed amendment would have merely clarified the fact that Holiday, the owner of the subject property, is a Delaware limited partnership rather than a New Jersey Corporation. The parties do not dispute 96

4-1.6

that there is no New Jersey corporation. As evidenced by its willingness to enter into settlement discussions in 1993 which lasted through 1994 and to schedule meetings with Holiday, the School District also does not dispute that Holiday is in fact the owner of the subject property involved. Other than this one correction, Holiday raises no new issues or theories of recovery; and its motion to amend does not seek to bring in a new party to the proceedings as contended by the School District. Id. at 1184. The appellate court, in reversing on this issue, quoted from Rupel v. Bluestein, 421 A.2d 406, 411 (Pa.Super. 1980): “Courts should not be astute in enforcing technicalities to defeat apparently meritorious claims . . . . The procedural rules are not ends in themselves, but means whereby justice, as expressed in legal principles, is administered; they are not to be exalted to the status of substantive objectives.” The court in a perfunctory manner rejected the school district’s argument that if Holiday Inn were successful on appeal, it would harm taxpayers. It appears that the court recognized the basic fact that every taxpayer is entitled to a fair assessment and that fair taxation does not hurt the public. The appellate court, in examining the record, found that the information on the assessment notice, while not using the exact language “mailing date,” did contain the date May 23, 1991, and stated: “This is your final notice. In the event you are not satisfied with this decision you may appeal to the Luzerne County Court of Common Pleas within 30 days from the date of this notice.” The Commonwealth Court found that the Holiday Inn had sufficient information to be aware that it had 30 days from May 23, 1991, to file an appeal to court. The appellate court on this basis alone upheld the lower court in dismissing the appeal for tax year 1991. In a significant holding, the Commonwealth Court did allow Holiday Inn to proceed with appeals for tax years 1992, 1993, 1994, and 1995 under the provisions of the “automatic subsequent year appeal” statute, 72 P.S. § 5350(c) (now repealed), which at the time of the case stated: If a taxpayer has filed an appeal from an assessment, so long as the appeal is pending before the board or before a court on appeal from the determination of the board, as provided by statute, the appeal will also be taken as an appeal by the taxpayer on the subject property for any valuation for any assessment subsequent to the filing of such appeal with the board and prior to the determination of the appeal by the board or the court. This provision shall be applicable to all pending appeals as well as future appeals.

97

Assessment Trial

The appellate court, citing Wilson Townhouses, 535 A.2d 1226, found that the appeal filed in 1991 was still pending until the trial court ruled on March 28, 1995, that the 1991 appeal was untimely filed. Therefore, all tax years were automatically under appeal even though the initial appeal document was untimely filed. The Commonwealth Court remanded the case to the lower court to make determinations for tax years 1992, 1993, 1994, and 1995. In Alma v. Monroe County Board of Assessment Appeals, 83 A.3d 1121 (Pa.Cmwlth. 2014), the issue in question was the right of members of an alleged collective appeal to refile to the common pleas court individually after their collective appeal was quashed. The property owners here challenged their assessments for the 2012 tax year by filing 158 individual appeals with the assessment appeals board. The issues in the appeals were deemed to be similar, and the board agreed to handle them in one hearing. The board denied the appeals and sent out 158 notices of decision. The property owners collectively filed an appeal from the board’s decision, naming all 158 individuals in the caption. The board moved to quash the appeal on the ground that each property owner should have filed separate appeals. The common pleas court agreed and quashed the appeal but also ordered that each owner be permitted to file individually with the court within 60 days, thus preserving their appeals for individual review. On appeal to the Commonwealth Court, the board argued that once the trial court quashed the property owners’ appeals as improperly filed, it was not permitted to grant the right to file nunc pro tunc appeals unless there was fraud or its equivalent or some other extraordinary circumstance that justified failure to timely file with the court. The property owners contended that they did, in fact, file their appeal in a timely manner and that the defect was procedural; therefore, it was curable and not jurisdictional. The Commonwealth Court allowed these appeals to proceed and stated: This Court has acknowledged that decisional law in Pennsylvania is divided on the issue of whether defects in a notice of appeal are amendable. Guy M. Cooper, Inc. v. E. Penn Sch. Dist., 894 A.2d 179, 181 (Pa. Cmwlth. 2006). The Cooper Court expounded: To a considerable extent, this division in decisional law depends upon the extent to which the appellate courts are willing to utilize Pa. R.A.P. 105(a) to disregard defects in a notice of appeal. In light of Pa. R.A.P. 105(a), the better result would be to permit a party to file an amended notice of appeal setting forth the correct date or the correct docket number of the order being appealed.

98

4-1.6

Id. at 182. In this case, all 158 Property Owners were in the courthouse on time. Thus, this is not a case, wherein, the statutory appeal period is being judicially extended. While case law discourages single appeals from multiple orders, the rules themselves do not prohibit it. Under these circumstances, we hold that the Property Owners are permitted to individually file amended Notices of Appeal. Id. at 1124 (emphasis in original). In Lake Erie Promotions, Inc. v. Erie County Board of Assessment Appeals, 60 A.3d 194 (Pa.Cmwlth. 2012), the Commonwealth Court considered whether a school district’s appeal to the trial court was timely filed, notwithstanding the fact that it had failed to file an appeal of the board’s official hearing decision notification, but instead appealed from a letter of the board’s chairman sent to it and the taxpayer, informing them that a decision had been reached. The taxpayer filed its appeal with the board in 2005 and later appealed the board’s decision to the trial court. The court remanded the case to the board for further consideration in 2010. This remand resulted in the creation of a docket at the trial court of the original 2005 appeal. After remand, the board held a hearing, and the board’s chairman sent a letter to the school district and the taxpayer (but not the rest of the parties) in February 2011, informing them that a decision had been reached. This letter set forth the new assessments on the property for each year under appeal and explained the board’s reasoning. The school district, believing this letter to be the “final decision” from the board on the merits, filed its appeal based on the letter. The district did not file the appeal on the original docket created when the case first went to the trial court, possibly in error (although it was unclear whether the original docket number could be properly continued because the earlier appeal had been filed by a different party). Three months later, the board issued “hearing decision notifications” for the property, which were mailed to all the parties, and, among other things, contained parcel information and mailing dates, but no explanation for the decisions. The school district, however, did not file appeals of these hearing decision notifications. The trial court sua sponte brought up the issue of whether it had jurisdiction over the school district’s appeal, in light of the district’s failure to appeal the hearing decision notifications issued by the board. After first noting that the letter was an “anomaly,” because the board generally does not issue letters outlining forthcoming decisions, the court, nevertheless, held that it did not have jurisdiction to hear the appeal, as the letter was not a “decision” of the board from which an appeal could be taken. The court also refused to transfer the school district’s appeal to the prior docket

99

Assessment Trial

originally created, because that would not cure the defect in the appeal (it was filed too early). The Commonwealth Court, in reviewing the letter and the hearing decision notifications, looked to the Local Agency Law, 2 Pa.C.S. § 551 et seq., for guidance as to which document was a “decision” of the board that could be appealed. The court found both documents contained characteristics of finality but also that “neither included sufficient indicia of finality to enable [the court] to identify definitively one as the final decision of the Board over the other.” Lake Erie Promotions, 60 A.3d at 199. As a result, the court held that the school district’s appeal was valid. While questioning why the district did not file appeals from both documents, the court was unwilling to deprive the school district of its right to appeal, where the confusion was the result of the board’s actions, not the school district’s. In so holding, the court cited favorably to prior precedent involving an appeal filed nunc pro tunc, although that legal concept was not present in this case. As support for its decision, the court also referenced Pennsylvania Rule of Appellate Procedure 905(a)(5), which provides that “[a] notice of appeal filed after the announcement of a determination but before the entry of an appealable order” will be valid, although the court conceded that the appellate rules did not apply to the trial court’s determination. Finally, the court also considered whether it was proper for the trial court to refuse to transfer the school district’s appeal to the prior docket. In holding that the trial court had erred, the Commonwealth Court, assuming that it was indeed an error on the part of the school district not to file its appeal at the original docket, explained that the trial court should have consolidated the appeals because, generally, cases should not be dismissed on technicalities such as a filing error. 4-1.7

Local Rules of Civil Procedure and the Perfection of Assessment Appeals to Court

The decision in Appeal of Midland Land & Water Transportation, Inc., 711 A.2d 612 (Pa.Cmwlth. 1998), addresses the courts’ power to promulgate local rules of court governing the perfection of appeals from assessment appeals boards. The taxpayer here originally filed an appeal to the Beaver County Board of Assessment Appeals, which reduced the assessment. The taxpayer, believing it was entitled to a bigger reduction, filed a timely assessment appeal on January 26, 1994, to the court of common pleas. There was no activity on the file until July 1997, when the taxpayer petitioned the court and requested that an appeal to the court be allowed. This was an attempt to correct the procedural defect in failing to file this motion within five days after filing the original appeal with the county prothonotary in 1994.

100

4-1.7

This motion to allow the appeal was required by Beaver County Rule of Civil Procedure L8000, which at the time of the case stated: A.

In all cases, an appeal taken from a real estate assessment fixed by the Board of Assessment Appeals shall be presented or filed in the form of a Petition for Allowance of Appeal.

B.

The Petition . . . shall have attached to it a proposed preliminary decree which shall provide: 1. that the appeal is allowed; 2. that the taxing authorities are hereby notified [of how to procure leave to intervene]; and 3. that within five days from the date of filing of the preliminary decree, appellant shall serve a copy of the petition and preliminary decree upon [the interested parties].

C.

If the Petition . . . is initially filed in the Prothonotary’s Office, within five [5] days after such filing the petition and . . . decree shall be presented to the Court for entry of a preliminary decree.

The court refused to allow the appeal. It reasoned that the tax authorities would be prejudiced because they would have already collected and spent the taxes in the years after the appeal was taken. Also, the court found that Local Rule L8000 was not in derogation of any statute or general rule of the Pennsylvania Supreme Court. The taxpayer argued to the Commonwealth Court that the trial court’s order effectively denied it its statutory right to appeal an assessment to the court of common pleas. It further contended that Rule L8000 violated the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.704(a), which at the time of the case stated: Any person who shall have appealed to the board for relief from any assessment, who may feel aggrieved by the order of the board in relation to such assessment, may appeal from the order of the board to the court and thereupon the court shall proceed at the earliest convenient time to be by them appointed, of which notice shall be given to the board to hear the said appeal and the proofs in the case, and to make such orders and decrees determining from the evidence submitted at the hearing. The taxpayer further alleged that the local rule violated the statutory and constitutional right to an assessment trial and that it was an appeal of right, not of court discretion. Also, Pa.R.C.P. 239(b)(1) provides that local rules are not to be inconsistent with any general rule or any act of the General Assembly.

101

Assessment Trial

The Commonwealth Court found in favor of the taxpayer and reversed the lower court, stating: This Local Rule did not set forth a remedy for an appeal that remains inactive for an unreasonable period of time. Rather, the Local Rule addresses only the form and format of an appeal from the Board. In City of Philadelphia v. Silverman, 91 Pa.Cmwlth. 451, 497 A.2d 689 (1985) we held that the dismissal of an action for failure to conform to a local rule violated Pa.R.C.P. No. 239(f). In Silverman, the City of Philadelphia (City) had initiated proceedings against Louis Silverman (Silverman) in Philadelphia Municipal Court for violations of the Philadelphia Building Code. Silverman prevailed in Municipal Court, and the City appealed to the Court of Common Pleas of Philadelphia County (court of common pleas). The City failed to file a proof of service with the prothonotary within ten days after serving Silverman with the notice of appeal as required by Philadelphia Rule of Civil Procedure 310(D). Silverman praeciped the prothonotary to dismiss the appeal for failure to file a timely proof of service. The appeal was stricken . . . and a petition to reinstate the appeal which the court denied. . . . While the common pleas court surely would have been within its rights in requiring Appellant to cure a technical defect such as a failure to file a proof of service, under the mandate of Pa.R.C.P. No. 239(f) we believe it would be utterly barred from dismissing the appeal on such a ground. Midland, 711 A.2d at 614–15 (emphasis in original). Pa.R.C.P. 239(f) states, “No civil action or proceeding shall be dismissed for failure to comply with a local rule.” The Rules of Judicial Administration provide that each court may provide a local rule for the termination of matters that have been inactive for an unreasonable length of time. In Midland, the lower court dismissed the action for failure to comply with a local rule that was not published according to Rule 1901 of the Rules of Judicial Administration. The Commonwealth Court reversed the lower court, reinstated the complaint, and further found that the harm to the taxpayer outweighed the harm to the taxing authorities. This case is important for establishing that local rules of court cannot be used to hinder the perfection of an assessment appeal to court. The right to appeal in a tax assessment matter is a statutory right and cannot be defeated by failure to jump through local procedural hoops. Therefore according to Midland, any violation of a local rule in an assessment is technical and can be cured by a later attempt to conform with that rule. Note: Effective August 1, 2016, Pennsylvania Rule of Judicial Administration 103 was amended to consolidate and include all local rule102

4-1.8

making requirements. Accordingly, the requirements under Rule 239 for the promulgation and amendment of local rules of civil procedure were rescinded and replaced. All local rules previously promulgated in accordance with the requirements of this rule before rescission remain effective upon compilation and publication pursuant to Pa.R.J.A. 103(d)(7). 4-1.8

Sua Sponte Dismissals of Assessment Appeal for Lack of Activity

In Terminal Freight Handling Corp. v. Board of Assessment Appeals of Luzerne County, 790 A.2d 1068 (Pa.Cmwlth. 2001), the Commonwealth Court explored whether a court on its own motion had an inherent power to dismiss an assessment appeal for lack of activity and delay. In October 1992, the Luzerne County assessor sent the taxpayer a notice of assessment for a newly completed Sears warehouse. In November 1992, the taxpayer filed an assessment appeal with the assessment appeals board but did not receive a denial notice from the board until 1994. This denial was timely appealed from the board to the court of common pleas. In September 1997, while the original appeal was still pending in court, the taxpayer filed another appeal with the board for tax year 1998. The board denied this appeal, and the taxpayer timely appealed this denial to court. A motion was filed to consolidate these appeals for trial. When the case eventually reached the court in December 2000, the trial court sua sponte issued an order requiring the taxpayer to show cause why its appeals in 1994 and 1998 should not be non prossed for lack of activity. Subsequently, the court held a hearing on this matter, and the attorney for the taxpayer testified that he never forwarded the case to trial because he was involved in settlement negotiations with the parties involved. He stated that he sent 19 letters to the parties in an attempt to schedule settlement meetings, but only three face-to-face meetings took place between 1994 and 2000. The attorney stated that during that time period, he never provided any cost data to opposing parties or made any settlement demands. The court found that the taxpayers had offered no credible reason for an inexcusable delay in moving the case to trial, and pursuant to Pa.R.J.A. 1901, the lower court entered a judgment of non pros with prejudice against the taxpayer. On appeal to the Commonwealth Court, the taxpayer argued that the courts are given leeway to schedule their calendars and move cases to trial. These matters are usually accomplished by the scheduling notices or other rules of court that provide parties with an expected timetable in bringing these cases to conclusion. In Luzerne County, however, none of these scheduling procedures existed; the taxpayer therrefore contended that no prejudice could attach to it. The court stated: “Sears contends that because there were no rules governing the progression of this or any assessment

103

Assessment Trial

appeals, it was arbitrary and erroneous for the trial court to conclude that it had been guilty of lack of due diligence. We agree.” Id. at 1071. The appellate court pointed out that the taxpayer, in not giving information to the taxing authorities, did not indicate any lack of diligence. The court stated: A tax assessment appeal is a statutory appeal by which a taxpayer appeals from a final decision of a board of assessment to a court of common pleas. See Pa.C.S. § 752, 42 Pa.C.S. § 933(a)(2). Because it is an appeal which is defined as “any petition or other application to a court for review of subordinate governmental determinations,” and not an “action at law or in equity,” 42 Pa.C.S. § 102, it is not commenced by filing a complaint but by filing a petition for review. Because tax assessment appeals are not begun by complaint, the rules of civil procedure, including discovery rules, are not applicable. See Pa.R.C.P. No. 4001, Pa.R.C.P. No. 1007. If a party requests that discovery be conducted, that party must file a motion with the trial court. Tanglwood Lakes Community Association v. Pike County, 164 Pa. Commw. 170, 642 A.2d 581 (Pa. Cmwlth. 1994). Although the trial court in this case focused on Sears’ failure to provide opposing counsel with any documentation for appraisal purposes, absent a motion filed by the Board or the taxing authority with the trial court, Sears was not under a legal obligation to produce and that cannot be used against it to show any lack of due diligence. Id. Because tax assessment appeals are not civil actions, the Pennsylvania Rules of Civil Procedure did not apply to this case. The court pointed out that beyond a petition for review, no further pleadings were required. Unless a local rule of procedure required that a case be placed on the trial list, there is nothing further for a party to file or do. The Commonwealth Court determined that no local rule of court in Luzerne County required the taxpayer to do anything to move the case forward. The court held: Accordingly, because it was not shown that Sears violated any diligence that was due in moving the case to trial because all it needed to do was file the appeal and the case should have automatically been listed, the trial court’s order is reversed. Id. at 1072. This case stands for the proposition that tax assessment cases should be given automatic calendar and trial listing by the local courts of common pleas. This can be done most efficiently by scheduling a pretrial status conference with the court, where appraisal exchanges can be ordered, discovery dealt with, and settlement conference and trial dates set.

104

4-1.9

Although the facts of this case are unique, there may be similar cases of this vintage gathering dust in file cabinets throughout Pennsylvania, and this case does provide a safe haven for all assessment cases at rest. Practitioners should be aware that numerous counties have local rules of court that provide that a case can be dismissed for lack of activity after a certain period of time. These local rules are enforceable for tax assessment appeals and can be disastrous for the unwary. 4-1.9

Necessity to Appeal Subsequent Year’s Assessment

In Strawbridge & Clothier v. Board of Assessment Appeals of Delaware County, 492 A.2d 108 (Pa.Cmwlth. 1985), the board on November 5, 1982, affirmed the original assessment of Strawbridge & Clothier’s property for the 1983 tax year. The taxpayer appealed to the court of common pleas, which held a trial on October 19-20, 1983. The appellant sought to include in its appeal the 1984 tax year assessment, as well as that from 1983. The court refused to hear any appeal concerning the 1984 assessment because the assessment board had not had the opportunity to review this assessment. The Commonwealth Court reversed and held that the trial court should have heard the appeal for the 1984 tax year even though the board had not ruled on that issue. The appellate court interpreted 72 P.S. § 5350(c) (now repealed), which stated: If a taxpayer has filed an appeal from an assessment, so long as the appeal is pending before the board or before a court on appeal from the determination of the board, as provided by statute, the appeal will also be taken as an appeal by the taxpayer on the subject property for any valuation for any assessment subsequent to the filing of such appeal with the board and prior to the determination of the appeal by the board or the court. The trial court had refused to consider the 1984 assessment because the board had not yet made any decision on it. In rendering this opinion, the lower court distinguished the case of Marriott Corp. v. Board of Assessment Appeals of Montgomery County, 438 A.2d 1032 (Pa.Cmwlth. 1982). The Commonwealth Court held that the lower court’s interpretation of Marriott was incorrect. The appellate court stated: Marriott involved two separate appeals. In each appeal, appellanttaxpayer sought to have the assessment for subsequent tax years considered with its existing assessment appeal. In each appeal, the board of assessment had not rendered a decision on the subsequent tax year assessments. In the first appeal, we affirmed the trial court’s order in an action in mandamus, requiring the board to hold hearings on the subsequent ap105

Assessment Trial

peals. In the second appeal, however, we reversed the trial court’s order denying appellant’s petition to consider appeals from subsequent tax year assessments with its assessment appeal currently before that court. Id. at 629, 438 A.2d 1035. It is clear, therefore, that Marriott allows the taxpayer the alternative of either pursuing its subsequent tax assessment appeals before the board, or, should the taxpayer’s initial appeal be currently before the trial court, of pursuing its subsequent appeals directly before that court. This result is indeed consistent with the terms of Section 9(c) of the Act which requires that an initial assessment appeal “shall be taken” as an appeal from subsequent assessments whether that initial appeal is pending before the Board, or whether it is pending “before a court on appeal.” Strawbridge & Clothier, 492 A.2d at 112 (emphasis in original). Therefore, the Commonwealth Court found that the statutory language in 72 P.S. § 5350(c) provided two avenues of appellate relief to a taxpayer who is in the court of common pleas on the previous year’s assessment to litigate any subsequent year’s assessment. The first option allowed the taxpayer to litigate the subsequent year’s assessment before the trial court in conjunction with the litigation of the previous year’s tax assessment de novo. If the taxpayer were unsatisfied with the board’s action, the taxpayer could then appeal this assessment to the common pleas court. In Chartiers Valley School District v. Board of Property Assessment, Appeals & Review of Allegheny County, 622 A.2d 420 (Pa.Cmwlth. 1993), the court mandated the following rules pertaining to the automatic appeal statute, 72 P.S. § 5020-518.1(b): (1) When a real estate appeal is pending before an assessment board or the court of common pleas, all subsequent tax assessments are incorporated. The court cannot remand to the board in order to satisfy the trial consolidation intent of the automatic appeal provisions. The court must determine all the issues relevant to all the assessment years before it at one trial. (2) Remands of incorporated assessments to the board are not allowed because that would violate the trial consolidation intent of the automatic appeal provisions. (3) Reservation of incorporated subsequent assessments for later trial is disapproved. (4) If the common pleas court’s decision is appealed to the Commonwealth Court, the lower court’s jurisdiction is ended. Pa.R.A.P. 1701. No tax assessments arising while 106

4-1.9

the case is before the appellate courts are incorporated because they cannot be consolidated for trial with the tax assessments already decided by the court of common pleas. (5) If the appellate court remands such a case to the court of common pleas for further evidentiary proceedings, it is again before the court on appeal from the determination of the board. Accordingly, intervening tax assessments are incorporated, and the trial court must consolidate those newly incorporated assessments with the remanded issues. (6)

If the Commonwealth Court does not remand the case to the trial court when the appellate court order disposing of the case becomes final, all jurisdiction at that docket number ceases. (Note: Therefore, it is incumbent upon the taxpayer to file protective appeals.)

The Commonwealth Court reexamined the effect of subsequent years on tax assessment appeals in West Mifflin Area School District v. Board of Property Assessment, Appeals & Review of Allegheny County, 844 A.2d 602 (Pa.Cmwlth. 2004). In this case, Tech One Associates owned property consisting of outparcel acreage surrounding a commercial development known as Century Three Mall. The property, over the years, had been subdivided into distinct contiguous parcels occupied by commercial tenants that had varying degrees of responsibility for payment of real estate taxes. Tech One filed appeals with the assessment appeals board for tax years 1986 through 1999. A number of Tech One tenants intervened in the case, and the court-appointed masters held evidentiary hearings in June, July, and October of 1999. On January 1, 2000, several of the tenant properties received their own block and unit numbers from the assessment office. On April 14, 2000, a special master issued a report recommending to the court market values for the years 1986 through 1999. The court dismissed Tech One’s objections and adopted the master’s report. On August 14, 2001, Tech One appealed to the Commonwealth Court. On September 18, 2001, the trial court issued an order directing the master to set the assessments for tax years 2000 and 2001. At a hearing before the master on November 29, 2001, the taxing authority objected on the grounds that, due to the Commonwealth Court appeal, there had been no hearing before the assessment board on tax years 2000 and 2001. The master overruled the objections and made findings of fact on the merits of the appeal. On June 26, 2002, the appellate court affirmed the trial court’s decision for tax years 1986 through 1999. The Pennsylvania Supreme Court granted an appeal, and the parties eventually settled in April 2003. On April 23, 2003, the trial court dismissed the taxing authority’s objections to the master’s report for tax years 2000 and 2001. The taxing au107

Assessment Trial

thority filed an appeal from this order to the Commonwealth Court, arguing that the trial court lacked jurisdiction to conduct evidentiary hearings for tax years 2000 and 2001. The Commonwealth Court agreed that there was a lack of jurisdiction to hold evidentiary hearings while the previous years were pending before the appellate court on appeal. The Commonwealth Court interpreted Pa.R.A.P. 1701(a), which states, “Except as otherwise prescribed by these rules, after an appeal is taken . . . the trial court . . . may no longer proceed further in the matter,” and Pa.R.A.P. 1701(c), which states: “Where only a particular item, claim or assessment adjudged in the matter is involved in an appeal . . . the appeal . . . shall operate to prevent the trial court . . . from proceeding further with only such item, claim or assessment, unless otherwise ordered by the trial court . . . or by the appellate court or a judge thereof as necessary to preserve the rights of the appellant.” The appellate court reiterated its interpretation of the automatic appeal provisions of 72 P.S. § 5020-518.1 and its decision in Chartiers Valley, 622 A.2d 420. The court noted that the trial court entered a final judgment on July 17, 2001, for tax years 1986 through 1999 and did not reserve any later tax years for disposition. It did not retain jurisdiction for tax years 2000 and 2001. Therefore, Pa.R.A.P. 1701(a) prevented the trial court from exercising jurisdiction for the subsequent years. 4-1.10

Commencement of Included Appeal Years under the Automatic Statutory Appeal Rules

In Kmart Corp. v. Washington County Board of Assessment Appeals, 950 A.2d 1089 (Pa.Cmwlth. 2008), the Commonwealth Court delineated when future years automatically become part of the previous years. This issue had always been a concern to attorneys in the practice area, and Kmart has cleared up some uncertainty. The taxpayer here, Kmart Corp., challenged the assessments for its store in Peters Township for tax years 2006 and 2007. The court approved a settlement and a joint stipulation reducing the assessment on August 1, 2006. On September 1, 2006, Kmart filed an appeal with the assessment appeals board for tax year 2007, even though it had agreed in the earlier stipulation to an assessment for that year. The company argued that it was not bound by the stipulation under the decision in Wheeling-Pittsburgh Steel Corp. v. Board of Revision of Taxes & Appeals of City of Monessen, 565 A.2d 504 (Pa.Cmwlth. 1989). In Wheeling-Pittsburgh, the Commonwealth Court held that the assessment of future tax years not presently under statutory automatic appeal rules could not be settled by stipulation before the commencement of that tax year. The common pleas court rejected Kmart’s argument that the sipulation was void under Wheeling-Pittsburgh. The issue was whether the stipulation involved future assessment years or was for tax year 2007, already 108

4-1.11

part of the case by operation of law when the stipulation was signed on August 1, 2006. The county took the position that, when the stipulation was signed, the county had already prepared its 2007 tax roll and that time for filing the 2007 tax appeal was ripe. The Commonwealth Court emphasized parts of section 601 of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.601 (now repealed): Annually, on or before the first day of July, the chief assessor shall, from the returns made by the local assessors, prepare and submit to the board, in the form prescribed by the board, an assessment roll or list of persons and property subject to local taxation, together with the actual value placed upon each person, each parcel or tract of real property and the personal property of each person by the assessor, and shall make and have supervision of listing and valuation of property excluded or exempted from taxation. The chief assessor shall, at the same time, prepare and submit a list of all property exempted by law from taxation. The making of triennial assessments as provided by existing law is hereby abolished. Section 701(b) of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.701(b) (now repealed), provided that any person aggrieved by an assessment may appeal to the board on or before September 1. The Commonwealth Court upheld the lower court, finding that tax year 2007 began on July 1, 2006, when the 2007 tax roll was required to be submitted to the assessment board. Therefore, tax year 2007 was automatically under appeal and the stipulation was valid and binding on the parties, making Kmart’s subsequent 2007 assessment appeal invalid. This case stands for the proposition that, for purposes of the statutory automatic inclusion of tax years under appeal, the posting of the assessment roll commences that particular tax year into the preexisting litigation. The Commonwealth Court took a broad view of the automatic statutory appeal rules in In re Appeal of P-Ville Associates, 87 A.3d 898 (Pa.Cmwlth. 2014), when it reversed a trial court’s decision to quash a taxpayer’s 2013 assessment appeal while an appeal for 2011 was still pending, even though it was filed nunc pro tunc. The Commonwealth Court reasoned that because the trial court had the ability to rule on the 2011 appeal, subsequent years were also included automatically. 4-1.11

The Appeal of an Interim Assessment Appeal for All Subsequent Years

An interim assessment is one made by the board of assessment appeals during the year, and is a supplement to the assessment roll that is promulgated by July 15 of each year. The interim assessment is added to 109

Assessment Trial

the roll any time during the year and results in the generation of tax bills by municipalities based upon the increase in assessment. Generally, a taxpayer has 40 days to appeal the interim assessment to the board, and any decision of the board relates back to the effective date of the interim assessment notice, in contrast to the annual appeal, which is effective the beginning of the calendar year or the start of the fiscal year of the taxing bodies. The Commonwealth Court, in County Amusement Co. v. County of Cambria Board of Assessment Appeals, 692 A.2d 300 (Pa.Cmwlth. 1997), addressed whether a taxpayer who files an interim assessment appeal is required to file an annual appeal for subsequent years while the interim appeal is pending before an assessment board or court of common pleas. The appellate court ruled that an interim assessment acts as an appeal for every subsequent year while that appeal is still pending. In this case, the Richland Mall was reassessed on July 15, 1992, based on improvements made to the property. The mall owner timely appealed to the board, which held a hearing in the matter and on February 3, 1993, issued an order that refused to lower the assessment. The taxpayer appealed, and on August 7, 1996, the common pleas court scheduled a pretrial conference. The taxing authorities filed a motion in limine to prevent the taxpayer from offering any evidence beyond the value of the property at the time of the interim assessment and prohibiting the taxpayer from presenting any evidence on the subsequent years since the interim assessment. The court granted the motion, citing the automatic appeal provisions of 72 P.S. § 5453.704(f) (now repealed). The Commonwealth Court reversed, holding that subsequent tax years were included under the automatic appeal provisions of the statute where the initial appeal was from an interim assessment. The court stated: Section 704(f) of the Law, as set forth above, clearly triggers an automatic appeal for purposes of subsequent years when an appeal thereunder is filed and pending. Again, Section 667.1 [of the Public School Code of 1949, 24 P.S. § 6-667.1 (now repealed),] specifically provides that appeals from interim assessments requested by a school board are subject to the general assessment law and there is nothing in Section 667.1 which alters a taxpayer[’]s appeal rights under the general assessment law. The trial court, in holding otherwise, ignores the clear language of Section 667.1 and finds that although this Section refers to the general assessment statute for purpose of appeal, the trial court concludes that this reference to the general assessment statute merely provides the taxpayer with an avenue of appeal, without the right to an automatic appeal for purposes of subsequent years as set forth therein. This was clear error on the part of the trial court. 110

4-1.12

Based on the foregoing, we reverse that portion of the trial court’s order granting the motion in limine limiting the taxpayer to presenting evidence of the value of its property for the 1992 interim assessment period and precluding evidence of the property’s value during subsequent years and remand the matter for further proceedings in accordance herewith. County Amusement, 692 A.2d at 303. 4-1.12

Appeal Valuation Dates

In Macy’s Inc. v. Board of Property Assessment, Appeals & Review of Allegheny County, 61 A.3d 361 (Pa.Cmwlth. 2013), the Commonwealth Court considered the proper date to use for purposes of valuing the property under appeal in an assessment case. The court held that the proper date of valuation is the appeal filing date, not the first day of the tax year under appeal. The trial court established the value of the taxpayer’s property for tax years 2009 to 2011. The taxpayer had introduced into evidence an appraisal containing an opinion of the property’s value in 2009 and 2010, but did not introduce into evidence an opinion of value for 2011. The taxpayer’s valuation for 2009 was dated as of March 31, 2009, the date on which the taxpayer filed its initial appeal. The taxing school district appealed, challenging the validity of the taxpayer’s opinion of value for 2009 on the ground that the appraisal should have been dated as of January 1, 2009, the first day of the tax year. In support of its argument, the school district noted that the assessment law applicable to Allegheny County required the fact finder to determine the value of the property for “the tax year in question” and that a “tax year” under the statute commenced on January 1. The Commonwealth Court rejected this argument and adopted the taxpayer’s position that the assessment law, while requiring a determination of the property value for the “tax year in question,” is silent on the question of the specific date of valuation to use. The court explained that where this statute is silent on an issue, the General County Assessment Law applies. Because that law requires the use of the appeal filing date as the valuation date, the court held that an assessment appeal in Allegheny County must use the date on which the appeal is filed as the date of valuation. In making this pronouncement, the court appended a cryptic footnote in which it suggested that the use of the appeal filing date as the valuation date might violate the uniformity clause of the Pennsylvania Constitution. The court noted that the use of the appeal filing date results in a system where those taxpayers who file appeals have one valuation date, while those who do not file appeals have a different valuation date. The court did not consider this issue further, as neither party had raised the issue on appeal. But, it seems unlikely that a violation of the uniformity clause would 111

Assessment Trial

occur because different value dates would be normalized by application of the common-level ratio, resulting in uniform assessment values. After disposing of the school district’s claims regarding the date of valuation, the court next considered whether the trial court gave sufficient reasons in support of its determination of value for the 2011 tax year. In holding that the trial court had failed to do so, the Commonwealth Court noted that only the school district had submitted an opinion of value of the property for 2011. In such “single expert” cases, the trial court has a duty to clearly state its reasons for departing from the expert’s valuation. The trial court’s decision, which offered no explanation for its departure from the valuation in the school district’s appraisal, failed to meet this duty. Therefore, the Commonwealth Court vacated and remanded the trial court’s decision with respect to the determination of value for the 2011 tax year, and instructed the trial court to give reasons why it departed from the evidence in the record. 4-1.13

Withdrawal of Appeals

A recurring scenario exists in the area of an appellant attempting to unilaterally withdraw an appeal petition. On numerous occasions, appeals from boards of assessment appeals are filed in court as knee-jerk reactions without due concern for probability of outcome or consideration of the legal and appraisal fees involved. The assessment law provides a 30-day period to appeal to court dating from the mailing of the notice of the assessment board decision. This time span results in decisions to appeal to court that are sometimes quickly made. Because of the hasty manner in which many appeals are done, when taxpayers face the legal and appraisal fees, they sometimes take a second look at pursuing the litigation. In some cases a formal appraisal has indicated that the taxpayer’s chances of success have greatly decreased, if not totally vanished. When municipalities and school districts appeal assessment board decisions, they tend to have no factual justification other than that the board has made a cut in the assessment that could, if left unchallenged, affect their tax bases. After filing, the taxing authorities find that a great number of these reactive appeals are meritless. Usually this occurs when they obtain an appraisal of the subject property and find that the board’s reduction was justified. The issue that arises is whether a taxpayer or taxing authority can withdraw an appeal without permission from the adverse parties and whether court approval is needed. Pennsylvania Rule of Civil Procedure 229 states: (a) A discontinuance shall be the exclusive method of voluntary termination of an action, in whole or in part, by the plaintiff before commencement of the trial.

112

4-2

(b) (1)Except as otherwise provided in subdivision (b)(2), a discontinuance may not be entered as to less than all defendants except upon the written consent of all parties or leave of court upon motion of any plaintiff or any defendant for whom plaintiff has stipulated in writing to the discontinuance. (2)In an action governed by Rule 1042.3, a plaintiff may enter a discontinuance as to a defendant if a certificate of merit as to that defendant has not been filed. (c)

The court, upon petition and after notice, may strike off a discontinuance in order to protect the rights of any party from unreasonable inconvenience, vexation, harassment, expense, or prejudice.

The Pennsylvania Supreme Court held in Churchill, 575 A.2d 550, that the Rules of Civil Procedure are inapplicable to assessment trials in the common pleas courts because tax assessment appeals are statutory in nature. Churchill held that common pleas courts may enact the Rules of Civil Procedure in their respective counties by local rule of court. The Commonwealth Court held in Tanglwood Lakes Community Association v. Pike County Board of Assessment & Revision of Taxes, 642 A.2d 581 (Pa.Cmwlth. 1994), that when the rules have not been adopted and there is no local rule, trial judges can fashion any procedures they deem relevant to the cases before them. Therefore, where the Rules of Civil Procedure are not adopted, the local court must decide the withdrawal issue on a case-by-case basis. 4-2

Discovery

Some Pennsylvania courts have addressed the applicability of discovery in assessment litigation. Before the ruling in Churchill that the Rules of Civil Procedure do not apply to assessment trials, the right to discovery in assessment proceedings was not in doubt. If the Rules of Civil Procedure are not controlling in this type of litigation, can the litigants invoke the discovery rules? The Churchill court conditionally answered this question by ruling that the courts of common pleas may enact the Rules of Civil Procedure in their respective counties by local rule of court. The court held: [O]ur trial courts have had the right to enact rules and publish these to cover practice in this area of the law [statutory appeals]. Where they have not created and published such local rules, then each trial court has been vested with the full authority of the court to make rules of practice for the proper disposition of cases before them and that we have enforced those 113

Assessment Trial

rules unless they violated the Constitution or laws of the Commonwealth or United States, or our state-wide rules. The general, inherent power of all courts to regulate their own practice, without control, on the ground of expediency, has been recognized by this court for almost one hundred and eighty years, . . . and we see no reason at this time to disturb that well-settled principle. Churchill, 575 A.2d at 554. The Commonwealth Court addressed the specific issue of a litigant’s right to discovery in a statutory assessment appeal in Tanglwood Lakes, 642 A.2d 581. In this case, the Tanglwood Lakes Community Association appealed the assessments of its property to the Pike County assessment board on the basis that the assessments were excessive and lacked uniformity. The appellant was unsuccessful before the board and appealed to the common pleas court. The appellant served the board with two sets of interrogatories seeking extensive discovery of the mass appraisal procedures used by an appraisal company employed by the board. The board refused to answer, and the appellant filed a motion to compel answers to the interrogatories. The lower court denied the motion on the basis that under Churchill, the discovery provisions of the Rules of Civil Procedure do not apply in tax assessment litigation. The Commonwealth Court granted an interlocutory appeal on the issue of whether the discovery rules in the Rules of Civil Procedure apply to a de novo tax assessment appeal in a court of common pleas. The appellate court held that in the absence of a statewide rule or a local rule of court, the trial court has the inherent power in its sound discretion to permit or deny discovery in a tax assessment appeal. “The issue on appeal is limited to whether discovery is mandatory or allowed in tax assessment appeals. We hold that while it is not mandatory, it is allowed.” Id. at 583, n.3. Therefore, in the absence of a local rule, trial judges can craft any discovery procedures they deem relevant to the case at bar. To overcome the ruling in Churchill, all counties should persuade their common pleas courts to adopt the Rules of Civil Procedure as allowed under Tanglwood to make those rules applicable to tax assessment litigation. The advantages of having the Rules of Civil Procedure apply to this type of litigation are obvious: •

•

114

Both the taxing district and the taxpayer would be able to take discovery, depositions, and interrogatories, helping to resolve the matter by gathering sufficient information to know the strengths and weaknesses of their case and to formulate the issues quickly. The Rules of Civil Procedure are the most effective tool to formalize pleadings, procedures, and discovery. Rather than relying on statutory law and the implications of former common law to allow the pleading procedure, practitioners of assessment law would

4-2.1

have access to one set of rules, thus promoting the effective and speedy administration of justice to both the taxing district and the taxpayers. Therefore, a suggested rule of civil procedure to be adopted by the common pleas court in each county reads as follows: Local Rule—Board of Assessment Appeals. (a) The Pennsylvania Rules of Civil Procedure shall be applicable to all assessment appeals filed in ________ County before the Court of Common Pleas. (b) In all cases where an appeal is taken from a real estate assessment fixed by the Board of Assessment Appeals, the petition for allowance of appeal shall have attached to it a photocopy of the appealed-from order of the board and shall have attached to it a proposed preliminary decree which shall provide that:

(c)

4-2.1

(1)

the appeal to court is permitted and said case is to proceed in conformity with the Pennsylvania Rules of Civil Procedure.

(2)

within five days from the date of the preliminary decree, appellant shall serve a copy of the petition and preliminary decree upon the board, the Board of County Commissioners of ________ County, the governing body of the municipality, the Board of School Directors of the school district in which the real estate is situate, and the property owner, if the property owner is not the appellant;

(3)

the taxing authorities aforesaid and the property owner, if the property owner is not the appellant, are entitled to intervene as parties appellee.

The appeal shall be scheduled by the Court Administrator for a nonjury trial upon the filing of a praecipe signed by all counsel of record. Discovery of Appraisal Reports Prepared by Non-trial Witnesses

Are appraisal reports prepared for an appellant discoverable where the appraiser is not being used as a witness by the property owner at trial? This situation commonly arises where the taxing authority seeks to call the author of an appraisal report on the appealed property, which differs from that of the expert who is testifying on behalf of the owner at trial. 115

Assessment Trial

Another frequent scenario is the situation in which the taxpayer introduces an expert witness to testify and present appraisal evidence before a board of assessment appeals but does not use that expert at trial. Subsequently, the taxpayer uses the services of a different expert at trial, and the value determinations of the two experts differ. The taxing authority then attempts to use the testimony and opinions of the taxpayer’s first expert to impeach the opinions of the second expert. Pennsylvania Rule of Civil Procedure 4003.5 addresses these issues: (a) Discovery of facts known and opinions held by an expert, otherwise discoverable under the provisions of Rule 4003.1 and acquired or developed in anticipation of litigation or for trial, may be obtained as follows: * (3)

*

*

A party may not discover facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or preparation for trial and who is not expected to be called as a witness at trial, except a medical expert as provided in Rule 4010(b) or except on order of court as to any other expert upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject by other means, subject to such restrictions as to scope and such provisions concerning fees and expenses as the court may deem appropriate.

An order directing a landowner’s appraisers to testify to the contents of a report would violate the spirit and purpose of the rule against discovery of facts known or opinions held by an expert employed in anticipation of litigation. In Columbia Gas Transmission Corp. v. Piper, 615 A.2d 979 (Pa.Cmwlth. 1992), a case dealing with eminent domain, the Commonwealth Court examined the law in this area. The taxpayer, Columbia Gas Transmission Corp., had expanded its easement on a landowner’s property under the theory of eminent domain. In the landowner’s action for damages, the corporation attempted to force the landowner’s original appraiser to testify and impeach the higher value placed on the land by the landowner’s new expert at trial. The original appraisal had been done for the landowner but was not being used by him in the court proceeding. The trial court held that Pennsylvania Rule of Civil Procedure 4003.5(a)(3) and case law prohibited this impeachment. The Commonwealth Court affirmed, relying on Pennsylvania Co. for Insurances on Lives & Granting Annuities v. Philadelphia, 105 A. 630 (Pa. 1918), as the underpinning of its decision. That case held that a party 116

4-3

could not call as witness in an eminent domain proceeding appraisers who had previously performed appraisals for a property owner when they were not being used by that property owner at trial. The Supreme Court in that case stated, “But the private litigant has no more right to compel a citizen to give up the product of his brain, than he has to compel the giving up of material things. In each case it is a matter of bargain, which, as ever, it takes two to make, and to make unconstrained.” Id. The Pennsylvania Supreme Court in Westinghouse Electric Corp. v. Board of Property Assessment, Appeals & Review of Allegheny County, 652 A.2d 1306 (Pa. 1995), prohibited the taxpayer from compelling the board to produce an appraisal report on the subject property where the board had commissioned the report in anticipation of trial but did not intend to introduce it at trial. This appraisal valued the property at $24 million, which was closer to the $19 million estimated by the taxpayer’s expert and substantially lower than the $38 million value given by the taxing authorities’ new expert. Westinghouse wanted to introduce the $24 million appraisal to discredit the taxing authorities’ expert witness. The taxing authorities cited Pa.R.C.P. 4003.5(a)(3), and the lower court refused to compel the board to produce the appraisal. The Supreme Court upheld the lower court and prohibited discovery, holding: Westinghouse attempted to show that exceptional circumstances were involved which made impractical the acquisition of facts or opinions on the same subject by other means, thus requiring an order of court directing production of the . . . report. The trial court rejected Westinghouse’s argument and found that the circumstances of this case were not exceptional within the meaning of Rule 4003.5(a)(3), and that the . . . report was accordingly not discoverable. Westinghouse was fairly able to obtain and present expert opinion as to fair market value. Westinghouse, 652 A.2d at 1315–16. This line of case law prohibits the use of expert reports that were done for a taxpayer but are not being introduced into evidence by the taxpayer at the assessment trial. Unless the taxpayer agrees to waive privilege, these documents are not discoverable or admissible at trial. 4-3

Trial De Novo of Assessment Appeals

The General Assembly has provided that any taxpayer who is dissatisfied with an assessment board decision has an absolute right to a de novo trial before the court of common pleas. At that hearing, the court will determine the property’s fair market value, apply what it believes to be the applicable ratio, and establish the assessment. This process clearly differs from other administrative procedures, where a record is made at the ad117

Assessment Trial

ministrative hearing and an appeal to the common pleas court is only to determine whether adequate evidence exists on the record to support the administrative agency’s decision. In an assessment appeal to common pleas court, a review of the record does not exist, but the remedy of a full and complete de novo trial is afforded to an appellant. The issue in an assessment appeal is not what the board has done previously in the case, but rather, the common pleas court’s redetermination of the relevant factual issues and the ultimate assessment. The above procedure is to be followed in the overwhelming number of assessment cases that are appealed to court. In the rare circumstance where base-year values are appealed under 53 Pa.C.S. § 8844(e) and for allegations of constitutional violations, the court should use alternative resolution methodology. 4-3.1

Trial Procedure

If a taxpayer is aggrieved by a board decision, the taxpayer must file a timely appeal. The court of common pleas will then hear the case. Failure to appeal to the board and exhaust administrative remedies will preclude the taxpayer from making an appeal to the court of common pleas. Trial before the court is de novo. The court must determine the current market value for the taxable property in question and the common-level ratio. The valuation date is determined as follows: • •

The market value as of the date such appeal was filed before the board of assessment appeals. If subsequent years have been made a part of the appeal, the court will determine the respective market value as of January 1 of each such year.

The applicable ratio is as follows: • •

The common-level ratio that was applicable in the original appeal to the board of assessment appeals. If subsequent years have been made a part of the appeal, the court will determine the respective common-level ratio for each such year published by the State Tax Equalization Board on or before July 1 of the year prior to the tax year being appealed.

The court, after determining the property’s current market value for the tax year in question, must then apply the established predetermined ratio to that value, unless the common-level ratio varies by more than 15 percent from the established predetermined ratio, in which case the court shall apply the common-level ratio to the current market value for the tax year in question.

118

4-3.2

The board has the power and duty to present a prima facie case in support of its assessment, to cross-examine the taxpayer’s witnesses, to discredit or impeach any evidence presented by taxpayer, to prosecute or defend an appeal in any appellate court, and to take any other necessary steps to defend its valuation and assessment. The court, in arriving at actual value, must use the following methods in conjunction with each other: • • •

Cost reduction or replacement, less depreciation and all forms of obsolescence. Comparable sales. Income approach.

If the taxpayer has filed an appeal from an assessment and it is pending before the court, it will also be taken as an appeal by the taxpayer on the property for any valuation subsequent to the filing of the appeal. 4-3.2

Appraisal Report Exchanges

The court in In re Appeal of Penn-Delco School District, 903 A.2d 600 (Pa.Cmwlth. 2006), reviewed whether the exchange of appraisal reports was done correctly. The taxing school district in the case had filed an appeal to increase the assessment on the taxpayer’s property. Trial was scheduled for July 11, 2005. Three days before trial, the taxpayer received a supplemental appraisal report prepared by the school district’s expert appraiser. At trial, the taxpayer objected to this report on the basis that it was untimely. The trial court overruled the objection, but ordered the record to remain open for 20 days to provide the taxpayer the opportunity to submit a response to the supplemental report. On appeal, the taxpayer argued that the lower court erred in admitting the before the hearing. The taxpayer claimed that the timing of the disclosure caused prejudice because it lacked sufficient time to prepare proper cross-examination and that this defect was not cured by the trial court’s allowing the record to remain open for 20 days. The Commonwealth Court rejected this argument and found that the trial court had not abused its discretion. The appellate court held: Although the rules of civil procedure do not control statutory appeals, case law related to disclosure of expert reports informs our current analysis. The primary purpose of the rules for pre-trial disclosure of expert opinions is to avoid unfair surprise to an adversary concerning the facts and substance of an expert’s proposed testimony. Daddona v. Thind, 891 A.2d 786 (Pa. Cmwlth. 2006). The question of whether the permissible limits of testimony were violated is determined on a case by case basis, and the essence of the inquiry is fairness. Id. The question is whether the discrepancy between the expert’s pre119

Assessment Trial

trial report and his trial testimony is of a nature that would prevent the adversary from preparing a meaningful response, or which would mislead the adversary as to the nature of the appropriate response. Id. The opposing party must suffer prejudice as a result of the testimony going beyond the fair scope of the expert’s report before admission of the testimony is considered reversible error. Id. Here, the trial court properly admitted Appraiser’s supplemental report for two reasons. First, the report used the same evaluation criteria and methodology as Appraiser’s initial report, which was provided to Taxpayer approximately two years before trial. In fact, the supplemental report simply used updated information. As a result, Taxpayer was on notice of the criteria and methodology employed by Appraiser, and it enjoyed ample time to prepare an adequate cross-examination. In addition, the trial court held the record open providing Taxpayer an opportunity to present evidence in response to the supplemental report. Despite this opportunity, Taxpayer declined to submit any evidence. In light of Taxpayer’s failure to pursue an available remedy, we cannot conclude the trial court abused its discretion by admitting Appraiser’s supplemental report. Id. at 607. It is suggested that the remedy of the trial court in this case, although not an abuse of discretion, should have been to craft a different response. When an opponent offers new evidence or a new report the eve of trial, it is much fairer to grant a continuance sua sponte and give the receiving counsel and his or her expert a chance to study the document in depth, thus dissipating any hint of unfairness or prejudice that might develop from this last-minute document submittal. 4-3.3

Burden of Proof

Once the assessment appeals board establishes the prima facie validity of its assessment by placing its assessment on record into evidence, the burden of proof then shifts to the taxpayer to produce sufficient competent, credible, and relevant evidence to overcome the assessment’s prima facie validity. See Deitch Co. v. Board of Prop. Assessment Appeals & Rev. of Allegheny County, 209 A.2d 397 (Pa. 1965). 4-3.4

Role of the Trial Judge

The function of the trial judge in a tax assessment case is not to independently value the property, but to weigh the conflicting testimony and values expressed by the competing experts and arrive at a valuation based 120

4-3.6

on the credibility of their opinions. In re Harrisburg Park Apts., Inc., 489 A.2d 996 (Pa.Cmwlth. 1985). The trial judge is not an expert in valuing property, and is not free to substitute his or her own opinion for that of the experts based on independent evidence submitted by the parties. In re Appeal of Avco Corp., 515 A.2d 335 (Pa.Cmwlth. 1986). See In re Appeal of City of Pittsburgh, 541 A.2d 40 (Pa.Cmwlth. 1988). 4-3.5

Motion for View

In all assessment trials, a party should file a motion pursuant to Pennsylvania Rule of Civil Procedure 219 to have the judge physically inspect the subject premises. A physical inspection is extremely important in order for the judge to accurately review the opposing contentions of the party’s appraisers. The old adage “a picture is worth a thousand words” is even more appropriate for a judge’s view of the premises. 4-3.6

Failure to Rebut Valuation Evidence

In 841 Associates v. Board of Revision of Taxes of City and County of Philadelphia, 674 A.2d 1209 (Pa.Cmwlth. 1996), the Commonwealth Court addressed whether a trial court in de novo tax assessment appeal may accept only part of the taxpayer’s expert testimony, but not the valuation, when the taxing authority fails to present rebuttal testimony. This case involved a 14-story office building in Philadelphia that was assessed at a fair market value of $43.2 million for tax year 1994. The city’s tax revision board reduced the assessment after a hearing to $37 million. The owner, believing this value was still too high, appealed to the court of common pleas. At trial, the city introduced the property record card and the assessment into evidence, thereby shifting the burden of persuasion to the taxpayer. The property owner presented testimony of an expert appraiser who, using the comparable sales and income approaches to value, estimated $24 million as the fair market value of the property for the tax year in question. Using the income approach, the appraiser calculated a projected income stream based on existing current contract rents and developed a net operating income of nearly $4.9 million. The appraiser then selected a capitalization rate of 10.5 percent and a tax rate of 2.78 for a total rate of 13.28 percent. The appraiser then deducted capital expenses and arrived at a value of $25.5 million using the direct capitalization approach. The appraiser also performed a discounted cash flow analysis using a net operating income of $4.3 million. She then applied a capitalization rate of 10.5 percent and a present worth factor to this net operating income to arrive at a current fair market value of $25 million. Correlating the direct capitalization approach and the discounted cash flow analysis, the appraiser arrived at a reconciled current fair market value of $25 million for the subject property. 121

Assessment Trial

On cross-examination, counsel for the city asked the appraiser to apply a 13.28 percent capitalization rate to the net operating income arrived at under the discounted cash flow analysis. The appraiser said the mathematical calculations would produce a value of $32.7 million, but that she would not use the 13.28 percent capitalization rate. She stated that applying that rate would violate the Uniform Standards of Professional Appraisal Practice (USPAP) because it would not take into account the declining income stream. The city on rebuttal attempted to present evidence of a city property evaluator who had not appraised the subject property. The court sustained an objection to this testimony because the evaluator had no personal knowledge upon which to base an expert opinion. The city then rested and presented no other evidence. The trial court found some of the taxpayer’s expert testimony credible but specifically found that her capitalization rate was incorrect. The court applied the 13.28 percent rate to the income arrived at under the discounted cash flow analysis and arrived at a value of $32.7 million. The only evidence concerning this rate was that developed on cross-examination, when the appraiser said 13.28 percent was not an appropriate rate. The Commonwealth Court reversed the decision and held that the lower court exceeded its authority by refusing to accept the witness’s capitalization rate when the city had not presented any rebuttal evidence. The appellate court stated: A trial court in tax assessment cases has the option of not finding the taxpayer’s expert witness credible and relying on the taxing authority’s original assessment. But a trial court does not have the option of determining that the witness was credible and then picking and choosing among the numbers discussed during her testimony to set a new valuation. Here, the trial court found [the appraiser’s] testimony to be competent and relevant and that she was a credible witness; however, it did not accept her expert valuation of the property, instead, erroneously adopting one number from part of one method of determining fair market value. If the expert witness is credible, then the unrebutted evidence of valuation given by the witness must be accepted by the trial court. . . . It is the expert’s valuation that the trial court must accept not just a piece of her testimony. This is particularly true here because the expert was merely doing a mechanical calculation as requested by counsel on cross-examination, and she stated that it would be an improper calculation on which to base an opinion of value. Id. at 1214. 122

4-3.6

In Green v. Schuylkill County Board of Assessment Appeals, 730 A.2d 1017 (Pa.Cmwlth. 1999), aff’d, 772 A.2d 419 (Pa. 2001), the Commonwealth Court overruled its own opinion in 841 Associates. In Green, the property was assessed at a fair market value of $612,580 pursuant to a 1997 countywide reassessment. The property owners appealed to the assessment appeals board and to the court of common pleas. At trial, the board placed the assessment card into evidence and rested. The taxpayers presented testimony from an expert residential real estate appraiser, Anthony Matsell, who estimated the fair market value of the property at $360,000. The county’s attorney cross-examined Matsell. The taxpayers presented no other evidence and rested. The county offered no rebuttal testimony, and the court heard argument from the attorneys. The taxpayers’ counsel handed the court a brief based on 841 Associates and argued that since no rebuttal testimony was offered, the court, unless it found Matsell to lack credibility, must accept his opinion of value because there was no evidence in the record to the contrary. The court agreed ordered the assessment reduced to $360,000. The court stated: Although we found the testimony of Mr. Matsell to be somewhat suspect, we are unable to conclude that it completely lacks credibility. Thus because the [taxpayers’] evidence is unrebutted, we are constrained to accept the valuation of the expert. 841 Associates v. Board of Revision, 674 A.2d 1209 (Pa.Cmwlth. 1996). Id. at 1018. On appeal, the en banc Commonwealth Court overruled its decision in 841 Associates and held as a rationale: Although it might be argued that the court below painted 841 Associates with too broad a brush, the plain language of our opinion in that case supports the trial court’s approach. Thus, after panel argument, we listed the case for reargument before the court en banc to revisit the issue of the trial court’s authority regarding expert testimony in tax assessment cases. Followed literally, 841 Associates imposes upon the trial court the Hobson’s Choice that it must either credit or discredit an unrebutted expert’s testimony in its entirety, and mandates that the trial court must accept an expert’s final valuation even where it has found incredible one or more component(s) of the testimony necessary to calculate that value. Upon reargument, we have determined that 841 Associates must be overruled. *

*

*

Put another way, the testimony of an expert in an assessment appeal is to be evaluated in the same manner as any other expert witness, and unrebutted expert testimony is to be judged 123

Assessment Trial

in the same manner as that of conflicting experts. Specifically, the fact-finder may accept all, none or part of an expert’s testimony, part of one expert’s testimony and part of another’s. Appeal of Avco Corp., 100 Pa. Commw. 616, 515 A.2d 335, 338 (Pa. Cmwlth. 1986). The court’s function is not to independently value the property, but to determine a value based upon competent and credible evidence. Appeal of F.W. Woolworth Co., 426 Pa. 583, 585, 235 A.2d 793, 795 (1967); County of Monroe v. Bolus, 149 Pa. Commw. 458, 613 A.2d 178, 181 (Pa. Cmwlth. 1992). Accordingly, whether drawn from the testimony of one unrebutted expert or that of multiple experts, the only constraint upon the fact-finder’s determination of fair market value is that it must be supported by expert testimony found to be credible, and may not be based, even in part, upon the assessment record once any expert testimony is credited. Deitch. Based upon the foregoing, we reverse the trial court’s determination of fair market value. On remand, the trial court must determine the weight to accord the expert’s testimony and, based upon the evidence of record found to be credible, determine the fair market value for the property at issue. Id. at 1020–22 (emphasis in original). The appellate court, in the short span of three years, totally reversed itself on a major issue in assessment law. The Pennsylvania Supreme Court affirmed Green and swept 841 Associates into history. 4-3.7

Adverse Party Overcoming the Assessment Presumption

In Craftmaster Manufacturing, Inc. v. Bradford County Board of Assessment Appeals, 903 A.2d 620 (Pa.Cmwlth. 2006), the court examined what occurs when a taxpayer presents evidence insufficient to overcome his or her burden of persuasion and the taxing authority has presented rebuttal testimony of fair market value. In this case, Craftmaster Manufacturing, Inc., appeal its $13.96 million assessment valuation for tax year 2004, and a trial was held on April 18, 2005. The assessment board introduced the assessment into the record, and the burden then shifted to the taxpayer. Craftmaster presented testimony from an expert appraiser who estimated the property’s fair market value at $6.2 million. After Craftmaster rested its case, the county made no objections or motions that disputed that the taxpayer had overcome the assessment and proceeded to present its own rebuttal evidence in the form of an expert opinion by an appraiser. The county’s expert opined that the property value was $13.56 million. The court found that Craftmaster failed to prove that the property was incorrectly assessed and issued an order finding 124

4-3.7

that the implied fair market value must remain at the original assessment of $13.96 million, even though the county’s own expert found that number to be incorrect. The trial court had weighed the experts’ opinions and found the taxpayer’s expert’s testimony to be unpersuasive and based partly on a legal error. Since the taxpayer had failed to rebut the persuasive validity of the assessment record, “no further inquiry was required.” Id. at 635. On appeal, the Commonwealth Court found that the lower court was incorrect in, at a minimum, accepting the county’s appraisal. The court held: Here, [Craftmaster’s appraiser] testified. At that point, the County chose not to rely solely on its assessment record in the face of Craftmaster’s countervailing evidence. In other words, it was not willing “to run the risk” of having Craftmaster’s proof believed by the court. The County presented its own evidence which actually contradicted the official assessment. Although this Court has found no similar case, it does not hesitate to conclude that the presumption of the initial assessment’s validity ended at that point, with the County’s admission that the fair market value was less than its official assessment. The presumption of the validity of the official assessment only remains until overcome. Here, although the official assessment may not have been overcome by Craftmaster’s evidence, it was overcome by the County’s evidence that the Property’s fair market value was lower than originally assessed. Once the County came forward with that evidence, the trial court had no basis to refuse to reduce the assessment. When this circumstance occurs the trial court must arrive at a fair market value based on the credited evidence. Id. at 635–36 (emphasis in original). The Commonwealth Court cited Craftmaster in Expressway 95 Business Center, LP v. Bucks County Board of Assessment, 921 A.2d 70 (Pa.Cmwlth. 2007). In this case, the taxpayer appealed the assessments on its property for tax year 2004, and then tax years 2005 and 2006 were incorporated into the appeal by operation of law. A local school district intervened in the case. When the trial began, the assessment records were placed into evidence for the years in question. The total value of the assessment on the properties was $13.8 million. The taxpayer presented expert appraisal evidence only for tax year 2004, which indicated a value of $9 million. At the conclusion of trial, the school district filed a motion to dismiss the appeal for tax years 2005 and 2006 because no evidence had been pre125

Assessment Trial

sented to overcome the assessment for those years. The trial court denied the motion. The school district presented rebuttal testimony of an expert appraiser who valued the properties at $11 million for 2004, $12.3 million for 2005, and $12.6 million for 2006. The trial court found the appraiser’s testimony to be convincing and persuasive, and the taxpayer’s expert’s testimony to not be believable. The court fixed the 2004 assessment at $11.3 million. For tax years 2005 and 2006, the court dismissed the taxpayer’s appeals for failure to produce competent, credible, and relevant evidence to overcome the validity of the assessment. The Commonwealth Court reversed and found that it was required to make rulings for tax years 2005 and 2006 based on the evidence of value produced by the school district’s expert. The court stated: Because all that Taxpayer offered regarding the fair market value for tax years 2005 and 2006 was speculative, even if he had been found credible, and because there was nothing more, we agree with the School District that Taxpayer failed to meet its burden to overcome the assessment for tax years 2005 and 2006. The issue then becomes whether the trial court erred in not adopting [the school district appraiser’s] opinion of value for tax years 2005 and 2006 rather than reinstating the Board’s assessment. Taxpayer argues, and we agree, that when the trial court found [the appraiser] credible and utilized his report to find the proper assessment for tax year 2004, it then should have also utilized his report for the other outstanding tax years. Sufficient, competent evidence as to the value of the property which eliminates the presumption that the Board’s assessment is correct does not have to come from the party challenging the assessment; it can come from any party. Id. at 77. These cases stand for the proposition that once credible rebuttal appraisal evidence is introduced in the record, it can be used to overcome the presumption of the validity of the assessment, even if the moving party had failed to meet its burden. It is clear that an adverse party must carefully consider when to present evidence and when to run the risk that the court will find the moving party’s evidence persuasive. 4-3.8

The Burden of Presenting Evidence Outside the Board’s Assessment to Rebut Taxpayer’s Presentation of Evidence

In Quad Associates v. Blair County Board of Assessment Appeals, 566 A.2d 1274 (Pa.Cmwlth. 1989), the court considered the reliance on the presumption of the assessment record itself to prove the validity of the as126

4-3.8

sessment. The court focused on the Pennsylvania Supreme Court’s decision in Deitch, 209 A.2d 397, which outlined the procedure to be followed by a trial court in assessment cases and stated: The procedure requires that the taxing authority first present its assessment record into evidence. Such presentation makes out a prima facie case for the validity of the assessment in the sense that it fixes the time when the burden of coming forward with evidence shifts to the taxpayer. If the taxpayer fails to respond with credible, relevant evidence, then the taxing body prevails. But once the taxpayer produces sufficient proof to overcome its initially allotted status, the prima facie significance of the Board’s assessment figure has served its procedural purpose, and its value as an evidentiary device is ended. Thereafter, such record, of itself, loses the weight previously accorded to it and may not then influence the court’s determination of the assessment’s correctness. . . . Of course, the taxpayer still carries the burden of persuading the court of the merits of his appeal, but that burden is not increased by the presence of the assessment record in evidence. Id. at 402 (emphasis added). In Quad Associates, the taxpayer ignored the fact that it may satisfy its burden of presentation without meeting its burden of persuasion. The taxpayer presented the testimony of an expert witness as evidence of the property’s fair market value. The trial court’s only finding with respect to the taxpayer’s evidence in the case stated: Testimony presented by appellant does not support a change in the market value, particularly as the 3/4 interest as stated in the deed, is the best evidence of the market value under the circumstances of this case. Quad Associates, 566 A.2d at 1278. The trial court determined that the taxpayer’s evidence did not support its position with respect to the property value. Despite the taxpayer’s protests to the contrary, a taxing authority may prevail before a trial court on an appeal from an assessment by simply presenting its assessment records. The taxing authority cannot rely solely on its assessment record in the face of countervailing evidence, however, unless it is willing to run the risk of the court’s believing the owner’s proof. Therefore, Quad Associates holds that, if a taxing authority is willing to rely solely on its assessment record, and the taxpayer presents evidence in its own case, there is no requirement that the taxing authority present any rebuttal testimony whatsoever. It may rely simply on the presumption of the validity of its assessment, obviously at its own peril, on the basis that the evidence presented by the taxpayer was insufficient and not credible to 127

Assessment Trial

persuade the court to accept it over the presumption of the assessment’s validity. 4-3.9

Surrebuttal Evidence in Assessment Cases

The order of proof in an assessment appeal is as follows: the taxing authority has the initial burden of providing sufficient evidence to establish a value for the property. This is usually shown through documentary evidence such as tax records, etc. The burden of proof then shifts to the taxpayer to establish, by competent testimony, the taxpayer’s value of the property. The taxing authority then has the opportunity to present rebuttal evidence as to the property value from its own expert. Given this order of proof, the taxpayer’s attempt to respond to the testimony of the taxing authority’s expert constitutes surrebuttal. As in the offering of rebuttal testimony, the admission of surrebuttal testimony is discretionary. The general rule is that, where such testimony could have been provided in the defendant’s case-in-chief, surrebuttal will not be permitted. In Mishkin v. Lancaster Redevelopment Authority, 293 A.2d 135 (Pa.Cmwlth. 1972), the court indicated that where rebuttal testimony could have been provided during the proponent’s case-in-chief, the trial judge may use discretion to bar the testimony. In Pittsburgh Des Moines Steel Co. v. McLaughlin, 466 A.2d 1092 (Pa.Cmwlth. 1983), the taxpayer objected to the trial court’s exclusion of surrebuttal testimony that was designed to impeach the credibility of the taxing authority’s expert witness. Although much of the case was decided based on an Allegheny County rule of civil procedure, the court found independent grounds to exclude such testimony. Because the taxing authority’s expert had provided a written report before trial, the court concluded that the taxpayer could have attacked the expert’s credibility and/or conclusions in its own case-in-chief. As it failed to do so, the Commonwealth Court held that trial court’s decision to exclude such testimony was appropriate. 4-3.10

The Court’s Inherent Statutory Power to Increase Assessments after Trial

Does the court of common pleas have inherent statutory ability to increase an assessment after trial? The Commonwealth Court answered this question in the affirmative in Meadowbrook Properties, Inc. v. Board of Assessment Appeals of Montgomery County, 388 A.2d 1110 (Pa.Cmwlth. 1978) (Meadowbrook I). In this case, the county assessed Meadowbrook Properties, Inc.’s property for tax year 1975 at $1.82 million. The common pleas court, after hearing expert testimony from both sides, increased the assessment to $2 million. The Commonwealth Court affirmed. The county and the taxing school district then sent Meadowbrook revised real estate tax bills based on the $2 million assessment value Mead128

4-3.10

owbrook had paid the real estate taxes based on the previous assessed value and refused to pay the increased taxes. Liens were subsequently filed against Meadowbrook for unpaid taxes, and Meadowbrook filed exceptions to the liens with the assessment board. The board denied Meadowbrook’s exceptions as to 1975 taxes but sustained the exceptions as to the 1976 and 1977 taxes. Meadowbrook appealed the board’s determination to the court of common pleas, contending that the board erred in denying its exceptions to the lien for 1975 taxes. The school district filed an answer to Meadowbrook’s petition and challenged the board’s granting of Meadowbrook’s exceptions to the 1976 and 1977 tax liens. The court affirmed the board’s denial of Meadowbrook’s exceptions to the 1975 tax liens but reversed as to the granting of exceptions to the 1976 and 1977 liens, specifically finding that the county and the school district properly sent Meadowbrook revised tax bills when its assessment was increased as a result of a court appeal. Subsequently, Meadowbrook appealed to the Commonwealth Court. The appellate court, in In re Appeal of Meadowbrook Properties, Inc. 492 A.2d 766 (Pa.Cmwlth. 1985) (Meadowbrook II), specifically addressed the statutory authority of the county and the school district to increase Meadowbrook’s real estate taxes as a result of an assessment increase after an appeal from an assessment where no taxing authorities appealed the original assessment. The court held in this regard: We now turn to Meadowbrook’s major contention which is that the taxing districts were without statutory authority to raise the real estate taxes on its complex as a result of an assessment increase which occurred following its appeal of the original assessment. We disagree. Section 519 of the General County Assessment Law (Assessment Law), Act of May 22, 1933, P.L. 853, as amended, 72 P.S. § 5020-519, quite clearly permits increased real estate taxes following a change in the assessment resulting from an appeal. Specifically, the statute states that an appeal shall not prevent the collection of the taxes upon the assessment fixed or allowed by the judgment of the common pleas court upon a taxpayer appeal. Likewise, had Meadowbrook been successful in challenging its original assessment, it would have been entitled to receive a refund of the excess taxes paid as a result of a decreased assessment. As the statute clearly permits taxing authorities to adjust real estate taxes, either upward or downward, as a result of a change in assessment following a common pleas appeal, both the County and the District properly sent Meadowbrook revised tax bills based upon the assessment found by the common pleas court which was affirmed by this Court in Meadowbrook I. 129

Assessment Trial

We now turn to Meadowbrook’s final contention which is that the increased assessment of Meadowbrook I did not affect the assessment for the tax years 1976 and 1977. As with its other contentions, this argument is without merit. Section 9 of the Act of June 26, 1931, P.L. 1379, as amended, 72 P.S. § 5350, provides that where a taxpayer takes an appeal from an assessment, the appeal shall also act as an appeal by the taxpayer for any valuation or assessment subsequent to the filing of the appeal with the Board and prior to the determination of the appeal by the courts. Here, Meadowbrook’s initial appeal of its 1975 assessment was not finally determined by the courts until the Pennsylvania Supreme Court denied allocatur on Meadowbrook I in 1979. As Meadowbrook’s assessment appeal was not finally determined by the courts until 1979, its appeal of its 1975 assessment also acted as an appeal of the 1976 and 1977 assessments. Therefore, the increase in assessed value from $1,824,700 to $2,000,000 applied not only to the 1975 tax year but to the 1976 and 1977 tax years as well. Id. at 768 (emphasis in original). Therefore, the Commonwealth Court reasoned that in a trial de novo of an assessment case, the common pleas court has the inherent statutory power to increase an assessment. 4-3.11

Findings of Fact in the Trial of an Assessment Appeal Case

In Harrisburg Park, 489 A.2d 996, the Commonwealth Court dealt with the requirement that the trial court make specific findings of fact in the trial of an assessment case. The court stated: Our scope of review in a tax assessment appeal is restricted to a determination of whether the trial court committed an error of law or abused its discretion in deciding the property’s fair market value. Mellon Bank, N.A. Appeal, 78 Pa. Commonwealth Ct. 463, 467 A.2d 1201 (1983). In a tax assessment appeal, the trial court is the finder of fact. Kriebel Tax Assessment Case, 79 Pa. Commonwealth Ct. 466, 470 A.2d 649 (1984). Where both the taxpayer and the Board have presented evidence of current fair market value, the trial court determines the credibility and evidentiary weight of the testimony. Appeal of Chartiers Valley School District, 67 Pa. Commonwealth Ct. 121, 447 A.2d 317 (1982), appeal dismissed, 500 Pa. 341, 456 A.2d 986 (1983). The trial court’s findings “must be given great force and will not be disturbed unless

130

4-3.11

clear error appears.” Mellon Bank, N.A. Appeal, 78 Pa. Commonwealth Ct. at 466, 467 A.2d at 1202. Id. at 997. In this case, the Dauphin County assessment appeals board determined an apartment complex’s fair market value to be $1.3 million. The property owner appealed to the common pleas court, where both parties presented expert testimony on the value of the apartment complex. The court affirmed the board’s assessment, and the taxpayer appealed to the Commonwealth Court, which found that the lower court erred because it did not make any findings of fact. The appellate court cited Deitch 209 A.2d at 403, as clarifying the standard to be applied by the trial court in performing its de novo review of the assessment: [I]n determining the correctness of the assessment in the present case, the court below must first decide on the basis of the competent, credible, and relevant evidence produced by all parties, what the fair market value of the property involved is. . . . Secondly, the court must determine the appropriate ratio of assessed value to market value which exists in [that] county. The court must then apply the ratio thus found to the market value of the property in order to arrive at the proper assessment. The Commonwealth Court added: Although the trial court independently received and considered the evidence, it made none of the findings required by Deitch. We cannot infer from the trial court’s recognition of the accuracy of the Board’s assessment that the trial court would have arrived at the same calculation. Harrisburg Park, 489 A.2d at 997–98. Therefore, the court remanded the case to the trial court to make specific findings of fact as outlined in Deitch. The Commonwealh Court concluded that the court of common pleas must, in every assessment tax appeal, make determinations of the record on two issues in order to arrive at the proper assessment: (1) the fair market value of the property involved and (2) the appropriate ratio of assessed value to market value. The trial judge must articulate these determinations on the record as findings of fact. Once the judge makes these determinations, the appellate court is limited to reviewing the record and, unless clear error appears, must sustain the findings of the lower court.

131

Assessment Trial

4-3.12

Motions In Limine in Tax Assessment Trials

In County Amusement, 692 A.2d at 301, n.7, the Commonwealth Court held that motions in limine were not appropriate in assessment appeals that are nonjury proceedings: We wish to point out that the use of a motion in limine where, as here, the matter is to [be] tried by the court without a jury, is, at best, tenuous given that a motion in limine is a pre-trial application before a trial court made outside the presence of a jury, requesting a ruling or order from the trial court prohibiting the “opposing counsel from referring to or offering into evidence matters so highly prejudicial to the moving party that curative instructions cannot alleviate an adverse effect on the jury.” Commonwealth v. Noll, 443 Pa. Superior Court 602, 662 A.2d 1123 (1925) citing Black’s Law Dictionary 914 (5th ed. 1979). (Emphasis added). See also Richland Sch. Dist. v. County of Cambria Bd. of Assessment Appeals, 724 A.2d 988 (Pa.Cmwlth. 1999). 4-3.13

Objections to Assessment Evidence

The Commonwealth Court, in RAS Development Corp. v. Fayette County Board of Assessment Appeals, 704 A.2d 1130 (Pa.Cmwlth. 1997), addressed the waiver of evidence in an assessment trial. In this case, the taxpayer argued that the trial court had considered “incompetent and irrelevant evidence” in determining the value of the subject property. The taxpayer claimed that the county’s expert had used dissimilar sales in his sales comparison approach. The appellate court rejected this argument on two grounds: (1) it is well settled that all matters of credibility and evidentiary weight are within the exclusive province of the trial court and (2) the taxpayer had failed to object to the admission of this evidence at trial and had therefore waived any objection. The court stated: [The taxpayer] never objected to the admission of this allegedly irrelevant evidence during the hearing, and because a party who does not object to the admission of evidence when it is presented is deemed to have waived any objections thereto, e.g., Commonwealth v. Colson, 507 Pa. 440, 490 A.2d 811 (1985), cert. denied, 476 U.S. 1140, 90 L.Ed.2d 692, 106 S. Ct. 2245 (1986), [the taxpayer] cannot now complain that such unobjected to evidence was improperly admitted. Id. at 1137. Practitioners should be aware of this holding when litigating a tax assessment appeal before the court. There are numerous items within an opponent’s appraisal report that may be legally inadmissible. Objections 132

4-4.1

should be pinpointed to the most egregious violations so as not to lengthen and delay the proceeding. Objecting to every jot and tittle of an appraisal report will inflame the trier of fact. Only where there is a clear and convincing case for objecting to part of an expert’s testimony or report should the matter be brought to the court’s attention. 4-4 4-4.1

Evidentiary Issues Hearsay Exception—Appraisal Reports

The admissibility of the testimony of expert appraisers who base their expert opinions on facts and information derived from others, and of which they themselves do not have personal knowledge, has been brought into question. When an expert witness bases an opinion on information gathered by an out-of-court declarant, will that opinion be stricken as inadmissible hearsay? The Pennsylvania appellate courts have answered this question in the negative and carved out an exception to the hearsay rule. In Pittsburgh Outdoor Advertising Corp. Appeal, 272 A.2d 163 (Pa. 1970), an eminent domain case, a valuation expert’s testimony was based on information gathered by others. The Pennsylvania Supreme Court dealt with the competency of the testimony of one party’s appraisal expert. The expert witness relied on a written appraisal report of a qualified engineering firm in determining the value of billboards based on reproduction costs less depreciation. No copy of the engineering report had been furnished to the other party in the matter, and no representative of the engineering firm was called as a witness. The Supreme Court stated: The use by a testifying valuation expert of facts and figures derived from others and of which he himself does not have personal knowledge occurs frequently and is not a new development. To require direct personal knowledge by the expert witness of every element going to make up an appraisal figure would be to require the impossible. That there may thus be some hearsay evidence comprised within opinion evidence is undeniable. The components of an expert’s opinion, however, go to weight, not admissibility. Id. at 166. In B.P. Oil Co. v. Delaware County Board of Assessment Appeals, 539 A.2d 473, 476 (Pa.Cmwlth. 1988) the Commonwealth Court applied the doctrine outlined in Pittsburgh Outdoor Advertising and stated that “ ‘use of facts and figures derived from others’ was appropriate in the circumstances of this case.” Therefore, an expert appraiser may rely on facts and figures derived by others, which are contained in the appraisal report, for the basis of giving an expert opinion on valuation of real property. In Millcreek Township School District v. Erie County Board of Assessment Appeals, 140 A.3d 737 (Pa.Cmwlth. 2016), the Commonwealth Court 133

Assessment Trial

held that the trial court erred in admitting an appraiser’s reports because there was no evidence that the appraiser was the property owner’s representative. At trial, the school district’s appraiser and the property owner’s appraiser each testified to the highest and best use and the value of the properties for 2005 to 2014. After the property owner rested its case-inchief, the school district offered as rebuttal evidence the certified copy of the property owner’s pretrial narrative statement in an earlier tax assessment case, which contained appraisal reports from another appraiser regarding the same properties for tax years 1994 to 1997. The property owner objected to the rebuttal evidence as hearsay, but the court admitted the reports pursuant to the hearsay exception in Pa.R.E. 803(25). The Commonwealth Court noted that Pa.R.E. 801(c) provides that hearsay means “a statement that (1) the declarant does not make while testifying at the current trial or hearing; and (2) a party offers in evidence to prove the truth of the matter asserted in the statement.” The court also noted that Pa.R.E. 803(25) provides: The following are not excluded by the rule against hearsay, regardless of whether the declarant is available as a witness: *

*

*

(25) An Opposing Party’s Statement. The statement is offered against an opposing party and: (A) was made by the party in an individual or representative capacity; (B) is one the party manifested that it adopted or believed to be true; (C) was made by a person whom the party authorized to make a statement on the subject. The Commonwealth Court held that the property owner merely hired the previous appraiser to prepare appraisal reports, and there was no support in the record for the trial court’s determination that the previous appraiser acted in a representative capacity or was the person designated by the property owner to relate its position. Accordingly, the appellate court found that the trial court erred in admitting the reports reports as a statement made on behalf of the property owner under Pa.R.E. 803(25). The court also found that the previous appraisal reports were not relevant to the value of the properties for calendar years 2005 through 2014 because they involved calendar years 1994 through 1997.

134

4-4.3

Practice Tip: If during discovery the opposing party requests appraisal reports involving the subject property for years not under appeal and prepared by a different appraiser from the current appraiser of the property, do not provide the requested reports pursuant to relevancy and cite to Millcreek Township, 140 A.3d 737.

4-4.2

Weighing Credibility of Expert Witnesses

In determining the credibility of an expert witness and the weight of the testimony, the fact finder treats the expert as any other witness and applies the same standards. The fact finder may believe all or none of the expert’s testimony, or part of one expert’s testimony and part of another expert’s testimony. The fact finder should consider the method by which the expert reached a conclusion. The fact finder is not bound to accept the expert’s testimony merely because it is the testimony of someone having special skill or knowledge. All the components that the expert considered are matters that the fact finder considers in determining the persuasive quality of the testimony. The fact finder weighs the experts’ opinions against one another in order to determine credibility and weight. Avco, 515 A.2d 335. 4-4.3

Evaluation of Expert Testimony

In In re Appeal of Duquesne Club, 498 A.2d 459 (Pa.Cmwlth. 1985), the Commonwealth Court handed down a decision pertaining to the admissibility of expert testimony on property evaluations. The Duquesne Club, a private club in Pittsburgh, appealed its assessment to the Allegheny County assessment appeals board for tax years 1981 and 1982 and then to the court of common pleas. Also placed before the court was the assessment for tax year 1983. All the parties agreed that the assessment ratio to be applied to the fair market value for all three years was 25 percent. Subsequently, the trial court decided on the property’s fair market value for the three years in question. The city, unsatisfied with the result, appealed to the Commonwealth Court. The city argued that the lower court erred by not striking the testimony of the club’s expert, E. Rod Lenhart, in regard to the 1983 assessment The city 72 P.S. § 5452.4(a.2), which required the board to consider in conjunction with each other three approaches to valuation: cost, comparable sales, and income. The city contended that because Lenhart used only the comparable sales approach, his testimony was incompetent. The salient issue was whether the lower court acted properly when it heard Lenhart’s testimony dealing with only one of the three statutorily mandated valuation approaches. This issue was not relevant for tax years 135

Assessment Trial

1981 and 1982 because the statutory authority upon which the city relied was enacted in December 1982 and therefore was not effective until tax year 1983. The Commonwealth Court affirmed, stating: We must uphold the trial court’s action. Mr. Lenhart’s failure to utilize all three approaches does not render his testimony incompetent. The statute does not require expert testimony to consider all three approaches. It only requires the Board to consider all three approaches in conjunction. The trial court, as fact finder, was aware of the approach used in Mr. Lenhart’s appraisal and was empowered to decide the weight to be accorded to such testimony. Absent an abuse of discretion or error of law, the trial court’s credibility determinations are binding on this Court. Pittsburgh-Des Moines Steel Co., Inc. v. McLaughlin, 77 Pa. Commonwealth Ct. 565, 466 A.2d 1092 (1983). We find no such error, and hold that Mr. Lenhart’s testimony for the 1983 appraisal was properly admitted. Duquesne Club, 498 A.2d at 462. The court held that the testimony of an expert as to property valuation cannot be stricken and rendered inadmissible merely because the expert does not use all three statutorily mandated methods for determining value. The expert’s failure to address all three factors goes not to the testimony’s admissibility, but rather to the weight the trial court must give it. By law, the fact finder must consider all three approaches to value, and an expert who does not address all these factors will be permitted to testify, but the fact finder must determine the appropriate weight of the testimony. Therefore, an expert who appears before an assessment appeals board and/or common pleas court may be permitted to testify even though he or she does not consider all three approaches to value, but this factor will go to the weight and credibility of the testimony. Clearly, the fact finder, before rendering an opinion, must view all three approaches in conjunction in order to comply with the statute. 4-4.4

Use of Federal Income Tax Depreciation Schedules as Evidence in an Assessment Trial

The Commonwealth Court ruled in In re Ames Shopping Plaza, 476 A.2d 1001 (Pa.Cmwlth. 1984), that a determination of depreciated value that appeared on a taxpayer’s federal income tax return was irrelevant in assessment proceedings. The court explained its rationale for this ruling: Even if the trial court had focused on a tax return figure which reflected the value of the entire property, with improvements depreciated for income tax purposes, we would be bound to regard that figure as irrelevant to a determination of fair mar136

4-4.5

ket value. Market value is “the price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied.” Buhl Foundation v. Board of Property Assessment, 407 Pa. 567, 570, 180 A.2d 900, 902 (1962). A depreciated value (i.e., adjusted basis) for real estate with improvements as stated in a federal income tax return is not fairly comparable to market value, even for the year of that return, because it is a figure developed by subtracting depreciation, according to federal income tax regulations, from the original cost (basis). Federal income tax laws provide for a variety of depreciation methods, and we cannot say that pursuing any one of them leads to present market value. Id. at 1004. Therefore, the depreciated value of improvements on real property that appear in a federal income tax return are not admissible as credible evidence of fair market value. 4-4.5

Admission of Evidence on Expert Opinions

In Betters v. Beaver County, 200 A.3d 1044 (Pa.Cmwlth. 2018), the Commonwealth Court affirmed the trial court’s determination that Beaver County’s base-year method of property valuation violated the Pennsylvania Constitution’s uniformity clause and the Consolidated County Assessment Law, 53 Pa.C.S. § 8801, and ordered the county to complete a countywide reassessment by 2020. The county had argued that the trial court erred by refusing to exclude objected-to expert testimony and by determining that the taxpayers were entitled to relief even though they did not introduce any evidence that they suffered specific harm to their properties. In 2015, the taxpayers filed a complaint in mandamus to compel the county to perform a countywide reassessment, which had not been done since 1982. They alleged that the county had been using insufficient and outdated property valuation methods that were grossly inequitable and nonuniform. During a nonjury trial, the taxpayers offered testimony from two expert witnesses regarding expert conclusions pertaining to data compiled by two of their colleagues who did not testify. That data was used to determine that the county had a coefficient of dispersion of 34.5 percent, which the taxpayers claimed indicated that the county’s system of tax assessment was not uniform. The county objected to the conclusions during trial, arguing that they were hearsay because the data collectors did not testify and thus there was not a proper foundation for the experts’ conclusions. The trial court overruled the objections and ultimately found that the county’s base-year valuation method violated the uniformity clause and the assessment law because it did not accurately and uniformly reflect the proper assessed values of the parcels in the county. 137

Assessment Trial

On appeal, the county argued that the trial court erred by admitting the expert conclusions into evidence because the facts upon which the experts relied were not articulated or made part of the record under Pennsylvania Rule of Evidence 705. The Commonwealth Court noted that in Commonwealth v. Thomas, 282 A.2d 693 (Pa. 1971), the Supreme Court permitted an exception to the rule, thus allowing experts to rely upon reports of others not in evidence, i.e., inadmissible hearsay, provided the reports were of a type customarily relied on by the expert in the field in forming opinions. Additionally, the Commonwealth Court mentioned that Pennsylvania Rule of Evidence 104 allows the rules of evidence to not apply when the judge is the fact finder. Accordingly, the court determined that the trial court did not err or abuse its discretion by admitting the expert testimony because the county chose not to subpoena the data gatherers and offered no basis upon which to conclude that the data was unreliable. The county had also argued that the trial court erred by denying its motions for nonsuit where the taxpayers failed to introduce any evidence of harm or damage personal to them. The Commonwealth Court quickly rejected this argument by concluding that the taxpayers challenged the entire statutory scheme of valuation in the county as violative of the uniformity clause, and thus under Clifton v. Allegheny County, 969 A.2d 1197 (Pa. 2009), evidence of personal harm or damage was not required. 4-5

Arbitration of Tax Assessment Cases

72 P.S. § 5020-518.1 provides that appeals to courts of common pleas may be referred by such courts to boards of arbitrators under 42 Pa.C.S. ch. 73, subchapter C, relating to judicial arbitration, or to boards of viewers under 42 Pa.C.S. ch. 21, subchapter E, relating to boards of viewers, in accordance with the rules and procedure prescribed by such courts. Sections 7361 and 7362 of the Judicial Code cover arbitration of civil matters before the state courts. Section 7361(a) permits courts to promulgate general rules or rules of court to require compulsory arbitration of certain matters. Section 7361(b) limits this authority. The Supreme Court, through Pennsylvania Rules of Civil Procedure 1301–1313, established rules regarding compulsory arbitration matters. The Commonwealth Court held in Savko v. Board of Property Assessment, Appeals & Review of Allegheny County, 516 A.2d 107 (Pa.Cmwlth. 1986), vac., 531 A.2d 576 (Pa.Cmwlth. 1987), that while the General County Assessment Law requires review of assessment appeals to be conducted de novo before a common pleas court, the initial direction of appeals to an arbitration board under common pleas court supervision does not conflict with this express requirement. Therefore, a court of common pleas can enact a local rule assigning all tax assessment appeals to arbitration.

138

4-6

4-6

Class Actions in Assessment Matters before Courts of Common Pleas

In the area of trial procedure the law is unclear on how the common pleas courts are to handle tax assessment class actions. The Pennsylvania Supreme Court established in Churchill, 575 A.2d 550, that the Rules of Civil Procedure do not apply to statutory appeals in general and to tax assessment appeals in particular. But in the tax assessment statutes, the only reference to class actions appears in 53 Pa.C.S. § 8844(d). In the absence in the tax code of any specifics as to the qualifications and limits of a class-action suit, it is reasonable to presume that the court will take notice of the Pennsylvania Rules of Civil Procedure governing class actions, Rules 1701 et seq., in coming to a reasoned conclusion. To that end, the following two rules are enumerated: Rule 1701. Definitions. Conformity. (a) As used in this chapter “Class action” means any action brought by or against parties as representatives of a class until the court by order refuses to certify it as such or revokes a prior certification under these rules. *

*

*

(b) Except as otherwise provided in this chapter, the procedure in a class action shall be in accordance with the rules governing the form of action in which relief is sought. Rule 1702. Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all members in a class action only if (1)

the class is so numerous that joinder of all members is impracticable;

(2)

there are questions of law or fact common to the class;

(3)

the claims or defenses of the representative parties are typical of the claims or defenses of the class;

(4)

the representative parties will fairly and adequately assert and protect the interests of the class under the criteria set forth in Rule 1709; and

139

Assessment Trial

(5)

a class action provides a fair and efficient method for adjudication of the controversy under the criteria set forth in Rule 1708.

Petitioners in a class-action suit in a tax assessment appeal that proceeds to trial should make reference to the above rules. First of all, Rule 1701(b) requires that the procedure in a class action be in accordance with the rules governing the form of action in which relief is sought. In an action brought on behalf of a class, it must appear that the relief sought will benefit the class in order for a court to determine whether the plaintiffs can fairly represent the interests of all class members. Adamson v. Pennsylvania Liquor Control Bd., 410 A.2d 392 (Pa.Cmwlth. 1980). The plaintiffs’ interests must be consonant with those of the other purported class members. Luitweiler v. Northchester Corp., 319 A.2d 899 (Pa. 1974). 4-7

Attorneys’ Fees and Costs in Assessment Appeals

Mansfield Hospitality L.P. v. Board of Assessment Appeals of Tioga County, 680 A.2d 916 (Pa.Cmwlth. 1996), involved the award of counsel fees to a taxpayer in an assessment appeal. The board had refused to schedule a hearing because the taxpayer did not answer all the questions on the appeal form. The taxpayer filed a writ of mandamus to the court of common pleas to compel the board to hold the hearing. The taxpayer alleged that the board had no authority to require any information beyond the statutory requirement that the taxpayer allege (1) it is aggrieved, (2) the location of the property, (3) the assessment, and (4) the address where the hearing notice should be sent. The taxpayer said that it had met all these requirements. It claimed that the board’s failure to provide an assessment hearing was egregious, grossly arbitrary, and unreasonable, entitling the taxpayer to attorneys’ fees under 42 Pa.C.S. § 2503(7). The court of common pleas granted the writ of mandamus and awarded the fees. Section 2503(7) allows allows the award of attorneys’ fees against a party whose conduct “during the pendency of a matter” or otherwise was arbitrary, vexatious, or in bad faith, but it does not generally apply to administrative tribunals. U.S. Steel Corp. v. Workmen’s Compensation Appeal Bd., 457 A.2d 155 (Pa.Cmwlth. 1983). The term “matter” as used in the statute has been interpreted previously to apply only to those matters pending or commencing in a court of the Unified Judicial System of the Commonwealth. This issue was appealed to the Commonwealth Court, which dismissed the appeal for untimely filing by the county, thereby upholding the award but failing to reach the merits of the legal argument. As discussed in previous chapters, overreaching by a board of assessment appeals is a serious matter that can have grave financial ramifications for the county government. Mansfield Hospitality illustrates that as140

4-7

sessment appeals boards cannot trample on the rights of property owners with impunity, but must follow the law as written by the General Assembly. The courts will not condone assessment boards’ overruling the legislative assessment scheme by local rule, and the possibility of sanctions does exist. As stated above, attorneys’ fees are not normally available for conduct at the administrative level but do exist at the trial court level when the conduct violates 42 Pa.C.S. § 2503(7). At present, there is no significant case law establishing what is gross, arbitrary, and unreasonable conduct in relation to a trial of an assessment matter before a common pleas court. In Feist v. Luzerne County Board of Assessment Appeals, 347 A.2d 772 (Pa.Cmwlth. 1975), numerous taxpayers brought an attack on assessment increases on their properties, claiming that those increases were discriminatory and resulted in nonuniformity of taxation. The trial court ruled in favor of the taxpayers, who then asked the court to order the government to pay their court costs. 72 P.S. § 5020-518.1 allows the court to apportion costs as it may direct. The trial court held on this issue: It is correct that the awarding of costs is a matter which may be considered to be within the equitable powers of the Court. However, the complete imposition of all expenses as requested by Appellant’s counsel is only done under the rarest of circumstances. Feist, 347 A.2d at 780. The court enumerated the three instances when attorneys’ fees and costs can be passed to the other party: (1) the “common fund” exception, where the plaintiff secures through litigation a fund to benefit a class of individuals, (2) the “obdurate behavior” exception, where a party acts in bad faith, such as where a defendant with great resources, but little law, on its side protracts the case to wear down its opponent financially, and (3) the “private attorney general” exception, where the end result of the litigation is to effectuate legislative policy. The court found none of these exceptions applied and refused to award attorneys’ fees, but it did assess the record costs, such as stenographer’s charges, to the county. Each party was required to pay its own counsel and witness fees.

141

5 Post-trial Motions and Appellate Review and Procedure

5-1

Appellate Court Appeals 72 P.S. § 5020-519 states: Any owner of real estate or taxable property in this Commonwealth, or any county, city, borough, town, township, school district or other public corporation having power and authority to levy taxes on the assessment of his real estate or taxable property in question, may appeal from the judgment, order or decree of any court of common pleas, in any matter affecting the assessment of taxes on said property: Provided, That the appeal shall not prevent the collection of the taxes upon the assessment fixed or allowed by such judgment, order or decree of the court of common pleas, but in case the same shall be reduced, then the excess shall be returned to the person or persons who shall have paid the same.

See also 53 Pa.C.S. § 8854(b). 5-2

Post-trial Motions

In jurisdictions that have not adopted the Pennsylvania Rules of Civil Procedure, the provisions of In re Appeal of Borough of Churchill, 575 A.2d 550 (Pa. 1990), require a party wishing to appeal a trial court’s decision in an assessment case to file an appeal to the Commonwealth Court within 30 days. Unless the trial judge specifically orders on the record or in writing that exceptions be filed with the lower court, a statutory appeal to Commonwealth Court is warranted. The appellate court held in Tanglwood Lakes Community Association v. Pike County Board of Assessment & Revision of Taxes, 642 A.2d 581 (Pa.Cmwlth. 1994), that in the absence of local rule the trial judge can make rules pertaining solely to the case at

143

Post-trial Motions and Appellate Review and Procedure

bar. In default of such rules, a direct timely appeal must be filed with the Commonwealth Court. In In re Appeal of Sheetz, Inc., 651 A.2d 563 (Pa.Cmwlth. 1994), tthe court reiterated the position in Churchill that post-trial motions are not permitted unless the trial judge requests them. “Absent record evidence that the trial court specifically requested post-trial motions subject matter jurisdiction cannot be conferred upon this Court by consent of the parties or by the tacit acquiescence of the trial court in ruling on uninvited posttrial motions.” Id. In jurisdictions that have adopted the Pennsylvania Rules of Civil Procedure, the appeal process must conform to Rule 227.1, which states: (a) After trial and upon the written Motion for Post-Trial Relief filed by any party, the court may (1)

order a new trial as to all or any of the issues; or

(2)

direct the entry of judgment in favor of any party; or

(3)

remove a nonsuit; or

(4)

affirm, modify or change the decision; or

(5)

enter any other appropriate order.

It is important to carefully scrutinize the lower court opinion in nonrule jurisdictions to make sure the judge has not invited exceptions or placed a procedural impediment prior to an appellate court filing. Where exceptions are mandated by the local rules or the rule of the case, this step must be exhausted before filing with the appellate court. 5-3

Post-trial Appellate Procedure

After the entry of final judgment by a court of common pleas in an assessment case, any party may appeal the court’s decision to the Commonwealth Court. Under the Pennsylvania Rules of Appellate Procedure, the lower court may order the appellant to submit a concise statement of matters complained of to it. After the filing of the appeal, each party will be given an opportunity to brief the issue and the law. Subsequently, oral argument will be scheduled before a panel of the Commonwealth Court. After the Commonwealth Court issues a decision, either the appellant or the appellee may petition the Pennsylvania Supreme Court for a discretionary allowance of appeal.

144

5-4

5-4

Standard of Appellate Review in Assessment Cases

Pennsylvania case law places the burden squarely on the appellant to show that the lower court’s findings of fact contained clear error. The appellate court’s review of those findings is limited, and the lower court’s decision cannot be disturbed unless clear error appears in the record. The Commonwealth Court stated in In re Appeal of New Castle Central Renewals Associates, 389 A.2d 225, 228 (Pa.Cmwlth. 1978): The case was tried without a jury, and the judge, as trier of fact, had the duty of passing upon the credibility and weight to be accorded all testimony in arriving in his own determination of fair market value. In conclusion, we repeat what we stated in Pocono Downs, Inc. v. Board for Assessment and Revision of Taxes ,[ 312 A.2d 452 (1973),] where we quoted Justice Patterson in Chestnut Street Tax Assessment Case, 361 Pa. 231, 234, 64 A.2d 769, 770 (1949): In tax assessment cases, the findings of the court below determining the value of the property will not be disturbed on appeal unless clear error is made to appear; Felin v. Philadelphia, 354 Pa. 317, 319, 47 A.2d 227 (1946). In Appeal of Cedarbrook Realty, Inc., 395 A.2d 613, 615 (Pa.Cmwlth. 1978), the court held: Our scope of review is limited here, of course, by the fact that the findings of a court of common pleas in a tax assessment case may not be set aside unless clear error appears. Pittsburgh Miracle Mile Town and Country Shopping Center, Inc., Tax Appeals, 6 Pa. Commonwealth Ct. 187, 294 A.2d 226 (1972). The court stated in Appeal of Chartiers Valley School District, 447 A.2d 317, 319–20 (Pa.Cmwlth. 1982): We must resolve two issues: first, whether the court below erred in law or abused its discretion in calculating the parcels’ respective fair market valuations; and second, whether the taxpayers had produced competent evidence rebutting the uniformity of the Board-established 50 percent assessment to market value ratio. We are mindful of our limited scope of review in these cases: the findings of the court below must be given great force and will not be disturbed unless clear error appears. New Castle Central Renewal Associates’ Appeal, 36 Pa. Commonwealth Ct. 584, 586, 389 A.2d 225, 228 (1978).

145

Post-trial Motions and Appellate Review and Procedure

The court held in In re Assessment Appeal of Bonin, 442 A.2d 43, 45 (Pa.Cmwlth. 1982): In a tax assessment appeal case where, as here, the court below has taken evidence, our scope of review is limited as follows: The court of common pleas is the fact finding body . . . [and] it is clear that the findings of the court of common pleas have great force and will not be set aside by this Court unless clear error is made to appear. . . . Nor will the appellate court disturb the findings and substitute its judgment for that of the court of common pleas, because it is clear that market value is a factual question to be determined by the trial court on the basis of expert testimony. (Citations omitted.) Marx Tax Assessment Case, 31 Pa. Commonwealth Ct. 496, 500, 377 A.2d 199, 200 (1977) (emphasis added) (quoting Park Drive Manor, Inc. Tax Assessment Case, 380 Pa. 134, 136–37, 110 A.2d 392, 394 (1955)). As to the appellant’s first contention that the county utilized an illegal method of assessment, our close examination of the record reveals no clear error by the court below in finding that proper methods were in fact utilized. For example, the county’s chief assessor testified at great length that factors other than replacement cost less depreciation were the major considerations actually used in determining fair market value. In short, the court below assigned great weight to this testimony and chose to disregard other conflicting testimony. We do not believe, however, that such disregard was capricious or in error but rather was a valid exercise by the lower court of its power to resolve conflicting evidence. Assessment Appeal of Penn Plastic Company, Inc., 62 Pa. Commonwealth Ct. 179, 435 A.2d 943 (1981). In Appeal of Penn Plastic Co., 435 A.2d 943 (Pa.Cmwlth. 1981), the taxpayer asserted that its property had not been assessed in uniformity with other properties in Washington County. The parties stipulated that the property’s fair market value was $2 million. The county assessed the property at $300,000, using a 15 percent common-level ratio At a hearing in the trial court, a consulting firm research analyst testified for the taxpayer that the median ratio of assessed value to market value was 7.7 percent, based on a sample of 402 property sales over two months. A retired mathematics professor testified in support of the analyst’s calculations. The assessment board’s expert witness, the president of a mass appraisal firm, examined realty transfers in Washington County for an entire year and ar146

5-5

rived at a common-level assessment ratio of 14.57 percent. Based on this testimony, the lower court upheld the $300,000 assessment. The Commonwealth Court, in affirming the lower court, held: In the instant case the taxpayer’s contention is merely a challenge to the trial court’s decision to accept as more credible and more weighty the view advanced by the witness for the taxing body. Like other challenges to a fact-finder’s resolution of the credibility and weight of conflicting evidence, this contention cannot prevail. Id. at 944. Therefore, appellants have the burden to show that a lower court’s findings of fact contain clear error; otherwise the decision of the court will be sustained. 5-5

Timeliness of a Taxing Authority’s Appeal to Commonwealth Court

Morrisons Cove Home v. Blair County Board of Assessment Appeals, 764 A.2d 90 (Pa.Cmwlth. 2000), examined a nonparticipating taxing district’s right to appeal a trial court decision to the Commonwealth Court. The Borough of Martinsburg and the Spring Cove School District appealed a common pleas court decision reducing an assessment to the Commonwealth Court. At the time, the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.706 (now repealed), provided that a taxing authority could appeal an assessment reduction to the appellate court even if it was not a party in the lower court. The assessment reduction was based on a settlement between the taxpayer and the county assessment appeals board and was approved by the common pleas court. On appeal, the borough and school district argued that the trial court could not base a decision in an assessment case on a settlement agreement without holding an evidentiary hearing. The Commonwealth Court never reached the merits of this issue but rather quashed the appeal on jurisdictional grounds. Pennsylvania Rule of Appellate Procedure 902 requires that a notice of appeal be filed with the clerk of the lower court within 30 days after the entry of the order from which the appeal is taken. The Commonwealth Court noted that the filing of a timely appeal was a jurisdictional requirement that must be met before an appellate court may consider the appeal. Berry v. Unemployment Comp. Bd. of Rev., 382 A.2d 487 (Pa.Cmwlth. 1978), aff’d, 411 A.2d 1198 (Pa. 1980). In this case, the court order approving the parties’ settlement was entered on the docket on January 18, 2000, and the borough and school district did not file their appeal until March 15, 2000. The appellants claimed that the assessment appeals board did not mail them notice of the court order until February 15, 2000. They argued that under 72 P.S. § 5453.703 (now repealed), they were entitled to appeal from the assessment within 147

Post-trial Motions and Appellate Review and Procedure

30 days from the date the board mailed the notice, and thus their appeal was timely. The Commonwealth Court rejected this contention and held: [F]or two reasons, we are unable to afford the taxing authorities any relief. First, although they have made representations on appeal as to the time and nature of notice given them (and the Borough has attached a copy of an envelope to its reply brief), the record is entirely silent on this issue. Moreover, even if the record established the factual predicate for appellants’ statutory argument, we would be barred as a matter of law from applying the act to the extent that it directly conflicts with Rule 902. Our constitution provides that “The Supreme Court shall have the power to prescribe general rules governing practice, procedure and the conduct of all courts. . . .” Further, “All laws shall be suspended to the extent that they are inconsistent with rules prescribed under these provisions.” Pa. Const. art. 5, § 10(c). Laws governing the judiciary and judicial procedure mirror these provisions. 42 Pa.C.S. § 1722. Therefore Section 703.1 is suspended to the extent that its provisions conflict with Rule 902. Morrisons Cove, 764 A.2d at 92 (emphasis in original). In a footnote, the court noted that the taxing authorities are not without a remedy and that where they are not given proper notice they may file an appeal nunc pro tunc with the lower court. The fundamental flaw with this decision is that the nunc pro tunc case puts an extremely heavy burden on the petitioner as to be almost impossible to meet in this factual situation: to show an administrative breakdown so severe as to amount to fraud. Mere dilatory conduct or negligence in mailing notices without some intentional mens rea cannot amount to fraud. See Connor v. Westmoreland County Bd. of Assessment Appeal, 598 A.2d 610 (Pa.Cmwlth. 1991). 5-6

Res Judicata and Collateral Estoppel in Assessment Appeals

In In re Appeal of Coatesville Area School District, 244 A.3d 373 (Pa. 2021), the Pennsylvania Supreme Court dealt with the situation where two taxing authorities undertook parallel challenges to a property’s partial tax exemption and only one of the taxing districts appealed the determination. The court held that neither res judicata nor collateral estoppel applied and that a resolution on the merits of the one taxing district’s appeal was not precluded. The court reasoned it was not clear the parties to the two actions were identical, that a final judgment in one case would 148

5-6

constitute a prior judgment for application of res judicata, or that applying the doctrines would prevent repetitive or abusive litigation. Additionally, the court held that appellate review would not necessarily result in inconsistent judgments, nor would an irreconcilable conflict necessarily follow from a ruling on appeal. The Coatesville Area School District and the city of Coatesville both appealed a decision of the Chester County Board of Assessment Appeals that the subject property, owned by Huston Properties, Inc., was entitled to a partial tax exemption because portions of the property were used for charitable purposes. The two appeals were consolidated for trial only. The trial court affirmed the partial exemption in two separate orders. Both the school district and the city appealed to the Commonwealth Court, which reversed and remanded to the trial court for additional findings. The trial court reaffirmed its earlier decision. At this point, the paths of the school district and the city diverged. While the school district filed a notice of appeal in its case, the city elected not to appeal. Thus, the trial court’s order in the city’s case became final. Because of the finality of that order, Huston Properties sought to quash the school district’s appeal in the Commonwealth Court. The Commonwealth Court agreed with the taxpayer that the city’s failure to appeal the order in its case precluded the school district from appealing. The Pennsylvania Supreme Court noted that four elements must be present for res judicata to apply: “an identity of issues, an identity of causes of action, identity of persons and parties to the action, and identity of the quality or capacity of the parties suing or being sued.” Id. at 385. The court also noted that collateral estoppel will apply only where the issue is the same as in the prior litigation, the prior action resulted in a final judgment on the merits, the party against whom the doctrine is asserted was a party or in privity with a party to the prior action, and the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the prior action. As for res judicata, the court found that “claim preclusion would serve no salutary purpose and would, instead, deprive a party of merits review based on the fortuity that the two virtually identical cases were deemed to have been consolidated for trial only and not for disposition.” Id. at 381. Therefore, the high court ruled that the Commonwealth Court improperly viewed res judicata as a barrier to resolving the school district’s appeal on the merits. Regarding collateral estoppel, the court found that Huston Properties did not argue that any distinct issue within the taxing authorities’ overall claim should have been foreclosed from resolution. Thus, because there was “little distinction between the two preclusive doctrines,” the court held that “issue preclusion under the rubric of collateral estoppel should not have been applied to defeat the School District’s ability to obtain merits review of its substantive arguments in the intermediate court.” Id. at 381–82. 149

6 Assessment Valuation Law

6-1

Tax Assessment and Real Estate Transfers

Generally, the sale or exchange of real estate will not affect the status of the assessment on the property. This basic rule is founded upon the statutory and constitutional theory that it is inequitable and unfair to change an assessment based upon a sale until every property in the particular county is brought up to market value pursuant to a countywide reassessment. An individual sale for a price that is above the indicated market value of the assessment is a definite indication that nearby unsold properties are also under-assessed. It would be discriminatory to change only the assessment on those properties that were under-assessed and sold while not altering the assessment on unsold under-assessed properties. A system that does this creates an unconstitutional disproportionality in taxation between sold and unsold properties, and between new and old owners. New owners of real estate are entitled to the same basic ratio of assessment to fair market value as the owners of similar unsold realty. Pennsylvania law does not permit this so-called “welcome stranger” increase in assessment upon sale. A practitioner should immediately see red flags when a client walks in with an assessment change notice received immediately after a deed had been recorded. In 99 percent of realty sales transactions, no change in assessment will be warranted under the law. If your client receives the “welcome stranger” increase, an immediate appeal to the appropriate board should be filed. It is important to note that this appeal must be filed within 40 days after the mailing date of the assessment change notice, also called an interim assessment notice. The filing should clearly note that the appeal is based on an illegal spot assessment. Improvements to real estate in Pennsylvania are not triggering events for a full reassessment of the property; the law allows the assessor to measure only the increase in property value due to the improvement. Assessment changes based on the unrealized economic increase in value unrelated to the improvement are strictly prohibited and constitute an illegal spot assessment under case law and statute. 151

Assessment Valuation Law

A sale or transfer of real estate will result in certain assessment timing issues affecting exempt status, condominium assessment, subdivision assessment changes, and “clean and green” violations. The “clean and green” assessment program bases property taxes on use values rather than fair market values. It generally applies to agricultural and forested land. Anyone structuring a sales agreement should be aware of the assessment law provision of nontaxation of equipment, and appropriate allocations should be made to take advantage of this tax break. Finally, it is incumbent upon an attorney representing a buyer in an arm’s-length real estate transaction to compare the existing assessment’s indicated fair market value of the property against the sales price. If the sales price is lower than the assessed market value, an appeal based on the sales price should be filed with the local assessment appeals board. Indicated market value is calculated by dividing the assessment value by the prevailing county ratio of assessment to fair market value. Where no assessment change has taken place, a taxpayer is entitled to appeal his or her assessment once a year. Except for two minor areas mentioned in chapter 2 of this book, the valuation provisions for the First and Second Class County Assessment Laws remain as previously legislated, while all other counties are now governed by the definitions contained in the Consolidated County Assessment Law. 6-2 6-2.1

General Valuation Law Statutory Authority under the Consolidated County Assessment Law

The Consolidated County Assessment Law addresses valuation of property at 53 Pa.C.S. § 8842(b), which states: (1) Except as set forth in paragraph (2), the following apply: (i)

In arriving at actual value, the price at which any property may actually have been sold, either in the base year or in the current taxable year, shall be considered but shall not be controlling.

(ii)

The selling price shall be subject to revision by increase or decrease to accomplish equalization with other similar property within the county.

(iii) In arriving at the actual value, the following methods must be considered in conjunction with one another:

152

6-2.2

(A)

Cost approach, that is, reproduction or replacement, as applicable, less depreciation and all forms of obsolescence.

(B)

Comparable sales approach.

(C)

Income approach.

(2) The valuation of real property used for the purpose of wind energy generation for assessment purposes shall be developed by the county assessor utilizing the income capitalization approach to value. The valuation shall be determined by the capitalized value of the land lease agreements, supplemented by the sales comparison data approach as deemed necessary by the county assessor. The lessee, or lessor on behalf of the lessee, shall provide the nonproprietary lease and lease income information reasonably needed by the county assessor to determine value by September 1. 6-2.2

Subjects of Taxation under the Consolidated County Assessment Law

53 Pa.C.S. § 8811(a) lists the subjects of real property assessment in Pennsylvania as follows: (a)

Subjects of taxation enumerated.—Except as provided in

subsection (b), all subjects and property made taxable by the laws of this Commonwealth for county, city, borough, town, township and school district purposes shall, as provided in this chapter, be valued and assessed at the annual rates, including all: (1)

Real estate, namely: (i)

houses;

(ii)

manufactured homes and mobile homes permanently attached to land or connected with water, gas, electric or sewage facilities;

(iii)

buildings permanently attached to land or connected with water, gas, electric or sewage facilities;

(iv)

lands, lots of ground and ground rents, trailer parks and parking lots;

(v)

mills and manufactories of all kinds, furnaces, forges, distilleries, sugar houses, malt 153

Assessment Valuation Law

houses, breweries, tan yards, fisheries, ferries and wharves; (vi)

all office buildings;

(vii) that portion of a steel, lead, aluminum or like melting and continuous casting structure which encloses or provides shelter or protection from the elements for the various machinery, tools, appliances, equipment, materials or products involved in the mill, mine, manufactory or industrial process; and (viii) telecommunication towers that have become affixed to land. (2) 6-2.3

All other things now taxable by the laws of this Commonwealth for taxing districts. Exclusions from Taxation

53 Pa.C.S. § 8811(b) lists the exclusions from property assessment in Pennsylvania: (b)

154

Exceptions.—The following are not subject to tax:

(1)

Machinery, tools, appliances and other equipment contained in any mill, mine, manufactory or industrial establishment shall not be considered or included as a part of the real estate in determining the value for taxation of the mill, mine, manufactory or industrial establishment.

(2)

Silos used predominantly for processing or storage of animal feed incidental to operation of the farm on which it is located, freestanding detachable grain bins or corn cribs used exclusively for processing or storage of animal feed incidental to the operation of the farm on which it is located and inground and aboveground structures and containments used predominantly for processing and storage of animal waste and composting facilities incidental to operation of the farm on which the structures and containments are located shall not be considered or included as part of the real estate.

(3)

No amusement park rides shall be assessed or taxed as real estate regardless of whether they have become affixed to the real estate.

6-3

6-3

(4)

No sign or sign structure primarily used to support or display a sign shall be assessed as real property by a county for purposes of the taxation of real property by the county or a political subdivision located within the county or by a municipality located within the county authorized to assess real property for purposes of taxation, regardless of whether the sign or sign structure has become affixed to the real estate.

(5)

No wind turbine generators or related wind energy appliances and equipment, including towers and tower foundations, shall be considered or included as part of the real property in determining the fair market value and assessment of real property used for the purpose of wind energy generation. Real property used for the purpose of wind energy generation shall be valued under section 8842(b)(2) (relating to valuation of property).

(6)

All high tunnels. Market Value

A property’s market value, or actual value, is defined as the price a purchaser, who is willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all its current and possible uses. Buhl Found. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 180 A.2d 900 (Pa. 1962). Many factors are considered in arriving at fair market value. One of the most important factors is the use of the subject property—not only the present use, but all the uses, including the highest and most profitable use to which the land is adaptable and available. The possible demand for such use affects the market value. Whitcomb v. Philadelphia, 107 A. 765 (Pa. 1919); Brown v. Forest Water Co., 62 A. 1078 (Pa. 1906); Olson v. United States, 292 U.S. 246 (1934). A real estate assessment for taxation purposes for one year is not res judicata and has no probative value on the issue of the property’s fair market value for assessment purposes for succeeding years. Rieck Ice Cream Co. Appeal, 209 A.2d 383 (Pa. 1965). In presenting his or her appeal of an assessment, the taxpayer must first offer proof of the market value of the property. For this purpose, many factors may be relevant. The determination must ultimately be made on the basis of competent testimony. Park Drive Manor, Inc. Tax Assessment Case, 110 A.2d 392 (Pa. 1955); Buhl Foundation, 180 A.2d 900. Recent sales of comparable properties are, of course, persuasive in helping 155

Assessment Valuation Law

to establish the market value, but the properties need not be identical. Comparisons may be based on location, age, income, expense, use, size, type of construction, and numerous other criteria. McKnight Shopping Ctr. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 209 A.2d 389 (Pa. 1965). 6-3.1

Highest and Best Use

In Pittsburgh Des Moines Steel Co. v. Board of Property Assessment, Appeals & Review of Allegheny County, 519 A.2d 1080, 1082 (Pa.Cmwlth. 1987), the court considered the concept of the “highest and best use” of a property and stated: Many factors are considered in arriving at fair market value. One of the most important factors is the use of the subject property—not only the present use of the property, but all of the uses including the highest and most profitable use to which the land is adoptable and available. The possible demand for such use affects the market value. Whitcomb v. Philadelphia, 264 Pa. 277, 107 A. 765 (1919); Brown v. Forest Water Co., 213 Pa. 440, 62 A. 1078 (1906); Olson v. U.S., 292 U.S. 246 (1934). The American Institute of Real Estate Appraisers defines “highest and best use” as: The reasonable and probable use that supports the highest present value, as defined, as of the date of the appraisal.1 For highest and best use of both land as though vacant and property as improved, a use must meet four criteria. The criteria are that the highest and best use must be (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive. These criteria should usually be considered sequentially; it makes no difference that a use is financially feasible if it is physically impossible to construct an improvement or if such a use is not legally permitted. Only when there is a reasonable possibility that one of the prior unacceptable conditions can be changed, it is appropriate to proceed with the analysis. For example, if current zoning does not accommodate a likely candidate for highest and best use, but there is a possibility that the zoning can be changed, the proposed use could be considered on that basis.2 1. 2. 156

American Institute of Real Estate Appraisers, The Appraisal of Real Estate (8th ed. 1983), 244. Id. at 249–50.

6-3.1

Many parcels of land are too large for their principal highest and best use. Land in addition to that which is necessary to accommodate a site’s highest and best use is called excess land. Such parcels may have, in effect, two highest and best uses—the primary highest and best use and the highest and best use for the remaining, or excess, land. In many cases, the highest and best use of excess land is for open space, or nondevelopment. In other cases, the highest and best use may be for some less intensive use. In any event, an appraiser should treat parcels having excess land as two separate parcels. The land that supports the site’s primary highest and best use has a higher unit value than the excess land, which is valued separately.3 Highest and best use analysis is a basic in an appraisal. It reflects an assumption about market behavior—that sellers will pay prices for properties that are derived from conclusions about the most profitable use of a site or a property. Thus, sites and improved properties tend to be put to their highest and best use. Two types of highest and best use are relevant—highest and best use of land or sites as though vacant and highest and best use of properties as improved. Improvements can be changed; therefore, land is valued under its highest and best use as though vacant, whether or not an existing improvement is a site’s highest and best use. Improvements that evidence any significant depreciation are precluded from being highest and best use of land as though vacant. In other words, such structures would not be replicated in their existing condition on the land if it were vacant, although the general use category often remains the same. The second type of highest and best use recognizes that most improvements should not be demolished and replaced, even though they may not be highest and best use of their sites as though vacant. Until the return from a new improvement will more than offset the return obtainable from the existing improvement, costs of demolition, and costs of constructing a new improvement, the existing improvement should be continued in service. As long as an existing improvement is retained, the highest and best use question is, How should the entire property be used to maximize its benefits or the income it pro-

3.

Id. at 265. 157

Assessment Valuation Law

duces? The answer to this question is termed the highest and best use of the property involved.4 6-3.2

Comparable Properties

An expert may testify about the sale of comparable properties as one of the factors that was considered in estimating the fair market value of the real estate. The theory is that if similar properties sold recently for a certain price, then the property in question would most likely sell for a similar price. Properties may be similar for comparison purposes without being identical, and a difference goes to the weight, i.e., the persuasive quality, of the expert’s testimony. The weight accorded to an expert’s testimony is for the fact finder to determine. Moodie v. Westinghouse Electric Co., 80 A.2d 734 (Pa. 1951); In re Appeal of Avco Corp., 515 A.2d 335 (Pa.Cmwlth. 1986). The fact that an expert may use the market data (comparable sales) approach does not relieve the trial court of its responsibility to control the admission of valuation evidence. Commonwealth v. 108.3 Acres of Land, 246 A.2d 124 (Pa. 1968). A sale of comparable property, if not too remote in time, has probative value and is admissible in evidence to determine the fair market value of the subject property. The effect to be given temporal remoteness is within the discretion of the trial court. Pittsburgh Des Moines Steel Co., 519 A.2d 1080. Since no two properties are exactly alike, an expert must adjust the sale price of the comparable property to account for condition, location, size, etc. Thus, adjustments play an important role in determining a property’s fair market value, particularly because so much depends on the expert’s judgment. Also, cross-examination of the expert as to how he or she arrived at the adjustment is important. The fact finder considers all these elements in determining how much weight to give to the expert opinion. See Cumberland Valley Sch. Dist. v. Cumberland County Bd. of Assessment Appeals, 557 A.2d 1178 (Pa.Cmwlth. 1989). 6-3.3

The Cost Approach to Value

The cost approach method of property value entails: (1) Estimating the value of the land assumed vacant and available for its “highest and best use.” (2) Estimating the facility’s reproduction cost, or “cost new,” through physical inspection of the property and use of accepted cost manuals.

4. 158

Id. at 266.

6-3.3.1

(3) Subtracting from the reproduction amount the facility’s depreciation based on physical, functional, and economic deterioration and obsolescence. (4) Adding the value of the land to the depreciated balance. See Reichard-Coulston, Inc. v. Revenue Appeals Bd. of Northampton County, 517 A.2d 1372 (Pa.Cmwth. 1986). 6-3.3.1

Value-in-Use Determination for Special-Purpose Properties under the Cost Approach

In F&M Schaeffer Brewing Co. v. Lehigh County Board of Appeals, 610 A.2d 1 (Pa. 1992), the Pennsylvania Supreme Court laid down definitive rules on the interpretation of the cost approach as it applies to actual value versus value in use for real estate tax purposes. In this case, F&M Schaeffer Brewing Co. built a brewery in 1971, and Stroh Brewing Co. acquired the property in 1981. The bulk of the building area contained one large irregularly shaped manufacturing office and warehouse plant; in addition, there were numerous small special-purpose buildings next to the main plant. The plant was built specifically to produce beer. The property was assessed at a fair market value of $34 million in 1984. F&M Schaeffer unsuccessfully appealed the assessment to the assessment appeals board. After a lengthy trial with experts testifying for both parties, the court of common pleas found that the property’s fair market value was in fact $34 million. The Commonwealth Court affirmed. F&M Schaeffer argued before the Supreme Court that the valuation method relied on by the lower court impermissibly allowed a value-in-use standard to arrive at fair market value. Specifically, the taxpayer complained that the board’s expert erroneously considered the property’s value in use by first estimating the property’s highest and best use, i.e., a brewery, and then applying a replacement cost approach based on the utility of the property for that use, i.e., the production of 3.5 million barrels of beer per year. The Supreme Court stated: Real Estate is required to be assessed according to the “actual value thereof.” 72 P.S. § 5020-402. The legislature has mandated that, in determining actual value, three approaches to valuation be used, namely, 1) cost (reproduction or replacement, as applicable, less depreciation and all forms of obsolescence), 2) comparable sales and 3) income approaches, and all three must be considered in conjunction with one another. 72 P.S. §§ 5020-402, 5348(d). The term “actual value” is defined as market value or fair market value, which in turn are defined as “the price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, tak159

Assessment Valuation Law

ing into consideration all uses to which the property is adapted and might in reason be applied.” Buhl Foundation v. Board of Property Assessment, 407 Pa. 567, 570, 180 A.2d 900, 902 (1962). “The actual or fair market value, while not easily ascertained, is fixed by the opinions of competent witnesses as to what the property is worth on the market at a fair sale.” Id.; Algon Realty Co. Tax Assessment Appeal, 329 Pa. 321, 198 A. 49, 50 (1938). In contrast, use value or value-in-use represents the value to a specific user and, hence, does not represent fair market value. Authorities in the field of real estate valuation distinguish between market value (or value-in-exchange) and use value: Use value is a concept based on the productivity of an economic good. Use value is the value a specific property has for a specific use. . . . Use value may vary, depending on the management of the property and external conditions such as changes in the business. . . . Real property may have a use value and a market value. The Appraisal of Real Estate, American Institute of Real Estate Appraisers (9th ed., Chicago, 1987), cited in Appellant’s Brief at p. 14. “Strictly speaking, value-in-use does not fit the criteria discussed in the definition of market value above [willing buyer/willing seller] and should not be considered equivalent to or a substitution for market value.” Industrial Real Estate, Society of Industrial Realtors (4th ed., Washington D.C., 1984), cited in Appellant’s Brief at p. 14. Id. at 3–4. The court pointed out that value in use is based on the use of the property and the value of that use to the current user and may be higher than market value. The court noted that value in use is not a reflection of fair market value and is not relevant in tax assessment cases— only the fair market value or value in exchange is relevant. The court cited for this proposition McGraw-Edison Co. v. Washington County Board of Assessment Appeals, 573 A.2d 248 (Pa.Cmwlth. 1990), and Pittsburgh Des Moines Steel Co. v. McLaughlin, 466 A.2d 1092 (Pa.Cmwlth. 1983). The court specifically held in F&M Schaeffer, 610 A.2d at 4: [W]e hold that a property’s use and its resulting value-in-use cannot be considered in assessing the fair market value of property for tax assessment purposes in Pennsylvania. The court went on to distinguish the legislative requirement that the cost approach be considered, but not the taxing authority’s interpretation of the value-in-use doctrine as an offshoot of the cost approach that the

160

6-3.3.1

legislature has mandated for consideration. The court, in its rationale for reversing the Commonwealth Court’s decision in the case, stated: The courts below ignored the fact that real estate is still required to be assessed according to its fair market value, which by definition precludes consideration of value-in-use. The mere fact that the legislature mandated consideration of all three approaches to valuation does not mean that value-in-use is now relevant in tax assessment cases. The cost valuation approach must be employed in such a manner that a property’s use and resulting value-in-use are not considered. Therein lies the problem with the assessment in this case. In their determination of fair market value, appellees’ experts improperly utilized a replacement cost approach contingent upon the subject property’s use as a brewery and the value of the property for that use, ([i.e.,] the production of 3.5 million barrels of beer annually). the experts first calculated the cost to replace the existing facility, including machinery and equipment. They did this by applying an industry standard of $50 per barrel of beer, which they lowered to $48 per barrel. Then, in order to factor out the machinery and equipment, they estimated a onethird real estate to two-thirds machinery and equipment ratio, which left them with a figure of $16 per barrel of beer. They multiplied the $16 figure by 3.5 million barrels of beer, subtracted depreciation and added the cost of the land to arrive at their estimated fair market value of $34 million. Appellees’ experts never considered the size, shape or materials of their replacement model. Their valuation assessment simply replaced the existing facility with something of equivalent functional utility. Thus, appellees, experts postulated a hypothetical model production plant with the only similarity to the subject property being its 3.5 million barrel per year capacity. They did so without any pretense of replicating the same physical characteristics of the actual real estate being assessed because their only aim was to value the property based on its use. The statutory language that sanctions the cost valuation approach does not permit a determination of fair market value that derives from a methodology that estimates the cost of a hypothetical, unspecific model that could vary completely in size, design and construction from that of the subject property. This misguided application of the cost valuation approach is clearly impermissible. The objective of a cost valuation approach is to estimate, as closely as possible, the cost to con161

Assessment Valuation Law

struct new the existing taxable real estate because that is, after all, the subject of the assessment—not the production process or use of the property. Id. at 4–5. The taxing authority had argued that the brewery property was a special-purpose facility, where valuation according to use is the only proper method of valuation. The trial court defined such property as “property that is treated in the market as adapted to or designed and built for a special purpose. This definition combines both functional and structural aspects. A special purpose property becomes such either by its use for unique functions or by its distinctive specially designed structural details. The tax treatment of special purpose property is atypical and follows directly from this definition. Because the building is specially adapted to a unique use and will not readily be sold to another user, ‘the very nature of special purpose property is such that market value cannot readily be determined by the existence of an actual market and therefore other methods of valuation such as reproduction cost must be resorted to.’ ” Id. at 5. The Supreme Court stated: Thus the trial court is saying that an appraiser can disregard, as non-probative, evidence of comparable sales and value a property exclusively by a cost valuation method—simply by labeling a property as “special purpose.” Such a disregard for the cost, comparable sales and income approaches, is prohibited by 72 P.S. § 5020-402 and § 5348(d), both of which require that all three valuation approaches be considered. Moreover, valuation of property utilizing the “special purpose” property principle amounts to valuation according to value-in-use, which we have held to be an improper consideration in property tax assessment cases. Consideration of value-in-use is no more relevant under the guise of “special purpose” property than it is for any other property. It is an unacceptable consideration in property tax assessment cases under all circumstances. Id. at 5–6. Therefore, it is clear from the Supreme Court’s opinion that value-in-use and special-purpose valuation methods are inappropriate in tax assessment appeals. 6-4

Income Approach to Value

Under the income approach, market value is determined as the present value of future benefits arising from the ownership of a property. Income-producing real property is purchased for the right to receive a future income stream. The income stream is evaluated as to quantity, qual-

162

6-4.1

ity, and duration, and it is converted by the appropriate capitalization rates into an expression of present worth of market value. The basic steps in calculating the income approach to valuation are: (1) Estimate potential gross income; (2) Deduct for vacancy; (3) Add miscellaneous income; (4) Determine operating expenses; (5) Deduct operating expenses to determine net income before discount, recapture, and taxes; (6) Select the appropriate capitalization rate; (7) Determine the appropriate capitalization procedure to be used; (8) Capitalize the net income into an estimated property value. An acceptable method of ascertaining market value of a rental property is the capitalization of net income. Thomas Wynne, Inc. Tax Assessment Case, 253 A.2d 632 (Pa. 1969). This method recognizes the fact that willing but not obliged buyers and sellers of rental properties look to net income before deciding what price will be paid for the properties. 6-4.1

Use of Economic Rent in the Income Approach to Value

It is axiomatic that a trial court in a tax assessment case consider the fair market value of a property, not its value in use as a rental property. The court is valuing the real estate itself-the location, the land, and the physical structures on the property-not any business that uses the property. This area of valuation must be divorced from any value in use of the business and/or the function of management of the site. In calculating fair market value through the income approach, the trial court is not permitted to use the value-in-use method, which is based on the value of the property to the current user. Pittsburgh Des Moines Steel, 466 A.2d 1092. This is, of course, not to be confused with the “highest and best use” determination used by every appraiser in evaluating property in which market value can be the same or similar to the value in use at that time. Ad valorem taxation on real property does not encompass a tax on the property owner’s business, but rather a tax on the land, buildings, etc. It is necessary in doing an analysis to separate management and business operations from the inherent value of the real estate itself. That is the reason for the “highest and best use” analysis and determination of economic rents and expenses. While the expenses, rents, and vacancies of an in163

Assessment Valuation Law

come-producing property may be admissible, they are not controlling. The court must determine the highest economic potential of real property in relation to the dynamics of the marketplace. If a property were evaluated totally in a vacuum without consideration of the prevailing economic rents, vacancies, and expenses for similar properties in the geographical area, the court would end up valuing individual management rather than inherent income potential of the land and buildings. An individual entrepreneur can operate his or her property in any manner desired, whether to maximize or minimize profits, but the burden remains the same upon the taxing districts; therefore, the entrepreneur’s assessment for tax purposes should be based on the highest and best use of the property as a well-managed facility attempting to maximize profits. In In re Appeal of Johnstown Associates, 431 A.2d 932 (Pa. 1981), Johnstown Associates built a 165-unit low-income apartment building that was subsidized by the U.S. Department of Housing and Urban Development (HUD) to the extent of all but 1 percent of the interest payable on the property’s mortgage. HUD fixed rents at a lower rate than for comparable nonsubsidized units. Johnstown Associates could not keep any rental increases or sell the property for 16 ½ years after construction. Cambria County had valued the property by capitalizing its net income. On appeal, Johnstown Associates argued that the common pleas court should consider in its valuation that the property had limits on its sale and its potential for rental increases. The court agreed with the county’s assessment, and the Commonwealth Court affirmed. The Supreme Court held that the trial court, by relying principally on the income capitalization approach, failed to take into account all relevant factors in determining the actual market value of a HUD-subsidized property. The high court noted that the trial judge in an assessment case must look at realistic factors in the marketplace when determining value. Here, the limits on the property’s sale and rent increases, both of which are factors unique to HUD-subsidized properties, are clearly relevant to the question of value. “These factors, however, were accorded no consideration by the lower court’s exclusive reliance upon the traditional capitalization approach, or by the particular capitalization rate employed.” Id. at 935. This decision leads to an obvious conclusion that straight-line capitalization of the current income stream is not appropriate in all cases in the determination of the current fair market value of a particular tax parcel. In substance, the Pennsylvania Supreme Court directed assessment appeals boards and trial courts to look to the realities of the marketplace when making value determinations. For many years, a controversy swirled around the valuation of encumbered fee versus a hypothetical fee free and clear of all liens and encumbrances. This issue was solved in In re Appeal of Marple Springfield Center, Inc., 607 A.2d 708 (Pa. 1992) (Marple Springfield I), where the Pennsylvania Supreme Court held that realty in tax assessment litigation must be 164

6-4.1

valued “as is”—that is, valued in the manner the marketplace would treat a property subject to any rental encumbrances. The court stated: The capitalization-of-income approach to tax appraisals is the most appropriate if not the only valid means of establishing fair market value of real estate when the rental income is below what would otherwise be the current market level but for a long-term commercial lease, because such long-term leases are an accepted aspect of commercial real estate transactions and their effects have a decisive impact on the price a buyer would pay for the affected property. To interpret the tax assessment statute as requiring valuation of property in hypothetical “unencumbered form,” as Commonwealth Court did, is to ignore the economic realities of commercial real estate transactions. Under the rationale we followed in Johnstown Associates, [431 A.2d 932 (1981),] it was proper for the trial court to utilize the capitalization-of-income approach in this case as a means of establishing fair market value. Id. at 710. The Supreme Court focused on the economic reality of the real estate marketplace. Property should be valued on the basis of its actual value as assigned to it by free market forces. Conversely, contract rent is not controlling when the marketplace would discount that rent because of contractual arrangements between the seller and third parties. More specifically, there may arise occasions where the current income stream in quantity and quality may not benefit the seller because of the preexisting agreements. The current market value must be adjusted to reflect the realities of the marketplace. If the sale of a commercial property would not deliver the same income stream to the prospective purchaser because of contractual limitations, an informed buyer will offer a lower price to reflect this income reduction. Therefore, the Supreme Court has established the principle that in valuation under the income approach, the fact finder must consider that the value of the property is subject to a lease fee interest rather than the unencumbered economic rent of the property. The only exception would appear to be where the lease is not an arm’s-length transaction. See Cedarbrook Realty, Inc. v. Cheltenham Twp., 611 A.2d 335 (Pa.Cmwlth. 1992). In Pennypack Woods Home Ownership Association v. Board of Revision of Taxes of City of Philadelphia, 639 A.2d 1302 (Pa.Cmwlth. 1994), the Commonwealth Court distinguished Marple Springfield I by holding that in certain limited circumstances the economic rent of a property is to be used rather than the actual rent. Pennypack Woods was a nonprofit housing cooperative that regulated the transferability of the units in the development, and the cooperative’s bylaws regulated the price of the units. The sales prices of the units ranged from $2,300 to $7,800 and had 165

Assessment Valuation Law

been in effect for 40 years. The waiting period for the units ranged from 10 to 20 years. The trial court, in valuing the project, relied on income capitalization rather than comparable sales. The court rejected the taxpayer’s contention that the appropriate method of valuation was the actual sales price of the units. The Commonwealth Court examined whether the lower court’s use of imputed economic rent violated the holding in Marple Springfield I. The appellate court held that where the income restrictions are self-imposed and can be unilaterally altered by one side of the transaction, they can be ignored for valuation purposes in a tax assessment appeal. The court stated: With regard to Pennypack, we conclude that the trial court did not err in determining that the members’ capacity to change their Articles and By-Laws distinguishes Pennypack’s self-imposed income and transferability restrictions from the abovedescribed legally-imposed restrictions, the latter of which come from an outside force and must at least be considered when appraising a property. In light of Pennypack’s power to amend both its by-laws and its Articles of Incorporation by a two-thirds vote of its own members, the restrictions should not act to keep the real estate taxes arbitrarily low. Id. at 1305. The Commonwealth Court did not fundamentally alter the holding in Marple Springfield I, but merely distinguished the unique factual situation found in the Pennypack Woods cooperative housing project. In the vast number of situations involving the use of the income approach to value, the actual contract rent, not the imputed economic rent, is still controlling. The Commonwealth Court, in In re Appeal of V.V.P. Partnership, 647 A.2d 990 (Pa.Cmwlth. 1994), reiterated the “economic reality” holding of Marple Springfield I. In this case, the property was a tennis club located on a severely limited usable tract, operating under a nonconforming use. The taxpayer’s expert based his income approach on actual income and expenses, while the taxing authorities’ expert used market-derived economic income and expenses. The court found that using actual business income and expenses did not place a value on the property significant only to the current owner, but that it valued the property to any owner, since the property would only be purchased for its ability to produce income. The court further found that the property was severely limited as an investment property and was currently being managed at its maximum efficiency and therefore was being put to its highest and best use. In In re Appeal of Township of Middletown, 654 A.2d 195 (Pa.Cmwlth. 1995), the Commonwealth Court remanded for the lower court to determine if the rent restrictions on the realty were subject to the doctrine of 166

6-4.1

Marple Springfield I. In this case, the township bought a parcel of land from private owners to keep the farming property from being developed. The township did not purchase the property in fee simple but reserved a life estate in the property plus 21 years to the landowners, who continued to use the land for farming. After the sale, the township passed an ordinance that placed deed restrictions on the subject property. These restrictions required that the property be preserved for open space and passive recreational and educational purposes. The restrictions would remain in place unless at least 70 percent of the township residents voted to change them in a special election. The Commonwealth Court found that the property was not exempt from taxation, as the township argued, because it was not being used for a public purpose. The question then arose as to how to value the property for tax purposes. Should the property be valued subject to the restrictions contained in the ordinance or as unencumbered realty? The township contended that the property should be valued in accordance with Marple Springfield I. The taxing school district argued that the property should be subject to taxation as unencumbered property because the restrictions were voluntarily imposed and could be rescinded, under the doctrine of Pennypack Woods, 639 A.2d 1302. The Commonwealth Court remanded the case to the Delaware County Court of Common Pleas to determine which method to apply to the facts. The significance of this case is that the appellate court now recognizes that the economic reality test must be applied to all assessment cases unless there are clear facts that will take the case outside the rationale of Marple Springfield I. In In re Appeal of Property of Cynwyd Investments, 679 A.2d 304 (Pa.Cmwlth. 1996), the Commonwealth Court once again examined the application of the Marple Springfield I economic reality test. In this case, the court addressed whether the testimony of an appraisal expert was incompetent because he did not consider the effects of the actual short-term leases on the rental property in question but rather used the market rent potential of the property. The court found that this situation was distinguishable from that in Marple Springfield I because the difference between the contract rent and market rent rates was insignificant to influence the decision of a potential buyer of the property. The operative question in Marple Springfield I was how the lease or encumbrance will affect the value of the property in the marketplace; if the value is affected, then the terms of the leases and encumbrances must be examined. In this case, the court found that the appraiser was competent to give an opinion of value. Whether a short-term lease has to be considered is determined by its significance, and therefore failure to consider it goes only to the weight of the expert’s opinion, not to his or her competency.

167

Assessment Valuation Law

Practitioners must keep in mind the correct use of rental income when developing the income approach in tax assessment litigation. Specifically, when is it appropriate to use economic rent rather than contract rent in Pennsylvania? In some cases, the court must look to any encumbrances or limitations running with the property by deed or contract that would affect its market price. The capitalization rate sometimes must be altered to reflect these limitations, or a discounted cash flow method must be used to account for these factors. In other situations, the actual income stream of rents may be inappropriate because they would not inure to the benefit of the new owner due to contractual restrictions. In these situations, an appraiser may be forced to use economic rent buttressed by the market data approach in order to establish actual value. The overriding mandate of the appellate courts is to determine the actual current market value of the subject property, not its hypothetical value. Therefore, one must look to the marketplace to determine the effects of the forces of supply and demand on the valuation of the property. Citing both Marple Springfield I and Johnstown Associates, the Commonwealth Court reinforced this conclusion in Cedarbrook Realty, 611 A.2d at 342: Using the sales approach for apartment complexes that were sold for conversion to condominiums, for the purpose of subsequent resale to individual owners, is not a true comparable in assessing the market value of a complex that is being used for continued rental operations. In the instant matter, the use of the market value approach ignores current economic realities of the real estate market, as well as the fact that Cedarbrook was developed and is presently being used as a “luxury apartment” complex. 6-4.2

Impact of Long-Term Leases on Market Value

The Commonwealth Court, in In re Assid, 842 A.2d 995 (Pa.Cmwlth. 2004), examined the impact of a long-term lease on market value. In this case, the taxpayers owned a 339-acre tract of land that they leased in 1999 to a limited partnership known as Spring Church. The lease was for an initial term of five years, with an option for four consecutive five-year renewals with a right of reversion to the landlord at the end of the lease. Spring Church began construction of an 18-hole golf course and clubhouse on 100 acres of the property. The remainder of the land consisted of farmland, forest, pastures, and several outbuildings. The established rent was $60,000, or 10 percent of the gross profits from all operations, whichever amount was greater. In 2001, the taxpayers received a notice of appraisal from the Armstrong County Board of Assessment Appeals setting the fair market value 168

6-4.2

of the property at $1.3 million. At trial on this matter, the county presented testimony that indicated the assessor had valued the property relying solely on the cost approach and totally ignored the effect of the lease on the property value. The taxpayer presented an MAI appraiser, who had valued the property subject to the long-term encumbrance created by the lease. He used the income approach to value and capitalized the net operating income from the lease to arrive at present market value. He then added to that the owner’s reversionary value in the property and arrived at a fair market value of $556,000. The trial court rejected this value and found that the taxpayer had not made out a case under Marple Springfield I, 607 A.2d 708. The court found this case distinguishable because the new owner there had purchased and already constructed a shopping center that was encumbered by a longterm lease, and in the case at bar, the tenant built the improvements the and the agreed-to rent reflected the fair rental of the property before the improvements were added. Therefore, the court found that the taxpayer’s evidence was insufficient to overcome the presumption of the assessment. On appeal, the Commonwealth Court addresssed whether the lower court was required to use the income capitalization method and whether the taxpayer’s evidence was sufficient to overcome the presumption of the assessment. The appellate court rejected the trial court’s determinations and found that its adjudication violated Marple Springfield I. The court found that the economic realities of the lease clearly affected market value and should have been considered by the lower court. In this regard the court stated: Here, the trial court gave a limited reading to our Supreme Court’s holding in Marple Springfield. It decided that since the Taxpayers did not prove that the basic rent under the Lease was below current market levels, the capitalization of income approach to valuation was not required. It is true that the Supreme Court stated that the capitalization of income approach is “most appropriate” when “the rental income is below what would otherwise be the current market level. . . .” Marple Springfield, 530 Pa. at 126, 607 A.2d at 710. However, this language, setting forth the Supreme Court’s reasoning, does not limit the Court’s holding that real property assessments cannot ignore the “economic realities” of long-term commercial leases. Abstract valuations are not acceptable. . . . We hold that the trial court erred. To determine the fair market value of Taxpayers’ property, the trial court was required to follow Marple Springfield by considering the impact of the Lease, and it failed to do so. It may be the Lease does not affect the valuation of Taxpayers’ property to the extent contended by the Taxpayers’ expert. However, once Taxpayers 169

Assessment Valuation Law

raised the issue of the Lease in their rebuttal case, it was incumbent upon the trial court to consider it. The trial court rejected the expert testimony of Taxpayers’ witness not on its merits but because it followed the capitalization of income approach to valuation. This was error because the capitalization of income method is required where, as here, property is encumbered by a long-term commercial lease. Assid, 842 A.2d at 1001. This case is extremely significant in that it once again establishes the meaning and intent of the Marple Springfield I doctrine to value commercial real estate subject to all liens and encumbrances that may affect its value in exchange. It can be inferred from Assid that any time a property is subject to a long-term commercial lease, the courts must consider the lease’s implications when assessing property value. It should be noted, however, that this case is extremely limited by the Pennsylvania Supreme Court’s decision in Tech One Associates v. Board of Property Assessment, Appeals & Review of Allegheny County, 53 A.3d 685 (Pa. 2012), discussed in section 6-4.4, below. The prime directive of tax assessment litigation in Pennsylvania is to look to the economic realities of the real estate market in determining the actual current fair market value. The inquiry should focus on the market valuation of property exposed for sale “as is.” All three approaches to value are merely appraisal tools to measure the marketplace soundings of such valuation. 6-4.3

The Economic Reality Test

The Commonwealth Court revisited the use of actual rental income in determining assessments under the income approach to value in the latest installment of the Marple Springfield shopping center case, In re Appeal of Marple Springfield Center, Inc., 654 A.2d 635 (Pa.Cmwlth. 1995) (Marple Springfield II). After the Pennsylvania Supreme Court rendered its landmark decision in the litigation in 1992 (Marple Springfield I), the case was remanded to the Delaware County Court of Common Pleas. The owner of the property, Marple ABC Associates, leased the shopping center and its accompanying land to Kleins Inc., which then subleased the property to Circuit City while the case was on appeal. At the end of that lease, ownership of the building reverts to another entity, Marple XYZ Associates. Delaware County attempted to tax Marple ABC for the value of the Circuit City facility. The Commonwealth Court, in an extremely significant decision applying the doctrine from Marple Springfield I, held that the owner could not be taxed for the building because all the rental income from Circuit City was actually going to Marple XYZ. Therefore, a potential buyer would not pay any additional money for the property because he or she would not be 170

6-4.4

receiving any rental income from the Circuit City building. The only opportunity for extra income for the buyer would arise 20 or 30 years later, when a depreciated Circuit City building reverted to his or her ownership. The question then would be what additional amount a buyer would pay for the right to receive that building in 30 years. Under the discounted cash flow analysis, that amount would most likely be extremely small, so as to have almost no effect on the purchase price of the property. The court stated: At the end of the lease, the Circuit City building reverts to Marple XYZ; and the addition of the Circuit City store did not add value to Taxpayer’s property because Marple ABC only receives $1.49 per square foot rent, while Circuit City pays a substantial amount of rent to Marple XYZ. *

*

*

The assignment and assumption agreement provides that the Kleins lease contains no restrictions on the right to make the assignment, and no evidence was presented to the trial court to support a finding that the current owner of the lease is an entity other than Marple XYZ or that the assignment was anything other than an unremarkable business transaction which was reasonable at the time. . . . Because the current state of the record does not support a finding that the assignment nullified the economic reality of the encumbrance on the property, the trial court erred as a matter of law by including the square footage of the Circuit City store in its valuations. Id. at 640. The “economic reality test” used to assess the property as mandated by this case resulted in the owner’s interest in property being valued at the income value of the cash flow plus reversionary value of the realty. Therefore, a tenant that builds a structure on this property could escape taxation on its value and be placed in a superior economic position over developers that own the land and buildings. The Pennsylvania Supreme Court, however, appears to have overruled this line of case law in Tech One, 53 A.3d 685, discussed in the next section, which mandated that this leasehold interest be taxed to the owner of the leased fee estate. 6-4.4

Valuation and Assessment of Leasehold Interests

The Commonwealth Court in Tech One Associates v. Board of Property Assessment, Appeals & Review of Allegheny County, 974 A.2d 1225 (Pa.Cmwlth. 2009), addressed whether buildings and other improvements on land-leased property must be included in the property’s assessed value. 171

Assessment Valuation Law

In this case, Tech One owned 47.5 acres of undeveloped land in West Mifflin Borough. In 1998, it entered into a 50-year lease agreement with Terra Associates in exchange for an annual ground rent of $665,000. Tech One gave Terra the right to improve the land and build upon it at any time. Under the lease agreement, Terra paid all real estate taxes for the entire property. Terra built a shopping center with 29 tenant spaces. Terra also constructed a movie theater and a restaurant on the property. In 2001, the county assessment appeals board assessed the fair market value of the property at $31 million. Included in this assessment were the value of Tech One’s lease fee, Terra’s leasehold interest, and all the buildings Terra constructed on the property. The board denied Tech One’s appeal, and the landowner appealed to the county Board of Viewers. At a hearing before that board, Tech One presented a licensed real estate appraiser who valued the property solely on the income stream of the ground rent of $665,000 per year and arrived at a fair market value of $9.5 million. He placed no value on the buildings because the economic reality of the long-term land lease was that Tech One received no economic benefit from the buildings. The taxing authorities presented an appraiser who used the income approach in his valuation. His appraisal value included both the lease fee interest and the leasehold interest, and the combined values for the years in question ran from $22.6 million to $36 million. The board of viewers found that Marple Springfield I controlled the outcome of the matter and that the fair market value was $9.5 million. No value was assigned to the buildings. The taxing authorities filed objections to the board’s findings of fact with the court of common pleas. The court found that Tech One’s approach to value violated the uniformity clause of the Pennsylvania Constitution. On appeal, the Commonwealth Court distinguished this case from Marple Springfield I and stated: Marple Springfield I, however, does not apply to this appeal because of different economic and legal “realities.” The economic difference between this appeal and Marple Springfield I is that Marple Springfield I made no mention that the lessee was responsible for all real estate taxes. If a lessee is responsible for all real estate taxes, the landowner’s economic reality would not change because if the value of the leased premises increased for whatever reason,—new buildings went up or market rents increased—the lessee would solely be responsible for the value of the landowner’s interest in the real property, not the landowner, who would receive the bargain for the amount under the lease, without deductions for taxes. The legal reality is also different because what was involved in Marple Springfield I was the value of the shopping center, land and buildings, not, as here, where Landowner is contending that 172

6-4.4

those buildings should remain untaxed because they are built on leased property which is akin to receiving an exemption from taxes. Tech One, 974 A.2d at 1229. The court next addressed whether a local governmental entity can tax leasehold interest without specific authorization to do so in the assessment law. The Pennsylvania Supreme Court held in Independent Oil & Gas Association of Pennsylvania v. Board of Assessment Appeals of Fayette County, 814 A.2d 180 (Pa. 2002), that oil and gas reserves are not taxable because the General Assembly, while having the authority to tax, had not exercised such power. In that case, the landowners had claimed that the legislature had not authorized the taxation of leaseholds for assessment purposes. The Commonwealth Court addressed this issue in Tech One, stating: “Objects of taxation” are set forth in Section 201 of the General County Assessment Law, 72 P.S. § 5020-201, which provides that “all real estate” is to be assessed and subject to taxation. It describes real estate as: (a) All real estate, to wit: House, house trailers and mobile homes buildings permanently attached to land or connected with water, gas, electric or sewage facilities, buildings, lands, lots of ground and ground rents, trailer parks and parking lots, mills and manufactories of all kinds, furnaces, gorges, bloomeries, distilleries, sugar houses, malt houses, breweries, tan yards, fisheries, and ferries, wharves, all office type construction of whatever kinds, that portion of a steel, lead aluminum or like melting and continuous casting structures which enclose, provide shelter or protection from the elements for the various machinery, tools, appliances, equipment, materials or products involved in the mill, mine, manufactory or industrial process, and all other real estate not exempt by law from taxation. (Emphasis added.) Through these provisions, the General Assembly directed the assessors to assess real estat—including lands and buildings. To make that determination, who owns it and what are the ownership interests in the land-a fee simple, a fee simple determinable, a leasehold interest or month-to-month lease are irrelevant. Once the assessment is made, who pays the real estate taxes—the landowner or the tenant or subtenant—is not the concern of the taxing body but is determined by the parties in the terms of the lease or by some other private arrangement.

173

Assessment Valuation Law

Tech One, 974 A.2d at 1230. The trial court had found that that the board of viewers’ decision violated the uniformity clause of the Pennsylvania Constitution. Tech One contended on appeal that the trial court erred by ignoring that the uniformity clause existed 20 years earlier when the Supreme Court decided Marple Springfield I. The Commonwealth Court rebutted this contention and held: Initially, we point out that the fact that the Uniformity Clause existed at the time our Supreme Court decided Marple Springfield I is of no legal import because the uniformity issue was not addressed in that decision. Also, it did not inferentially recognize that leased property and non-leased property could be treated differently for real estate tax purposes; all that it addressed is what revenue stream should be used in the income approach to value. When it addressed uniformity, our Supreme Court emphatically stated that a tax must be applied upon similar kinds of property with substantial equality of the tax burden on all members of the class. Amidon v. Kane, 444 Pa. 38, 51, 279 A.2d 53, 60 (1971). See also Truck Terminal Motels of America, Inc. v. Berks County Board of Assessment Appeals,127 Pa. Commw. 408, 561 A.2d 1305 (Pa. Cmwlth. 1989). For example, while there are substantial differences between commercial or industrial real estate and residential real estate, to tax them differently has been held to violate the Uniformity Clause. Appeal of Massachusetts Mutual Life Insurance Company, 426 Pa. 566, 235 A.2d 790 (1967); McKnight Shopping Center v. Board of Property Assessment, 417 Pa. 234, 209 A.2d 389 (1965); Deitch Company v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965). As explained above, the real estate—land and buildings—are the objects of taxation and because different parties own them is insufficient not to assess all “objects of taxation.” Moreover, we would also be adopting a class of buildings that would be exempt from taxation, which would similarly violate Article VIII, Section 2 of the Pennsylvania Constitution that only allows real estate used and occupied by “purely public charities” to be exempt from taxation. Id. at 1231. The Commonwealth Court used the Tech One rationale in Elmhurst Group v. Board of Property Assessment, Appeals & Review of Allegheny County, 20 A.3d 624 (Pa.Cmwlth. 2011). There, the land in question was owned by the Allegheny County Industrial Authority and was leased to Elmhurst Group for an initial term with renewals totaling 99 years. Under the agreement, the office buildings on the property became the property of 174

6-4.4

the authority upon the expiration of the lease. Elmhurst was responsible for all maintenance and real estate taxes on the property. Elmhurst challenged the taxability of the buildings under the economic reality holding in Marple Springfield I, 607 A.2d 708. The parties agreed that the property owner—the municipal authority—was not taxable under 73 P.S. § 385. Therefore, the taxes were being imposed solely on the leasehold interest: Elmhurst. The Commonwealth Court upheld the lower court’s finding that the taxes were proper under Tech One because buildings and improvements on leased property had to be included in the assessed property when the lessee paid the taxes. The Pennsylvania Supreme Court allowed an appeal of Tech One on two questions: •

•

For real estate taxation purposes, does the economic reality test announced in Marple Springfield I apply to establish the fair market value of an improved property encumbered with a long-term lease that grants the lessee ownership of buildings and other improvements on the land? Does the uniformity clause of the Pennsylvania Constitution require an improved property encumbered with a long-term lease that grants the lessee ownership of buildings and other improvements on the land to be taxed in the same manner as a similar, but unencumbered, property?

The high court affirmed the Commonwealth Court solely on the first question and declined to make any ruling on the second question because of its ruling on the first. The issue before the court was the validity of a single, unified assessment of both a tract of land and several buildings (a shopping center, movie theater, and restaurant) located on land owned by Tech One. Terra Associates constructed the buildings and owned them under a long-term lease. The county assessment board treated the land, buildings, and the improvements as real estate subject to taxation. Tech One argued that it should be taxed on the basis of the capitalization of the rent for the ground lease paid by Terra plus the present worth of the reversionary interest value of the property to the landlord at the conclusion of the long-term lease. The appellant presented expert appraisal testimony that the value of the property under this approach was $9.5 million. The expert did not value the improvements due to his interpretation of Marple Springfield II, 654 A.2d 635. The taxing authorities presented the expert testimony of appraiser Mark Ackerman, who valued separately the leasehold and the leased fee and arrived at a market value of $31 million in 2001 and at $32.5 million for each of the tax years from 2002 to 2005. Ackerman used the income capitalization approach to calculate for each tax year a total market value for all of the property associated with the tax parcel, ownership of which 175

Assessment Valuation Law

was divided between Tech One’s lease fee interest and Terra’s leasehold interest. Ackerman included the sum of his valuation of Tech One’s lease fee interest in the land and the valuation of Terra’s leasehold interest of the shopping center buildings and improvements. Ackerman determined the value of Terra’s leasehold interests for each tax year in question by dividing the net income that Terra received from subleases to commercial tenants by an overall capitalization rate of 10 percent; this rate reflected Ackerman’s evaluation of factors such as the location and condition of the property, the financial risk and cost of financing to Terra, the tax rate, and general market conditions influencing the price of rent and vacancy rates. Ackerman testified that these calculations produced a value for Terra’s leasehold interest of $26.7 million for 2001 and 2002, $19.4 million for 2003, $13.2 million for 2004, and $21.4 million for 2005. The Supreme Court held that, under 72 P.S. § 5020-201, leasehold interests were taxable under the phrase “all real estate.” Further, the court distinguished its ruling in Independent Oil & Gas, which Tech One cited in support of its argument that leasehold interests in real estate were not taxable. The court stated: In Independent Oil & Gas Ass’n, our Court was called upon to consider whether Section 201(a) authorized the imposition of real estate taxes on leasehold interests in oil and gas. Our Court examined the text of Section 201(a) and concluded that the meaning of the general term “real estate,” as used therein, was, pursuant to the ejusdem generis principle, limited by the statute’s additional listing of particular items of property. Thus, we deemed Section 201(a) to authorize taxation of only those specific types of property named therein. As a result, we rejected the Commonwealth Court’s finding that the leasehold interests in oil and gas were “lands,” noting “the dissimilarity between the nature of oil and gas and those items which the General Assembly saw fit to enumerate as the proper subject of taxation.” Independent Oil and Gas Ass’n, 572 Pa. at 247, 814 A.2d at 184 (emphasis added). Accordingly, Independent Oil and Gas Ass’n stands for the proposition that it is the elemental physical characteristics of a particular property, i.e., its structure and features, which are determinative of whether it constitutes one of the specifically enumerated types of real estate in Section 201(a). See Coolspring [Stone Supply v. County of Fayette], 593 Pa. at 347, 929 A.2d at 1155 (“[T]he physical characteristics of the fuels was central to [our] Court’s ultimate holding [in Independent Oil and Gas Ass’n] that oil and gas do not fall within the term ‘lands’ listed in Section 201 of the General County Assessment Law.”). As discussed below, the manner in which the property is owned is 176

6-4.4

wholly irrelevant to this determination. Thus, Appellant’s contention that Independent Oil and Gas Ass’n exempts from taxation under Section 201(a) leasehold interests in real estate is incorrect. Tech One, 53 A.3d at 697–98 (emphasis in original). Therefore, the Supreme Court held that there is statutory authority to tax leasehold interests as part of the totality of the assessment. The court, having determined that buildings and improvements of the shopping center were real estate, then established the proper method for valuing this real estate. The court stated: The term “actual value” as used in Section 402 means “market value.” In re Brooks Bldg., 391 Pa. 94, 97, 137 A.2d 273, 274 (1958). Market value is “a price which a purchaser, willing but not obliged to buy, would pay an owner willing, but not obliged to sell, taking into consideration all use[s] to which the property is adapted and might in reason be applied.” Deitch Co. v. Bd. of Prop. Assessment, Appeals and Review, 417 Pa. 213, 217–218, 209 A.2d 397, 400 (1965) (quoting Buhl Found. v. Bd. of Prop. Assessment, Appeals and Review, 407 Pa. 567, 570, 180 A.2d 900, 902 (1962)). Thus, in an assessment appeal, “[e]vidence presented by appraisers must be directed to the market value of the property as a whole.” Rieck Ice Cream Co. v. Bd. of Prop. Assessments, Appeals and Review, 417 Pa. 249, 256, 209 A.2d 383, 387 (1965); see also Miracle Mile Shopping Center v. Bd. of Prop. Assessments, Appeals and Review, 417 Pa. 243, 245, 209 A.2d 394, 395 (1965) (“The basic and controlling substantive issue in a real estate assessment appeal is the correctness of the total assessment of the property as a unit.”). The “property as a whole” in this case, i.e., the real estate comprising the tax parcel at issue, consists of the land upon which the shopping center buildings and improvements sit, as well as the buildings and the improvements themselves; hence it is the market value of this entire parcel—land, buildings, and improvements—which Allegheny County was required to ascertain for assessment purposes. Id. at 700–01. The court accepted the appraisal techniques used by the taxing authorities’ expert and stated: [I]n his testimony at the assessment appeal hearing, the appraiser for the taxing bodies—Ackerman—did, in fact, render an opinion as to the market value of the entire tax parcel. Because of the nature of the lease arrangement, which divided ownership of the real property comprising the tax parcel, in order to determine this market value, Ackerman deemed it nec177

Assessment Valuation Law

essary to separately determine a market value for Appellant’s leased fee interest, and a market value of Lessee’s leasehold interests, and to then aggregate both values. In arriving at his specific valuation of these separate interests, Ackerman considered all three methods of valuation set forth in Section 402—the cost, comparable sales, and income approaches—but he deemed the income approach to be the most “probative.” . . . As he elaborated in his appraisal report, “[t]his approach is normally heavily weighted in the valuation process and in any investor’s decision to purchase an income producing property, since it is the investor’s anticipation of a return on his investment and the associated risk, which are the main concerns in purchasing property of this type.” . . . Consequently, as the market value of the leased fee and the leasehold interests, respectively, were, in this instance, principally determined by the income which the holder of each interest could expect to receive, Ackerman capitalized the contract rent paid to Appellant by Lessee, and capitalized the contract rent which Lessee collected from the tenants of the shopping plaza under its sublease arrangements with them. This is a standard methodology commonly used by real estate appraisers to value such interests. See The Appraisal of Real Estate 81–83 (12th ed. 2001) (“The valuation of a leased fee interest is best accomplished using the income capitalization approach. . . . The market value of a leased fee interest depends on how contract rent compares to market rent.”; “Leasehold interests are typically valued using the income capitalization approach. . . . A leasehold interest may acquire value if the lease allows for subletting and the term is long enough so that market participants will pay something for the advantageous lease.”). Id. at 701. After reviewing the applicability of Marple Springfield I to the facts of this case, the court stated: Nowhere in Marple Springfield I did we suggest, however, that, in valuing taxable real property as a whole, the value of any portion which is owned as a leasehold interest could be disregarded. As we have made clear in our foregoing discussion, real property does not lose its status as an object of taxation simply because it is owned under a lease. Our holding in Marple Springfield I did not alter this fundamental precept. Marple Springfield I merely established two basic principles applicable to valuing real property which is subject to a longterm lease: First, the “economic reality” of the existence of the lease must be considered by an appraiser in establishing the market value of property encumbered by a lease, since it will 178

6-4.4

be a factor which affects the price which a purchaser of the property is willing to pay. Second, when the property generates income, the capitalization of income approach is an appropriate method to use to ascertain its value, and, in applying that method, the contract rent received under the lease is the relevant income stream which is to be capitalized, even if it is below prevailing market rental rates. Where, as here, ownership of taxable real estate which comprises one tax parcel is divided into leased fee and leasehold interests, Section 402(a) still requires that the market value of the real estate as a whole be determined as this statutory provision unambiguously requires the valuation of “all objects of taxation.” 72 P.S. § 5020-402(a) (emphasis added). Our holding in Marple Springfield I simply necessitates that, in conducting this valuation, the impact of the lease on the market value of the real estate owned as the leased fee and, also, on the market value of the real estate owned as a leasehold interest must be considered. Further, if the holder of the leased fee and the leasehold interest each receive rent pursuant to a contractual arrangement, it is appropriate, pursuant to Marple Springfield I, to employ the capitalization of income approach to value these interests utilizing the contract rent. Both of these requirements were followed by Appellee’s expert, Ackerman, in performing his valuation. In valuing the land owned by Appellant as the leased fee, Ackerman specifically considered the impact of the ownership division and rent restrictions created by the lease on Appellant’s ability to sell the land, and, in capitalizing the value of the income stream that an owner of the land could expect to receive, he utilized the contract rent payable by Lessee. Likewise, in valuing the shopping center buildings and other improvements owned by Lessee as leasehold interests, he considered the impact of Lessee’s lease with Appellant on the value Lessee could expect to receive if it attempted to assign these leasehold interests to others, and, in capitalizing the value of the income stream generated by Lessee’s leasehold interests, he used the contract rent which Lessee received under the subleases which it had entered into with tenants. It is true that, in this circumstance, as both experts testified, when valuing the real estate owned as the leased fee using the capitalization of income approach the value of the real estate owned by the lessee as a leasehold interest is not considered, because this calculation includes only the contract rent the holder of the leased fee receives under the lease and the value of 179

Assessment Valuation Law

the holder’s reversionary interest in the buildings and improvements. However, as we have explained, the value of the real estate owned as the leased fee, alone, was not determinative of the value of the entire tax parcel in this matter, which consisted of all of the real estate owned as the leased fee and leasehold interests. Thus, we discern no error of law in the lower courts’ use of the aggregate value of Appellant’s leased fee interest in the land and the value of Lessee’s leasehold interests in the shopping center buildings and other improvements, as determined by Appellee’s expert, for the market value of the subject tax parcel in each of the tax years 2001–2005. Id. at 703–04 (emphasis in original). This case is significant in that it clarifies the taxability status of leased fee interests and leasehold interests. In short, the Supreme Court held that both the leasehold interest and the leased fee interest are taxable real estate. Also, their combined value must be calculated and their assessment based on the total combined value. The Tech One decision does not overrule the economic reality test of Marple Springfield I, but rather applies that valuation method to each of the component parts enumerated above. Specifically, the case stands for the proposition that the economic reality test must be applied separately to the leasehold and the leased fee interests, rather than only to the leased fee. Thus, the test is to be used as a valuation tool for determining the market value of these real property interests, that is, what a willing buyer would pay a willing seller for the leasehold and what a willing buyer would pay a willing seller for the leased fee interest. Their combined value equals the total assessable real estate. While the Supreme Court held that both leasehold and leased fee interests are taxable, it did not make any ruling that separate tax parcels can be created, but rather confined its decision to how to assess a unified tax parcel. In Downingtown Area School District v. Chester County Board of Assessment Appeals, 131 A.3d 152 (Pa.Cmwlth. 2015), the Commonwealth Court affirmed the trial court and held that a negative leasehold interest on a property did not lower the property value. In this case, LTK Associates, LP, leased property to drugstore chain Walgreens. LTK developed the property according to Walgreens’s specifications and constructed and owned all of the improvements on the property. Walgreens signed a longterm lease with an initial term of 25 years and seven five-year options. The initial lease was 58.5 percent above market value. Walgreens had no subtenants and thus no rental income. The Commonwealth Court looked to Marple Springfield I and Tech One for guidance. The court noted that unlike in Tech One, Walgreens did not sublease the space and therefore received no rent. Thus, the court found that the economic reality of Wal180

6-4.6

greens’s lease was that a willing buyer would pay $0 for the lease because no one would be interested in paying above-market rent. Accordingly, the court determined that the negative leasehold interest had zero value. 6-4.5

Income Approach—Country Club Subsidies

In Meadowbrook Properties, Inc. v. Board of Assessment Appeals of Montgomery County, 388 A.2d 1110 (Pa.Cmwlth. 1978), Meadowbrook owned and operated a golf course and clubhouse used exclusively by tenants of the apartment complex. Meadowbrook’s appraiser considered a loss expense of $100,000 for the golf property. The taxing authorities’ appraiser, using an income capitalization approach differing from the taxpayer’s income approach, refused to consider the loss expense as a deduction from the property’s gross income. The Commonwealth Court agreed and held: Meadowbrook contends that it was error for the lower court to exclude the $100,000 loss-expense incurred to maintain the clubhouse and golf course situate on land adjacent to the Property in determining its value. It argues that the course was essential to permit the tenants to maintain and project an appropriate lifestyle. As the lower court pointed out, the golf course and clubhouse are located on land adjacent to the apartment complex Property, and are assessed separately from the Property in question. We see no error here. Id. at 1112. 6-4.6

Business Income versus Real Estate Income

In Hershey Entertainment & Resorts Co. v. Dauphin County Board of Assessment Appeals, 874 A.2d 702 (Pa.Cmwlth. 2005), the appellate court examined the appropriate method of valuing income-producing properties and disallowed any appraisal approach that resulted in the capitalization of income from the business run on the property. The correct method under the income approach to value was to capitalize the income generated from the real estate component of the property. The court found that valuing the business run on the property violated previous court decisions and statutory law. The taxpayer in this case, Hershey Entertainment and Resorts Co., operated Hersheypark and ZooAmerica on 210 acres of land in Derry Township. Hersheypark is an amusement park consisting of rides, over 150 buildings, and paved areas. ZooAmerica is an educational/amusement exhibition. At the trial level, both Hershey and taxing authority introduced expert appraisal testimony. Hershey’s expert considered all three approaches to valuation and the decided that the only relevant approach was the cost approach because there were no comparable sales of amusement 181

Assessment Valuation Law

parks and the income approach would have required him to value the business income of Hersheypark and ZooAmerica. The taxing authority’s expert considered all three approaches to value and determined that the income approach was the most relevant and reliable. He used the net income from ZooAmerica and Hersheypark for a period of several years and, after determining the average annual income, factored out what he determined to be the income attributable to the business enterprise components and then capitalized the net operating income. The lower court, citing F&M Schaeffer, 610 A.2d 1, determined that the taxing authority’s appraiser used improper methodology in calculating the market value of the real estate because it was based on the “value-inuse,” which is the value of the property to the specific owner. The Commonwealth Court affirmed and quoted F&M Schaeffer for this proposition: “[A] property’s use and its resulting value-in-use cannot be considered in assessing the fair market value of property for tax assessment purposes in Pennsylvania.” Hershey Entertainment, 874 A.2d at 708–09 (citing F&M Schaeffer, 610 A.2d at 4). The Commonwealth Court pointed out: Here, [the county appraiser’s] valuation was based in part on revenue from admissions charged to enter the gates at Hersheypark and ZooAmerica, as well as revenue generated from the purchase of food, beverages and souvenirs such as “giant stuffed Hershey Kisses.” . . . Clearly, such revenue is income generated by [Hershey’s] business enterprises located on the property, not from the rental of the property itself. Hershey Entertainment, 874 A.2d at 707–08. The appellate court, in sustaining the lower court’s holding, found that the county appraiser’s technique was fatally flawed and was, in fact, a value-in-use analysis, which is prohibited in Pennsylvania. The court also cited its decisions in In re PP&L, Inc., 838 A.2d 1 (Pa.Cmwlth. 2003), and Allegheny Energy Supply Co. v. Greene County Board of Assessment Appeals, 837 A.2d 665 (Pa.Cmwlth. 2003), which rejected value-in-use determinations. The court stated: In PP&L, the taxing authorities raised arguments similar to those raised in the present case, i.e., that the income approach must be considered under Pennsylvania law, that it is the most appropriate for appraising property typically purchased as an investment because such property is valued based on its ability to produce income and that F&M Schaeffer is distinguishable. In rejecting these arguments based upon F&M 182

6-4.6

Schaeffer, we noted that the court of common pleas did not err in selecting an approach to valuation “which focuses on the tax parcels themselves, as distinguished from the enterprise operating on the parcels, from the “value-in-use” of the parcels . . . and other intangible assets associated with the parcels.” PP&L, 838 A.2d at 10–11. In addition, in Allegheny Energy . . . , another case involving the valuation of a utility’s power plant for tax assessment purposes, this Court affirmed a decision of the court of common pleas that refused to consider either the current use of the property as a power plant, or the value of the power plant to the current owner, on the ground that it was not relevant to a determination of the fair market value of the property. In affirming, we noted that the court of common pleas properly accepted the testimony of the taxpayer’s expert, who viewed the property as an industrial use and excluded the value of the power plant’s productivity. Hershey Entertainment, 874 A.2d at 709 (emphasis in original). The Commonwealth Court once again spelled out that the income approach must be used to capitalize the income stream derived from the realty itself, not from non–real estate business ventures conducted on the property. Appraisers in Pennsylvania must take great care to separate the non–real estate operations on the property from the real estate cash flow; otherwise, the appraisal will be based on the prohibited value-in-use method. In Grand Prix Harrisburg, LLC v. Dauphin County Board of Assessment Appeals, 51 A.3d 275 (Pa.Cmwlth. 2012), the Commonwealth Court explored the trial judge’s role in determining credibility of expert witnesses. This was an assessment appeal pertaining to the valuation of a Residence Inn hotel containing 122 rooms. The taxpayer’s expert, Frederick Lesavoy, testified as to the comparable sales and income approaches, giving an opinion of value of $9 million. In both approaches, he made reductions in the real property value for furniture, fixtures, and equipment, and for the intangible business value of the activity conducted on the real estate. In his comparable sales approach, he adjusted the comparable sales by deducting an amount for furniture and fixtures, as well as business value. These adjustments were based on industry averages rather than the individual numbers of the comparable sales. Lesavoy used a business value deduction of 15 percent of the sales prices. In his income approach, he accounted for the business value by loading his capitalization rate with a business value component. He selected a capitalization rate of 12 percent and then added a business value component of 1.8 percent (12 percent x 15 percent). The taxing authorities’ expert, Patrick Noone, used the same two approaches as Lesavoy. In using the income approach, Noone made no ad183

Assessment Valuation Law

justment for any business value of the hotel enterprise and arrived at an overall lower capitalization rate than Lesavoy. Both appraisers arrived at very similar net operating income numbers. Noone admitted on cross-examination that he did not adjust for furniture, fixtures, and equipment in his comparable sales and that some of these sales prices would have included these items. He testified that he believed the income approach was more reliable than the sales comparison approach, and he valued the property at $13.15 million. The trial court accepted Noone’s assessment. The court noted that both appraisers arrived at the same net operating income but that Noone’s capitalization rate determination was more credible than Lesavoy’s. The taxpayer appealed, arguing that the court erred by not stating its reasons for the finding of credibility on the capitalization rate. The Pennsylvania Commonwealth Court stated: The trial court addressed the difference between Noone’s fair market value of $13,150,000 and Lesavoy’s fair market value of $9,000,000. It accepted $13,150,000 because it found Noone credible. It made this credibility determination for the stated reason that Noone focused on Taxpayer’s actual income in contrast to Lesavoy’s focus on industry averages. However, as noted by Taxpayer, this explanation addresses only one step in the two-step income approach methodology. Further, it was the step on which there was little disagreement; the experts used nearly identical net incomes in their respective income approach analysis. The critical difference between the two experts was the capitalization rate that each chose for his income approach analysis. Noone started with a lower capitalization rate, which Lesavoy believed was too aggressive in the current market. When selecting a capitalization rate, Lesavoy again accounted for Business Value, but Noone did not. The trial court did not make any findings about the different capitalization rates or whether or why Business Value should not be considered in devising a capitalization rate. *

*

*

Although it is the trial court’s prerogative to deem one expert more credible than the other, the trial court must explain its decision. Here, the trial court failed to consider, and resolve, the differences in the two capitalization rates and the fact that Noone’s sales comparison approach was flawed, by his own admission. The only reason cited by the trial court for relying on Noone was that he used income figures for this particular property, not averages, to establish the property’s annual in184

6-5

come. Ultimately, this is a distinction without a difference because Lesavoy and Noone arrived at very close net operating income figures, using industry averages or property-specific information. Id. at 281–82. The Commonwealth Court remanded the case to the lower court to articulate more specifically its basis for credibility determinations. Grand Prix stands for the proposition that a trial court must support its decision in an assessment case with complete explanations for its credibility determinations. 6-5

Reconciliation of the Three Approaches to Value

Pennsylvania case law has held that all three approaches to assessing value—cost, comparable sales, and income—are relevant and must be considered by the trial court under 53 Pa.C.S. § 8842(b). Based on the evidence, the court may give the appropriate weight to any approach it feels credible, accepting all three approaches, two approaches, or only one. The Commonwealth Court held in Avco Corp.: The court and the parties are not required to adopt the traditional methods of comparable sales, capitalization of net income or reproductions less depreciation in determining fair market value, and may use different modes of assessment, and different rates within differing classes of real estate. However, an assessment, to be uniform, must act alike on the classes of property subject to it. A difference in the methods or yardsticks or formulae used in ascertaining the market value does not prove lack of uniformity if there is a just basis for the application of different methods or formulae. Once that value is determined, there must be uniformity in applying the same ratio to the real estate within the class. Hammermill Paper Co. v. Erie, 372 Pa. 85, 92 A.2d 422 (1952), cert. denied, 345 U.S. 940, (1953); Delaware L. & W. R.R. Tax Assessment (No. 1), 224 Pa. 240, 73 A. 429 (1909). Avco Corp., 515 A.2d at 337 (emphasis in original). The court delineated the trial judge’s credibility-finding function in the following manner: In determining the credibility of an expert witness and the weight of the testimony, the fact finder treats the expert as any other witness, and applies the same standards of credibility that would be applied to any other witness. The fact finder may believe all or none of the expert’s testimony, or part of one expert’s testimony and part of another expert’s testimony. The fact finder should consider the method by which the expert reached his or her conclusion. The fact finder is not bound to ac185

Assessment Valuation Law

cept the expert’s testimony merely because it is the testimony of someone having special skill or knowledge. All the components that the expert considered are matters which the fact finder considers in determining the persuasive quality of the testimony. The fact finder weighs the opinions of the experts against one another to determine credibility and weight. Id. at 338. 6-6 6-6.1

Valuation Issues Valuation of Machinery and Equipment

The industrial equipment exemption, 53 Pa.C.S. § 8811(b), exempts from taxation: [m]achinery, tools, appliances and other equipment contained in any mill, mine, manufactory or industrial establishment shall not be considered or included as a part of the real estate in determining the value for taxation of the mill, mine, manufactory or industrial establishment. The landmark Pennsylvania Supreme Court decision in this area is Jones & Laughlin Tax Assessment Case, 175 A.2d 856 (Pa. 1961). The court found that the General Assembly, when enacting 53 Pa.C.S. § 8811(b) in 1953, intended to repeal the common-law doctrine that things attached to real estate that cannot be removed without material damage to the land itself become part of the real estate. The court held: The intention of the legislature was clearly to abolish the tax on all parts of the machinery by removing machinery from real estate taxation, and with good reason. Today most states and communities in this country are engaged in a fight to encourage new industry to move into that state or community and to retain the industries they already have. . . . Therefore, it is self-evident from a study of the history of tax legislation in Pennsylvania that the “object to be obtained” by the 1953 amendments was to provide tax relief for Pennsylvania industries by removing all integrated “machinery, tools, appliances and other equipment” from the real estate tax. Jones & Laughlin, 175 A.2d at 860–61. The Supreme Court stated the fundamental test of this statute to be as follows: Therefore, it is our considered conclusion, under the statute involved, improvements, whether fast or loose, which are used directly in manufacturing the products that the establishment is intended to produce and are necessary and integral parts of the manufacturing process and are used solely for effectuating 186

6-6.1

that purpose, are excluded from real estate assessment and taxation. On the other hand, improvements which benefit the land generally and which may serve various users of the land, are not in this category. Neither are structures, which are not necessary and integral parts of the manufacturing process and which are separate and apart therefrom, within the exclusion. A structure used for storage, for example, is part of the realty and subject to real estate taxation. Id. at 861–62 (emphasis in original). The court cited its holding in Gulf Oil Corp. v. Philadelphia, 53 A.2d 250 (Pa. 1947), for the confusion over what exactly is the manufacturing process for real property tax purposes. The court stated: The Act of 1915, supra, construed in Gulf Oil Corporation v. Philadelphia, [53 A.2d 250 (Pa. 1947),] excluded “machinery and tools used in manufacturing.” The Act of 1953 excludes “machinery, tools . . . contained in any mill . . . .” Appellants contend that the words “contained in” are more restrictive than the words “used in.” To us, it appears that the contrary is correct. Certainly a piece of machinery must be contained in the manufacturing plant before it can be used. The reason for substituting the phrase “contained in any . . . industrial establishment” for “used in manufacturing” was apparently to avoid the technical question as to what constitutes processing or manufacturing as the Gulf Oil Corporation case presented. Jones & Laughlin, 175 A.2d at 861 (emphasis in original). This determination is indicative of the court’s view that the machinery and equipment exclusion should be liberally construed. The court wrote an even stronger opinion on this issue in F&M Schaeffer, 610 A.2d 1, which dealt with the valuation of machinery and equipment for real estate purposes and how to sever this from the valuation of the real estate itself. Under 53 Pa.C.S. § 8811(b), “[m]achinery, tools, appliances and other equipment contained in any mill, mine, manufactory or industrial establishment” are not considered part of the real estate when determining the facility’s taxation value. The court stated: Under this machinery and equipment exclusion, the traditional Pennsylvania law of fixtures and the assembled industrial plant doctrine do not apply when defining real estate for tax assessment purposes. Jones and Laughlin Tax Assessment Case, 405 Pa. 421, 175 A.2d 856 (1961). Thus, in the context of property tax assessment law, not only are machinery and equipment to be excluded from the value of the real estate but

187

Assessment Valuation Law

they are not even to be considered in determining the fair market value of industrial property for tax assessment purposes. *

*

*

The machinery and equipment exclusion clearly evidences a legislative intent and public policy to promote a favorable business climate in Pennsylvania by providing tax relief for Pennsylvania industries. See Jones and Laughlin Tax Assessment Case at 429, 175 A.2d at 860. In view of this public policy consideration, it is not sufficient only to exclude machinery and equipment from direct inclusion in the assessable real estate valuation. To give the exclusion proper effect, the assessed value of industrial real estate must not, in any way, reflect consideration of the value of the machinery and equipment. Otherwise, a subtle—but no less real—assessment of machinery and equipment will result. Id. at 6–7. 6-6.2

Real Estate versus Personalty

The Commonwealth Court, in In re Appeal of Sheetz, Inc., 657 A.2d 1011 (Pa.Cmwlth. 1995), examined the very narrow issue of whether canopies over a gas station’s self-service pumps were assessable realty or nonassessable equipment. In this case, Sheetz, Inc., owned and operated convenience stores that have self-service gasoline pumps in the parking area. The pumps are covered by canopies to protect customers from inclement weather. The canopies are large metal structures with poured concrete foundations. They are manufactured off premises and are mounted on pillars attached to the ground by bolts sunk into the poured concrete foundation, allowing the canopies to be relocated with relative ease from one store to another. The Blair County Board of Assessment Appeals held that the canopies were improvements to the real estate and therefore assessable. Sheetz appealed to the trial court, where the board contended that the canopies were taxable under 72 P.S. § 5020-201(a), which states that the following properties are subject to taxation: All real estate, to wit: Houses, house trailers and mobilehomes buildings permanently attached to land or connected with water, gas, electric or sewage facilities, buildings, lands, lots of ground and ground rents, trailer parks and parking lots, mills and manufactories of all kinds, furnaces, forges, bloomeries, distilleries, sugar houses, malt houses, breweries, tan yards, fisheries, and ferries, wharves, all office type construction of whatever kind, that portion of a steel, lead, aluminum or like 188

6-6.2

melting and continuous casting structures which enclose, provide shelter or protection from the elements for the various machinery, tools, appliances, equipment, materials or products involved in the mill, mine, manufactory or industrial process, and all other real estate not exempt by law from taxation. The board claimed that the canopies were “all other real estate not exempt by law from taxation.” Sheetz contended that the the canopies were not realty because although they are attached to the land, they can be easily removed. The trial court agreed with the company that the canopies were personalty and nonassessable and reversed the board’s decision. On appeal, the Commonwealth Court cited Gore v. Bethlehem Area School District, 537 A.2d 913 (Pa.Cmwlth. 1988), which discussed when chattels or property were attached to real estate in such a manner as to become real property: A fixture is an article in the nature of personal property which has been so annexed to the realty that it is regarded as part and parcel of the land. Black’s Law Dictionary 575 (5th Ed. 1979). The considerations to be made in determining whether or not a chattel becomes a fixture include (1) the manner in which it is physically attached or installed, (2) the extent to which it is essential to the permanent use of the building or other improvement, and (3) the intention of the parties who attached or installed it. McCloskey [v. Abington Sch. Dist.], 101 Pa. Commonwealth Ct. at 113-4, 515 A.2d at 644 citing Clothier, The Law of Fixtures in Pennsylvania, 32 Pa. B. Q. 66, 66–67 (1960–61) . Sheetz, 657 A.2d at 1013. The court, in examining this three-part test, determined that although the canopies can be easily removed without physical damage, significant effort is required to disassemble a canopy while leaving the concrete foundation in place. The court reasoned that modern construction allows material to stay in place for years and to be moved with minor damage to the material, and it brought up examples such as acoustic ceiling tiles, door handles, and kitchen faucets, which are taxable as real estate. The court found the second element was met because the canopies are a customary and usual part of a gas station and therefore were essential to the use of the improvement. The court found that the canopies met the third element because Sheetz intended them to be a permanent part of the real estate after attachment. “The permanence required is not equated with perpetuity. Just because they have been and can be moved does not mean the intention was not to make them permanent. It is sufficient if the item is intended to remain where affixed until worn out, until the purpose to which

189

Assessment Valuation Law

the realty is devoted is accomplished or until the item is superseded by another item more suitable for the purpose.” Id. at 1014. The Commonwealth Court found the canopies to be part of the taxable real estate because they were an integral part of the Sheetz property under the three-part test. This case is important for restating the approach to resolving the intricate factual determination involved in distinguishing realty from personalty. It is important to point out at this time that this case is severely limited in its application by the equipment exemption provided by the legislature. Under the industrial plant doctrine, equipment that would be considered common-law realty is exempt from real estate taxation if used in the manufacturing process. See 72 P.S. § 5020-201(a). 6-6.3

Equipment versus Realty Test

In Arredondo v. Cumberland County Board of Assessment Appeals, 697 A.2d 614 (Pa.Cmwlth. 1997), the Commonwealth Court addressed the distinction between realty and equipment. The property in this case contained a 69,000-square-foot warehouse with an automatic retrieval and storage system that holds inventory. The system consisted of a series of tall racks supporting inventory pallets. Cranes moved horizontally and vertically in between the rows of racks. The system was secondarily used for roof support. The taxpayer’s appraiser valued the property without the storage system, which he determined was equipment exempt from assessment and taxation under 72 P.S. § 5453.201 (now repealed). The common pleas court found to the contrary and sustained the existing assessment. It is interesting to note that the court held that because the taxpayer’s appraiser did not value the storage system, he failed to produce credible relevant evidence to overcome the prima facie validity of the assessment record. On appeal, the taxpayer took the position that the storage system was an “intricate and mechanized assemblage of machinery, appliances and equipment contained within an industrial establishment” and was directly used in furtherance of industrial purposes: storage, retrieval, and distribution of goods. Arredondo, 697 A.2d at 616. The Commonwealth Court disagreed and found that a storage structure is not an integral part of the manufacturing process but rather part of the realty, citing Jones & Laughlin, 175 A.2d 856. Therefore, the court held that the warehouse and storage system were taxable. The court also applied the three-part Sheetz test to determine if the storage system was realty or personalty, which is not taxable as real estate. The court stated: Here, the [storage system] is affixed to the warehouse’s ground level and exterior walls, and, because [it] provides support for the roof of the building, it cannot be removed without 190

6-6.3

damaging the property. Moreover, [it] is essential in order to use the upper 50 feet of the storage facility, and there is no indication that [it] would ever be removed while the structure remains a warehouse. Because all of these factors are indicia of taxable realty, the trial court correctly concluded that the [system] was assessable. Arredondo, 697 A.2d at 616. This decision established a two-part examination process for the courts in cases of this type. First, if the property is used in the manufacturing process, it is excluded from taxation even though it might be realty, and second, if the property fails test one, then the court must determine if it is realty, which is taxable, or personalty, which is not taxable. In a nonassessment case, Blocker v. City of Philadelphia, 763 A.2d 373 (Pa. 2000), the Pennsylvania Supreme Court addressed what constitutes a fixture. In this case, a woman was injured during a concert at a city-owned venue when the bleacher she was sitting on collapsed. She sued the city for negligently maintaining the bleacher. The city argued that it was immune from suit under the Tort Claims Act, 42 Pa.C.S. §§ 8541–8542. Immunity would apply only if the bleacher were considered personal property, not real property. The wooden bleacher measured roughly 12 feet wide and 5 feet tall, with five tiers of seating. It rested on, but was not attached to, the ground. The trial court granted summary judgment to the city, but the Commonwealth Court reversed. The appellate court found an issue of fact as to whether the city intended the bleacher to remain at the venue permanently, a key factor in determining if the bleacher was real estate or personalty. The Pennsylvania Supreme Court reversed. “Commonwealth Court erred in holding that the bleacher could be a fixture of the real property. There was no attachment of the bleacher to the property on which it rested. The court’s view that the intention of the city regarding whether the bleacher was permanent in its location supersedes the lack of attachment was without basis.” Blocker, 763 A.2d at 375. The court added: It is anciently established that consideration of the intention of an owner regarding whether a chattel has been permanently placed on real property is relevant only where the chattel has in fact been affixed to the realty. Discussing the history of fixture law, Powell on Real Property, Ch. 57, § 649[1] at 57-5 (1992) states: “Early English law placed primary emphasis on annexation of an item to the soil or attachment to an existing fixture in determining fixture status. The Latin maxim reflecting the rules developed under Roman law strongly influenced this approach: ‘quicquid plantatur solo, solo cedit,’ meaning ‘whatever is annexed to the land becomes land.’ ” . . . Absent an attachment to realty, a chattel remains personalty. 191

Assessment Valuation Law

*

*

*

It is undisputed that the bleacher from which [the woman] fell was not attached to the ground. The bleacher was, therefore, personalty, and any negligent maintenance of it did not fall within the real property exception to immunity. Commonwealth Court, in holding to the contrary, erred. Id. at 375–76. Although Blocker was not an assessment case, it should be consulted when the Sheetz test is used because it may be made applicable to assessment cases in the future. 6-6.4

Application of the Industrial Equipment Exclusion

In U.S. Steel Corp. v. Board of Assessment & Revision of Taxes of Bucks County, 223 A.2d 92 (Pa. 1966), the Pennsylvania Supreme Court in a per curiam opinion delineated items at U.S. Steel’s Fairless Works facility that were nontaxable under the industrial plant doctrine: the railroad tracks used exclusively in manufacturing, the craneways for overhead cranes, the ore yard, the blast furnace and stock bins, the sintering plant, the ore screening station, the coke screening station, the open-hearth charging platforms, the soaking pit platforms, the catwalks and special stairways, and the blast furnace cast house. The court held that the portion of the railroad tracks used in manufacturing served as a massive conveyor belt for the steel manufacturing facility, transferring essential materials from one ore processing station to the next. Its function was similar to that of a standard-sized conveyor belt in a factory that turns raw materials into finished products, and it was excluded from taxation. The craneways provided support for the rails upon which massive overhead cranes carried iron, steel, and other in-process products through the buildings. If the railroad track served as a conveyor belt between processing stations, then the craneways served the same function within a station. The craneways, although attached to the buildings, provided no support as such and therefore were not subject to assessment. The ore yard facilities were used not only as transshipment and temporary storage areas for iron ore discharged from the water or rail carriers, but also as receptacles used fundamentally and primarily for the programmed spreading, layering, and blending of the nonuniform shipments of grades and sizes of ore. The court found that while the ore yards may be used for temporary storage, such use was minimal and purely incidental to their use as necessary and integral parts of the steel manufacturing process. The blast furnace stock bins were steel structures that contained surge receptacles designed for the in-process purpose of assembling and temporary holding of the various materials used directly to supply the 192

6-6.4

blast furnaces themselves. Iron ore, limestone, and other ingredients were carried or deposited into the blast furnace stock bins through grids or openings in a railway trestle that is supported by the stock bin structure. The material was then drawn by gravity from the bins into special-purpose cars and was weighed and transported to and charged or deposited within one of the three blast furnaces. The court held that while these bins had an incidental, temporary, or in-transit storage aspect, their primary purpose was to serve directly as a material handling facility for the gathering, combining, and mixing of raw materials in the process flow to the blast furnaces, and therefore were not taxable. The slag pits were located behind the blast furnaces and served to receive the molten slag as it was discharged from the blast furnace. The slag deposited in the pits was treated by a water-cooling system built into the concrete walls. Slag is an industrial byproduct of the ironmaking process. The court agreed that the slag pits constituted equipment that served as an integral and essential part of the production of slag and were used directly and solely in the manufacturing process. The cooling process performed by the slag pits produced slag of the required texture, which was part of the manufacturing process. The sintering plant, ore screening station, and coke screening station were vast machines constructed high in the air on steel superstructures and foundations. These facilities processed ore and coke for use in the blast furnace. The roof and siding on each part of the machinery would collapse if the inner machinery were removed and therefore should be excluded from taxation. The open-hearth charging platforms were elevated platforms located in the open-hearth building. They were used to support machines and cars that ran on tracks embedded in the platforms and that carries materials into the open-hearth furnaces. The platforms were removable and were supported independently of the building, and they added no structural strength to it. The court found these were analogous to a conveyor belt and not assessable. The soaking pit platforms were elevated steel platforms located in the soaking pit building. They were supported by their own foundations and certain of the steel building columns. They were located above the soaking pits and provided no support for the soaking pit building. The platforms provided support for the soaking pits’ control equipment and access for personnel to the equipment. The court found that they can be removed from the building without damage and were excluded from taxation. The catwalks and special staircases were stairwells that were not built into the building but were mounted onto it, and they provided the necessary access to the cranes and other equipment; they were found to be part of the manufacturing process. Finally, the blast furnace cast houses were found to be part of the blast furnaces and provided shelter for the furnace equipment and over193

Assessment Valuation Law

head platforms and channels for the flow of hot, molten iron from the blast furnaces into cars for transport to the open-hearth furnaces, and therefore were excluded from taxation. In Wheeling-Pittsburgh Steel Corp. v. Board of Assessment Appeals of County of Westmoreland, 360 A.2d 265 (Pa.Cmwlth. 1976), the taxpayer attempted to have the assessment eliminated on its steel manufacturing facility, arguing that the plant consisted of machinery, appliances, and equipment contained in an industrial establishment. The Commonwealth Court, in analyzing this claim, stated the basic law in Pennsylvania: The question on the merits of the case is whether the [facility], assessed by Westmoreland County as part of Wheeling’s real estate, falls within the machinery, tools, appliances and other equipment exclusion quoted above. In interpreting this exclusion, our Supreme Court has decided that all improvements used directly in manufacturing the products that the establishment is intended to produce which are necessary and integral parts of the manufacturing process and which are used solely for effectuating that purpose are excluded from real estate assessments and taxation. United States Steel Corporation v. Board of Assessment and Revision of Taxes, 422 Pa. 463, 223 A.2d 92 (1966); Jones and Laughlin Tax Assessment Case, 405 Pa. 421, 175 A.2d 856 (1961), City of Pittsburgh v. WIIC-TV Corporation, 14 Pa. Commonwealth Ct. 18, 321 A.2d 387 (1974). Id. at 267. The court concluded that the entire basic facility fell within the statutory tax exclusion. There was no discussion of the details of the operation except to rely on the lower court opinion in the case. That record included in technical detail information on the use, operation, function, design, and purpose of the facility. In U.S. Steel Corp. v. Board of Revision of Taxes & Appeals of City of Clairton, 366 A.2d 637 (Pa.Cmwlth. 1976), the court held that ammonia storage tanks were taxable, citing Jones & Laughlin, 175 A.2d 856. The tanks were not incidental or temporary, and their primary, if not exclusive, use was storage. The court held that a purification process performed on the stored ammonia did not turn the tanks into machinery exempt from taxation. 6-6.5

Valuation Exclusion of Machinery and Equipment at Power Generation Facilities

Some lawyers have argued that the generation of electricity is not manufacturing and, therefore, that the related equipment and machinery is not excludable from real estate taxation under 53 Pa.C.S. § 8811(b). 194

6-6.5

They premise this theory on the Commonwealth Court’s decision in Potomac Edison Co. v. Commonwealth, 411 A.2d 1287 (Pa.Cmwlth. 1980), aff’d per curiam, 421 A.2d 214 (Pa. 1980). The Pennsylvania Supreme Court affirmed the Commonwealth Court per curiam but did not write any opinion in the case. Potomac Edison specifically holds that the production of electricity is not “manufacturing” under the franchise tax in Pennsylvania pursuant to the Local Tax Reform Act of 1971, 72 P.S. § 7602(b), which provides that every foreign corporation is subject to a franchise tax unless it meets the following exception under 72 P.S. § 7602(a): [T]his section shall not apply to the taxation of the capital stock of entities organized for manufacturing, processing, research or development. In this case, Potomac Edison Co., a Maryland corporation, claimed that its Hatfield’s Ferry steam-driven power station was exempt from the franchise tax because it was manufacturing electricity. The Commonwealth Court held that the manufacturing exemption in the Tax Reform Act does not apply to the production of electricity. Note that the decision in this case is a determination solely of the definitions of terms under the Tax Reform Act of 1971, which does not involve or override any laws dealing with local taxation of real estate in Pennsylvania. All the cases cited in Potomac Edison involved either capital stock or franchise taxes, not real property subject to 72 P.S. § 5020-201. The court determined that under the Tax Reform Act, the term “manufacturing” had a limited meaning: [T]he touchstone of the legal concept of the term “manufacturing” is the application of skill and labor to original “material” whereby it is substantially changed into a new, different and useful “article.” The traditional legal concept assumes tangible “material” as a starting point, and a continuity of existence of that material into the final product. Potomac Edison, 411 A.2d at 1290 (citing Commonwealth v. Berlo Vending Co., 202 A.2d 94 (Pa. 1964)). The court found that the turning of raw material, coal, into steam to turn the generators and produce electricity did not meet the definition of manufacturing under the statute. The fallacy of relying on Potomac Edison is as follows: • •

This case is an interpretation of a statute not involving local real estate taxation, but rather the Tax Reform Act of 1971, specifically the imposition of franchise taxes on foreign corporations. The operative statute is 72 P.S. § 5020-201, which is written in a manner different from the wording of the Tax Reform Act and with a different legislative intent. 195

Assessment Valuation Law

•

•

The history of the machinery and equipment exclusion in 72 P.S. § 5020-201 shows that its language was specifically altered to address what constitutes “manufacturing.” This is explained in depth in the landmark decision in Jones & Laughlin, 175 A.2d 856. Even if a power plant is not manufacturing electricity, its machinery and equipment are still excludable as parts of an industrial establishment.

But what constitutes an industrial establishment in Pennsylvania? To answer that question, a review of the “assembled industrial plant” doctrine must be undertaken. The doctrine governed the taxation of machinery and equipment in industrial facilities in Pennsylvania before the adoption of the machinery and equipment exclusion in 72 P.S. § 5020-201. The doctrine was defined in Messenger Publishing Co. v. Allegheny County Board of Property Assessment, Appeals & Review, 132 A.2d 768, 768–69 (Pa.Super. 1957), as follows: There is a rule in Pennsylvania that “a chattel placed in an industrial establishment for permanent use, and necessary to the operation of the plant, becomes a fixture and as such a part of the real estate, although not physically attached thereto; in other words, if the article, whether fast or loose, be indispensable in carrying on the specific business, it becomes a part of the realty.” Titus v. Poland Coal Co., 275 Pa. 431, 436–7, 119 A. 540 (1923). See also Gray v. Holdship, 17 S. & R. 413 (1828); Voorhis v. Freeman, 2 W. & S. 116 (1841), Patterson v. Delaware County, 70 Pa. 381 (1872), and Central Lithograph Company v. Eatmor Chocolate Company, 316 Pa. 300, 175 A. 697 (1934). Prior to the section 5020-201 amendments, county assessors attempted to tax machinery and equipment brought into buildings as fixtures under the assembled plant doctrine. The assessors argued for a broad interpretation of the term “industrial establishment,” while taxpayers argued for a narrow definition. Based on these contentions, the Pennsylvania appellate courts resolved the matter in several cases, which are still relevant to the issues being raised by taxing authorities today. The Pennsylvania Supreme Court in United Laundries Inc. v. Board of Property Assessment, Appeals & Review of Allegheny County, 58 A.2d 833 (Pa. 1948), addressed the issue in regard to four commercial laundries and a carpet cleaning company. The assessor taxed the value of machinery and equipment consisting of ironers, tumblers, dryers, washers, extractors, and pressers at the laundries and of a rug beater, sewing machine, washing machine, and wringer used by the carpet cleaner. The parties agreed that the plants were neither mills nor factories because they do not make or produce products. The court found that the operations of the 196

6-6.5

laundries and carpet cleaning company came within the ambit of the assembled plant doctrine and that their equipment and machinery were therefore taxable. In North Side Laundry Co. v. Allegheny County Board of Property Assessment, Appeals & Review, 79 A.2d 419 (Pa. 1951), the court expanded upon the holding in United Laundries. In this case, a laundry challenged the assessor’s taxation of its equipment and machinery under the assembled plant doctrine when other “industries” such as theaters, cab companies, service stations, automobile repair shops, restaurants, stores, office buildings, hotels, banks, and self-service laundries were not taxed. The Pennsylvania Supreme Court rejected this argument and held: That argument is predicated in part on a misconception of our holding in the United Laundries case. We did not there hold that the personal property of an industry is subject to assessment under the Act of 1933. What we did hold was that a commercial laundry is an industrial plant and hence that the equipment necessary to its operation is real estate within the meaning of the Act of 1933. Therefore, the fact that the businesses to which plaintiff referred are sometimes generically called “industries” is irrelevant to the issue here raised. The question is whether their establishments are industrial plants. The answer to that question is self-evident. By no stretch of the imagination could a bank building, a hotel, a theater or any of the other business establishments referred to by plaintiff be considered an industrial plant. It is true that we sometimes speak of “the movie industry”, “the hotel industry” or “the banking industry”, but that is merely a loose use of language to convey the idea that the particular business is a sizeable one. In spite of that colloquialism, we do not speak of the buildings housing such businesses as “industrial plants”. Plaintiff attempts to give to that phrase a legal meaning that goes far beyond anything that was contemplated by the Courts when they pronounced this rule and by the legislature when it adopted it in the Act of 1933. The law can do no better than to define an industrial plant as that type of establishment which the ordinary man thinks of as such. Certainly a commercial laundry comes within that definition but the other businesses here mentioned do not. North Side Laundry, 79 A.2d at 421 (emphasis in original). It is obvious that an ordinary person would consider a hydroelectric operation, fossil fuel facility, or nuclear power station an industrial plant. In a significant case, the Pennsylvania Supreme Court tackled what constitutes an “industrial establishment” entitled to exclusion from taxa197

Assessment Valuation Law

tion as real property. BFC Hardwoods, Inc. v. Board of Assessment Appeals of Crawford County, 771 A.2d 759 (Pa. 2001), was the first Supreme Court decision to address the issue since the machinery and equipment exclusion was enacted in 1953. Other cases had dealt with equipment in mills and manufactories, but none had explored the meaning of equipment in industrial establishments.5 The facts of this case are complex because of the industrial process involved. BFC Hardwoods, Inc., was in the business of drying lumber in five specialized dry kilns. The assessment appeals board assessed the kilns as taxable and refused to apply the machinery and equipment exclusion. The kilns were used continuously and exclusively to remove moisture from precut lumber to a greater degree than could be done by conventional open-air drying. This process made the wood suitable for commercial sale and use in a broad range of applications. The facility included large insulated structures into which lumber was stacked for substantial time periods. Heating systems were used to draw moisture from the wood. Exhaust ventilation systems were designed to control airflow and eliminate saturated air from the structures. The dry kilns had additional specialized features including computer controls, monitoring equipment, interior skins of aluminum alloy, concrete flooring to support the heavy load, loading doors designed as movable walls and equipped to be hermetically sealed, a system of fans integrated into false ceilings, and bulkheads and baffles used to direct airflow. The ovens were assembled on the property from premanufactured, predrilled components that could be disassembled for purposes of relocation. BFC’s expert testified that the kilns had no other use and were not suited to applications other than drying lumber. The company’s facility consisted of these ovens, storage buildings, an office, and undeveloped real estate. The court of common pleas affirmed the board’s decision that the kilns were not excluded from taxation. The court held that they were not contained in any mill, factory, or industrial establishment and that the business of kiln drying did not meet the definition of manufacturing or processing in the Capital Stock Tax Act, 72 P.S. § 7601–7606. The Commonwealth Court affirmed the lower court in a memorandum opinion. On appeal to the Pennsylvania Supreme Court, BFC argued that the dry kilns qualified for exclusion because they were machinery contained in an industrial establishment and were directly used to accomplish a form of industrial processing. The Supreme Court stated that in order to qualify for this exclusion from taxation, the property (1) must constitute machinery, tools, appliances, or other equipment and (2) must be contained in a mine, mill, factory, or industrial establishment. BFC contended that its facility met these requirements and was an “industrial establishment.”

5.

198

The only post-1953 appellate case defining that term was City of Pittsburgh v. WIIC-TV Corp., 321 A.2d 387 (Pa.Cmwlth. 1974).

6-6.5

The court agreed, stating: Beginning with the latter of these criteria, while BFC does not purport that its facilities should be deemed to be a “mill” or “mine,” and does not press the assertion that they constitute a “manufactory,” its essential position is that the facilities do constitute an “industrial establishment.” In defining such term, this Court has applied an approach emphasizing general usage and understanding. See, e.g., North Side Laundry Co. v. Board of Property Assessment, Appeals and Review, 366 Pa. 636, 640, 79 A.2d 419, 421 (1951) (stating that “the law can do no better than to define an industrial plant as that type of establishment which the ordinary man thinks of as such”). Under this approach, the Court has determined, for example, that a commercial laundry is an industrial establishment, see id.; United Laundries, Inc. v. Board of Property Assessment, Appeals and Review, 359 Pa. 195, 201, 58 A.2d 833, 836 (1948), and the intermediate appellate courts have concluded that newspaper plants and TV stations also would qualify. See, e.g., Messenger Publishing Co. v. Board of Property Assessment, Appeals and Review, 183 Pa. Super 407, 409, 132 A.2d 768, 769 (1957) (endorsing the view of the common pleas court to the effect that “it would seem that the ordinary man would think of a newspaper as an industrial plant, especially if one were to tell him that a laundry or a carpet cleaning company are such for the purpose here being considered”); City of Pittsburgh v. WIIC-TV Corp., 14 Pa. Commw. 18, 21, 321 A.2d 387, 388 (1974) (stating that “the same ordinary man would think of a TV station as an industrial establishment, especially if one were to tell him that a newspaper plant is such for the purpose here being considered”). BFC Hardwoods, 771 A.2d at 764. The Supreme Court specifically found that BFC employed large-scale specialized implements to cause a substantial change in quantities of lumber by removing moisture more efficiently than would be possible naturally and that its operation constituted an industrial establishment, meeting one of the requirements of 72 P.S. § 5453.201 (now repealed). The court then found that the modern conception of machinery is effectively the apparatus essential to actual industrial operations and that a broad construction was consistent with the legislative policy of fostering business development. The court found that BFC met the second prong of the exclusion test and, therefore, that the dry kilns constituted machinery excluded from taxation.

199

Assessment Valuation Law

The court summarily disposed of the assessment board’s argument that the restrictive definitions of “manufacturing” in the Capital Stock Tax Act were controlling. The court stated: [W]e agree with BFC that the decision is distinguishable as defining a set of exclusions for purposes of capital stock taxation crafted more narrowly than the exclusion prevailing under the Law for purposes of local real estate taxation. BFC Hardwoods, 771 A.2d at 766. The history of the assembled plant doctrine, its amendment by the legislature to provide for the exclusion of machinery and equipment, the existing case law, and a common-sense interpretation clearly demonstrate that the machinery and equipment in a power generating facility are excludable under 72 P.S. § 5020-201. Any suggestion to the contrary is a stretch of logic, and the interpretation of case law pertaining to statutory definitions of unrelated legislative enactments is specious. 6-6.6

Information Processing and the Industrial Equipment Exclusion

City of Pittsburgh v. WIIC-TV Corp., 321 A.2d 387 (Pa.Cmwlth. 1974), was one of the first Commonwealth Court cases to examine the scope of the industrial equipment exemption. The court was required to answer this question: Is a television antenna used for the transmission of electromagnetic waves part of an industrial establishment and thus statutorily exempt from taxation under 72 P.S. § 5020-201? The court answered in the affirmative, citing the landmark case of Jones & Laughlin, 175 A.2d 856. The court found that a television station was analogous to a newspaper plant and that its activities fell within the industrial establishment exclusion. This holding has interesting ramifications for the modern era. Is information processing an industrial process and similar to the production of television signals? It could be argued that a building that is specially designed for the processing of computer information is an industrial establishment. In today’s computer age, certain structures are necessary to hold equipment to receive and process computer information. The raw information comes in by wire or modem and is processed by the technological equipment in the building, and data is converted, stored, and/or passed on. This data is not stored per se but is constantly altered by continuing input of new information and is available to be passed on in this new form. Any special alterations or adaptations of the standard building made to hold and preserve this computer equipment are part of the industrial establishment. This could include such things as special cooling equipment necessary to dissipate the heat caused by the computing equipment, raised floors necessary for holding the equipment, and other special adaptations of the building necessary for data processing. While no appel200

6-6.7

late court cases directly address this issue, it is expected that litigation will arise requiring an interpretation of the industrial plant doctrine as it applies to data processing facilities. 6-6.7

Taxation of Cellular Towers

Shenandoah Mobile Co. v. Dauphin County Board of Assessment Appeals, 869 A.2d 562 (Pa.Cmwlth. 2005), addressed the taxability of cellular communications towers. In this case, property owners leased 1,600 square feet of land to Shenandoah Mobile Co., which installed a concrete pad, monopole cellular tower, antenna, equipment shed, and perimeter fence. In tax year 2000, Dauphin County did a countywide reassessment but did not tax any cell towers at that time. In early 2001, based on a different interpretation of the assessment law, the county identified and taxed all cellular and wireless towers. Shenandoah appealed its new assessment to the assessment appeals board, which denied the appeal. The company then appealed to the court of common pleas, arguing that the assessment was a spot reassessment and that the tower was not real estate under the law. The court ruled against Shenandoah, and the matter was appealed to the Commonwealth Court. Shenandoah argued that the 2001 assessment of the property was a spot reassessment and was void ab initio under 72 P.S. § 5348.1 (now repealed). The appellate court distinguished this case from Radecke v. York County Board of Assessment Appeals, 798 A.2d 265 (Pa.Cmwlth. 2002), which Shenandoah relied on to support its argument: In Radecke, the improvements at issue were present during the previous countywide reassessment and before the current owners’ purchase of the property, but were overlooked during the reassessment. The assessment board viewed the oversight as an error in the determination of the market value of the property. The assessment board, therefore, increased the assessed value based upon the previously unnoticed improvements. On appeal, we overturned the board’s action as an impermissible spot assessment. In contrast to Radecke, here, all cellular towers within the county, which were all previously unassessed, were added to the tax rolls and made subjects of local taxation, because the Board made a legal determination that a new subject of taxation existed. In addition, the Tower was not the subject of a spot reassessment since the assessment at issue was an initial assessment, not a reassessment. Thus, we hold that no impermissible spot assessment occurred here. Shenandoah, 869 A.2d at 565–66 (emphasis in original).

201

Assessment Valuation Law

The court then addressed whether a cell tower is real estate subject to local taxation under 72 P.S. § 5020-201. The court applied the three-part Sheetz test to determine if a fixture has become part of the real estate by examining how the fixture was installed, the parties’ intent when installing it, and its importance to the use of the real estate. The court found that four bolts, each eight feet long and embedded in a concrete base, secured the cell tower to the ground. The tower, which was in three sections, supported cables and antennas and can be removed only by using a crane. The tower could be moved when business warranted it, when it became obsolete, or when the population shifted. Therefore, the court held that the tower had the requisite degree of attachment to the realty. The court found that the parties intended to have the tower bolted to the property and remain there as long as business warranted it. The court then found that the tower is essential for the use of the real estate because the concrete pad serves no other function than supporting the tower. Based on all these factors, the court held that the cell tower was realty and subject to local taxation. In Cellco Partnership v. Lycoming County Board of Assessment, 934 A.2d 779 (Pa.Cmwlth. 2007), another cell tower operator attempted to circumvent the holding in Shenandoah. Verizon Wireless operated six cell communications towers ranging in size from 110 to 380 feet, with antennae and connected appurtenances affixed to each tower. Each site had a shelter for radio equipment connected by coaxial cable to the antennas on the towers. Each tower facility was contained in an area of approximately 100 feet by 100 feet surrounded by a security fence. Each facility had telephone and electric service, and some of them had standalone emergency generators. There were access roads from the public streets to the facilities. The facilities were automated, with no working personnel. The antennas received and transmitted radio signals ranging from two to five miles for cell phone service. The towers were connected to a mobile telephone switching office. The tower facilities and the switching office made up the Verizon Wireless cellular communications network Verizon claimed that its property was excluded real estate under 72 P.S. § 5453.201(a) (now repealed) because the towers were part of an industrial establishment similar to the television tower in WIIC-TV Corp. The Commonwealth Court rejected Verizon’s argument and found that the towers were not machinery or equipment in an industrial establishment. The court stated: Verizon readily recognizes that the parties stipulated that the facilities where the Towers were located were automated, with no regular personnel. However, Verizon asserts that the fact that the facilities were automated or may be controlled from a distant mobile telephone switching office did not preclude them from qualifying as industrial establishments. For sup202

6-6.8

port, Verizon cites to Commonwealth v. Morris Half Hour Laundromat, 442 Pa. 543, 277 A.2d 148 (1971) and Eastern Auto Car Wash, Inc. v. Commonwealth, 10 Pa. Commw. 207, 309 A.2d 611 (Pa. Cmwlth. 1973), affirmed, 463 Pa. 119, 344 A.2d 277 (1975). These two cases did not deal with real estate tax but with sales tax. In Morris, the issue was whether the service provided by coin operated washing machines constituted “service” upon which the owner could be taxed even though the work was not done by the owner or his employees. Similarly, in Eastern, the issue before this Court was whether a self-service, coin operated car wash was subject to taxation for the service. In both cases, the services provided were held subject to taxation. Verizon argues that these cases lead to the conclusion that the tax laws of this Commonwealth must be read to reasonably accommodate technological change. Under this theory, Verizon argues that the facilities should not be distinguished from more traditional manned facilities. This Court does not agree. Section 201(a) of the Law requires the property to be contained in a “mill, mine, manufactory or industrial establishment” before it qualifies for an exclusion. While the term “industrial establishment” is not defined in the Law, this Court finds no error with the trial court’s application of the “ordinary man” test to conclude that the Towers were neither part of an industrial establishment nor part of any manufacturing process. The Towers transfer and receive signals from cellular telephones. No product is produced. In WIIC, this Court referenced the “ordinary man” standard to determine whether the television station was an industrial establishment. Further, as the trial court noted, the television station produced programs at the site, which were then sent out over the airwaves. Again, nothing is produced at these facilities. Cellco Partnership, 934 A.2d at 782–83. These opinions appear to finally resolve the controversy over the taxation of cellular facilities and provide both taxpayers and taxing authorities certainty in going on with business. 6-6.8

Valuation of Land under Power Generation Facilities

In Allegheny Energy Supply Co. v. County of Greene, 788 A.2d 1085 (Pa.Cmwlth. 2001), the Commonwealth Court dealt with the proper techniques for appraising power generation facilities. This was the first case to address the valuation of such power projects since the 1999 amendments to the Public Utility Realty Tax Act, which removed electricity generation plants from the state tax rolls and restored them to the county assessment 203

Assessment Valuation Law

rolls. In this case, Allegheny Energy Supply Co. owned a 144-acre power station. The Southeastern Greene School District filed an appeal with the Greene County Board of Assessment Appeals, seeking an increase in the assessments for tax year 2000. The board increased the assessments on both parcels, and Allegheny Energy appealed this decision to the court of common pleas. The school district’s expert valued the land, as vacant land, at $26 million based on a comparison with other power plants. The board’s expert stated that the value of the land under the plant was at least $52.8 million. Allegheny Energy’s expert, on the other hand, concluded that the land was suitable for general industrial use and, considering the low demand for industrial land in Greene County, assessed the land at $172,800, or $1,200 per acre. Adopting this expert’s opinion, the common pleas court found that the highest and best use of the site was to continue its present use as a power plant. The school district appealed, contending that the court erred when it concluded that the land’s highest and best use is as a power plant and adopted a price based on the land’s value according to its general industrial use. The Commonwealth Court stated: The cost approach to valuation as employed by the trial court uses the following formula: 1) the estimated value of the land, which is assumed to be vacant and available for its highest and best use, added to 2) the estimated reproduction cost for the facility, less depreciation. Reichard-Coulston [v. Revenue Board of Northampton County, 517 A.2d 1372 (Pa.Cmwlth. 1986)]. Contrary to the School District’s contentions, the cost approach does not require that the valuation of either the vacant land or the improvements be stated in terms of its highest and best use. “[A] property’s use and its resulting value-inuse cannot be considered in assessing the fair market value of property for tax assessment purposes in Pennsylvania.” F&M Schaeffer [Brewing Co. v. Lehigh County Bd. of Appeals], 530 Pa. at 457–58, 610 A.2d at 4 [(Pa. 1992)]. “Value-in-use is based on the use of the property and the value of that use to the current user, . . . and it is not relevant in tax assessment cases. . . .” Id. (emphasis added). Id. at 1090–91. The school district’s appraiser based his valuation of the land on a comparison with other industrial plants at a value expressed in terms of dollars per kilowatt-hour of capacity. Both the lower court and the appellate court rejected this valuation method on the grounds that it valued the land based on its ability to sustain a certain generating capacity and because it was based upon the land’s use as a power plant.

204

6-6.9

Although not discussed in the opinion, this method is fundamentally flawed. The comparison of the subject land to the derivative price per kilowatt capacity impermissibly values the machinery and equipment in power plants, which are excluded from taxation under Pennsylvania law. The equipment at the plants, not the land, produces the electricity. The land simply provides a physical support for the machinery and equipment, as does the physical real estate surrounding these nontaxable items. Using a value system of capacity, which is generated by the machinery and equipment, is a value-in-use appraisal and is not permitted. See Allegheny Energy Supply Co. v. Greene County Board of Assessment Appeals, 869 A.2d 31 (Pa.Cmwlth. 2005), for reappealed results. 6-6.9

Owners as Potential Purchasers of Real Estate

In Mack Trucks, Inc. v. Lehigh County Board of Assessment Appeals, 692 A.2d 661 (Pa.Cmwlth. 1997), the court examined whether the taxpayer must be considered a potential purchaser of its own real estate. Mack Trucks, Inc., owned a 900,000-square-foot industrial facility on 148 acres of land in Lehigh County. The common pleas court found that the plant was a shell building similar to an assembly area rather than a traditional “smokestack” manufacturing plant. Unfinished trucks came in at one end of the building, and parts were added until there were finished trucks at the other end of the building. Noting that the property was not near an interstate highway and could not be served by rail, the court valued the land at $4.4 million ($30,000 per acre). The court specifically found that if the building were placed on the market, it would be sold for multiple uses. There was no possibility that one entity would wish to buy the entire facility for its own use. Therefore, the building would need to be extensively modified for use by multiple manufacturing or warehouse operators. Based on this sale limitation, the court valued the building at $9 million ($10 per square foot), making the entire property worth $13.4 million. Lehigh County had contended that Mack Trucks should be considered a potential purchaser of its own property. The common pleas court rejected this argument, stating that a sale to itself did not seem reasonably possible and would certainly not be an arm’s-length transaction in the open market. The Commonwealth Court rejected this approach as well and found that it would amount to a value-in-use method rejected by the Pennsylvania Supreme Court in F&M Schaeffer, 610 A.2d 1. The county had relied on McGraw-Edison Co., 573 A.2d 248, to argue that the current occupant’s use is the highest and best use of the property and is distinguishable from a prohibited value-in-use analysis. The court disposed of this argument, stating: The Court agrees with Mack that the County’s argument is a transparent attempt to apply the value-in-use method of valuation to the present assessment. Bolus [County of Monroe v. 205

Assessment Valuation Law

Bolus, 613 A.2d 178 (Pa.Cmwlth. 1992),] emphatically rejected an owner’s contention that his partially protected wetland property should be assigned zero value. Although he had shown that the land was of no use to him at the time in question, he had not shown that it could never be of any use to anyone. McGraw-Edison Co. held simply that an expert’s conclusion that continued use of a property by a single manufacturer in the same or a similar capacity as the present owner did not violate the prohibition against value-in-use valuation. The expert testified that he understood the difference between the value-in-use and value-in-exchange concepts and had applied the latter. As Mack points out, continued use for the same or a similar purpose as the present use certainly may be considered where that is the most reasonably probable use in view of marketplace demand, but continued use may not be considered otherwise. The cases cited by the County in no sense require consideration of the present use as the highest and best use or consideration of the strained concept of a hypothetical purchase by the present owner. Mack Trucks, 692 A.2d at 664. This case is important in that it rejects the commonly raised argument that the owner of a property is a potential purchaser of the property. This approach is used mainly to justify a property value that is not reflected on the open market. The controlling law mandates a value-in-exchange method. The free-market valuation can be harsh to the taxing authorities where the biggest taxables of a county are involved, but it does reflect the real-world value of the property. Taxing authorities should take a step back and remember that the objective of the system is not to get the highest assessment but rather to do justice by seeking the fairest assessment based on the property’s fair market value. 6-6.10

Hypothetical Highest and Best Use and Assessment Valuation

A hypothetical “highest and best use” analysis was at issue in Air Products & Chemicals, Inc. v. Board of Assessment Appeals of Lehigh County, 720 A.2d 790 (Pa.Cmwlth. 1998). Specifically, can an assessment valuation and taxation be based on a hypothetical use as opposed to the actual use of a parcel of land? The property in this case was the corporate headquarters of Air Products & Chemicals, Inc., in Lehigh County. The property consisted of 500 acres of real estate, four research and development buildings, and storage, support, and maintenance facilities. Air Products appealed its $80 million assessment for tax year 1994. The assessment board denied the appeal, and Air Products appealed to the court of common pleas. By the time the trial 206

6-6.10

took place, several additional tax years became part of the case by operation of law. At trial Air Products presented appraisal evidence indicating values of $55.46 million for 1994, $50.7 million for 1995, and $57.4 million for 1996. Lehigh County rebutted these figures with its own appraisal values of $67.5 million, $66 million, and $72.4 million for the respective years. Air Products’s expert testified that he appraised the property as one indivisible tract and considered the highest and best use of the property to be an integrated headquarters facility combining offices, research, and development. The expert used all three approaches to value but relied primarily upon the cost approach due to the lack of comparable properties in the market. The county’s expert valued the property as two separate or independent parcels of land. She considered the highest and best use of the property as that of one tract of land containing two administration buildings and a fitness center and the other tract containing the remainder of the campus, including the research facilities. The appraiser said that the property was more marketable if subdivided into two smaller parcels and marketed to two purchasers. She then used the comparable sales method of valuation for the two hypothetical tracts to arrive at current fair market value. After weighing these rival contentions, the common pleas court found in favor of Air Products and lowered the assessment. Lehigh County appealed, arguing that the trial court erred by using the value of Air Products’s specific use of the property rather than the highest and best use as subdivided into two hypothetical tracts of land. The Commonwealth Court rejected this argument and affirmed the lower court opinion, stating: The County’s theory of valuation appears to be based upon a misunderstanding of the concepts of both highest and best use and value-in-use. As noted by this court in County of Monroe [v. Bolus, 613 A.2d 178 (Pa.Cmwlth. 1992)], the highest and most profitable use to which land is adaptable is one factor to consider in determining the price, “which a purchaser, willing but not obligated to buy, would pay an owner willing but not obligated to sell.” 613 A.2d at 182. The appellate courts of this Commonwealth have held that reasonably foreseeable prospects for a property which exist at the time of an assessment may be considered in determining a property’s fair market value, e.g.—its probable use, lease or sale. See McKnight Shopping Center, Inc. v. Board of Property Assessment, Appeals and Review, 417 Pa. 234, 209 A.2d 389 (1965); Chatfield v. Board of Revision of Taxes, 346 Pa. 159, 29 A.2d 685 (1943); Appeal of Marple Springfield Center, Inc., 133 Pa. Commw. 406, 576 A.2d 106 (Pa.Cmwlth. 1990) rev’d on other grounds, 207

Assessment Valuation Law

530 Pa. 122, 607 A.2d 708 (1992). However, consideration of factors based upon pure speculation, such as what the property would be worth in an altered condition are irrelevant to the issue of fair market value. Id. In other words, hypothetical ways in which the property could be used by potential buyers should be considered in determining what a willing buyer would pay for the property. That is not to say, however, that the property should be valued as though it were already in that hypothetical condition. For instance, a large farm may have greater potential value if the land were subdivided into one acre lots for single family homes, but while that potential must be considered, the property may not be taxed as though it were currently subdivided and developed. Accordingly, even if the trial court had accepted the opinion of the County’s expert that subdivision was the highest and best use, it would have been error to value the property as though it were, in fact, two separate parcels. Id. at 793–94 (emphasis in original). The court’s decision stands for the proposition that the assessed value of a parcel of land should be its value “as is” rather than its value when it is configured into its hypothetical highest and best use. While the trier of fact may consider how a property’s potential highest and best use may affect what a willing buyer may pay for the property, it cannot consider the property as improved to its best use when it is not physically at that point. While a buyer may pay a premium for land that he or she can potentially improve to its highest and best use, the buyer will not pay the full value of the highest use before that use has been attained. In summary, while a hypothetical highest and best use may make a property more attractive to a purchaser, the property cannot be taxed on that hypothetical use. This holding is consistent with the theory of ad valorem taxation, i.e., real estate taxes based on the actual value of a property, not its hypothetical value. Finally, the Air Products decision should be read in tandem with the Commonwealth Court’s opinion in Mack Trucks, 692 A.2d 661, that an owner may not be considered a hypothetical buyer of his or her own property. Both Air Products and Mack Trucks hold that hypothetical uses and valuations of real property have no place in tax assessment determinations. To the contrary, the economic reality of the property as reflected in its actual treatment in the marketplace is the relevant factor to consider.

208

6-6.11

6-6.11

Hypothetical Highest and Best Use Appraisals Are Improper Valuation Tools

In ENF Family Partnership v. Erie County Board of Assessment Appeals, 861 A.2d 438 (Pa.Cmwlth. 2004), the court examined whether a property could be assessed based on a speculative highest and best use method. The taxpayer in this case, ENF Family Partnership, owned three parcels of land in a predominantly commercially developed area with numerous roads connecting to an interstate highway. The three parcels were the only agriculturally zoned properties in the immediate area; all the other properties were either residential or commercial. At the time of the appeal, no applications for zoning changes or variances were pending on the properties. Pursuant to a countywide reassessment, the three parcels were assessed based on their value as agriculturally zoned properties. The Millcreek Township School District appealed the new assessed values of the properties to the Erie County Board of Assessment Appeals. At the board hearing, the school district introduced two appraisals that used a highest and best use method that valued the properties assuming that their zoning would be changed to mixed tenant and commercial/retail use and/or to A- or B-Business zoning. Adopting these two appraisals, the board increased the combined assessments from $244,600 to $2.9 million. ENF appealed this decision, and the court of common pleas held that the properties may be valued as having a commercial highest and best use but may not be taxed as if they were currently zoned for commercial purposes. ENF appealed this decision to the Commonwealth Court. The appellate court found that the lower court erred when it allowed the properties to be assessed based on a hypothetical highest and best use method that was contingent on a change in zoning where the property owner has not applied for a zoning change. The court stated: In Appeal of Marple Springfield Center, Inc., 133 Pa. Commw. 406, 576 A.2d 106 (Pa. Cmwlth. 1990), rev’d on other grounds, 530 Pa. 122, 607 A.2d 708 (1992), a property owner had applied for a variance that would allow him to construct a multiplex theatre on his property. The appellants contended that the trial court erred in failing to consider the proposed construction in determining the fair market value of the property, arguing that probable . . . changes could be considered for assessment purposes. This court agreed that factors based upon a reasonable probability existing at the time of the assessment are relevant to the determination of a property’s fair market value; however, we stressed that factors based upon pure speculation, such as what a property would be worth in an altered condition, are irrelevant and may not be considered. Although the property owner had submitted an application for the required variance, we noted that the variance had not yet been 209

Assessment Valuation Law

granted, and we concluded that “the possibility that a variance may be issued is too speculative to permit such plans to be admitted.” Id. at 109. Thus, we held that the trial court properly refused to admit plans for the proposed multiplex theater into evidence as a factor in assessing the property. *

*

*

In the present case, ENF had not even applied for a variance or a zoning change at the time of the [school district’s] appraisals. Therefore, pursuant to Marple, the possibility that the properties might be rezoned for commercial use was pure speculation and should not have been considered in assessing those properties. Thus, the trial court erred as a matter of law in affirming the Board’s decision to allow evidence of irrelevant appraisals based on such a speculative highest and best use of the property. Id. at 441–42. The court’s decision is consistent with the theory that landowners can do whatever they want with their property, as long as the use is not illegal, and that the landowners are under no obligation to develop a property to its highest potential. By assessing the property at its potential highest and best use and placing an onerous tax burden on the owner of underdeveloped land, the government, through the power of taxation, is forcing the owners to develop the land or to sell out to developers who will do the job. At a time when there were complaints of runaway development throughout the Commonwealth, the taxing authorities were indirectly forcing development while other governmental policies were attempting to slow it. If this strategy of taxing districts were allowed to prevail, it would have eventually forced many farmers to sell their land to developers and shrink the available open space. The Commonwealth Court properly ended this insidious practice. 6-6.12

Evidence of Property Sale versus Expert Appraisal Evidence of Property Value

The Commonwealth Court in RAS Development Corp. v. Fayette County Board of Assessment Appeals, 704 A.2d 1130 (Pa.Cmwlth. 1997), explored the relationship between the sales price of a property and its appraised value. In this case, RAS Development Corp. bought four parcels of real estate at a sheriff’s sale for $1.5 million. Three of the parcels consisted of undeveloped property in excess of 271 acres. The fourth parcel had been developed as a campground facility and contained over 87 acres. RAS failed to make any profit on the property, so it appealed its assessment for tax year 1992. The board of assessment appeals denied the ap-

210

6-6.12

peal. The matter then went before the court of common pleas, which set the property value at $2.5 million. At trial, RAS had presented evidence of the purchase price and of the fact that the property was producing a loss of revenue. The county’s chief assessor used traditional appraisal methods to value the property. He relied most heavily on the market data approach and used three sales of similar property to derive his land value. He relied on the cost approach to obtain his value for the improved portions of the property. RAS produced no expert appraisal evidence to rebut the county assessor’s opinion of value. On appeal, RAS argued that the trial court failed to consider the loss generated by the property since 1991. The Commonwealth Court rejected this contention and held: RAS is correct to the extent that it contends that the income approach method bears some relevance in the determination of “actual” or fair market value. In this case, it may well be that, in using the income approach method of ascertaining fair market value, an expert would have proposed a figure that reflected the loss generated by the property, and, in this regard, we note that RAS presented testimony and documentary evidence supporting its contention that the property has in fact produced a loss throughout the years. However, RAS presented absolutely no testimony or other evidence relating to the impact that such a loss would have on the actual fair market value of the property, and no expert or other witness testified as to what the actual value of the property would be had the income approach method been utilized. Id. at 1134. RAS further argued that the trial court should have accorded greater weight to the purchase price of $1.5 million. The appellate court rejected this argument and noted that RAS had conceded that 72 P.S. § 5453.602(a) “specifically provides that a prior sale of the subject property is not dispositive of the actual market value for assessment purposes.” RAS Development, 704 A.2d at 1134. The court pointed out that the county’s assessor had considered the weight to be accorded the purchase price during his valuation process. On cross-examination he explained why he gave little weight to the sale price. He stated that it was a sheriff’s sale, and the circumstances indicated to him that it was a distress sale, not a fair market value sale. The Commonwealth Court noted that the Pennsylvania Supreme Court had addressed this exact issue in Appeal of Barry, 44 A.2d 296, 297 (Pa. 1945), which held: The appellant would have us adopt the sale price as the proper valuation for tax purposes of the property in question. To do this would make the sale price controlling, which is contrary 211

Assessment Valuation Law

to the act of assembly and the decisions which hold the sale price must be considered but shall not be controlling. *

*

*

In Suermann v. Hadley, 327 Pa. 190, [205,] 193 A. 645, [653 (1937),] the Supreme Court held, “Sale price, while an important element of market value, has never been held controlling. . . . [In] Hickey’s Appeal, 326 Pa. 467, 192 A. 923 [(1937)], [the Supreme Court] held that the price for which the property sold at a bona fide sale was not controlling where evidence was adduced to show a higher value. The sale price was entitled to great weight as an important item of evidence, but market value was the actual value for assessment uninfluenced by vague theories of actual value. Likewise, a bona fide offer of sale is not solely determinative of market value, but is merely evidentiary: Appeal of American Academy of Music, 321 Pa. 433, 184 A. 657 [(1936)].” RAS Development, 704 A.2d at 1136. Therefore, while a property’s sales price is relevant information for the fact finder, it is not controlling per se. Relying solely on the sales price at an assessment trial may be extremely risky where the other party presents expert appraisal evidence that the sales price is not necessarily the current fair market value on the valuation date before the court. 6-6.13

Necessity to Value a Property as an Economic Whole

In In re Koppel Steel Corp., 849 A.2d 303 (Pa.Cmwlth. 2004), the Commonwealth Court delved into the necessity of valuing a property as separate tax parcels or as an economic whole. Koppel Steel Corp. owned 11 parcels of real estate in Beaver County with a total assessed fair market value of $3.4 million. The company unsuccessfully appealed the assessment to the board of assessment appeals. At a subsequent appeal to the common pleas court, Koppel’s appraiser used the comparable sales approach and valued the properties as one integrated economic unit at $3 million. The taxing school district objected and moved to dismiss the appeal because the appraiser failed to separately value each of the 11 parcels. The school district presented testimony of its own appraiser, who valued the property at nearly $7.3 million. The trial court denied the motion and sustained the original assessment of $3.4 million. The court based its decision on the premise that parcels could be valued individually rather than as one economic unit.

212

6-6.14

The Commonwealth Court found that the trial court erred when it rejected Koppel’s valuation of the property as one economic unit as a matter of law. The appellate court stated: In In re Lehigh & Wilkes-Barre Coal Company’s Assessment, 298 Pa. 294, 148 A. 301 (1929), our supreme court considered an assessment that was made on fifty contiguous tracts appraised as a single unit, stating: The Act of Assembly requires the assessment to be of “tracts of land”; here it is composed of many small tracts. This does not mean that, where the ownership of contiguous locations come into one person or company, it is necessary that each separate purchase be carried through for assessment purposes. Such tracts, where used for a common purpose, may be joined as one large tract under the act . . . . This rule should be followed as to all contiguous land situated in a city, township or borough. Id. at 313, 148 A. at 307 (emphasis added). Thus, although a statute may require the assessment of separate tracts of land, contiguous tracts that are under single ownership and used for a common purpose may be joined into one large tract for assessment purposes. Certainly, then, the trial court erred in rejecting the testimony of Koppel Steel’s expert based on the fact that he considered the eleven parcels as an integrated economic unit. Id. at 306. This case stands for the proposition that an assessment board, or trial court, may consider an integrated valuation analysis for multiple properties held by the same owner. 6-6.14

Evidence of the Tax Consequences of a Sale

The tax status of a particular property owner is not a relevant inquiry in traditional circumstances, but “depreciation tax shelter benefits associated with investment property ownership inherently affect market value.” Johnstown Associates, 431 A.2d at 935. When the issue before a court is the fair market value of the real estate, and specifically, whether a sale of real property was the traditional arm’s-length transaction, the use of an expert accountant who examined the seller’s tax returns is admissible. The federal tax implications and consequences of a sale of real property are not in themselves indicative, or proof, of fair market value, but are relevant and admissible to rebut the taxpayer’s contention that a sale is evidence of fair market value.

213

Assessment Valuation Law

The accepted definition of market value is: The most probable price in terms of money which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue influence. The major question is whether the sale was affected by undue stimulus of the availability of federal tax benefits to the seller from selling the property at below market value in order to obtain federal tax deductions that could be used to balance income from the taxpayer’s other enterprises. The American Institute of Real Estate Appraisers makes a distinction between the terms “market value” and “price”: Appraisers make important distinctions among the terms market value, price and cost. By traditional definition, market value and price are equal only under conditions of perfect market. Market value, as applied to real estate, represents an expected price that should result under specific market conditions. Price, commonly referred to as a sale or transaction price, is an accomplished fact. A price represents what a particular purchaser agreed to pay and a particular seller agreed to accept under the particular circumstances surrounding the transaction. Presumptions requisite for market value—rational behavior by buyer and seller and no undue duress or pressure—are not implicit in any actual sale price. Neither is there a presumption that the transaction was typical in the market. Without making an appraisal, an appraiser does not know whether a price actually paid or received equaled the property’s market value. Although actual prices can provide strong evidence of market value, the appraiser must analyze specific transaction prices carefully before reaching market value conclusion.6 The text stated the following on the issue of federal tax implication in the market value of real estate: Federal and state income taxation is significant in investment decisions and has direct and indirect effects on real estate use, value and ownership. Corporate and individual taxpayers include tax consequences in their decisions to buy, sell, lease, mortgage, develop, demolish, hold or renovate real property. Such decisions, in turn, influence the physical forms and func-

6. 214

The Appraisal of Real Estate, 34–35.

6-6.15

tioning of all developed areas in a market economy. Therefore, appraisers should understand the provisions and implications of the income tax provisions that bear on real estate.7 The Pennsylvania Supreme Court has recognized that in some situations the federal income tax consequences of a transaction affect market value: [T]he taxpayer claims that the Court of Common Pleas improperly considered the amount of the initial mortgage on the property, and the tax shelter aspects of the venture, in calculating market value. The court’s opinion did mention in passing that the amount of the initial mortgage was $2,823,600, but the initial debt did not, in any discernable fashion, enter into the court’s value calculation. The extent to which the court regarded the income tax status of the taxpayer as relevant to the market value determination is not clear. Certainly, the tax status of the particular property owner is not a relevant inquiry under traditional circumstances; however, depreciation tax shelter benefits associated with investment property ownership inherently affect market value, and the court is not constrained to determine market value as though real property ownership lacked tax shelter features. Johnstown Associates, 431 A.2d at 935 (emphasis in original). Therefore, the tax consequences of a sale by a taxpayer cannot be presented to establish the property’s market value, but rather to show that the undue stimulus of the sale of the property at the “bargain basement” price by taxpayer was motivated by the federal tax consequences of the transaction. A court should accept a taxing authority’s accounting expert, and the expert’s evaluation of the tax benefits reaped by a taxpayer, to show a sale was motivated by undue stimulus rather than constituting an arm’s-length transaction. 6-6.15

Valuation of Federally Subsidized Housing Projects

In determining the valuation process to be used in the assessment of federally subsidized housing projects, it is appropriate to consider the positive and negative effects of the mandates of the contractual relationship between the owner and the federal government. The two types of federally subsidized housing are Section 8 and Section 236 under U.S. Department of Housing and Urban Development programs. Under both programs, the government provides financing and/or subsidies to entice developers to build and operate low-income housing in areas and

7.

Id. at 571. 215

Assessment Valuation Law

under conditions that would not normally lead private entrepreneurs to enter the field. By subsidizing the developers, the government is creating housing stock that would be economically viable in the real world. By granting rental subsidies to tenants and providing below-market financing to developers, the government is making housing affordable to low-income residents. This meets the federal social welfare goal of increasing housing opportunities for the poor. The perplexing issue is to determine a valuation procedure for property that would not be economically viable in the real estate market. In other words, without subsidies to the parties, there would be no market for the realty and therefore no reason for the developer to build and operate these projects. The Pennsylvania assessment laws do not specifically address this valuation problem, but merely mandate that the assessment be based on the fair market value of the realty. Succinctly stated, the case law defines fair market value as “a price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied.” Deitch, 209 A.2d at 400. The second part of this definition is extremely relevant when valuing government-subsidized housing developments. The appraiser must take into consideration all uses to which the property is adapted and might in reason be applied. Both Section 8 and Section 236 projects require contracts between the owner and the federal government that restrict the uses and limit the alienability of the property. These contracts run with the land for an extensive period of time and bind any transferees who purchase the property. Because these covenants run with the land, they provide specific use limitations on the property and must be taken into consideration by any purchaser. When dealing with the complexity of appraising this type of specialized property, the appraiser should not lose sight of the basic task of calculating fair market value. The appraiser’s goal is to determine how the marketplace will treat the project as encumbered by this long-term contract. The assessment law does not provide for a splitting of the property into two distinct entities: an unencumbered value and a contract value. The Pennsylvania Supreme Court has rejected this approach when calculating fair market value, mandating that property must be evaluated on its market potential subject to any long-term encumbrances. The lead case on this issue is Johnstown Associates, 431 A.2d 932, in which the Pennsylvania Supreme Court held that the trial judge in an assessment case must look at realistic considerations that are present in the marketplace when a property is exposed for sale. In Johnstown Associates, the prospects of the property not being presently saleable in the market, and the lack of potential for rental profit increases, both of which are factors unique to Section 236 properties, were clearly matters relevant to the question of value and must be considered. 216

6-6.15

This case also dealt with the scope of a court’s looking into the tax shelter features of the property. The court held: The extent to which the [trial] court regarded the income tax status of the taxpayer as relevant to the market value determination is not clear. Certainly, the tax status of the particular property owner is not a relevant inquiry under traditional circumstances; however, depreciation tax shelter benefits associated with investment property ownership inherently affect market value, and the court is not constrained to determine market value as though real property ownership lacked tax shelter features. Id. at 935 (emphasis in original). The thrust of Johnstown Associates is to require the appraiser to value the property as an economic whole subject to any restrictions or encumbrances that might affect market value. An evaluator should never lose sight that in a tax assessment case he or she is calculating the fair market value of the property, and this value is inherently affected by terms of a long-term contract between the government and the developer, which runs with the land. Just as the marketplace would take this contract into consideration in valuing the property, the appraiser must also examine the effect of the contract on the property value. The covenant may have a positive or negative impact upon the value of the project depending on its provisions. This approach was reviewed and approved by the Pennsylvania Supreme Court in Marple Springfield I, 607 A.2d 708, which extended to all realty the holding in Johnstown Associates pertaining to the effect of longterm encumbrances on property. The court stated: Under the assessment statute, however, there is no meaningful distinction between income restrictions based on applicable federal regulations, as in Johnstown Associates, and income restrictions based on bona fide contractual obligations, as in this case. In both instances, the fair market value—the “actual value” or taxable value—is deflated because a buyer cannot anticipate income at current market levels. *

*

*

To interpret the tax assessment statute as requiring valuation of property in hypothetical “unencumbered form,” as Commonwealth Court did, is to ignore the economic realities of commercial real estate transactions. Id. at 709–10.

217

Assessment Valuation Law

6-6.16

Valuation of Subsidized Housing and Tax Credits

In 1198 Butler Street Associates v. Northampton County Board of Assessment Appeals, 946 A.2d 1131 (Pa.Cmwlth. 2008), the Commonwealth Court examined for the first time the 2003 amendments to 72 P.S. § 5020402(c). This section states: (1) In arriving at the actual value of real property, the impact of applicable rent restrictions, affordability requirements or any other related restrictions prescribed by any Federal or State programs shall be considered. (2) Federal or State income tax credits with respect to property shall not be considered real property or income attributable to real property. In this case, seven limited partnerships subject to federal and state rental restrictions appealed to the Northampton County Board of Assessment Appeals under section 5020-402(c)(1). The board rejected the appeals, and the court of common pleas reversed. The taxing authority contended on appeal that the trial court relied on “use value” rather than value in exchange in determining fair market value, disregarding the Pennsylvania Supreme Court’s holding in F&M Schaeffer, 610 A.2d 1. The Commonwealth Court rejected this argument and distinguished F&M Schaeffer, stating: [T]he facts of this case are significantly different from those in F&M Schaeffer, where the Supreme Court sought to protect a landowner from higher-than-market values. There is no indication in F&M Schaeffer that the Court intended its reasoning to apply in other situations, such as the alleged lower-thanmarket values here. Nor is there any indication in F&M Schaeffer that the Court intended its resolution to prevail over express statutory language, as embodied in the after-enacted amendment to the Assessment Law. 1198 Butler Street, 946 A.2d at 1140. The Commonwealth Court stated: The 2003 amendment to the Assessment Law is consistent with prior case law addressing the effects of rent restrictions. See Appeal of Marple Springfield Ctr., Inc., 530 Pa. 122, 607 A.2d 708 (1992) (long-term lease restrictions pursuant to bona fide contractual obligations may be considered in determining fair market value for taxing purposes); In re Johnstown Assocs., 494 Pa. 433, 431 A.2d 932 (1981) (rent restrictions must be considered in calculating fair market value of HUD property for taxing purposes). But see Pennypack Woods Home 218

6-6.16

Ownership Ass’n v. Bd. of Revision of Taxes, 163 Pa. Commw. 80, 639 A.2d 1302 (Pa. Cmwlth. 1994) (homeowner association’s ability to amend by-laws regarding transferability and sale of veteran housing cannot be considered when calculating fair market value). The statute mandates that rent restrictions be considered in determining fair market value. See 72 P.S. § 5020-402(c)(1). Section 402 has the laudatory goal of encouraging development of low income housing in exchange for reduced property valuation for real estate tax purposes. By amending Section 402 to include subsection (c), the General Assembly intended to provide property tax relief to those entities that do not have unfettered ability to raise rent to combat increasing business expenses. Id. at 1139. In Church Street Associates v. County of Clinton, 959 A.2d 490 (Pa.Cmwlth. 2008), the Commonwealth Court discussed the appropriate method to use in the valuation of subsidized housing in Pennsylvania. It should be pointed out that the appellate court gave extreme deference to the trial court’s findings of fact. See Willow Valley Manor, Inc. v. Lancaster County Bd. of Assessment Appeals, 810 A.2d 720 (Pa.Cmwlth. 2002). The case involved four housing projects, and the parties agreed that the valuation method for one of the properties could be used to extrapolate values for the others. The Commonwealth Court focused on the appropriate capitalization rates and the definition of fair market value (FMV). It summarized the parties’ positions: Although both parties’ appraisers used the income approach, each differed as to the appropriate mortgage interest rate in determining the capitalization rate. Taxpayers’ appraiser, Alan Kaplan, applied the 9% interest rate set forth in the applicable loan documents, resulting in an overall capitalization of 12.1% and an FMV of $550,000. The Board’s appraiser, Richard Drzewiecki, used a 1% rate after effectively reducing the 9% rate due to the rental subsidy received under the relevant government program. His calculations resulted in a capitalization rate of 4.58% and an FMV rounded to $1,560,000.00. Church Street, 959 A.2d at 492. The trial court adopted Drzewiecki’s values, finding that his determination of a 1 percent capitalization rate was supported by the evidence. The court also held that the Pennsylvania Supreme Court’s definition of fair market value trumped the Uniform Standards of Professional Appraisal Practice (USPAP) definitions, which Kaplan had used.

219

Assessment Valuation Law

On appeal, the Commonwealth Court stated: Taxpayers argue that the Trial Court erred in establishing the capitalization rate at issue. The general gravamen of Taxpayers’ argument on this issue is its assertion that the Trial Court made a fundamental error in failing to comprehend the transfer restrictions on the subject properties. Taxpayers argue that the approach adopted by Drzewiecki ignored the economic realities of the investment options for any potential purchaser, and generally failed to recognize the unique status of these properties within the market place, most importantly the restrictions of Section 515 and the PHFA Program on the transfer of the subject properties. To the extent that Taxpayer’s overlapping arguments on this point have not been addressed in our foregoing analyses, we address the remaining specifics of this issue. We recognize the validity of Taxpayers’ general assertion that an appraiser is obligated to adjust the value of a property to reflect unique or atypical financing. See generally Marple; Johnstown Associates. We disagree, however, that the Trial Court ignored this tenet, and in error valued the properties in a hypothetical unencumbered form contrary to law. Cedarbrook. Again, the evidence of record in this matter contradicts Taxpayer’s position on this issue. We agree with both the Trial Court, and the County, that the critical difference herein is between the two appraisers’ approaches, and concomitant testimony, as to whether to apply the mortgage interest rate of 9% (Taxpayers/Kaplan), or the effective interest rate of 1% (the County/Drzewiecki), in determining the capitalization rate to be used. The Trial Court accepted the testimony, and interest rate, offered by Drzewiecki. The basis for the experts’ differences is, fundamentally, found in their respective definitions of fair market value. Kaplan applied the definition used by the Uniform Standards of Professional Appraisal Practice, which includes as a condition: The price represents the normal consideration of the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. . . . This definition of FMV is not the one adopted by our Supreme Court specifically for Pennsylvania tax assessment appeals, which reads: [M]arket value has been defined as the price which a purchaser, willing but not obligated to buy, would pay an 220

6-6.17

owner, willing but not obligated to sell, taking into consideration all uses to which the property is adapted and might in reason be applied. Buhl Foundation v. Board of Property Assessment, 407 Pa. 567, 570 180 A.2d 900, 902 (1962) (additional citation omitted); R.R. at 1152a. Proceeding therefrom, the evidence of record establishes that Drzewiecki’s testimony as a whole, as well as the County’s Expert Reports, contradict Taxpayer’s general assertions. . . . Kaplan did not consider or incorporate the long-term, assignable interest rate of (effectively) 1%, which he considered “special financing” under his FMV definition. Drzewiecki considered and incorporated this 1% rate as a market factor which a purchaser would consider. This is the basis of the experts’ differing conclusions as to the FMV based upon an income analysis. Id. at 496–97. Furthermore, the Commonwealth Court found that in this situation, where the mortgage contains a below-market interest rate and is assignable, it is permissible for an appraiser to use the below-market interest rate in determining the capitalization rate to apply to the net operating income generated by the property. Here, the 1 percent mortgage interest rate was assignable to a prospective purchaser of the property under the doctrine of “economic reality” and could be used by an appraiser in calculating the appropriate capitalization factor. The court’s decision appears to apply the basic approach Marple Springfield I, 607 A.2d 708, which concludes that in valuation of incomeproducing property, the economic reality test should apply. 6-6.17

Valuation of Property Subject to Federal Tax Credits

Parkside Townhomes Associates v. Board of Assessment Appeals of York County, 711 A.2d 607 (Pa.Cmwlth. 1998), examined the valuation of low-income housing projects that receive federal tax credits. A limited partnership bought the property in the case, a low-income housing project consisting of residential townhouses, for $4.55 million. The housing project qualified for low-income housing tax credits under section 42 of the Internal Revenue Code of 1986. The townhouses were owned by the limited partners and leased to low-income tenants, and the limited partners were entitled to take advantage of the federal tax credits. The tax credits last for 10 years and are transferable to a subsequent owner. The $4.55 million sales price reflected the value of the property as well as that of the federal tax credits. The property was assessed at a fair market value of $3.5 million. At trial, the taxpayer presented evidence of an appraisal value of $1.25 million for the initial year of the appeal. This appraisal was based 221

Assessment Valuation Law

on the property’s use as a low-income housing project and did not value the tax credits. The appraiser stated that the tax credits were intangible property and not part of the real estate. The judge determined that this appraisal testimony was not relevant and credible and therefore did not overcome the taxpayer’s burden of proof to overcome the prima facie validity of the assessment, and granted a directed verdict at the conclusion of the taxpayer’s case. The court made this finding in large part because the appraiser refused to value the federal tax credits. The taxpayer appealed, arguing that the lower court violated the supremacy clause of the U.S. Constitution by including the federal tax credits in the fair market value. The taxpayer claimed that this method frustrated the purpose of the tax credit program—to encourage the production of low-income rental housing—by diminishing the incentive for private owners to develop these projects. The Commonwealth Court dismissed this contention and found that the supremacy clause did not preempt the valuation of the tax credits with the real estate. The taxpayer also argued that tax credits cannot be considered as part of the taxable real estate under Pennsylvania law. The court rejected this argument and stated: [O]ur Supreme Court has determined that in assessing the [fair market value] of a property, a court must consider the economic reality associated therewith. In Johnstown Associates, 494 Pa. 433, 431 A.2d 932 (1981) rents in a subsidized housing project were fixed by the Department of Housing and Urban Development. The rent was fixed below the prevailing rate for comparable non-subsidized units and the property at issue could not be sold for sixteen and one-half years following construction. “The land owner argued that the rent restrictions should be considered in valuing the property. Our Supreme Court agreed, holding that the certitude that the property did not have the potential for rental profit increases must at least be considered.” Appeal of Property of Cynwyd Investments, 679 A.2d 304 (Pa. Cmwlth. 1996), petition for allowance of appeal denied, 546 Pa. 671, 685 A.2d 549 (1996). Similarly, the Court observed that tax shelter benefits specific to a property also affect its value. Johnstown Associates, 494 Pa. at 440, 431 A.2d at 935. Tax related benefits associated with investment property ownership inherently affect value and the court is not constrained to determine [fair market value] as though the property lacked tax shelter features. Id. Thus, the court did not err in considering the [e]ffects of the tax credit, as it is part of the economic reality. Id. at 611.

222

6-6.18

The appellate court took exception to the lower court’s grant of summary judgment on the basis that the taxpayer’s appraiser was not credible. The court held that in a tax assessment case, the testimony of a qualified appraiser who recited the factors considered and the values arrived at is competent. The fact that the appraiser did not consider tax credits in valuation does not make his testimony incompetent. The appraiser’s testimony was competent, and his failure to make an adjustment for tax credits goes to the weight of his testimony, not to its competency. The court reversed the directed verdict and remanded the case. In 2003, the General Assembly essentially overrode the holding in Parkside Townhomes by legislating that tax credits are not part of the real estate and cannot be assessed. This part of the amendments to 72 P.S. § 5020-402(c)(2) states: Federal or State income tax credits with respect to property shall not be considered real property or income attributable to real property. 6-6.18

Valuation of Environmentally Contaminated Real Estate

When industrial real estate is conveyed from one party to another, an environmental audit is usually conducted. Because of the stringent regulations by the U.S. Environmental Protection Agency and the Pennsylvania Department of Environmental Protection, as well as the Superfund laws, most buyers and financiers require an audit. The results of these audits can significantly affect the marketability and value of the property In the real world, a property owner would not have his or her property audited in order to provide cannon fodder for a tax assessment appeal, as adverse environmental, regulatory, and statutory cleanup costs would more than offset any potential tax savings. Therefore, these environmental checks are done only when compelled by the buyer or mortgagee as condition precedent to sale. When the environmental report reveals that problems exist, the economic impact on the value of the land is immediately felt. Whether or not the sale goes through, the old owner or transferee now owns property subject to the stigma of pollution. The owner should take advantage of a change in assessment law in this area and file an immediate assessment appeal based on the following cases. The lead case dealing with the issue of the assessment valuation of environmentally contaminated realty is Monroe County Board of Assessment Appeals v. Miller, 570 A.2d 1386 (Pa.Cmwlth. 1990), which involved three lots. At trial, the property owner’s real estate appraisal expert testified that there was known benzene contamination on the lots owned, which rendered them unmarketable, and that they had a nominal value of $1 each. The property owner testified that she had been forced to abandon her residence on one of the parcels, that she had been unable to sell or rent for a period of time, and that the biggest commercial real estate firm 223

Assessment Valuation Law

in the area expressed no interest in listing the properties because of the contamination. This testimony corroborated the expert witness’s opinion that the properties were unmarketable. The board of assessment appeals attacked the common pleas court’s finding that the three contaminated lots had no value. The Commonwealth Court held: “[N]o rebuttal was presented by the Board, and the common pleas court, as fact finder, found the evidence credible. We hold, therefore, that the lower court’s findings as to valuation are supported by substantial evidence.” Id. at 1390. This was the first reported appellate court decision in Pennsylvania that found that environmental contamination or pollution can reduce a property’s current market value to zero. This significant holding opens up a new area of assessment litigation. In today’s environmentally conscious world, numerous federal and state agencies are continually checking different areas for pollution or environmental contamination. A finding by one of these agencies that pollution may exist on a taxpayer’s property creates a stigma that results in lack of financing ability, lack of marketing ability, and therefore a lower property value. Assessments are a reflection of the current market value, and, therefore, environmentally contaminated property should result in a lower assessment reflective of a reduced valuation. In B.P. Oil Co. v. Board of Assessment Appeals of Jefferson County, 633 A.2d 1241 (Pa.Cmwlth. 1993), the taxpayer claimed that the assessment on its property was erroneous because it failed to take into account the environmental contamination on the premises. At trial, the taxpayer placed into evidence that the soil and groundwater at the property were contaminated by fuel leaks from underground storage tanks and pipelines. The taxpayer introduced evidence that the contamination lowered the property’s market value. At trial the taxpayer introduced unrebutted expert testimony that supported its claim of environmental contamination. The taxpayer also produced the testimony of a qualified real estate appraiser who stated that the contamination was a form of economic depreciation that lowered the property’s fair market value. The appraiser used the cost approach in determining fair market value, subtracting the cost of cure from the value the property would have if it were not contaminated. To rebut this expert testimony, the board introduced evidence of an assistant assessor as to value. The assessor testified that he did not consider environmental contamination when he determined the property value. The trial court found that the board established a prima facie case by introducing the assessment records and, further, that the taxpayer failed to produce sufficient evidence to overcome the validity of the assessment. The Commonwealth Court reversed the trial court and and unequivocally ruled that in light of Miller, 570 A.2d 1386, the fact finder must consider evidence of environmental contamination when determining fair market value in assessment cases. The appellate court remanded the case 224

6-6.18

with directions that the trial court reexamine the evidence, giving the board’s assessment no more weight than any other evidence before it, and determine whether the board’s valuation of the property was excessive in light of the contamination. Further, if the lower court finds that the assessment is excessive, it must determine the fair market value of the property in its contaminated condition. The Commonwealth Court in In re Appeal of Harley-Davidson Motor Co., 80 A.3d 506 (Pa.Cmwlth. 2013), examined the burden of proof in determining the extent of economic diminution in value due to environmental contamination. Here, the U.S. government operated the 229-acre property as the York Naval Ordnance Plant until 1964, when American Machine & Foundry Co. bought the property. The company later merged with Harley-Davidson Motor Co., which began building motorcycles at the site in 1973. As a result of the prior owners’ use of the property, the soil and groundwater were contaminatied and hazardous materials were buried on the property. Under a 1995 settlement, the cleanup costs were allocated 47 percent to Harley-Davidson and 53 percent to the government. Harley-Davidson unsuccessfully appealed the county’s assessment of the property for 2004–2010 and subsequently appealed to the court of common pleas. At trial on the issue of valuation, Harley-Davidson presented evidence on the environmental issues, and the board presented rebuttal witnesses. Both parties presented expert appraisal witnesses who testified to the impact of the contamination on the property value. Harley-Davidson’s appraisal expert testified that the environmental cleanup costs would influence potential buyers, and he deducted that amount from the fair market value. The trial court disagreed with this “cost to cure” approach and accepted the approach of the taxing authorities’ expert, who adopted a 5 percent “stigma” devaluation factor due to environmental degradation of the property. Harley-Davidson appealed this issue to the Commonwealth Court. The appellate court reversed the trial court’s decision as to the credibility of the taxing authorities’ expert, specifically the expert’s adoption of a stigma reduction in valuation. The appellate court, following Herzog v. McKean County Board of Assessment Appeals, 14 A.3d 193 (Pa.Cmwlth. 2011), held that the trial judge did not enumerate his reasons for finding one expert credible over another or for accepting the stigma devaluation factor rather than the cost-to-cure method. On appeal, the Pennsylvania Supreme Court both affirmed parts and reversed parts of the Commonwealth Court’s opinion. Harley-Davidson Motor Co. v. Springettsbury Township, 124 A.3d 270 (Pa. 2015). The court held that: •

Hypothetical ways in which a property could be used by potential buyers are properly considered by an expert in evaluating what a 225

Assessment Valuation Law

•

•

willing buyer would pay for a property; however, the Commonwealth Court erred in concluding that the taxing authorities’ expert valued the property as already subdivided; The potential effects of agreements concerning possible environmental remediation liability, as well as ongoing environmental restrictions and maintenance, are relevant and must be taken into account when determining the fair market value of a property, and the Commonwealth Court was correct to remand the case because the trial court did not take into account this important factor; and Environmental stigma may be relevant to determining fair market value of real estate for tax purposes in appropriate circumstances, and therefore the Commonwealth Court should not have rejected the trial court’s reliance on environmental stigma when arriving at the value of the property.

In B.P. Oil Co., 633 A.2d 1241, the court held that environmental contamination is relevant to determining the fair market value of real estate. It is up to the fact finder to determine the correct method to calculate this reduction in value caused by the extent of the environmental problems. The trial court must find this number from the testimony of the experts and can make this determination in a vacuum of evidence. For the trial court to accept an expert’s testimony, it must have some basis of credibility. The Commonwealth Court stated in Harley-Davidson, 80 A.3d at 517: Rather than apply a cost-to-cure method, the trial court accepted [the taxing authority’s expert’s] application of the 5% “stigma” devaluation which was based upon the presumption that due to the Settlement Agreement, a purchaser would have no liability for remediation. Although there is reference in the trial court’s opinion to [the expert’s] reliance on his expert’s testimony regarding remediation costs, there is nothing in the trial court’s opinion evidencing how [he] came to the 5% devaluation figure and why the Court adopted it. In fact, . . . it is clear from [the expert’s] testimony that there was simply no supportable basis for the 5% figure. The appellatee court, in its analysis of the lower court record, found that there was no credible testimony as to the 5 percent stigma factor but “in essence, it was a guess.” Id. at 518. Therefore, because an improper stigma figure was used when fixing the fair market value of the real estate, it was not the substantial evidence needed to support the lower court’s finding of value. The Commonwealth Court reversed and remanded the case to the lower court to determine from the record the impact of the environmental conditions upon the property’s fair market value.

226

6-6.20

This case stands for the proposition that an appraiser must clearly articulate the reasons for his or her valuation of any of the environmentally affected property, rather than merely picking a number out of the air and calling it a stigma factor. Much more must go into that determination, such as the underlying environmental problems and a study of how the real estate market would treat such a condition when properties of this type are exposed for sale. Environmental problems affect property valuation, and therefore it is incumbent upon the parties to present adequate expert testimony to support their positions. An expert’s conjecture and guesses are insufficient to meet this burden. 6-6.19

Valuation of Amusement Parks

53 Pa.C.S. § 8811(b)(3) made material changes to the law of valuation of amusement park facilities by amending the assessment law to read, “No amusement park rides shall be assessed or taxed as real estate regardless of whether they have become affixed to the real estate.” In this statute, the General Assembly essentially reversed the holding of Sheetz, 657 A.2d 1011. The law provides that any amusement rides that are attached to the real estate and, under the generally accepted law of fixtures, become part of the real estate cannot be taxed. The amusement park lobby was able in this instance to carve out a tax break from the legislature. 6-6.20

Valuation of Coal Properties

Both surface and subsurface coal fields are assessable in Pennsylvania as taxable realty, as provided by 72 P.S. § 5020-201 of the General County Assessment Law, and 53 Pa.C.S. §§ 8818 and 8819 of the Consolidated County Assessment Law. In general, there should be no separate assessment of unsevered coal underlying surface property, and the whole tract should be valued as a single entity. Where the coal estate has been severed from ownership of the surface by agreement or conveyance, the coal is separately assessable and taxable to the owner of the coal. Mathies Coal Co. Appeal, 255 A.2d 906 (Pa. 1969). The Commonwealth Court examined the proper method for valuing coal fields in Ciaffoni v. Washington County Board for Assessment of Appeals, 535 A.2d 247 (Pa.Cmwlth. 1987). The court stated that the foundation for its decision was the opinion in Philadelphia & Reading Coal & Iron Co. v. Commissioners of Northumberland County, 186 A. 105, 108 (Pa. 1936), which held: The factors to be considered in determining the market value of coal lands have frequently been stated by this court. Besides the prices paid in sales of similar lands due regard must be 227

Assessment Valuation Law

given to the physical features of the property to be valued. There should be taken into account the location, the formation of the coal strata, the number of veins, their depth, thickness, pitch, basins, their proximity to outcrop, and the character of the separating rock formation; the quality of the coal, and whether of a gaseous or nongaseous nature; the kind of overlying surface; the availability of the coal and difficulty in mining it; the probable quantity of the merchantable coal in the ground with allowance for loss in mining; the state of development of the property, the demand for the product, and all the elements which a prudent purchaser would take into consideration. The court pointed out that the trial court found the taxpayer’s expert credible in determining the fair market value of the property. That expert considered the location, topography, profit, characteristics and quality of coal, timing of production, mining rights, and undivided interests as well as the presence of oil and natural gas wells. In CNG Coal Co. v. Greene County Board of Assessment & Revision of Taxes, 551 A.2d 328 (Pa.Cmwlth. 1988), the court discussed the application of the three approaches to value in determining the fair market value of coal lands. In this case, the appellant owned 52,000 acres of Sewickley vein coal and 25,000 acres of Pittsburgh vein coal in Greene County. For the tax year 1986, the assessment board set a value of $375 per acre in the aggregate. On appeal, the trial court considered all three traditional approaches to value but rejected them as valuation methods. In summary, the Commonwealth Court stated: With respect to the cost of acquisition method, the Appellant introduced evidence that it, as well as other buyers of Sewickley coal property, paid considerably less than $375.00 per acre since 1981. The trial court considered and rejected this evidence, relying on testimony that “the value of a large contiguous block of deep-mineable coal, such as the property at issue in this case, differs greatly from the mere sum of purchase prices of small individual parcels of land obtained over a period of years.” The trial court also concluded that the comparable sales method was inapplicable because there had been no recent comparable sales of Sewickley coal property in the county. The court also noted that the income approach was inapplicable because the coal reserves were non-income producing. The trial court interpreted Section 602(a) of the Law as requiring the court to consider, but not necessarily utilize, all three methods. Id. at 330 (emphasis in original).

228

6-6.21

The Commonwealth Court affirmed the lower court’s valuation method. The court had based its valuation on testimony about the coal’s quantity, quality, thickness, continuity, degree of difficulty of mining, and potential markets, thus following the valuation rationale in Philadelphia & Reading Coal. 6-6.21

Taxation of Oil and Gas Lease Interests

In Independent Oil & Gas Association of Pennsylvania v. Board of Assessment Appeals of Fayette County, 780 A.2d 795 (Pa.Cmwlth. 2001), the Commonwealth Court ruled that it is the right of counties to tax oil and gas leases as assessable real estate. The plaintiffs in this case held leasehold interests in oil and gas underlying tracts of land in Fayette County. The assessment appeals board assessed their gas and oil interests for the purpose of imposing a tax on the real estate. The plaintiffs filed an action in the court of common pleas, seeking a declaratory judgment and equitable relief on the basis that the imposition of the tax was illegal under state and federal laws. The court sua sponte rejected these claims on the grounds that the plaintiffs had not exhausted their administrative remedies by filing an appeal to the board. The Commonwealth Court, in Independent Oil & Gas Association of Pennsylvania v. Board of Assessment Appeals of Fayette County, 760 A.2d 80 (Pa.Cmwlth. 2000), reversed the trial court’s decision and, in accordance with Borough of Greentree v. Board of Property Assessment, Appeals & Review of Allegheny County, 328 A.2d 819 (Pa. 1974), ordered the lower court to hear the case. The county prevailed in the subsequent trial, and the taxpayers appealed. The Commonwealth Court rejected the appellants’ argument that gas and oil interests are not taxable under 72 P.S. § 5020-201. The court held that while this statute did not specifically enumerate gas and oil interests as subjects of taxation, it did not exclude or specifically exempt them from taxation either. The court stated: Section 201 specifically provides that “lands” shall be valued and assessed and subject to taxation. Pennsylvania law recognizes three separate estates of land: the surface itself, the right of support and the minerals contained thereunder. Hetrick v. Apollo Gas Company, 415 Pa. Super. 189, 608 A.2d 1074 (Pa. Super. 1992); Pennsylvania Bank and Trust Company, Youngsville Branch v. Dickey, 232 Pa. Super. 224, 335 A.2d 483 (Pa. Super. 1975). Such division or classification of land as surface and mineral is not arbitrary or discriminatory or illegal. Narehood v. Pearson, 374 Pa. 299, 96 A.2d 895, cert. denied, 346 U.S. 866, 98 L. Ed. 377, 74 S. Ct. 106 (1953). To the contrary such division or classification is unquestionably

229

Assessment Valuation Law

reasonable, practical, and just and does not violate any provision of the United States or Pennsylvania Constitution. Independent Oil & Gas, 780 A.2d at 799. The Commonwealth Court found that gas and oil are minerals, rejecting the taxpayers’ arguments that section 201 does not provide authority for the taxation of these items. The court found that section 201 “specifically enumerates ‘lands’ as a subject of taxation and we hold, based on the foregoing, that included therein are interests in the minerals oil and gas.” Id. The Pennsylvania Supreme Court reversed the Commonwealth Court and found no authority under state law for an assessment board to tax oil and gas interests. In resolving this issue, the Supreme Court held: “In Pennsylvania, the power to tax is statutory and must be derived from [an] enactment of the General Assembly.” Appeal of H.K. Porter Co., 421 Pa. 438, 219 A.2d 653, 654 (Pa. 1966); School District of Philadelphia v. Frankford Grocery Co., 376 Pa. 542, 103 A.2d 738, 741 (Pa. 1954). Thus, according to Appellants, because there is no statutory authority for Fayette County to tax Appellants’ oil and gas interests as real estate, the imposition of such a tax violated Appellants’ constitutional rights. We agree. Independent Oil & Gas, 814 A.2d at 243. The court specifically found that the Pennsylvania assessment law enumerating items of taxation does not include oil and gas interests. The phrase, “all real estate, to wit: . . . lands,” contained in section 201 was not inclusive enough to cover oil and gas interests, according to the high court. The court found that, under the rules of statutory construction, a court could not expand the terms of this statute to cover oil and gas interests. Therefore, the court held that the General Assembly did not authorize the ad valorem taxation of these oil and gas interests. 6-6.22

Taxation of Subsurface Limestone

In Coolspring Stone Supply, Inc. v. County of Fayette, 879 A.2d 323 (Pa.Cmwlth. 2005), aff’d, 929 A.2d 1150 (Pa. 2007), the taxpayer began operating an underground mine in 1988, and the county did not assess any real estate taxes on the property until 1998, when it began assessing and taxing the taxpayer’s leasehold interests in the subsurface limestone. The taxpayer appealed to the assessment appeals board and then to the court of common pleas, arguing that the board was precluded from taxing the minerals under the Pennsylvania Supreme Court’s ruling in Independent Oil & Gas, 814 A.2d 180. The trial court found that Independent Oil & Gas did not apply because that case involved oil and gas interests, while this case involved limestone, a commodity the court compared to coal, which is 230

6-6.22

taxable. The court held that the county correctly levied the tax, and the taxpayer appealed. The taxpayer claimed that the Supreme Court’s determination that oil and gas interests did not fall within the term “all real estate” and that oil and gas interests were not taxable under 72 P.S. § 5020-201 also applied to subsurface limestone deposits. The Commonwealth Court stated: Limestone is part of the land, whether subsurface or on the surface of the ground, because, by definition, limestone is “a rock that is chiefly formed by accumulation of organic remains (as shells or coral), that consists mainly of calcium carbonate though sometimes also containing magnesium carbonate, and that is extensively used in building, agriculture, and metallurgy and yields lime when burned.” Webster’s Third New International Dictionary 1312 (1993). “Rock” is defined as “consolidated or unconsolidated solid mineral matter composed of one or usually two or more minerals or partly of organic origin (as coal) that occurs naturally in large quantities or forms a considerable part of the earth’s crust: a particular mass or kind of such material within the earth’s surface.” Webster’s Third New International Dictionary 1965 (1993). (Emphasis added.) Therefore, contrary to Coolspring’s argument that limestone is just like oil and gas and is unlike any of the specified items listed in Section 201, limestone is a mineral which is solid. Coolspring, 879 A.2d at 326–27. The court followed the rationale in Lillibridge v. Lackawanna Coal Co., 22 A. 1035, 1036 (Pa. 1891), which found coal to be taxable as part of the land and stated: [W]e have emphatically decided that the coal or other mineral beneath the surface is land, and is attended with all the attributes and incidents peculiar to the ownership of land. We have held the mineral to be a corporeal, and not an incorporeal hereditament; that the surface may be held in fee by one person; that the mineral also in fee by another person; that the mineral may be subject to taxation as land, and the surface to an independent taxation as land, when owned by a different person; . . . In short, we have for nearly half a century [as of 1891] judicially regarded the ownership of a mineral, where it has been properly severed from the surface, as the ownership of land. . . . In other words, mines are lands, and subject to the same laws of possession and conveyance. The Commonwealth Court found that the principles applicable to coal mining of coal also applied to limestone operations, making them taxable as real estate.

231

Assessment Valuation Law

The Pennsylvania Supreme Court affirmed the appellate court’s decision and held that subsurface limestone deposits were “land” under the applicable statute and thus were subject to taxation. 6-6.23

Taxation of Wind Energy Generation Equipment and Structures

Equipment and structures used to generate wind energy are excluded from taxation under 53 Pa.C.S. § 8811(b)(5), which states: No wind turbine generators or related wind energy appliances and equipment, including towers and tower foundations, shall be considered or included as part of the real property in determining the fair market value and assessment of real property used for the purpose of wind energy generation. Real property used for the purpose of wind energy generation shall be valued under section 8842(b)(2) (relating to valuation of property). This exclusion appears to be as broad as the exclusion from taxation of machinery and equipment in any mine, mill, or factory in Pennsylvania. The statute further provided for the method of taxation of the real property under the wind power equipment. Under 53 Pa.C.S. § 8842(b), the valuation of the real estate must be developed by the county assessor using the income capitalization approach to value. This capitalization income approach must be calculated by determining the capitalized value of the land-lease agreements, supplemented by the sales comparison data approach as deemed necessary by the county assessor. The statute provides that the lessee, or lessor on behalf of the lessee, must provide the lease information reasonably needed by the county assessor to determine value by September 1. It is interesting to note that this is one of only two statutes in which the General Assembly has tried to micromanage the assessment process; the other covers the taxation of barns and silos. 6-6.24

Taxation of Signs and Billboards

The Consolidated County Assessment Law provides special treatment for the assessment of signs and sign structures at 53 Pa.C.S. § 8811(b)(4), which states: No sign or sign structure primarily used to support or display a sign shall be assessed as real property by a county for purposes of the taxation of real property by the county or a political subdivision located within the county or by a municipality located within the county authorized to assess real property for purposes of taxation, regardless of whether the sign or sign structure has become affixed to the real estate. 232

6-6.24

This statute illustrates how special interest groups can influence the passage of legislation that completely contravenes the existing assessment scheme put in place by statute and court interpretation. This hadbeen seen before in the special legislation that exempted amusement park rides from taxation as real property once they had become fixtures attached to the realty. These statutes effectively reverse the holding of Sheetz, 657 A.2d 1011, as it pertains to these special situations and protected classes of real property that are now effectively exempt from real property taxation. In In re Consolidated Appeals of Chester-Upland School District, 238 A.3d 1213 (Pa. 2020), the Supreme Court addressed the propriety of using the income approach to value real estate on which a billboard is situated. In twenty-six consolidated appeals to the Delaware County Court of Common Pleas, two school districts and several property owners sought a determination of whether an assessment may consider billboard-related income received by the owner, for example, through an easement lease agreement with a billboard company. The trial court agreed with the property owners that the billboard exclusion at section 8811(b)(4) prohibited taxing authorities from increasing a property’s fair market value under any valuation approach based on the presence of a billboard on that property. The Commonwealth Court disagreed, holding that, although a billboard’s value may be excluded from taxation, any increase in the underlying property’s value due to the presence of the billboard could be considered in an assessment. On appeal to the Supreme Court, the property owners continued to argue that the billboard exclusion prohibited any increase to an assessment based on future payments from a billboard company to the property owner. According to the property owners, such an increase would fold part of the billboard’s value into the value of the underlying property. The court agreed with the property owners that a billboard’s value depends on the income it generates from advertisers. The court concluded that the property owners’ argument incorrectly equated the billboard’s value with the gross income the billboard generates. According to the court, a billboard’s value is its profitability, that is, its remaining gross income after subtracting costs of operation such as insurance, electricity, advertising broker fees, maintenance, and rent payments to the property owner. Under this view, rent to the landowner increases the property’s value but decreases the billboard’s value. The property owners’ argument had conflated the two types of value. Thus, the court held that, although the billboard exclusion prohibited valuing the billboard itself, it did not prohibit considering the value of the property attributable to the billboard’s presence on it. The property owners argued that any such holding was inconsistent with F&M Schaeffer, 610 A.2d at 6, a plurality Supreme Court opinion holding that “the assessed value of industrial real estate must not, in any way, reflect consideration of the value of the machinery and equipment.” 233

Assessment Valuation Law

But the court here concluded that F&M Schaeffer was not controlling because, unlike the billboard exclusion, the exclusion at issue in F&M Schaeffer specified that machinery “shall not be considered” as part of the property’s value. The property owners also argued that the Supreme Court held in Independent Oil & Gas, 814 A.2d 180, that, if a certain item does not constitute taxable real estate, no leasehold interest in that item can be taxed as real estate. The court concluded that, unlike in Independent Oil & Gas, the school districts in this case were not attempting to tax a leasehold interest but rather the underlying property. Furthermore, unlike in Independent Oil & Gas, which held that oil and gas interests (and therefore the leasehold interests in them) were not taxable, the properties underlying the billboards were clearly taxable. Finally, the property owners argued that permitting consideration of billboard lease payments to property owners would render superfluous text in 53 Pa.C.S. § 8811(b)(5), which excludes wind energy turbines from taxation. The statute states that “[r]eal property used for the purpose of wind energy generation shall be valued under section 8842(b)(2),” which requires the use of the income approach for assessment purposes. Thus, the property owners argued, the Legislature could not have intended the income approach to be used for billboard-supporting realty because the same legislative intent would be applicable to wind-generating realty, rendering the quoted language superfluous. According to the Supreme Court, its interpretation of the billboard exclusion simply requires that the underlying land, just as any other property, be valued using all three traditional approaches to values, including the income approach. 6-6.25

Taxation of Greenhouses

In Custer v. Bedford County Board of Assessment & Revision of Taxes, 910 A.2d 113 (Pa.Cmwlth. 2006), the court examined the taxation of a greenhouse under the Fourth to Eighth Class County Assessment Law. In this case, the taxpayer owned 97 acres of land that he operated as a nursery business. In 2001, he bought a greenhouse and stored it disassembled on his property until 2004, when he reassembled it. The greenhouse was 30 feet by 96 feet in size and 12 feet tall at its highest point. The structure had 24 vertical pipes on each side that were inserted two feet into the ground and connected at the top to arch-shaped pipes. Plastic covering was attached to the arching pipes to enclose the greenhouse. The county increased the assessment on the property an additional $8,800 because of the greenhouse. The taxpayer appealed on the basis that the greenhouse was not real estate and that, even if it was real estate, it was excluded from taxation because it was part of an industrial establishment: the growing of plants and flowers. The trial court affirmed.

234

6-6.26

The Commonwealth Court analyzed the first contention that the greenhouse was not real estate in light of Sheetz, 657 A.2d 1011, and found that the greenhouse was a fixture and therefore taxable as realty. The court held the greenhouse was a permanent improvement, even though it could be removed from the land, and was sufficiently attached to the land. In examining all the tests under Sheetz, it was clear to the court that the greenhouse was taxable realty. The court found that the greenhouse was not machinery, tools, or appliances, or any other equipment contained in any mine, mill, factory, or industrial establishment, and therefore was not excluded from taxation under the Fourth to Eighth Class County Assessment Law. The court stated: [The taxpayer] contends that the operation of the greenhouse pursuant to his nursery business is an activity that is part of the horticulture “industrial establishment” because the greenhouse brings about a physical change in plants that is better than if they were exposed to the natural elements. While a variety of businesses have been construed to be “industrial establishments,” and within its confines from little seeds, mighty plants grow, “industrial” is not a term that has ever been applied to where plants are grown for consumption or for ornamentation. To put it simply, the greenhouse is not being used as part of an “industrial establishment,” but as part of an “agricultural establishment” which does not enjoy a similar exclusion. Custer, 910 A.2d at 118. This holding is consistent with existing case law on the subject but pointed out an area for some lobbying groups to try to amend the law to add an agricultural establishment exclusion similar to the industrial establishment exclusion. 6-6.26

Valuation of Wetlands

The Commonwealth Court discussed the valuation of wetland property for the first time in Bolus v. County of Monroe, 650 A.2d 1188 (Pa.Cmwlth. 1994). Here, the taxpayers bought 7.64 acres of land in a commercial zone for $380,000. After the purchase, the Army Corps of Engineers informed the taxpayers that a 4-acre portion of the property was delineated wetlands. The Army Corps directed that the taxpayers cease and desist from all development of the wetland portion of the property. Monroe County conducted a countywide reassessment and assessed the property at $88,750; after a hearing before the assessment appeals board, the assessment was reduced to $71,300. The taxpayers appealed this decision to the court of common pleas.

235

Assessment Valuation Law

At trial, the county’s expert presented evidence that the land was worth $71,300. The taxpayers’ expert testified that the value of the property, including the wetlands, was worth $1,000 an acre for a total of $7,640. His testimony was based upon comparable sales in the area. The trial court found the taxpayers’ expert more credible. The trial judge then found the value of the property to be zero. This was based on the opinion of the property owner, not either of the experts. The Commonwealth Court reversed, finding this determination was unsupported by any evidence in the record. The appellate court remanded the case to another trial judge to determine value based on the evidence presented in the record. The significance of this case is that the Commonwealth Court found that a trial court in valuing property should look at the Army Corps’ delineation of any wetlands on the property as it affects its potential sale price. The court held: Many factors are to be considered in arriving at fair market value. One of the most important factors is the use of the subject property—not only the present use of the property, but all of the uses including the highest and most profitable use to which the land is adoptable and available. The possible demand for such use affects the market value. Id. at 1191 (quoting Pittsburgh Des Moines Steel, 519 A.2d at 1082). The court reasoned that even if property is not used for a particular purpose in its present state, it may still have value based on possible future uses. A court should consider all reasonably possible uses for which the property is adaptable and might in reason be applied. In situations where the value of wetlands is at issue, an assessment appeals board or trial court must look to the fundamental principle that a property’s value lies in what someone would be willing to pay for it. A determination that a property contains wetlands and cannot be developed clearly influences market value. The specific reduction in value is a matter to be determined by appraisal experts and submitted to the fact finder of the case. Gilmour Properties v. Board of Assessment Appeals of Somerset County, 873 A.2d 64 (Pa.Cmwlth. 2005), reexamined how the courts and assessment boards should treat the effect of wetlands designations on the valuation of real property for assessment purposes. The property in question was a 2.3-acre parcel of land in Somerset Borough and was the first parcel off the Somerset exit of the Pennsylvania Turnpike. It had access to and frontage along the road leading to the turnpike. The property was zoned “C-1 General Commercial,” with access to all utilities, but, in its state at the time, was wetlands. The original fair market value of the assessment was $397,430, and on appeal this value was reduced to $250,000. The taxpayer then appealed this decision to the court of common pleas. The taxpayer introduced expert appraisal testimony that in236

6-6.26

dicated that the highest and best use of the property was wetlands because the property was designated as such, had a stream channel running through it, and was located in a floodplain. The appraiser found the value of the land property to be $900,000 if it was not a wetland area and then discounted this value by 94 percent to account for the wetlands designation and arrived at a value of $54,000. On cross-examination, the appraiser stated that he did not consider the cost or effect of mitigation of the property. The court stated: Mitigation would include land acquisition so as to construct new wetlands elsewhere, the costs of soil removal, structural fill, wetland construction, a wetland plan, and wetland monitoring. Generally, an acre per acre construction is required; however, the [Department of Environmental Protection] has at times required a landowner to construct up to four acres of new wetlands per acre of displaced wetlands. . . . A landowner is responsible for the new wetlands for a period of five years after its completion. Id. at 67, n.6. The county’s chief assessor testified that he appraised the property at its highest and best use as a commercial development because it was in the highest-traffic area of Somerset County. The trial court ruled in favor of the taxpayer and set the property value at $54,000. The Commonwealth Court affirmed the lower court on its findings that: (1) the property at issue is incapable of development in its present condition, (2) although it has significant potential as a commercial [s]ite if the wetland and floodway issues were resolved, approval from the DEP was not in hand or could not be considered probable at the time, (3) if approval to remediate the property is granted, it will cost approximately $200,000 and (4) there is no way to determine how long the DEP application process will take. Id. at 71. The court’s decision follows the existing line of cases in Air Products, 720 A.2d 790; Krygier v. Monroe County Board of Assessment Appeals, 668 A.2d 239 (Pa.Cmwlth. 1995); and Bolus, 650 A.2d 1188. The basic holding is that a property’s highest and best use must be considered in light of the reasonably foreseeable prospects at the time of the assessment appeal. Other factors based on pure speculation, such as what the property would be worth in an altered condition, are not relevant to the issue of fair market value.

237

Assessment Valuation Law

6-6.27

Valuation of Air Rights

The statute dealing with air space, 68 P.S. § 803, provides that air rights are proper subjects for real property taxation. The statute reads: Estates, rights and interests in air space or parcels thereof above the surface of the ground, whether or not contiguous to the surface of the ground, shall if separately owned be separately assessed for taxation by each assessing unit in the Commonwealth for all types of taxes authorized by law to be assessed against real property. When a condominium is created, the tax authorities have the right to separately assess the air rights created by the declaration. The only unresolved legal questions in this area are the timing of the assessment process and the scope of the assessment increase caused by the creation of the air rights. Can the sum of the separated parcels and the air rights before construction exceed the previous assessment on the unseparated whole? Also, when can these new assessments on the air rights be made effective? Pennsylvania courts have not dealt directly with these two issues, but it would be wise to advise a client that, at a minimum, he or she will receive assessments on the totality of the project well beyond that of the preexisting assessment. The assessor will rely on the theory that the developer, by creating the air rights, has changed the nature of the property and created increased value that should be recognized for tax purposes. When the surface and the air rights are owned by the developer, they may be assessed before transfer to other individuals under 68 P.S. § 803. The legality of this practice is unclear at the present time, but arguments against an increased assessment can reasonably be made by counsel for the developer. 6-6.28

Valuation of Condominium Appurtenant Easements

In County of Monroe v. Pinecrest Development Corp., 510 A.2d 1274 (Pa.Cmwlth. 1986), the Commonwealth Court outlined the appropriate valuation method for an easement appurtenant to the common area of a condominium project. In this case, the developer/owner of a condo project appealed the assessment of four properties to the assessment appeals board and, subsequently, the court of common pleas. The four residential units were located in the Pinecrest Lake Resort vacation and residential community. The community consisted of a 69-acre development with 47 residential units covering about half an acre. These units were situated in clusters of four houses with two end units and two middle units sharing common walls. The rest of the land was used for a common area that included tennis courts, a lake and swimming pool, and a recreation building. Title to the townhouse unit was conveyed to the purchaser in a “footprint deed,” representing a conveyance of the building and the land directly underneath 238

6-6.28

the building. By clauses in the deed, the owner had exclusive easement rights in the common areas and facilities. The developer created a nonprofit trust to hold title to the common area; the trust was intended to furnish and maintain common area services for the benefit of the property owners. The assessment appeals board assigned a separate tax number to the common area and assessed it at zero. The board justified its valuation determinations through the following analysis: the county first determined the actual market value of a property based on comparable sales. Next, the county assigned a value to the land directly under the building and a value to the building itself. After subtracting those two values from the actual market value based on comparable sales, the county concluded that the remainder was the value of the easement right. The county determined that the easement value of every property was $20,000. Hence, the county assigned a specific value to the three components of the property: the building, the land, and the easement right. The trial court ordered the county to reassess the fair market values of the developer’s units without any consideration of the common area. The Commonwealth Court found that the county’s method of assessing the appurtenant easement was incorrect, stating: The method of assessing a townhouse unit in a recreational development should be analogous to the method of assessing a condominium unit under the Uniform Condominium Act [68 Pa. C.S. § 3101–3414]. A provision in that Act [68 Pa. C.S. § 3105] requires the assessment of “each unit together with its common element interest.” Hence, the value of the easement must be reflected as an intangible element of the actual market value of the whole property. Id. at 1277. The value of an appurtenant easement is inherent in the property’s overall actual market value because that easement influences the price that a willing buyer would pay a willing seller for the property. On the issue of the valuation of the common area of this project, the court found that the common area must be assessed separately, and that its assessment may or may not be for a nominal figure. The court stated: Pennsylvania case law has consistently held that actual market value is that price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses which the property is adapted and might in reason be applied. In re Johnstown Associates, 494 Pa. 433, 431 A.2d 932 (1981). Here, the property owners have exclusive rights of easement to the common area, including exclusive use of the facilities. That use exclusivity could diminish the actual market value of 239

Assessment Valuation Law

the common area to zero or nominal value because there may not be a buyer willing to purchase the common area subject to those restrictive easement provisions. However, not all developments with common areas have such stringent easement provisions. In Community Association of Pocono Farms, Inc. v. Monroe County Board of Assessment Appeals (No. 947, January Term, 1979, filed August 14, 1980), a tax assessment appeal case before the same trial judge as here, the lot owners had non-exclusive easement rights to a common area golf course which also extended golf memberships to individuals not owning lots in the development. There, the collective value of those property owners’ easements did not wholly diminish the actual market value of the golf course. The judge there correctly concluded that there was more to the whole value of that common area golf course than the sum of the various easements. Similarly, the common area in this case could have value greater than the sum of the easements if the property owners released all or part of their easement rights. The actual market value of the common area could also change if the property owners modified their easement rights to permit the title holder of the common area to extend privileges to non-property owners. . . . That value must be determined on a case-bycase basis because of the likelihood that any recreational development with a common area will have unique characteristics affecting the actual market value of the common area. Id. at 1276. Therefore, this case holds that the easement value of an individual’s rights in the common area of a condominium project must be valued as one with the condominium unit, and that the assessment on the common area of a condominium project must be determined on a case-bycase basis. 6-6.29

Taxation of Planned Community Common Areas

In E.L.C.A. Development Corp. v. Lackawanna County Board of Assessment Appeals, 752 A.2d 466 (Pa.Cmwlth. 2000), the court explored the assessment implications of the Uniform Planned Community Act (UPCA), 68 Pa.C.S. §§ 5101–5414. The taxpayers owned six parcels of land in the Eagle Lake Community, which had received separate property tax assessments for tax year 1998 and subsequent years. The parcels contained 60 acres used for hiking, a park and ball field, a greenbelt area, an area reserved for future construction, a pool, and a comfort station and shower area. The taxpayers argued that these parcels were exempt from separate

240

6-6.29

assessments and were taxable as either common facilities or controlled facilities within a planned community. The UPCA defines a “planned community” as: Real estate with respect to which a person, by virtue of ownership of an interest in any portion of the real estate, is or may become obligated by covenant, easement or agreement imposed on the owner’s interest to pay any amount for real property taxes, insurance, maintenance, repair, improvement, management, administration or regulation of any part of the real estate other than the portion or interest owned solely by the person. The act applies to all planned communities in the Commonwealth, but distinguishes a “flexible planned community” as one containing withdrawable or convertible real estate or a planned community to which additional real estate may be added or a combination thereof. 68 Pa.C.S. § 5103. Each unit in the development is separately assessed and taxed, and its value includes the value of the unit’s interest in the common facilities, excluding convertible or withdrawable real estate. 68 Pa.C.S. § 5105(b)(1) provides that “no separate assessed value shall be attributed to and no separate tax shall be imposed against common facilities or controlled facilities.” Convertible and withdrawable real estate must be separately assessed and taxed until it is no longer convertible or withdrawable. 68 Pa.C.S. § 5105(b)(2). The court of common pleas affirmed the assessment appeals board’s determination that the parcels were separately assessable as “convertible real estate” and/or “withdrawable real estate.” The Commonwealth Court reversed, holding: We reject the County’s argument that the parcels are convertible or withdrawable real estate that could at any time be sold or annexed and used to create additional units. Once acquired by the [Eagle Lake] Community Association, any parcels originally designated as reserved areas or otherwise became common areas; parcel 2 [the 60 acres used for hiking], by virtue of its being maintained and controlled by the Community Association became a controlled facility. The fact that the Community Association members could at some time in the future vote to sell common area real estate, however unlikely, does not mean that such real estate is convertible or withdrawable. Similarly, the fact that the [taxpayers] could at some time in the future decide to sell or develop parcel 2 and remove it from the use of community members does not mean that it is convertible or withdrawable real estate.

241

Assessment Valuation Law

In our view, the classifications of convertible and withdrawable real estate cannot apply to real estate that has been converted to common area by conveyance to the Community Association or to real estate owned by the [taxpayers], but maintained, improved, and insured by the Community Association and made available for the common use of the members. Having reviewed the record in this case and the applicable law, we must conclude that the parcels subject to this appeal are excluded from separate assessment and taxation. Applying Sections 5102 and 5105 of the Act, which apply to pre-existing planned communities, and referring to the specific provisions contained in existing provisions of the community’s declaration and bylaws, which the Act did not invalidate, we conclude that all of the parcels in question are either common areas or controlled areas and not separately assessable or taxable. If in the future any parcel is sold or developed with additional units and/or limited common or controlled facilities, the County may at that time separately assess and tax it. E.L.C.A. Development, 752 A.2d at 469–70. In Saw Creek Community Association v. County of Pike, 866 A.2d 260 (Pa. 2005), the Supreme Court analyzed the proper method of assessing and taxing common facilities that are formed pursuant to the UPCA. The case involved Saw Creek Estates, a nonprofit planned townhouse community with common amenities such as roads, ponds, green areas, tennis courts, a pool, a clubhouse, a water tower, and a well house. The property also includes a community building with recreational facilities, a meeting room, and a restaurant, while a single-story building houses the sales office. The restaurant and sales office were leased to private parties. The Saw Creek Community Association owns all the property except the townhouses. Pursuant to a reassessment, the Pike County Board of Assessment Appeals determined that the roads, ponds, green areas, water tower, well house, and the community buildings’ recreational facilities and meeting room were “common facilities” exempt from taxation under section 5105(b)(1). The board did find that the restaurant and sales office were not common facilities, and they received separate assessments and were made subject to taxation. The Saw Creek Community Association appealed to the board unsuccessfully, and the court of common pleas affirmed. The Commonwealth Court reversed the trial court and found that the restaurant and sales offices were common facilities. Saw Creek Estates Community Ass’n v. County of Pike, 808 A.2d 322 (Pa.Cmwlth. 2002). In its appeal to the Pennsylvania Supreme Court, the county argued that, while the restaurant and sales office were common facilities, they were not exempt common facilities because the community homeowners did not have an appurtenant interest in them. The county stated that the 242

6-6.29

restaurant and sales office could not be exempt from separate assessment and taxation because they were leased to private parties, and the homeowners did not have the right to use them in a free and unfettered manner. The Supreme Court disagreed and held: As an initial matter, Appellants do not appear to contest, and we can independently find no error in, the Commonwealth Court’s finding that the restaurant and sales office constitute common facilities. Like the Commonwealth Court, we read section 5103 of the Act to clearly require that common facilities be: (1) located within the planned community; and (2) owned or leased by the planned community homeowners’ association. . . . However, unlike the Commonwealth Court, we also find that section 5103 contains a clear third requirement that a common facility not be a unit i.e., the property must not be designated for separate occupancy or ownership. . . .. Applying the above three requirements to the restaurant and sales office, we conclude that they both qualify as common facilities. As the Commonwealth Court found, the restaurant and sales office indisputably meet the first two requirements because they are located in the planned community and are owned by the Association. Moreover, we find that the restaurant and sales office also do not qualify as “units” because unlike the typical “unit” in a planned community, i.e., a home, the restaurant and sales office are simply not designated for separate occupancy or ownership. . . . Here, the Association did not lease the restaurant or the sales office to the lessees for their exclusive use, but rather leased them to the lessees so that they could use the property for the benefit of the Saw Creek residents. Accordingly, these facilities cannot be classified as units and must instead be classified as common facilities. Saw Creek, 866 A.2d at 264–65. The court found that the homeowners had an appurtenant interest in these facilities, even if they do not have free and unfettered access to them. The restaurant was open to the public, but the residents of the townhouses were the primary customers. Any profits from the rental income received were deposited into a general fund and used to reduce the dues the homeowners paid for the common areas. The association leased the single-story building to a private real estate company that used the property for the exclusive purpose of managing Saw Creek real estate transactions. The homeowners benefited from this arrangement because they could use the office to list their property for sale or rent. The UPCA requires a designation of facilities as common areas and that homeowners actually derive no value or benefit from the facilities. There243

Assessment Valuation Law

fore, the court held that the restaurant and sales office were not separately assessable and taxable under the act. The holdings in E.L.C.A. Development and Saw Creek are consistent with the general principle that the common area amenities in planned communities are not separately taxed to the association but rather to the unit owners, who have the right to use and enjoy the common areas, and are part of the fair market value of the unit. In Pinecrest Lake Community Trust v. v. Monroe County Board of Assessment Appeals, 64 A.3d 71 (Pa.Cmwlth. 2013), the Commonwealth Court reviewed a trial court’s determination that a planned residential development’s golf course was entitled to a “common or controlled facilities” tax exemption under the UPCA. In this case, Pinecrest Lake Community Trust owned a residential development community that included a golf course, subdivided into seven golf course parcels. Under the previous owner, the golf course parcels were assessed and taxed as a golf course, but immediately after acquiring fee simple title in August 2011, the trust appealed the tax notices for the assessment years including 2011 and 2012. The trust sought a change in use classification to “Class 6—Amenity” and an assessment reduction to zero to go into effect for the 2012 assessment year and thereafter. The board denied the appeal. In the common pleas court, the trust argued that the board misinterpreted the UPCA and that the golf course should be deemed a “common or controlled facility” exempt from assessment and taxation under 68 Pa.C.S. § 5105, which states: (a)

Title.—Except as provided in subsection (b), each unit that

has been created, together with the interests, benefits and burdens created by the declaration, including, without limitation, the rights to any common facilities, constitutes a separate parcel of real estate. The conveyance or encumbrance of a unit includes the transfer of all of the rights, title and interest of the owner of that unit in the common facilities regardless of whether the instrument affecting the conveyance or encumbrance so states. (b) Taxation and assessment.—If there is a unit owner other

than a declarant, each unit must be separately taxed and assessed. The value of a unit shall include the value of that unit’s appurtenant interest in the common facilities, excluding convertible or withdrawable real estate. The following shall apply: (1)

244

Except as provided in paragraph (2), no separate assessed value shall be attributed to and no sepa-

6-6.29

rate tax shall be imposed against common facilities or controlled facilities. (2)

Convertible or withdrawable real estate shall be separately taxed and assessed until the expiration of the period during which conversion or withdrawal may occur.

The only issue before the trial court was whether the golf course parcels were exempt from separate taxation as “common facilities” under 68 Pa.C.S. § 5105(b)(1). The UPCA went into effect in 1997, but certain provisions apply retroactively to all planned communities then in existence with respect to events or circumstances occurring after the effective date. These provisions, however, “do not invalidate specific provisions contained in existing provisions of the declaration, bylaws or plats and plans of those planned communities.” 68 Pa.C.S. § 5102(b). The trial court found that the Pinecrest Lake community qualified as a planned community under the UPCA. It also rejected the board’s arguments that the UPCA was inapplicable and that the golf course could not be considered a common facility under the statute. Further, the court found that the golf course parcels met the UPCA’s definition of a “common facility” and were exempt from separate taxation under section 5105(b)(1). On appeal, the Commonwealth Court considered three primary issues: (1) whether the golf course could be separately assessed for real estate taxation where the trust did not meet the UPCA’s requirements for a unit owners’ association, (2) whether the golf course was disqualified from an exemption from separate taxation because it was convertible or withdrawable real estate under the UPCA, and (3) whether a private golf course was properly subject to real estate assessment and taxation where memberships could be purchased by outside individuals who did not own units within the planned community, where the trust’s employees were offered golf privileges as part of their compensation, and where unit members were allowed to bring guests for additional fees. As to the first issue, the Commonwealth Court concluded that the trus “performs the essential protective functions of an owners’ association with regard to the ownership of the Community’s ‘common facilities’ or ‘controlled facilities’ for purposes of the UPCA.” Pinecrest Lake, 64 A.3d at 80–81. Thus, the court held that the trial court properly determined that the golf course parcels met the UPCA’s definition of “common facilities” and were exempt from separate taxation under 68 Pa.C.S. § 5105(b)(1). On the second issue, the Commonwealth Court rejected the board’s position that the golf course was convertible or withdrawable real estate. The court cited its decision in E.L.C.A. Development, 752 A.2d at 469–70: “The fact that the Community Association members could at some time in the future vote to sell common area real estate, however unlikely, does not mean that such real estate is convertible or withdrawable.” The court found 245

Assessment Valuation Law

that E.L.C.A. was applicable. Where the trust owned and maintained the golf course as a common facility for the use and benefit of its owners, the real estate was not disqualified from protection under section 5105(b)(1). On the third issue, the Commonwealth Court applied the rationale of Saw Creek, 866 A.2d 260 (Pa. 2005), where the Supreme Court explained that a property qualified as a “common facility” if it is within the planned community and is owned or leased by or leased to the homeowners’ association. The Saw Creek court further reasoned that “homeowners do not have an appurtenant interest in common facilities only if they have the right to free and unfettered access to those facilities; rather, the Act makes clear that regardless of the quality of access afforded to them, homeowners have an appurtenant interest in any facility that the planned community declaration designates as a ‘common facility.’ ” Id. at 265. The Commonwealth Court then held that the golf course parcels owned by the trust were common facilities exempt from separate taxation pursuant to section 5105(b)(1), regardless of whether individuals other than community unit owners had golf course memberships or privileges. Having rejected all three of the board’s arguments on appeal, the court discerned no error or abuse of discretion on the part of the trial court and affirmed the lower court’s decision in its entirety. 6-6.30

Valuation of Manufactured Homes

In Residents of Buckingham Springs v. Bucks County Assessment Office, 60 A.3d 883 (Pa.Cmwlth. 2013), the Commonwealth Court considered the proper method for valuing manufactured homes when the taxpayers did not own the land on which the homes sat. In the lower court, the taxpayers provided expert testimony that the cost approach (the cost of the property, minus depreciation, plus any improvements) was the best method for appraising the value of a manufactured home. In response, the taxing school district offered expert testimony discussing the cost approach, comparable sales approach, and the income approach, concluding that the comparable sales approach was the best one for valuing the properties. The trial judge accepted the school district’s valuation method because the taxpayers’ expert did not consider the location and quality of community in valuing the manufactured homes. The court also found that although the taxpayers’ expert relied on the National Automotive Dealers Association’s (NADA) cost guide for manufactured housing to support his conclusions, he ignored the guide’s distinction between manufactured homes used as personal property and those used as permanent single-family homes. Because the school district’s expert testimony established a fair market value consistent with the NADA guide, the trial court found it to be credible. On appeal, the taxpayers raised two issues regarding the proper assessment of their homes: whether the trial court erred in assessing their 246

6-6.30

properties on the basis of comparable sales instead of their cost and whether the trial court’s decision violated the uniformity clause of the Pennsylvania Constitution. In addressing the first issue, the appellate court first recognized that the taxpayers had the burden of proof to put forth a value other than that established by the board’s assessment. The court found that substantial evidence supported the trial court’s valuations based on the NADA guide: The NADA Guide itself notes that manufactured houses may appreciate, and the best way to determine value is by appraisal in accordance with real estate practice. The evidence of record established that Taxpayers’ houses have appreciated. Their own testimony established that they paid more than the manufactured price and that houses in [the manufactured home community] continue to command these higher prices. Taxpayers’ claim that these prices include the value of the land is not supported by the record. Rather, the appraised value simply reflects value added to the houses by virtue of their access to the amenities offered by [the manufactured home community], not the value of the land on which the house sits. We reject Taxpayers’ argument that the appraisals on which their assessments are based are too high. Id. at 890. The Commonwealth Court then addressed the constitutional issue, which the court summarized as follows: Taxpayers argue that the trial court’s decision violates the Uniformity Clause because manufactured homes will not be uniformly valued. Rather, assessment will turn on the location, which will make land part of the value. To be uniform, they contend that the cost method of valuation must be used. Id. Taxpayers have the burden of refuting the presumption of uniformity. Quoting Fosko v. Board of Assessment Appeals of Luzerne County, 646 A.2d 1275, 1279 (Pa.Cmwlth. 1994), the court found that taxpayers must demonstrate that other comparable properties are assessed at a lower fair market value by: producing evidence establishing the ratios of assessed values to market values of comparable properties based upon actual sales of comparable properties in the taxing district for a reasonable time prior to the assessment date. A taxpayer may also meet this burden by offering evidence of assessments of comparable properties, so long as the taxpayer also presents evidence to show that the actual fair market value of the comparable properties is different than that found by the taxing authority. However, this Court has stated that without cur247

Assessment Valuation Law

rent market value information regarding the comparable properties, the court has no basis upon which to determine the issue of uniformity. When a taxpayer fails to refute the presumed uniformity of a predetermined ratio by presenting credible, relevant and competent evidence to the contrary, the assessment of the taxing body must prevail. The court found that the taxpayers’ expert had presented scant evidence to refute the presumed uniformity, referring only to three homes in other locations and comparing them with regard to size, make, model, and year, but not location. The expert conceded that all the locations were different and would affect the fair market value. The court found that his testimony did nothing more than restate the taxpayers’ claim that cost value is preferred over the sales approach. For that reason, the Commonwealth Court held that the trial court properly rejected the taxpayers’ expert opinion and that the record did not support the taxpayers’ uniformity challenge. 6-6.31

Valuation of Marinas

In Erie-Western Pennsylvania Port Authority v. Erie County Board of Assessment Appeals, 213 A.3d 1041 (Pa.Cmwlth. 2019), the Commonwealth Court decided several issues involving the valuation of a marina. The Commodore Perry Yacht Club, a nonprofit corporation, constructed a marina on property leased from the Erie-Western Pennsylvania Port Authority. The property consisted of both dry land and water lots. The marina used a floating dock system to provide boat slips to club members. Members paid an initiation fee, annual dues of $500, and an annual fee of up to $800 in lieu of volunteer work. The club also charged a fee based on the lineal length of the member’s slip or boat, whichever was larger. The club paid a fixed sum of $3,220 per year to the port authority in addition to fixed rent for the boat slips. The lease required the club to pay all real estate taxes. The club appealed the property’s assessed value and obtained a reduction at the assessment appeals board, but the club had sought a larger reduction and therefore appealed to the common pleas court. The taxing school district intervened, requesting a higher assessment. After hearing widely differing valuation opinions from experts on both sides, the trial court sustained the board’s assessment. On appeal to the Commonwealth Court, the school district argued that the trial court had incorrectly denied its pretrial motion for a declaration that the club’s floating docks were taxable as real estate and/or fixtures. In response to that motion, the yacht club had argued, and the trial court had agreed, that the floating docks were personalty, based on the court’s similar holding in In re Appeal of Erie-Western Port Authority and Bay Harbor Marina, 78 Erie C. L.J. 94 (No. 1594-A-1989). 248

6-6.32

The Commonwealth Court agreed with the trial court that the docks were not taxable. The appellate court concluded that, as noted by the trial court, 53 Pa.C.S. § 8811(a), which lists the subjects of taxation for real estate tax purposes, did not identify floating docks as taxable real estate. The appellate court held that, like the floating docks at issue in Bay Harbor, and unlike the concrete gas station canopies in Sheetz, 657 A.2d 1011, the docks at the yacht club were not so affixed to the water lots that they became part of the real estate for tax assessment purposes. The evidence established that the docks (1) were fastened together by a system of cotter pins, which could be removed without special equipment, (2) were not attached to the pilings driven into the water lots but instead moved on a roller system up and down the pilings depending on water level, (3) could be removed without damage to the land and could be adjusted to form different configurations, (4) were sometimes reconfigured to accommodate larger boats, and (5) were able to be removed at the end of the lease term per the lease agreement. The club had argued that the trial court’s decision to consider both the club’s leasehold interest and the port authority’s rental income when valuing the property was improper. In Tech One, 53 A.3d 685, the Pennsylvania Supreme Court held that buildings and improvements constructed and owned by a lessee on the taxpayer’s land were properly considered as part of the taxable value of the underlying real estate. The yacht club argued that, unlike the buildings and improvements in Tech One, the boat slips in which it held the leasehold were not taxable real estate and therefore could not be considered. But, according to the court, the underlying water lots were “lands” subject to taxation, and the income that the water lots realized from the boat slips could be properly considered. The yacht club also had argued that the trial court improperly valued its leasehold based on “a presumed rental” even though the club had not entered into any lease with a third party. Erie-Western Pennsylvania Port Authority, 213 A.3d at 1053. The Commonwealth Court, however, concluded that the boat slip fees were tantamount to a lease, generating “significantly more” income than the rent the club paid to the port authority. Further, the court concluded that, unlike in Downingtown Area School District v. Chester County Board of Assessment Appeals, 913 A.2d 194 (Pa.Cmwlth. 2006), the yacht club’s leasehold was valuable and therefore increased the property value, because the rent paid for the leasehold to the port authority was below market rate. 6-6.32

Taxation of Storage Sheds

In Pedersen v. Monroe County Board of Assessment Appeals, 84 A.3d 402 (Pa.Cmwlth. 2014), the issue under consideration was the taxability of storage sheds. The taxpayer owned a 1,300-square-foot home in Stroud Township. To expand his storage space, he bought a prefabricated shed 249

Assessment Valuation Law

measuring 10 feet by 20 feet with a garage-style rolling door and wooden floor. The shed was placed on support beams sitting on a bed of stones. The shed lacked windows, heat, electricity, and plumbing. The record showed that the shed was not physically affixed to the ground and could be moved to another location. The Monroe County Assessment Office increased the property assessment by $2,040 based on the shed. The taxpayer appealed to the assessment appeals board and then to the court of common pleas, both of which denied any relief. The Commonwealth Court first pointed out that the issue must be considered under 53 Pa.C.S. § 8811(a), which reads: Subjects of taxation enumerated.—Except as provided in subsec-

tion (b), all subjects and property made taxable by the laws of this Commonwealth for county, city, borough, town, township and school district purposes shall, as provided in this chapter, be valued and assessed at the annual rates, including all: (1)

Real estate, namely: . . . (iii) buildings permanently attached to land or connected with water, gas, electric or sewage facilities[.]

The taxpayer contended that the shed could not be taxed because it was not permanently attached to the land or connected to water, gas, electric, or sewage facilities. The Commonwealth Court specifically rejected any application of or analogy to Sheetz, 657 A.2d 1011, which established a threepart test to determine if a fixture is part of the taxable real estate. The court found that the phrase “all other real estate” under the old Fourth to Eighth Class County Assessment Law did not apply to the shed because the shed was a building for purposes of section 8811(a)(1)(iii). The court used the Webster’s Third New International Dictionary definition of building: [A] constructed edifice designed to stand more or less permanently, covering a space of land, [usually] covered by a roof and more or less completely enclosed by walls, and serving as a dwelling, storehouse, factory, shelter for animals, or other useful structure—distinguished from structures not designed for occupancy (as fences or monuments) and from structures not intended for use in one place (as boats or trailers) even though subject to occupancy. Pedersen, 84 A.3d at 405, n.6. The court held that the taxpayer’s storage shed was a building; the only question was whether it was permanently attached to the land. The court stated: While the term “attached” is not defined by the Assessment Law, we construe the term to require more than mere placement of a structure on the ground, leaving it held in place by 250

6-6.33

weight alone. Webster’s Third New International Dictionary at 140 (1993) defines “attach” in pertinent part as: “make fast or join (as by string or glue): BIND, FASTEN, TIE . . . .” Thus, the common and approved usage of the word connotes a more affirmative or substantial connection, requiring connection methods such as fastening or affixing the building to the land. To reach any other conclusion regarding the express requirement for “permanent attach[ment]” would render the General Assembly’s change in statutory language meaningless. The former statutory scheme did not differentiate among buildings constituting real estate for purposes of taxation. . . . However, the current Assessment Act expressly narrows the class of buildings taxable as real estate, that is, only those buildings, which are permanently attached to the land or connected with water, gas, electric or sewage facilities, are taxable. Id. at 406. This decision was a significant change in the existing law and has changed the way tax assessment offices view and tax subsidiary buildings. 6-6.33

Taxation of Petroleum Storage Facilities

The Pennsylvania Supreme Court held in Gulf Oil Corp., 53 A.2d 250, that oil storage tanks in which physical and chemical processes necessary to create the final manufactured product take place are machinery excluded from tax assessment. In this case, Gulf Oil Corp. manufactured various refined crude oil products consisting of gasoline of various octanes and blends, toluene, isoparaffin, distillate fuel oil, lubricating oil, residual fuel oil, and wax. The manufacturing process involves (1) cleaning the crude oil by removing water, salt, dirt, and other impurities, (2) fractionating uncracked gasoline, distillate, fuel oils, and unrefined lubricating stock, (3) cracking the resulting oil and gasoline and residual fuel oil, (4) chemically treating the various oils and waxes resulting from the fractionation and cracking, and (5) blending, dyeing, and adding various chemicals to meet specifications for marketable products. The storage tanks in question were used (1) to remove water and sediments from the crude petroleum before it could be charged to the stills, by heating the oil in tanks equipped with steam coils and settling the oil, (2) as receptacles for the products of various batteries or groups of stills designed to process certain specific types of crude oil, prior to and for the purpose of drying the products of the stills to remove traces of moisture, (3) to add chemicals to complete the finished product, and (4) for other manufacturing purposes. The Supreme Court found that the tanks were part of the machinery necessary for the manufacturing process at the refinery and therefore not taxable. The court also found that the tanks were not passively storing materials but rather were allowing a physical and chemical process neces251

Assessment Valuation Law

sary for the refining of oil. The court held that the tanks were an integral part of the manufacturing process, indispensable to Gulf Oil’s business, and, therefore, excluded from real estate assessment and taxation. Therefore, in determining the assessability of storage facilities, there must be a differentiation between whether the facility is merely storing materials or is an integral part of some manufacturing process. Gulf Oil Corp. mandates that each physical facility must be examined on its individual facts and circumstances to determine whether it can be assessed for taxation purposes. The Commonwealth Court followed the Pennsylvania Supreme Court’s reasoning in Gulf Oil Corp. in another case involving crude oil tanks, Gulf Oil v. Delaware County Board of Assessment Appeals, 489 A.2d 321 (Pa.Cmwlth. 1985). In this case, the oil in the tanks contained water, which must be removed in the refining process. After the water has been pumped, the oil is heated to control viscosity and is agitated to standardize the mix for refining purposes. The oil is then delivered by pipeline to a refinery to be processed. The court held that the tanks were machinery in which physical and chemical processes necessary to create the final product took place and were, therefore, excluded from tax assessment under 72 P.S. § 5020-201. In In re Appeal of West Penn Power Co., 588 A.2d 997 (Pa.Cmwlth. 1991), the Commonwealth Court examined the taxability of three fuel tanks at a power plant in Allegheny County. The construction of the three tanks occurred simultaneously with the installation of oil-fired boilers when the plant was converted from coal to oil. Each tank was connected by pipes to a pumphouse and, in turn, to two oil-fired boilers in the plant. Heavy oil was pumped from barges on the Allegheny River into the three tanks, where it was stored until needed to fire the boilers. Each tank was fitted with steam heating elements connected to small boilers; the heating elements made the oil liquid enough to flow through the pipes that connected the tanks to the boilers. The oil was then fired in the boilers, producing steam that drove turbines, which in turn drove generators, which produced electricity. The Commonwealth Court found that the tanks did not qualify as exempt machinery or equipment under the assessment law, stating: The Pennsylvania Supreme Court in Jones & Laughlin, interpreted the relevant portion of the Law to mean that improvements which are used solely and directly in the manufacturing process are excluded from real estate tax, but that a structure that is only used for storage does not meet the requirements of the exclusion. . . . Since the Supreme Court’s opinion in Jones & Laughlin, we have decided two cases involving storage tanks similar to the tanks now considered. In the first of these cases, United States 252

6-6.34

Steel Corp. v. Board of Revision of Taxes and Appeals of the City of Clairton, 27 Pa. Commonwealth Ct. 422, 366 A.2d 637 (1976), we held that tanks which were used to store ammonia did not qualify for the tax exclusion because they were not used directly in the manufacturing of ammonia, nor were they necessary and integral parts of the process. We did not believe that the fact that the tanks also refrigerated the ammonia was a significant reason to permit the exclusion. More recently in Gulf Oil Corp. v. Delaware County Board of Assessment Appeals, 88 Pa. Commonwealth Ct. 341, 489 A.2d 321 (1985) we held that oil tanks were a necessary part of oil refining, and consequently, were not taxable real-estate. We distinguished United States Steel because the Gulf Oil tanks then in question were used to heat and mix the oil before it could be refined. The process in the tanks took three to five days before the other production could proceed. Id. at 1000. The court found the oil tanks at the power plant more analogous to the ammonia tanks in U.S. Steel than to the oil tanks in Gulf Oil. The power plant tanks are used only for the storage of fuel and are not an integral part of the process for generating power. Although there was incidental heating of the oil in the tanks, the court said that this could not be distinguished from the refrigeration of the ammonia in U.S. Steel. Therefore, the case law concludes that if the storage tanks in general are merely passive receptacles to hold materials, they are taxable. On the other hand, if any chemical processes occur within the storage facility that are essential to the manufacturing process, then the tanks are considered to be machinery and equipment and are not taxable. 6-6.34

Interpretation of Taxation Exclusions

In Kipps v. Susquehanna County Board of Assessment, 743 A.2d 539 (Pa.Cmwlth. 1999), the Commonwealth Court explored the scope of statutory exclusions from taxation. In this case, the taxpayer owned and operated a 187 acre farm on which he grew hay and raised bison. He built a freestanding structure, measuring 50 feet by 122 feet, to store hay and other food for the bison. The structure was a quonset hut with a corrugated metal semicircular roof that curved down to form the walls, which were set on cement blocks that weighed 3,000 pounds each. The structure was open on both ends and had a gravel floor. The county assessed the structure after concluding that it was a barn. The taxpayer claimed that the structure was excluded from taxation because it was analogous to a grain or corn bin intended and used exclusively for the storage of animal feed for use on the farm. The statute in question was 72 P.S. § 5453.201(a) of the Fourth to Eighth Class County 253

Assessment Valuation Law

Assessment Law (now repealed), which at the time stated that the following properties were subject to taxation: All real estate, to wit: Houses, house trailers and mobilehomes . . . , buildings, lands, lots of ground and ground rents, trailer parks and parking lots, mills, manufactories . . . , and all other real estate not exempt by law from taxation. . . . No free-standing detachable grain bin or corn crib used exclusively for processing or storage of animal feed incidental to the operation of the farm on which it is located, . . . shall be included in determining the value of real estate used predominantly as a farm. According to the Statutory Construction Act, 1 Pa.C.S § 1921(b), where the words of the statute are clear and free from all ambiguity, the letter of the law is not to be disregarded under the pretext of pursuing its spirit. The Commonwealth Court found that section 5453.201 by its plain meaning excludes from assessment any freestanding, detachable grain bin or corn bin used exclusively for storing animal feed incidental to the farm’s operation. The court held that the taxpayer’s storage structure was neither a grain bin nor a corn crib and therefore was not excluded from taxation. The court further found that the structure was real estate, not personalty, and was taxable as a building, citing Sheetz, 657 A.2d 1011. Finally, the taxpayer argued that it was unfair and unjust to tax his hay barn while excluding grain bins or corn cribs from taxation. The court responded: We understand the Taxpayer’s frustration upon being confronted by the apparent inequity of a taxing scheme that excludes from assessment and taxation structures used to store food for grain-fed cattle, but does not afford a similar exclusion for structures used to store food for other ruminants such as bison, which feed almost exclusively on hay. However, courts may not rule upon the wisdom of a taxing scheme, but merely on its constitutionality. Kipps, 743 A.2d at 541. This decision indicates that exclusions from taxation should be interpreted strictly within the wording of the statute. 53 Pa.C.S. § 8811(b)(2) now reads: Silos used predominantly for processing or storage of animal feed incidental to operation of the farm on which it is located, freestanding detachable grain bins or corn cribs used exclusively for processing or storage of animal feed incidental to the operation of the farm on which it is located and inground and aboveground structures and containments used predominantly for processing and storage of animal waste and com254

6-6.35

posting facilities incidental to operation of the farm on which the structures and containments are located shall not be considered or included as part of the real estate. 6-6.35

Assessment Law Overrides USPAP in Valuation Cases

In Masalehdan v. Allegheny County Board of Property Assessment, Appeals & Review, 931 A.2d 122 (Pa.Cmwlth. 2007), the taxpayers purchased a home for $350,000 in September 2002. At that time, the property was assessed at $252,400. The Pittsburgh School District appealed the property assessment for tax year 2003, seeking an increase to reflect the purchase price. The assessment board increased the assessment to $343,500, and the taxpayers appealed to the court of common pleas. They presented appraisal evidence that the base-year property valuation as of January 1, 2002, was $330,000, which applied for 2003, 2004, and 2005. To reach this opinion, the taxpayers’ appraiser only considered sales of comparable property before January 1, 2002, stating that any sales after that date were irrelevant. The school district rebutted by presenting appraisal testimony of an expert who determined a value of $360,000 for January 1, 2003, $370,000 for January 1, 2004, and $380,000 for January 1, 2005. The special master who heard the case found a value of $360,000 for all three years, and the taxpayers appealed to the trial court. The court rejected both experts’ conclusions and found that when the taxpayers appealed the base-year values, the only relevant testimony was the baseyear value, and the school district presented no evidence of the base year. The court rejected the taxpayers’ value because their appraiser refused to consider any sales after the base-year valuation date. The taxpayers contended that the statement on Appraisal Standard No. 3 of the Uniform Standards of Professional Appraisal Practice supported their position that sales that occurred after January 1, 2002, were irrelevant. The court stated: The Assessment Code is also instructive here. It states, in relevant part: In arriving at actual value, the price at which any property may actually have been sold, either in the base year or in the current taxable year, shall be considered but shall not be controlling. . . . 72 P.S. § 5452.4(a.2) (emphasis added). The legislature did not limit relevant sales to those that take place before a base year valuation date. To the contrary, a sale in the “current taxable year” of the property in question shall be considered. We hold, therefore, that the trial court did not err in rejecting Taxpayers’ expert evidence for the stated reason that it failed to

255

Assessment Valuation Law

consider relevant comparable sales, including the sale of the property subject to the assessment being challenged. Id. at 128. The thrust of this decision is that where the assessment law valuation statutes may conflict with USPAP, the statutory laws must be followed.

256

7 Uniformity, Equalization, and Ratio Law

7-1

Assessment Uniformity Challenges

Article VIII, section 1, of the Pennsylvania Constitution states, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” The General Assembly incorporated this principle into the assessment law at 53 Pa.C.S. § 8842(b)(1), which reads: (i)

In arriving at actual value, the price at which any property may actually have been sold, either in the base year or in the current taxable year, shall be considered but shall not be controlling.

(ii) The selling price shall be subject to revision by increase or decrease to accomplish equalization with other similar property within the county. (iii) In arriving at the actual value, the following methods must be considered in conjunction with one another: (A) Cost approach, that is, reproduction or replacement, as applicable, less depreciation and all forms of obsolescence. (B) Comparable sales approach. (C) Income approach. The Pennsylvania Supreme Court has held that in order to comply with this constitutional mandate, taxes must be applied uniformly upon similar types of property, with substantial equality of the tax burden to all members of the same class. In re Appeal of Brooks Building, 137 A.2d 273 (Pa. 1958). In this manner, no taxpayer should pay more or less than his or her fair proportionate share of the cost of government. Deitch Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 209 A.2d

257

Uniformity, Equalization, and Ratio Law

397 (Pa. 1965). Any system that results in the intentional undervaluing of like or similar properties is impermissible. Brooks, 137 A.2d 273. In Albarano v. Board of Assessment & Revision of Taxes & Appeals, Lycoming County, 494 A.2d 47 (Pa.Cmwlth. 1985), the Commonwealth Court set standards for uniformity challenges by taxpayers. In a tax uniformity case, the taxpayer attempts to challenge the uniformity of his or her assessment by presenting evidence of assessments of comparable properties, rather than evidence as to market value of the subject property. At trial in Albarano, the board introduced evidence of its assessment into the record. The court then called on the taxpayers to present evidence as to market value; the taxpayers responded that they instead wanted to challenge the uniformity of the assessments by presenting assessments of properties comparable to theirs. The court refused to allow this evidence and dismissed the appeal. The Commonwealth Court found that the lower court erred by not allowing the taxpayers to challenge the uniformity of the assessment with evidence of comparable properties. The court stated: The common pleas court interpreted the statutory language of the Act of October 5, 1978, P.L. 1138, as amended, 72 P.S. §5453.704(b), as prohibiting it from considering such evidence in entertaining a property owner’s uniformity challenge to an assessment. Our review of the applicable law leads us to conclude that this was error. While there are no cases directly on point, assessment appeals based on a lack of uniformity seem to be permitted under 72 P.S. §5453.704. See Calcagni v. Board of Assessment Appeals, 38 Pa. Commonwealth Ct. 525, 394 A.2d 663 (1978); Valley Forge Golf Club, Inc., Tax Appeal, 3 Pa. Commonwealth Ct. 644, 285 A.2d 213 (1971). Id. at 49. The appellate court then concluded that the lower court erred by refusing to allow the taxpayers to show that a lower ratio of assessment to actual value had been applied to the comparable properties. The court outlined the burden of proof in a tax uniformity challenge as follows: A property owner claiming that his assessment is not uniform must carry his burden of proof by showing that a lower ratio of assessment to actual value has been applied to comparable properties. McKnight Shopping Center, Inc., v. Board of Property Assessment, 417 Pa. 234, 209 A.2d 389 (1965); Brook Building Tax Assessment Case, 391 Pa. 94, 137 A.2d 273 (1958). In meeting this burden, Appellants properly offered evidence of assessments of comparable properties to the common pleas court. However, this was not sufficient. Appellants are also required to present evidence to show that the actual value 258

7-1

of comparable properties was different than that found by the Board. Valley Forge Golf Club, Inc., Tax Appeal. This is accomplished by presenting proof of market value. Id. Where a property owner presents proof of assessments of comparable properties but fails to offer any evidence as to market value, the property owner cannot sustain his burden of proof as a matter of law in that the common pleas court has no information upon which to make a finding as to the current market value and apply the established predetermined ratio to determine the issue of uniformity. Id. Albarano holds that the assessment law permits uniformity challenges to assessments, but the taxpayer carries the burden of presenting evidence of the market value of the comparable properties in order to show that they are underassessed in comparison to the taxpayer’s real estate. A case on point is Appeal of 322 Boulevard Associates, 600 A.2d 630 (Pa.Cmwlth. 1991), in which the Commonwealth Court reversed a lower court ruling that adopted a board of viewers’ report rejecting evidence of a uniformity challenge as contrary to law. In this case, the taxpayer attempted to present evidence to show that the assessment of neighboring properties was not uniform and that the taxpayer was subject to a greater burden of taxation. The city of Pittsburgh objected on the grounds that the evidence was not relevant to the issue of market value. The board of viewers, acting as special masters, sustained the objection, and the trial court agreed. The Commonwealth Court, in reversing the lower court, stated: The issue of uniformity is not a separate issue. To be constitutional, tax assessment must be uniform throughout the entire taxing district. Valley Forge Golf Club, Inc. v. Board for the Assessment and Revision of Taxes in Montgomery County, 3 Pa. Commonwealth Ct. 644, 285 A.2d 213 (1971). The mere fact that a property is assessed at or below market value is not conclusive of the validity of the assessment. . . . Further, the Act requires that the trial court, in its de novo review of the assessment, give “due regard to the valuation and assessment made of other real estate” in the city. Section 518.1 of the Act. Id. at 633. The court in Banzhoff v. Dauphin County Board of Assessment Appeals, 606 A.2d 974 (Pa.Cmwlth. 1992), explained the differences between a tax uniformity challenge and a challenge to inflated market value. The latter claim can be substantiated by evidence of the fair market value determinations of comparable properties. If two properties located next to or near each other have comparable worth but appreciably different assessments, the explanation is simply that the value determination for one of

259

Uniformity, Equalization, and Ratio Law

the properties is more realistic or fair than the determination for the other. It is important to note that there is a significant distinction between challenges to tax unformity and inflated market value. The Commonwealth Court analyzed these differences: A claim that an assessment is based upon an improperly inflated fair market value should be distinguished from a claim that an assessment violates the principle of uniformity. A uniformity challenge admits that the fair market value assigned to the property is correct; in essence, it is an allegation that other comparable properties are assigned a fair market value substantially lower than their actual fair market value so that when the ratio is applied to this lower value, owners of comparable property pay less than the complaining taxpayer. Id. at 976, n.3. In Monroe County Board of Assessment Appeals v. Karlin, 631 A.2d 1062 (Pa.Cmwlth. 1993), the Commonwealth Court followed Albarano and summarized that decision: Succinctly stated, the holding in Albarano is that while a property owner may establish a prima facie rebuttal case to the taxing authority’s prima facie case in chief under Deitch, [417 Pa. 213, 209 A.2d 397 (1965),] by showing disparate assessments, “the taxpayer still carries the burden of persuading the court of the merits of his appeal.” Id. 417 Pa. at 222, 209 A.2d at 402, and the production of evidence establishing the fair market value of the comparable properties is still required. Karlin, 631 A.2d at 1068, n.7 (emphasis in original). The Commonwealth Court continued this line of uniformity case law in Fosko v. Board of Assessment Appeals of Luzerne County, 646 A.2d 1275, 1279 (Pa.Cmwlth. 1994), where it outlined how to succeed on an assessment uniformity challenge: A taxpayer could satisfy his or her burden by producing evidence establishing the ratios of assessed values to market values of comparable properties based upon actual sales of comparable properties in the taxing district for a reasonable time prior to the assessment date. A taxpayer may also meet this burden by offering evidence of assessments of comparable properties, so long as the taxpayer also presents evidence to show that the actual fair market value of the comparable properties is different than that found by the taxing authority. Albarano v. Board of Assessment & Revision of Taxes & Appeals, 90 Pa. Commw. 89, 494 A.2d 47 (1985); Valley Forge Golf Club, Inc. Tax Appeal, 3 Pa. Commw. 644, 285 A.2d 213 (1971). 260

7-2.1

The court reiterated the state of the law in this area in County Amusement Co. v. County of Cambria Board of Assessment Appeals, 692 A.2d 300, 304 (Pa.Cmwlth. 1997), quoting the lower court’s opinion: Generally, Pennsylvania law allows the use of comparable assessments as a means to arrive at the actual value of a particular piece of land. Valley Forge Golf Club v. Board of Assessment and Revision of Taxes of Montgomery County, 3 Pa. Cmnwlth. 644, 285 A.2d 213 (1971). However, evidence of comparable assessments alone is not enough, the court must also be shown the actual fair market value of the comparable properties. Banzhoff v. Dauphin County Board of Assessment Appeals, 146 Pa. Commw. 687, 606 A.2d 974 (1992). Without the actual fair market values of the comparable properties the court trial (sic) has no basis for determining whether the alleged comparable properties are valued lower than their actual fair market value or whether a different ratio was applied to the properties. Fosko v. Board of Assessment Appeals, 166 Pa. Commw. 393, 646 A.2d 1275 (1994). In summary, a taxpayer must first plead the uniformity challenge in his or her appeal. At trial, the disparity between the allegedly similar properties’ assessments to the taxpayer’s property overcomes the prima facie validity of the assessment. The taxpayer then retains the burden of persuading the court that similar properties are assessed for less than the taxpayer’s. This burden can be met by providing expert testimony establishing the values of the allegedly underassessed realty and then applying the appropriate ratio to those values or by introducing comparable properties that have recently sold in the taxing district that have lower-thanmarket-value assessments. Logically, the taxpayer should present expert testimony as to the value of his or her property in order to set up units of comparison for the trial court. This challenge to uniformity is relevant in situations where the subject property is not overassessed when applying the appropriate ratio to the fair market value. In this scenario, the taxpayer can then attempt to obtain tax relief by proving that other properties of similar value are assessed for less. 7-2 7-2.1

Assessment Uniformity Tests Hromisin—The Parameters of Nonuniformity

The Commonwealth Court revisited tax assessment uniformity in Hromisin v. Board of Assessment Appeals of Luzerne County, 719 A.2d 815 (Pa.Cmwlth. 1998). The court had last looked at the uniformity issue four years earlier in Fosko, 646 A.2d 1275, in which it established the burden-

261

Uniformity, Equalization, and Ratio Law

of-proof standard in tax uniformity challenges. Hromisin establishes the parameters of nonuniformity in Pennsylvania. In Hromisin, the taxpayers lived in a residential development known as Willow View. For tax year 1996, the assessment appeals board assessed the property at $13,350. The taxpayers filed an appeal to the board, which was denied, and then filed for a de novo court hearing. At trial, the board placed the $13,350 assessment into the record, indicating a fair market value of $178,000. The burden of proof shifted to the taxpayers, who presented evidence from a state-certified appraiser. The appraiser testified that he appraised the property at between $195,000 and $205,000, and he concluded that the fair market value of the property was $200,000. On the issue of uniformity, the appraiser inspected the exteriors of 12 properties similar to the taxpayers’ home in location, site area, design, quality of construction, and physical condition, and he estimated the value range of these 12 properties. He then compared the estimated market values of the 12 comparables and the subject property to the assessed values applied by the board. He found that the 12 comparables ranged from assessed value ratios of 4.53 percent to 5.7 percent, with a median assessed value ratio of 5.05 percent to 5.37 percent. This contrasted to the subject property’s assessed value ratios of 5.1 percent to 6.85 percent. The appraiser concluded that the taxpayers were paying taxes based on assessed value ratios excessively higher than their neighbors’. The board rebutted this evidence with testimony of their assessor, who explained the methods used for the assessment. He testified that he first determined the market value of the property using the cost approach and then multiplied this value by the common-level ratio for Luzerne County, which was set by the State Tax Equalization Board (STEB) for the tax year at issue at 7.5 percent. The trial court denied the taxpayers’ uniformity challenge. The Commonwealth Court refused to overturn the lower court decision. The appellate court analyzed the history of uniformity challenges in Pennsylvania and found that the 1982 amendments to the assessment law that applied the STEB ratio to each assessment case totally altered tax uniformity litigation. The court stated: In this manner the STEB common level ratio serves as the standard against which the ratio applied to a given property may be measured to determine whether the particular property owner is paying more than his fair share, i.e., more than the average property owner’s tax burden in his county. Thus the Assessments Law provides an essentially complete mechanism of assuring uniformity within each county. If a taxpayer is paying more than his proportionate share of real estate taxes because an inflated market value has been assigned to his property, he may challenge this value and, if his evidence is accepted, this component of the formula will be adjusted and 262

7-2.1

the taxes reduced accordingly. If, on the other hand an inflated assessment results from application of a predetermined ratio out of proportion with the current average ratio paid in the county as calculated by STEB, then the taxpayer is entitled to have the STEB ratio applied. With these principles in mind, we turn to the merits of the uniformity challenge made here, and see no question that it was properly rejected by the trial court. According to the taxpayers’ own expert, the fair market value of their property was understated by the taxing authorities. Further, he testified that when the actual ratio of assessed to fair market value was calculated for the property it was less than the county-wide average determined by STEB. Where, as here, property owners are paying less than the average tax burden within the county, they may obtain no relief under the uniformity doctrine by showing that some of their neighbors are paying an even lower proportion of their fair share than the appellants. As the court noted in Deitch [Co. v. Board of Property Assessment, 209 A.2d 397 (1965)]: “Taxpayer is not entitled to have his assessment reduced to the lowest ratio of assessed value to market value to which he could point in the taxing district if such lowest ratio does not reflect the common assessment level which prevails in the district as a whole.” Id. at 818–19 (emphasis in original). The court alluded to the fact that the taxpayers’ methods of computing a common-level ratio based on selected tax records within the county was no longer tenable in light of the 1982 STEB amendments. The court held that the heart of the uniformity requirement is the equalization of all properties in the district, not a selected few. The taxpayers, by relying on a handful of properties within a development, ignored the balance of Luzerne County. The Commonwealth Court, in a footnote, summarily distinguished all then-existing law on uniformity challenges: Although there is dictum to the contrary in Albarano v. Board of Assessment and Revision of Taxes and Appeals, Lycoming County, 90 Pa. Commw. 89, 494 A.2d 47, 49 (1985), it was based upon cases decided years before the amendments were passed. Suffice it to say that we need not decide this issue here. Id. at 819, n.11. Note that Albarano was an appeal for the 1984 tax year, and the STEB amendments had already been in effect for two years. If the Commonwealth Court felt it did not need to decide the issue of uniformity challenges in Hromisin, when will it decide these issues? 263

Uniformity, Equalization, and Ratio Law

In its footnote, the court seemed to dismiss Albarano and its lengthy progeny of cases that allow uniformity challenges. The question left unresolved is whether uniformity challenges are alive and well in Pennsylvania or buried by the holding in Hromisin. The right to uniformity of taxation is fundamental and should not be killed without serious study, thought, and consideration. Leaving the ultimate issue up in the air, as the footnote points out, is not helpful to attorneys trying to advise their clients on the propriety of filing an assessment appeal based on lack of uniformity. When the Commonwealth Court in Fosko spelled out the rules and procedures for uniformity challenges in 1994, a workable system appeared to be established for these cases. Now it must wait for future litigation to determine if the final nail has been put into the coffin of tax uniformity. The Pennsylvania Supreme Court ruled on this issue in 2006, as discussed below. 7-2.2

Downingtown—Resurrecting Common-Law Uniformity Challenge Procedures

The Pennsylvania Supreme Court, in Downingtown Area School District v. Chester County Board of Assessment Appeals, 913 A.2d 194 (Pa. 2006), issued a landmark decision on the statutory assessment scheme and its relationship to the uniformity of taxation mandate contained in Article VIII, section 1, of the Pennsylvania Constitution. This case marked a departure from the understanding of the assessment system in Pennsylvania at the time and overturned myriad Commonwealth Court decisions dealing with the uniformity of assessments. The subject property in the case was a shopping center assessed at $5.8 million for tax year 1998 under a reassessment of all property in Chester County. In March 1999, Lionville Station S.C. Associates bought the property for $10.4 million. The taxing school district appealed the $5.8 million assessment on the property, seeking an increase to the sales price paid by Lionville for tax year 2000. It should be noted that the shopping center was the only property the school district had appealed within the previous two years and that it had no written criteria governing when it would file any assessment appeals. The assessment appeals board raised the assessment on the property to $6.5 million, or $77.86 per square foot. The school district, unsatisfied with this increase, appealed to the court of common pleas, seeking an assessment of $8.5 million, or $101.81 per square foot. At trial, the parties stipulated that the property’s fair market value for tax year 2000 was $8.5 million, that Chester County’s common-level ratio as last determined by the State Tax Equalization Board was 85.2 percent of fair market value, and that the established predetermined ratio (EPR) for the county was 100 percent of fair market value. The county’s chief assessor testified 264

7-2.2

that the average assessment of shopping centers similar to the subject property was $64.29 per square foot and that, in his opinion, $77.86 per square foot was the appropriate value to achieve uniformity with other commercial properties in the county. The taxpayer presented an appraiser who had compared the subject property with seven other shopping centers in Chester County. He determined that the assessments for the comparables ranged from $47.87 to $89.62 per square foot and that the ratio of assessed value to actual value was between 34 percent and 69 percent. Based on these figures, the taxpayer argued that the increased assessment sought by the school district would violate the constitutional requirement of uniform taxation. The trial court rejected the taxpayer’s argument concerning the comparable assessments, finding that the controlling class of properties consisted of all the real estate in the taxing district and that the use of the STEB common-level ratio was the proper way to achieve uniformity. The Commonwealth Court affirmed. Downingtown Area Sch. Dist. v. Chester County Bd. of Assessment Appeals, 819 A.2d 615 (Pa.Cmwlth. 2003). The Supreme Court agreed to review two issues: whether the assessment law pertaining to the use of the established predetermined ratio superseded the methods of determining uniformity used by the high court and, if the EPR did not apply, whether the lower court erred in disregarding the taxpayer’s evidence of comparable shopping center assessments. The school district argued that the traditional method of mounting a uniformity challenge was no longer valid since the enactment of 72 P.S. § 5349(d.2) (now repealed), which provided that assessment boards must use the EPR unless it varies by more than 15 percent from the commonlevel ratio (CLR) as last determined by STEB. The court gave the history of the methods that existed before the 1982 legislation for establishing uniformity: A taxpayer may prove non-uniformity by presenting evidence of the assessment-to-value ratio of “similar properties of the same nature in the neighborhood.” [In re Appeal of] Brooks Bldg., [137 A.2d 273, 276 (Pa. 1958).] In Deitch [Co. v. Board of Property Assessment, Appeals & Review of Allegheny County, 417 Pa. 213, 209 A.2d 397 (Pa. 1965)], the Court acknowledged that all properties in the relevant taxing district are comparable properties for purposes of calculating the appropriate ratio of assessed value to market value (as all real estate is a class which is entitled to uniform treatment). . . . The Court observed, however, 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, as was done in Brooks Bldg. . . . (stating that “the tax must be applied with uniformity upon similar kinds of 265

Uniformity, Equalization, and Ratio Law

business or property”), because such “similar properties” evidence, while not comprehensive, is nonetheless relevant to the uniformity analysis; further, it would be a practical impossibility to require the taxpayer to evaluate the assessment-tovalue ratio of every parcel in the taxing district. See Keebler [Co. v. Board of Revision of Taxes of Philadelphia, 436 A.2d 583, 584 (Pa. 1981).] . . . Moreover, given that it is relevant, such proof must be considered. See Deitch, 417 Pa. at 222, 209 A.2d at 402 (“Where the taxpayer’s testimony is relevant, credible and unrebutted, it must be given due weight and cannot be ignored by the court”) . . . . This led to a situation in which courts determined the CLR by expert testimony, which ordinarily consisted of statistical analyses. In such cases, where a property owner was able to demonstrate that the parcel in question was assessed at a percentage of value exceeding the percentage applied generally throughout the taxing district, the property owner was entitled to a reduction in the assessment in conformance with the generally applied percentage. Downingtown, 913 A.2d at 199–200. The Supreme Court examined the impact of the 1982 amendments, 72 P.S. §§ 4656.1–4656.17 (now repealed), to the assessment law and whether they overruled the traditional approach to establishing uniformity. The Commonwealth Court had ruled in Hromisin, 719 A.2d 815, that this traditional approach was no longer valid and held in Downingtown, 819 A.2d 615, that the statutory 15 percent rule eliminated any uniformity challenges in the margin of error. The Supreme Court, citing the dissenting opinion in Vees v. Carbon County Board of Assessment Appeals, 867 A.2d 742 (Pa.Cmwlth. 2005), was troubled by the fact that anyone who fell within the 30 percent deviation range as outlined by the statute was not entitled to any tax relief for nonuniformity of assessment. The court pointed out that the uniformity of the base-year assessment system can be upset by appeals taken by taxing authorities. The court stated: The difficulty illustrated by the present case arises because a taxing authority within a county (such as the School District here) may disrupt this equalization scheme, premised solely upon a determination that it feels aggrieved by a specific property’s assessment as it currently stands. See 72 P.S. § 5349(c). In this event, so long as the CLR is no less than 85 percent of the EPR, such taxing authority is able to force the board to increase the assessment to the fair market value as of the year the appeal was taken, see 72 P.S. § 5349(d.1), (d.2), and merely apply the EPR to that figure, rather than to a figure expressed 266

7-2.2

in base-year dollars. Because, however, for all other properties no corresponding adjustment is made, only the property owners targeted for appeal by the taxing authority are burdened with assessments representing the EPR as applied to presentyear dollars. In other words, based on the mere fact that a tax assessment appeal is filed, the benefit of any effort at equalization is lost over a thirty-percent range. *

*

*

Thus, in allowing use of the EPR rather than the CLR, the General Assembly has, in effect, carved out a class of taxpayers who are subjected to an unfairly high tax burden—namely, those whose assessment is appealed by any taxing district in which the property is located. Because this classification is not based on any legitimate distinction between the targeted and nontargeted properties, it is arbitrary, and thus, unconstitutional. Downingtown, 913 A.2d at 204–05 (emphasis in original). The case was remanded to the common pleas court with instructions to rule on the taxpayer’s uniformity challenge in light of the Deitch construct and as elaborated on by Fosko, 646 A.2d 1275, which spelled out the rules and procedures for uniformity challenges. In summary, the Pennsylvania Supreme Court: • • • •

questioned the right (but did not rule on the issue) of taxing districts to take assessment appeals by targeting only some taxpayers; found unconstitutional the provision of the assessment laws that allow a no-appeal-zone for property owners whose STEB ratios fall within 15 percent of the EPR; resurrected the common-law uniformity challenge procedures in Deitch that had been thought to be cast into the shadows by Hromisin; and stated that in any uniformity case, the courts should follow the evidentiary standards in Fosko.

The Downingtown case substantially changed assessment practices in the Commonwealth and created as many questions as answers to future assessment practice. The holding itself was narrow and the case was remanded for further adjudication. It seems clear that where a taxpayer appeals an assessment, he or she is now entitled to the STEB ratio, even if he or she is within the 15 percent tolerance range from the EPR. If the STEB statistics indicate a ratio of 89 percent in a 100 percent EPR county, the taxpayer should be allowed to have his or her fair market value multiplied by 89 percent rather than 100 percent. The case also indicated that a taxpayer may present evidence outside the STEB ratio under the older common-law cases to show that a different 267

Uniformity, Equalization, and Ratio Law

ratio to assessed value exists within the county for all property. The taxpayer may also be able to present a ratio study for a smaller area or for a certain class or subclass of property. It is unclear what constitutes a class or subclass of property and what geographical area should be considered. This was the most difficult issue in handling uniformity cases in past eras and will become so again in the future. These cases will become time-consuming and costly for all parties involved. An extremely important aspect of this case is the court’s adoption of the rules and procedures established in Fosko for common-law uniformity litigation. Meeting the Fosko test is not easy and involves a great deal of evidence. Mere comparison of assessments is insufficient. There must be sound, credible evidence of the value of the comparable properties in the assessment matrix. This involves either verifiable sales data or expert opinions for value properties that have not sold. The Downingtown decision has opened a new avenue of litigation that had been thought closed by the 1982 statutory scheme, and a thorough determination of the meaning of this case awaits litigation and appellate court interpretations. 7-2.3

Uniformity Decisions Post-Downingtown

Chartiers Valley Industrial & Commercial Development Authority v. Allegheny County, 963 A.2d 587 (Pa.Cmwlth. 2008), was the first appellate court decision interpreting the mechanics of a uniformity challenge after Downingtown, 913 A.2d 194. In this case, the taxpayers owned a sevenstory office building in Pittsburgh. The first four floors were used as a law office, and the other three floors were vacant. For tax year 2005, the property was assessed at a fair market value of $451,500 based on a predetermined ratio of 100 percent. The taxpayers appealed, and the assessment appeals board reduced the value to $306,300. The taxpayers appealed the reduction to the trial court, which accepted the $306,300 value. The taxpayers alleged that the property should be reduced to less than $306,300 because other taxpayers in the county were assessed at less than 100 percent of fair market value. The taxpayers submitted 15 sales of other properties each year for 2004, 2005, and 2006, in which the respective ratios of total assessed values to the total sales were 60.13 percent, 64.64 percent, and 59.05 percent. The taxpayers argued that the ratios for their property assessment should not exceed these figures. The trial court rejected this contention on the basis that the properties used by the taxpayers were all residential and not in downtown Pittsburgh. On appeal, the taxpayers asked whether downtown office buildings were a permissible subclassification of real estate under the assessment law, so that they may be taxed differently from other properties. Also, they questioned if it was constitutional to assess office buildings at a commonlevel ratio different from the residential property common-level ratio. 268

7-2.3

The Commonwealth Court stated: The Supreme Court in Downingtown concluded that tax assessments could also be challenged based on the lack of uniformity in the assessment of properties having like characteristics and qualities in the same area. In reaching this conclusion, the Supreme Court stated that a taxpayer may prove lack of uniformity “by presenting evidence of the assessment-to-value ratios of ‘similar properties of the same nature in the neighborhood.’ ” . . . The Supreme Court stated further that it had previously acknowledged in Deitch Co. v. Board of Property Assessment, Appeals & Review of Allegheny County, 417 Pa. 213, 209 A.2d 397 (1965), “that all properties in a relevant taxing district are comparable properties for purposes of calculating the appropriate ratio of assessed value to market value (as all real estate is a class which is entitled to uniform treatment).” . . . However, the Supreme Court pointed out that, in the context of a uniformity challenge, “the parties and the trial court may rely upon evidence concerning the assessmentto-value ratio of similar properties.” . . . The Supreme Court stated further that it did not find that the general uniformity precept, precluding real property from being divided into different classes for purposes of systemic property tax assessment, eliminated any opportunity or need to consider meaningful sub-classifications as a component of the overall evaluation of uniform treatment in the application of the taxation scheme. . . . As such, the Supreme Court concluded that “[w]hile the Commonwealth may certainly seek to achieve overall uniformity by attempting to standardize treatment among differently situated property owners, its efforts in this regard do not shield it from the prevailing requirement that similarly situated taxpayers should not be deliberately treated differently by the taxing authorities.” Chartiers Valley, 963 A.2d at 592 (emphasis in original). The appellate court found that the evidence did not support the allegation that the taxpayers’ property was overassessed in comparison with other office buildings. Also, the evidence did not support a claim that office buildings are a separate subclassification of real estate thus overassessed. The court failed to establish an empirical standard for taxpayers to use when making a claim of nonuniformity of assessment. It is extremely difficult to advise clients on how to proceed when the courts format broad principles of constitutional law but fail to provide clear and meaningful direction on how to raise and litigate these matters. In In re Appeal of Sullivan, 37 A.3d 1250 (Pa.Cmwlth. 2012), the Commonwealth Court considered the application of the STEB common269

Uniformity, Equalization, and Ratio Law

level ratio as a remedy for a violation of the uniformity clause of the Pennsylvania Constitution. The taxpayers in this case, Timothy and Laurie Sullivan, challenged an assessment on the home they bought in 2004 as new construction. After the purchase, the Delaware County Board of Assessment Appeals sent them an interim assessment notice, in which the property’s assessment was increased from $307,250 to $1.4 million. The Sullivans did not appeal that notice; this appeal concerned the property’s valuation for tax years 2007, 2008, 2009, and 2010. After the board denied their appeal, the Sullivans appealed the assessment to the common pleas court. The parties stipulated to the applicable STEB common-level ratios for the years at issue and a range of acceptable values for the property, to be finally determined at trial. The Sullivans argued that the CLR should not be applied to their property, and they provided expert witness testimony from a real estate appraiser who had developed data compilations for specific municipalities and transactions in the county. Using that data, the appraiser calculated ratios of assessment to sale that were lower than CLR. The appraiser’s data analysis was limited to a review of properties in the same township, school district, and price point (greater than $1 million) as the Sullivans’ home. In response, the board provided expert testimony that pointed out a number of perceived insufficiencies in the Sullivans’ expert’s methods. Specifically, the board’s experts stated that the Sullivans’ statistical samples were too small and did not use appraisals for any of the properties analyzed. Both parties also submitted testimony regarding the application of the STEB common-level ratios. The trial court first determined that the fair market value of the Sullivans’ property during the years 2007 to 2010 was $1.7 million. The court then considered whether the STEB CLR should be applied to this value or whether the lower ratios submitted by the appellants should be used. In holding that the STEB CLR applied, the court stated: The Sullivans argue that the assessment should not be determined by the CLR multiplied by the fair market value, but rather by the ratio of assessment of similar properties of the same nature in the neighborhood. The Sullivans believe that the Supreme Court authorized this methodology in the case of Downingtown School District v. Chester County Board of Assessment Appeals, 590 Pa. 459, 913 A.2d 194 (Pa. 2006). In Downingtown, supra, the Supreme Court reversed and remanded the case to the trial court for consideration of the adequacy of the owner’s uniformity challenge under Deitch Co. v. Bd. of Property Assessment, 417 Pa. 213, 209 A.2d 397 (Pa. 1965) and its progeny.

270

7-2.3

In Deitch, supra, the court stated that “we reiterate that the taxing district involved is Allegheny County.” Similarly, in McNight Shopping Center Inc. v. Bd. Of Property Assessment, 417 Pa. 234, 209 A.2d 389 (Pa. 1965) the scope of inquiry [regarding] reassessment to value ratio uniformity was the county. The same was held in Appeal of F.W. Woolworth Co., 426 Pa. 583, 235 A.2d 793 (Pa. 1967). Therefore, this court believes that in limiting their data to geographic areas within the county and specific transactions within the county rather than using countywide data as STEB does in compiling the CLR[,] the Sullivans’ analysis is flawed. Their expert . . . presented ratios of transactions within the township, ratios of transactions within the school district, and ratios of transactions with sales prices of at least $1,000,000. The Sullivans presented no county wide analysis. For this reason alone, the court does not accept the Sullivans’ analysis. Id. at 1253–54 (emphasis in original). Before the Commonwealth Court, the Sullivans renewed their claim that under Downingtown, they had met their burden by producing “evidence in the form of ratio studies of assessment to sales of similar properties in the same neighborhood” to establish a right to be taxed uniformly with similar properties of the same nature in the neighborhood. Id. at 1254. The court rejected the Sullivans’ claim, stating: [A]bsent the kind of circumstances shown in Clifton [v. Allegheny County, 969 A.2d 1197 (Pa. 2009)], which mandate countywide reassessment, or a showing of willful discrimination by the taxing authorities, a taxpayer is entitled only to have his assessment conform with the common level existing in the district, not with a small sample of properties being taxed at a lower than average level. The teaching of Deitch, Downingtown, and Clifton clearly establish that the Uniformity Clause entitles a taxpayer to pay no more than his fair share; it does not give him a right to pay less. Moreover, to reduce an assessment below the average to that demonstrated by a few comparables or demonstrated to exist in a particular neighborhood would only serve to exacerbate a lack of uniformity in the district overall. Id. at 1256 (quoting Smith v. Carbon County Bd. of Assessment Appeals, 10 A.3d 393, 407 (Pa.Cmwlth. 2010)). Consequently, the court upheld the trial court’s holding that the Sullivans were not entitled to a reassessment below that calculated by application of the STEB common-level ratio. The Sullivans also argued that the trial court erred by not ordering a countywide reassessment, like in Clifton v. Allegheny County, 969 A.2d 271

Uniformity, Equalization, and Ratio Law

1197 (Pa. 2009). While recognizing that in certain instances the tax inequities are so severe as to make countywide reassessment appropriate, the Commonwealth Court refused to order such a remedy, finding that the Sullivans’ submission of proof was inadequate: [A] county-wide reassessment is a momentous event, and it simply is not reasonable to conclude that a county tax assessment system is constitutionally defective and that a countywide reassessment is the only constitutionally appropriate remedy based solely on a handful of publically available statistics. We believe it significant that detailed county-wide evidence was produced in both Clifton and Millcreek [Township School District v. County of Erie, 714 A.2d 1095 (Pa.Cmwlth. 1998),] and that such evidence is entirely lacking here, and we reject the Sullivans’ assertion that a county-wide reassessment was warranted in this case. Sullivan, 37 A.3d at 1257. In Weissenberger v. Chester County Board of Assessment Appeals, 62 A.3d 501 (Pa.Cmwlth. 2013), the court considered whether a school district’s decision to bring a tax assessment appeal may violate the Pennsylvania Constitution’s uniformity clause. The court held that the taxpayer had failed to show that the school district had violated the clause, but it refused to close off all future challenges to a school district’s action based on the clause. In this case, a real estate appraisal firm hired by Chester County’s school district managers reviewed the market values and assessments for all apartment complexes in the county. The firm identified five complexes in Downingtown as potentially underassessed but recommended only the taxpayer’s property for appeal. The Downingtown Area School District then filed an appeal of the taxpayer’s apartment complex. After a hearing, the assessment appeals board issued a decision in which it increased the assessment on the taxpayer’s property. On appeal to the common pleas court, the taxpayer argued that the school district’s selective application of its right to appeal under the assessment law violated the uniformity clause. The taxpayer was not making a claim that the school district’s right to appeal assessments violated the uniformity clause in every instance, but that the method employed by the district violated the clause. The only evidence submitted by the taxpayer in support of its claim consisted of the following: (1) the county school district managers hired an appraisal firm to review all the assessments of apartments in the county, (2) the firm identified five properties as potentially underassessed, and (3) the Downingtown school district accepted the firm’s advice and filed an appeal of the assessment on one of the properties. The trial court held that the school district had violated the uniformity clause. 272

7-2.3

The Commonwealth Court reversed. “When a taxpayer believes that he has been subjected to unequal taxation . . . he generally must demonstrate that: (1) the enactment results in some form of classification; and (2) such classification is unreasonable and not rationally related to any legitimate state purpose.” Id. at 505 (quoting Clifton, 969 A.2d at 1211). The court held the taxpayer’s evidence was insufficient to meet these requirements. First, the court noted that the taxpayer had failed to prove that any other property within the school district’s jurisdiction was underassessed and therefore similarly situated to the taxpayer’s property. “[I]n uniformity litigation, the aggrieved taxpayer must first establish the various valuations at issue, and then demonstrate how the disparate ratios of assessed-to-market value violate the uniformity requirement. Clifton, 600 Pa. at 691, 969 A.2d at 1214. Here, Taxpayer did not make the required proof.” Weissenberger, 62 A.3d at 506. The Commonwealth Court rejected the taxpayer’s position that school district’s decision to review only the assessments of apartment complexes violated the uniformity clause. The court explained that the school district’s review of the assessments of apartments was made pursuant to a long-term plan to review the assessments of different subclasses of property each year. The court found this explanation to be a rational basis for the school district’s decision to target only the specific subclass of property and held that the taxpayer had failed to rebut this reasoning. Consequently, because the taxpayer failed to provide evidence sufficient to prove a uniformity clause violation, the Commonwealth Court overturned the trial court’s decision and reinstated the board’s decision increasing the assessments. Importantly, the Commonwealth Court’s decision should not be read to foreclose all claims made by taxpayers that the actions of a school district (or municipality, for that matter) in selecting a property for appeal violate the uniformity clause. Rather, Weissenberger follows the longstanding rule that in order to show a uniformity clause violation, a taxpayer must present evidence of deliberate, purposeful discrimination— evidence that was lacking in this case. In another uniformity clause case, In re Appeal of Springfield School District, 101 A.3d 835 (Pa.Cmwlth. 2015), the court found that the taxpayer did not establish that the taxing school district engaged in deliberate, purposeful discrimination in selecting the taxpayer’s properties for appeal. The taxpayer had alleged discrimination because the school district only selected properties for possible assessment appeals whose sales prices were at least $500,000 higher than the implied market values, which would eliminate the appeal of nearly all residential properties at the expense of commercial and industrial ones. The court rejected that argument by reasoning that the uniformity clause does not require equalization across all potential subclassifications of real property.

273

Uniformity, Equalization, and Ratio Law

7-2.4

Valley Forge—Uniformity of Taxing Authorities’ Assessment Appeals

In 2017, a unanimous Pennsylvania Supreme Court issued its landmark decision in Valley Forge Towers Apartments N, LP v. Upper Merion Area School District, 163 A.3d 962 (Pa. 2017), holding that a taxing authority violates the uniformity clause if it implements a program of appealing only the assessments of one subclassification of properties when that subclassification is drawn according to property type, such as commercial, apartment complex, single-family residential, or industrial. This case overturned years of Commonwealth Court decisions regarding taxing authorities’ assessment appeals, specifically so-called “reverse appeals” initiated by school districts. In Valley Forge, Upper Merion Area School District decided to appeal only the assessments of commercial properties, including apartment complexes, based on a recommendation from its private consultant, Keystone Realty Advisors. The school district chose these properties because their values were generally higher than those of single-family homes, so raising their assessments would bring in more tax revenue than doing the same with underassessed single-family homes, including those that were underassessed by a greater percentage. After the Montgomery County Board of Assessment Appeals Board denied the school district’s appeals, it appealed to the court of common pleas. While those appeals were pending, a group of apartment complex owners whose properties were appealed by the district filed a complaint with the trial court, alleging that the district had violated the uniformity clause. The property owners claimed that they lacked an adequate remedy at law because the alleged constitutional violation could not be cured via the statutory appeals process, and thus they were not required to exhaust statutory remedies. They therefore sought a declaration that the school district’s actions were an unconstitutional application of 53 Pa.C.S. § 8855, as well as an injunction preventing the district from continuing to engage in the alleged pattern of selective and discriminatory application of that statute. The district filed preliminary objections, including demurrers to the individual claims, as well as one objection alleging a failure to exhaust statutory remedies and another alleging lack of jurisdiction due to such failure. As to the demurrers, the district proffered that it had a statutory right to appeal property assessments and that selective appeals do not violate the uniformity clause. The trial court sustained the preliminary objections and dismissed the complaint. The court indicated that the property owners’ claims failed as a matter of law because the school district was not the entity that set assessments, and section 8855 gave it a clear statutory right to appeal tax assessments set by the county. In rejecting the property owners’ argument 274

7-2.4

relating to discriminatory treatment, the court stated, “The filing of selective appeals does not result in a uniformity violation, and it is not deliberate discrimination.” Valley Forge, 163 A.3d at 967 (citing Weissenberger, 62 A.3d at 508–09). The trial court also noted that the uniformity clause “does not require equalization across all sub-classifications of real property.” Id. (citing Springfield, 101 A.3d at 849). The Commonwealth Court affirmed and noted that although the school district had allegedly created a subclassification of properties (commercial) that it treated differently from other property subclasses, the classification was constitutionally permissible as long as it satisfied the deferential rational-basis test. The court then held that the test was met because the district’s purpose was to increase revenues sufficiently to justify the costs of appealing. The Pennsylvania Supreme Court granted review to consider whether the uniformity clause permitted the school district, pursuant to its statutory right to appeal individual property assessments, to concentrate solely on commercial properties when single-family residences may have even lower assessment values. The court noted that its decision in Downingtown, 913 A.2d 194, never suggested that the government could divide the realty in a taxing district into multiple subclassifications and either apply disparate assessment ratios to the different subclassifications or otherwise systematically treat them differently. In fact, the court stated: [L]ong before the decision in Downingtown was announced, it was an established feature of Pennsylvania uniformity jurisprudence that “all real estate is a constitutionally designated class entitled to uniform treatment and the ratio of assessed value to market value adopted by the taxing authority must be applied equally and uniformly to all real estate within the taxing authority’s jurisdiction.” Valley Forge, 163 A.3d at 967. The court added, “Where there is a conflict between maximizing revenue and ensuring that the taxing system is implemented in a non-discriminatory way, the Uniformity Clause requires that the latter goal be given primacy.” Id. at 980. The court found that the Commonwealth Court misapplied the law in allowing taxing authorities to treat subclassifications of real property disparately if a rational basis for such treatment existed. Accordingly, the Supreme Court agreed with the property owners that a uniformity clause violation exists if the taxing authority intentionally or systematically subjects only commercial property within its jurisdiction to a reverse appeal. It is still too early to determine the total effect of the Valley Forge decision, but it definitely changed the reverse appeal landscape overnight. Commercial property owners/taxpayers have been bombarded with selective appeals throughout Pennsylvania over the past 10-plus years. Thirdparty “tax” consultants, like the one in Valley Forge, have aggressively so275

Uniformity, Equalization, and Ratio Law

licited school districts to use their services on a contingency-fee basis for the purposes of increasing tax revenues. Valley Forge gives commercial property owners/taxpayers an effective tool to combat such abusive practices. Reverse appeals that have been sitting idle on trial court dockets throughout the Commonwealth for years should now be reviewed and possibly attacked for uniformity clause violations. Commercial property owners/taxpayers should be requesting discovery from the taxing authorities regarding reverse appeal policies, properties appealed in a given tax year, consultants used, etc., before agreeing to settlements or providing discovery requested by the school districts. 7-2.5

Post-Valley Forge—Equity Actions in Lieu of Appeals to a Board

In Martel v. Allegheny County, 216 A.3d 1165 (Pa.Cmwlth. 2019), the Commonwealth Court held that the trial court lacked jurisdiction over a class action filed by property owners on uniformity grounds, because the property owners had failed to exhaust their remedies by appealing to the local assessment appeals board. In this case, a husband and wife filed a class-action complaint in equity on behalf of themselves and other similarly situated property owners, seeking relief from property reassessments resulting from appeals brought by local tax authorities. The tax authorities had appealed the assessed values of about 200 properties that recently sold in Allegheny County, citing their then-current market value. But the county operates under a base year assessment system and had set 2012 (the year of the last countywide reassessment) as the base year. In their complaint, the property owners claimed that the tax authorities did not have the right to appeal based on current market value. Allegheny County Administrative Code § 5-207.06(B)(7) precluded the assessment appeals board from increasing a property’s base-year assessment value absent physical changes or improvements to the property. In addition, a board rule allowed only property owners, not taxing districts, to use current fair market value in determining the assessed value of property on appeal. The complaint claimed that the county and the board were outsourcing their duties to perform regular countywide reassessments to the tax authorities, resulting in de facto spot reassessments and illegal taxation by changing the assessments through the appeal process in violation of the uniformity clause, the administrative code, the board rule, and other laws. The tax authorities filed preliminary objections to the complaint on various grounds. The trial court dismissed the case, sustaining the tax authorities’ objection that the administrative code and board rule violated various state laws allowing them to appeal based on the current fair market value and concluding that the complaint was therefore legally insufficient. But before doing so, the trial court had overruled the tax authori276

7-2.5

ties’ objection that the court was not able to exercise equitable jurisdiction to decide the case because the property owners had failed to exhaust their statutory remedies by appealing their assessments to the board. On appeal, the Commonwealth Court found that the trial court had properly dismissed the complaint. But the appellate court affirmed on a different basis: the property owners had failed to exhaust the remedies available under the Second Class County Assessment Law by appealing to the board. To reach that conclusion, the court conducted an analysis under Beattie v. Allegheny County, 907 A.2d 519 (Pa. 2006), which held that courts could exercise equitable jurisdiction if there is no adequate remedy and if a substantial constitutional question is raised. First, the court concluded that there were adequate statutory remedies for each of the types of relief requested in the complaint. The property owners could obtain rollbacks of the assessed values and refunds under the assessment law, 72 P.S. § 5452.4, which gave the board the power to “hear all cases of appeals from assessments, and all complaints as to assessments, errors, exonerations and refunds.” Martel, 216 A.3d at 1173 (emphasis in original). In addition, the property owners could appeal the board’s decision to the common pleas court and seek injunctive relief under Pa.R.C.P. 1531, declaratory relief under 42 Pa.C.S. § 7532, and attorneys’ fees under 42 Pa.C.S. § 2503. Thus, the Commonwealth Court held that a class-action lawsuit was not proper. Second, the court concluded that the property owners had not raised a substantial constitutional challenge. Citing Jordan v. Fayette County Board of Assessment Appeals, 782 A.2d 642 (Pa.Cmwlth. 2001), the court stated that the exercise of equity jurisdiction is appropriate when a plaintiff raises a “substantial frontal attack” to a statute. Martel, 216 A.3d at 1176. But, according to the court, the property owners were “not raising a frontal attack to the Administrative Code and Board Rule; rather, as the trial court observed, Property Owners seek application of these laws.” Id. Thus, the court held that the board was the proper authority to hear the assessment appeal and that the class action was therefore properly dismissed. The court granted the property owners’ application for reconsideration and withdrew its original opinion, which never mentioned Valley Forge. The revised opinion was identical to the original, except that it addressed the impact of Valley Forge, albeit cryptically and merely in a footnote: Though the Martels rely on Valley Forge . . . to support their argument that their complaint should proceed, this case is not binding here. In Valley Forge, the Supreme Court concluded that the plaintiffs asserted a valid uniformity challenge under the Pennsylvania Constitution, requiring intervention by the courts. . . . Notably, the only issue our Supreme Court accepted for review was the uniformity challenge and it expressly limited its holding to the conclusion that the assessment appeal 277

Uniformity, Equalization, and Ratio Law

policy at issue violated the uniformity clause where it classified properties by type and/or the residency status of their owners. . . . The policy at issue involved the school district appealing individual property assessments “to concentrate solely on commercial properties while foregoing appeals as to single-family residences which may have even lower assessment ratios.” . . . The Supreme Court’s holding in Valley Forge did not create a rule that all assessment laws fail to provide an adequate and available administrative remedy in cases where plaintiffs “allege” a uniformity challenge. Moreover, the holding in Valley Forge did not change the longstanding rule that parties must exhaust their administrative remedies before seeking relief from the court in an equity action. Id. at 1176, n.17. Under the court’s interpretation of Valley Forge, it is uncertain what allegations relating to a uniformity claim will allow a property owner to file an equity action in lieu of an assessment appeal. 7-2.6

Post-Valley Forge—School District Appeal Policies Based on Monetary Thresholds

Much of the post-Valley Forge litigation involving the uniformity clause has centered on school districts’ purported policies of appealing a property assessment where the appeal would yield a tax increase that meets or exceeds some monetary threshold high enough to justify its cost. One of the earliest cases addressing these policies is School District of Philadelphia v. Board of Revision of Taxes, 217 A.3d 472 (Pa.Cmwlth. 2019). There, the school district had appealed 138 commercial real property assessments in Philadelphia, and the tax revision board upheld the assessments “on the papers,” and the school district appealed to the common pleas court. Id. at 481. During the pendency of the appeals, the Pennsylvania Supreme Court issued its decision in Valley Forge. The property owners who had intervened in the school district’s appeals collectively filed motions to quash them, claiming that the district had violated the uniformity clause by appealing only commercial properties. The school district stated that it had used a monetary threshold to select properties to appeal, which it claimed was permissible under Valley Forge. The trial court quashed the appeals, holding that the school district’s decision to appeal only commercial property assessments was discriminatory and violated the uniformity clause. On appeal, the Commonwealth Court agreed with the school district that the trial court lacked an evidentiary record to conclude that the district’s appeals were discriminatory. First, the appellate court noted that trial court had taken judicial notice of two facts in support of its decision: the number of properties appealed was less than the number of commer278

7-2.6

cial properties in Philadelphia, and the school district could have appealed some assessments for noncommercial properties. According to the Commonwealth Court, the trial court should not have taken judicial notice of the second fact because it was not generally known, and it was disputed by the school district. Second, the Commonwealth Court concluded that the trial court mistakenly relied on the statements of counsel as fact. At the hearing on the motions to quash, the school district’s counsel stated: [C]learly of the 140 properties we instituted with regard to the appeals, there is a vast and diverse cross section of property types. We have self storage facilities, a car wash, office space, multifamily. There’s a pretty diverse subgroup. Although we don’t make the subgroup. We’re looking at properties based on the threshold and those were the recommendations that were made. Id. at 485. Contrary to the trial court’s suggestion, the Commonwealth Court concluded that those statements were not judicial admissions because they did not concede that the school district considered only commercial properties for appeal. Given the otherwise sparse record, and the school district’s assertion that it had appealed properties based on a threshold amount of projected additional tax revenue rather than property type, the Commonwealth Court reversed and remanded for the trial court to develop the record and redecide the issue. About a year and a half later, after conducting a full evidentiary hearing on remand, the trial court again quashed the school district’s appeals. School Dist. of Phila. v. Super Salvage, Inc., No. 2016-CV-0850 (C.P. Philadelphia February 5, 2021). In addition to stipulations and exhibits presented by the parties, the court heard testimony from the school district’s chief financial officer; the principal member of Keystone Realty Advisors, the consulting firm that had implemented the school district’s appeal policy; and a real estate appraisal expert who reviewed the consultant’s implementation practices. The school district had appealed only commercial properties for tax year 2017. The district’s CFO had proposed, and the district adopted, a policy to appeal properties that were reasonably likely to generate at least $7,500 in additional tax revenue (that is, underassessed by $976,400 of market value). The CFO had created the policy based on his “experience, gut, and ‘back of envelope’ calculations.” The school district issued a request for proposals for consultants to identify properties for appeal, setting a due date for response only six weeks before the assessment appeal deadline. Three weeks before the deadline, the district hired Keystone Realty Advisors, which had no prior 279

Uniformity, Equalization, and Ratio Law

experience in Philadelphia County. Keystone’s principal consultant, working alone, determined which properties to recommend for appeal during that three-week period. The consultant had obtained information for all 580,000 properties in the county, but he admitted that he did not analyze all of them because it would have been “exceedingly difficult” to do so. Instead, he “took a sample” by randomly removing large blocks until he reached a list of about 65,000 properties. He sorted that list in descending order based on the difference between current assessed value and the most recent sale price and then calculated the amount of tax due on the difference. He reviewed the data using various information services, relying almost exclusively on those that focused on commercial property transactions, except for Zillow.com, which he used to review only some properties. He then sorted the list to highlight properties for a more detailed review, but he reviewed properties only at the top and bottom of the list, while ignoring the vast majority in the middle. In total, he reviewed 266 properties, 26 of which were coded as “residential” but were all part of bulk transactions involving multiunit commercial and industrial properties, apartment complexes, vacant land, and large condominium groups. He identified 138 properties to appeal. He admitted that he missed at least 33 single-family, residential properties that met the school district’s monetary threshold because he simply did not have the time to review them. The trial court declined to rule on the validity of the district’s monetary threshold policy, as other courts had done in various cases during the time between the Commonwealth Court decision and the instant opinion on remand. But the trial court did conclude that no other case “contained a factual record of such a hurried, hasty application” of such a policy. The court stated that the school district’s argument that its policy only coincidentally eliminated residential properties was “factually inaccurate” because the consultant had admitted that he did not review at least 33 residential properties that qualified under the policy. The court also stated that at least 100 other properties of various classifications had met the threshold but were disregarded by the consultant. Thus, the trial court held that, irrespective of whether monetary thresholds are constitutionally permissible, the school district’s policy had been implemented in a discriminatory manner, ignoring all property types other than a select group of commercial properties. Therefore, the trial court, once again, granted the property owners’ motions to quash. The school district has filed a notice of appeal to the Commonwealth Court, which was pending at the time of publication. Although School District of Philadelphia did not squarely address whether appeal policies based on monetary thresholds are constitutionally permissible, the Commonwealth Court has reached that question in other cases. The first was East Stroudsburg Area School District v. Meadow Lake Plaza, LLC, 219 A.3d 724 (Pa.Cmwlth. 2019), where the school dis280

7-2.6

trict had purportedly selected properties for appeal based on a policy that an appeal must potentially generate $10,000 in additional tax revenue to justify the cost. The Monroe County Board of Assessment Revision denied the appeals. The common pleas court then found that that the school district’s appeals were constitutional. Property owners that had intervened in the case appealed to the Commonwealth Court. The appellate court held that nothing in Valley Forge prohibited use of a reasonable monetary threshold for assessment appeals based on an estimate of the minimum revenue needed to make an appeal cost-effective. In support of that holding, the court quoted the Supreme Court’s language in Valley Forge: “[N]othing in this opinion should be construed as suggesting that the use of a monetary threshold—such as the one challenged in Springfield[, 101 A.3d 835]—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.” Valley Forge, 163 A.3d at 979. In Springfield, the Commonwealth Court held that a school district’s selection of properties for appeal based on an estimated revenue gain of $9,000 to $11,000 per year—“notably comparable” to the $10,000 threshold applied by the East Stroudsburg School District—was not necessarily nonuniform simply because such a threshold would mostly subject commercial properties to appeals. The Commonwealth Court rejected the property owners’ argument that the East Stroudsburg School District had used the $10,000 threshold as a pretext to deliberately exclude residential properties from appeal. According to the appellate court, the trial court had properly credited testimony that the school district CFO and solicitor set the $10,000 threshold based on the minimum gain needed to make an appeal cost-effective for any property. The trial court had likewise properly credited testimony that the school district relied on a consulting firm to identify properties meeting the $10,000 threshold; that the firm was instructed to search for “any and all” properties, not just commercial ones, meeting the threshold; and that the district would have filed appeals of residential properties if the firm had identified any meeting the threshold. Taken together, the testimony constituted substantial evidence supporting the trial court’s factual findings. The Commonwealth Court agreed with the trial court that tax cards for two residential properties in the school district were insufficient to show that those properties were underassessed by at least $10,000 in comparison to their deed prices, which are only one factor in determining an assessment. The appellate court concluded that, even assuming some residential properties had met the threshold, the property owners offered no evidence that the school district had knowingly failed to file appeals for those properties. The court further held that the monetary threshold was not unconstitutional as applied, stating that it was reasonable and did not violate the 281

Uniformity, Equalization, and Ratio Law

uniformity clause, even though only commercial properties in the district met that threshold. Later the same month, in another unreported decision, Punxsutawney Area School District v. Broadwing Timber, LLC, 219 A.3d 729 (Pa.Cmwlth. 2019), a taxpayer appealed from a trial court decision finding that the school district’s assessment appeal practice was constitutional. But unlike in prior cases, the district did not have a written policy or a specific monetary threshold. Instead, its business administrator reviewed monthly checks for the district’s portion of realty transfer taxes paid. Most transfers resulted in tax revenue of less than $1,000; accordingly, the administrator noticed transfers above that amount. Any time the administrator noticed a large transfer tax payment, she calculated the potential tax increase if the underlying property were reassessed, and she then presented the results to the superintendent and solicitor to determine whether the monetary benefit of an appeal outweighed its likely costs. The administrator testified that she disregarded the nature of the property’s ownership or zoning, choosing a property “strictly based on possibility of revenue versus the expense of appealing it.” She further testified that, although a residential property had not yet had been appealed under her method, the school district would not refrain from appealing a residential assessment if it were financially viable. The trial court held that, based on Valley Forge, this method did not violate the uniformity clause. On appeal, the Commonwealth Court rejected the taxpayer’s argument that the school district’s practice was arbitrary and impermissibly created a subclassification of properties because there was no formal or written policy establishing a specific monetary threshold or other criteria. The taxpayer maintained that such arbitrary practices do not satisfy the requirement of “neutral selection criteria” for appeals under Valley Forge. The court disagreed that a formally memorialized policy was necessary, stating that all Valley Forge required was that the “other selection criteria” used by a taxing authority, whether a monetary threshold or other method, be “implemented without regard to the type of property in question or the residency status of its owner.” Valley Forge, 163 A.3d at 979. In any event, the court concluded that the evidence established that the school district’s practice was not arbitrary. The trial court had found that the business administrator credibly testified about the financial analysis she performed to decide which properties, if any, were possibly underassessed. According to the Commonwealth Court, the only difference in this practice and those in Springfield and East Stroudsburg was that, instead of basing its decision on average costs of appeals, as in those cases, the school district here performed a property-by-property analysis to determine if it made financial sense to appeal an assessment. The court also rejected the taxpayer’s argument that the school district’s practice created an impermissible subclass of taxpayers. In support 282

7-2.6

of that argument, the taxpayer asserted that the business administrator had conceded that no residential properties would ever be appealed. But, according to the Commonwealth Court, the administrator made no such concession, instead stating that no residential properties had been appealed “yet” because there had been no realty transfer tax from such a property that warranted review and that there could be a few large properties that would qualify if sold. The Commonwealth Court held, consistent with East Stroudsburg, that the fact that the school district’s practice had thus far resulted in appeals of only commercial properties did not render it unconstitutional as long as that practice continued to be implemented without regard to the type or ownership of a property. Subsequently, in Bethlehem Area School District v. Board of Revenue Appeals of Northampton County, 225 A.3d 212 (Pa.Cmwlth. 2020), the Commonwealth Court reversed a trial court decision granting a taxpayer summary judgment based on a school district’s allegedly discriminatory assessment appeal policy. The district had unsuccessfully appealed the tax assessment of an apartment complex, based on a policy of identifying properties and appealing assessments where there was a reasonable expectation of generating at least $10,000 in additional tax revenue. At the common pleas court, the taxpayer argued that summary judgment was warranted because the facts showed that the school district had targeted only commercial properties for assessment appeals. The trial court agreed and dismissed the appeal. The Commonwealth Court held that the trial court had improperly concluded that the school district had engaged in a “systematic and intentional practice of selectively targeting commercial properties.” Id. at 213. As it had done in East Stroudsburg, the Commonwealth Court quoted language from Valley Forge and declined to decide whether an appeal policy using a monetary threshold violated the uniformity clause, suggesting that the court continued to believe such a policy was permissible. The Commonwealth Court stated that, unlike in Valley Forge, the trial court in this case was required to view the record in the light most favorable to the school district when ruling on a summary judgment motion. But the appellate court concluded that the school district had submitted evidence that, if found credible, showed that it implemented the $10,000 threshold without regard to property type. In an affidavit to the trial court, the school district’s CFO had stated that the threshold was developed “to account for the potential costs of litigation.” Bethlehem, 225 A.3d at 220. The CFO had further stated that the threshold was “implemented without regard to property type” and that no residential properties had been appealed simply because they did not meet the threshold. Id. The school district superintendent had testified that the district relied upon consultants to identify properties that met the threshold and that it was not feasible to appeal every single underassessed property in the district. The superintendent had further testified that residen283

Uniformity, Equalization, and Ratio Law

tial property owners were never advised that they were excluded from appeal. According to the Commonwealth Court, the trial court disregarded that evidence and instead relied entirely on school board meeting minutes stating that the reverse appeal process “serves to identify and correct valuation inequities among comparable properties and addresses the proper share of taxation between commercial and residential owners.” Id. at 215. The Commonwealth Court concluded that those statements were ambiguous and might simply be a “paraphrasing of the state of affairs in the District at the time.” Id. at 221. Indeed, the superintendent had testified that he did not make any statements at the school board meeting as to whether commercial properties would be targeted for appeals. Thus, the Commonwealth Court held that the trial court improperly granted the motion for summary judgment. The appellate court reversed the trial court order and remanded the matter for further proceedings.1 Next, in Kennett Consolidated School District v. Chester County Board of Assessment Appeals, 228 A.3d 29 (Pa.Cmwlth 2020), the Commonwealth Court addressed a trial court’s denial of a property owner’s motion to quash a school district’s assessment appeal on uniformity grounds. The school district had sent an email to its consultant requesting a review of all property assessments within the district with recommendations for possible appeals. The message stated, “Please do not limit your review to any particular class of properties in the [district], but review all classes of properties including commercial, residential, and otherwise.” Id. at 31. Only two days later, the consultant identified 13 properties that had “a high probability of being underassessed by more than [$1 million] of market value.” Id. The district decided to appeal 12 assessments, all on commercial properties, including an AutoZone store in New Garden Township. The assessment appeals board upheld the assessment of the AutoZone property, and the school district appealed. The property owner filed a motion to quash, arguing that the consultant’s recommendation to appeal properties underassessed by $1 million violated the uniformity clause and attaching copies of the emails between the school district and the consultant as its only evidence. The common pleas court denied the motion, holding that the property owner’s arguments were not supported by the record and that the consultant’s recommendations were not discriminatory. After a trial on the property value, the trial court increased the assessment. On appeal, the property owner challenged the denial of its motion to quash. It also argued that the school district had violated the Pennsylva1.

284

At the time of this publication, the matter was still open at the Northampton County Court of Common Pleas, although there was a docket entry on May 10, 2021, that matters C-0048-CV-2012-12113 and C-0048-CV-2012-12114 were settled and off the May civil nonjury list.

7-2.6

nia Sunshine Act, 65 Pa.C.S. § 701, and the Public School Code of 1949, 24 P.S. § 1-101, by failing to generally enact or adopt an appeal policy. The Commonwealth Court held that the school district did not violate the uniformity clause by implementing a selection scheme that systematically subjected only commercial properties to appeal. The court stated that the record showed that district intentionally disregarded the type of property and, thus, it could not be said that its appeals of only commercial property assessments were intentional. The appellate court also stated that the school district’s actions did not systematically target commercial properties, but rather only focused on properties that would be worth the cost and expense of an appeal—a practice that struck an appropriate balance between the uniformity clause and the district’s statutory right to appeal an assessment, as required by Valley Forge. It should be noted, however, that none of the evidence discussed in the Commonwealth Court’s opinion stated that the school district had determined the cost of an appeal or selected properties based on that cost. Relying on Punxsutawney, the court once again held that the fact that all appealed properties were commercial does not per se violate the uniformity clause, especially considering the evidence that the school district had intentionally disregarded the nature of the property. The Commonwealth Court, relying on its opinions in Springfield and East Stroudsburg, also held that the school district’s use of a monetary threshold did not violate the uniformity clause. According to the court, the district had used a monetary threshold “only for the purpose of making prudent fiscal decisions” and not to discriminate against subclasses of property. Kennett, 228 A.3d at 41. The court further held that the property owner had waived its argument about the Sunshine Act and the Public School Code because it had not raised the issue in the trial court. Finally, in Colonial School District v. Montgomery County Board of Assessment Appeals, 232 A.3d 1051 (Pa.Cmwlth. 2020), the Commonwealth Court reversed a trial court decision refusing to dismiss an assessment appeal. The school district had unsuccessfully appealed the assessment of a shopping mall for tax year 2013 to the assessment appeals board. At the common pleas court, the property owner filed a motion to dismiss the appeal, asserting that it violated the uniformity clause because the school district had targeted only commercial real estate for appeals and ignored residential properties. At a hearing on the motion, the district’s business administrator testified that, like in Punxsutawney, there was initially no formal policy for appealing assessments and that he instead simply reviewed monthly real estate transfer tax reports for undervalued properties and presented his findings to the superintendent, solicitor, and finance committee. At the time of the hearing, the school district had 10 pending residential property 285

Uniformity, Equalization, and Ratio Law

appeals, all of which had been filed before 2012 and were “stagnant” in the common pleas court. Id. at 1054. By contrast, from 2012 to 2018, the district had filed 40 commercial property appeals.2 The business administrator testified that the school district decided to appeal the shopping mall’s assessment because it believed that the property “was severely undervalued as far as the fair market value.” Id. He also denied that there was “any policy, written or unwritten,” that the district would file assessment appeals against only commercial properties. The trial court denied the property owner’s motion to dismiss, holding that it did not prove that the school district’s policy violated the uniformity clause. The court first noted that the school district “had taken numerous residential appeals during the time period in question” and showed that the deciding factors in whether to take an appeal were “economic reasons,” such as a property’s being undervalued by “more than $500,000.” Id. at 1060. Further, in 2013, the property owner took out an $87.5 million mortgage on the property based on an appraised value of $120 million—almost double the market value determined by the assessment appeals board. On appeal, the Commonwealth Court first addressed an issue raised by the school district: whether the trial court’s order was appealable. The parties agreed that the order was nonfinal, that it was not an interlocutory order appealable as of right, and that the property owner had not sought permission to appeal from the trial court. The appellate court held the order was nevertheless appealable as a collateral order appealable as of right, concluding that (1) the order regarding the uniformity clause issue was separate from the merits of the school district’s valuation appeal, (2) the uniformity issue presented an important question, and (3) if review of that issue were postponed, the property owner would incur substantial costs in litigating the multiple taxes years subsumed into the pending appeal by operation of law. After reviewing the merits, the Commonwealth Court reversed the trial court. The appellate court concluded that, although there was no requirement of a written appeal policy based on Punxsutawney, the school district did not have a formal policy until 2018. The court did not state how that conclusion related to its ultimate decision. Instead, it addressed the trial court’s determination that the property owner had not proven that the school district’s policy of appealing properties underassessed by at least $500,000 violated the uniformity clause.

2.

286

In September 2018, after this case was filed and more than a year after the Pennsylvania Supreme Court’s decision in Valley Forge, the school board adopted a formal, written policy under which the business administrator reviews recent real estate sales transactions and, along with the solicitor, “researches” any transaction indicating an underassessment of more than $500,000 for recommendation to the school board.

7-3

The Commonwealth Court summarized its decision in Kennett, suggesting that it continued to support its holding that a school district’s appeal policy based on a monetary threshold does not violate the uniformity clause if the type of property is disregarded. But the court held that the factual record supporting the trial court’s decision was inadequate. According to the Commonwealth Court, the trial court’s finding that the school district appealed assessments on numerous residential properties was not supported by substantial evidence. First, the district’s 10 residential appeals were all filed before 2012 and “concerned residences in exclusive neighborhoods,” and, second, there was no evidence showing that any residential appeals were filed in or after 2013. Id. at 1060. The appellate court also concluded that the record did not support the trial court’s finding that the property owner’s 2013 mortgage exceeded the fair market value of its property because that finding was based entirely on a statement from the school district’s counsel, which, under School District of Philadelphia, is not considered evidence. The school district claimed that the mortgage was the basis for filing the assessment appeal, but no one had testified about whether the property had been refinanced. Thus, the Commonwealth Court vacated the trial court’s order and remanded the case for a further factual record.3 As all the post-Valley Forge litigation shows, this is a very active area of assessment law and will continue to be very active until the courts answer all the questions about what taxing jurisdictions are constitutionally allowed to do in selecting properties for appeal. 7-3

Assessment Equalization

The assessment law provides that the mechanical test applicable to assessment appeals boards and trial courts upon holding hearings does not apply to the chief assessor’s initial assessment of a property. When a new property or improvement is placed on the assessment roll, it is to be equalized with other similar property within the taxing district. This differs from the mechanical test of current market value multiplied by either the predetermined ratio or the STEB common-level ratio. The assessor must check other properties in attempt to equalize the new property within the existing assessment scheme in the taxing district. This is especially important where the county is using a base-year value rather than a current market value. The statute does not define “equalization” and, therefore, a common-sense approach by the assessor would be warranted when placing a new property on an existing assessment roll.

3.

This matter ultimately settled at the Montgomery County Court of Common Pleas on May 4, 2021, at No. 2013-31218. 287

Uniformity, Equalization, and Ratio Law

The statute, at 53 Pa.C.S. § 8842(b)(1), states: (i)

In arriving at actual value, the price at which any property may actually have been sold, either in the base year or in the current taxable year, shall be considered but shall not be controlling.

(ii) The selling price shall be subject to revision by increase or decrease to accomplish equalization with other similar property within the county. (iii) In arriving at the actual value, the following methods must be considered in conjunction with one another: (A) Cost approach, that is, reproduction or replacement, as applicable, less depreciation and all forms of obsolescence. (B) Comparable sales approach. (C) Income approach. When assessors refuse to use this procedure for conversions, improvements, or new construction, they are violating the owner’s right to a uniform assessment under the Pennsylvania Constitution. When a county assessment appeals board takes the fair market value of a property and multiplies it by the prevailing common-level ratio or predetermined ratio, the board is directly violating section 8842(b). By failing to equalize the fair market value to fit within the existing universe of similar properties, the assessors are placing an unfair burden of taxation upon the subject property. The statute that provides for the use of the common-level ratio pertains solely to appeals before the local assessment appeals board and trial court. Equalization for conversions, new construction, and improvements takes precedence over the use of the common-level ratio method. An assessing agency’s failure to equalize on these types of property is an intentional violation of state law and in direct violation of the U.S. Supreme Court’s holding in Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, 488 U.S. 336 (1989). The logic of the equalization process is that the common-level ratio is only the average of all arm’s-length sales in the county during one calendar year as applied to their sale prices. The application of the county average yearly sales ratio to conversions, new construction, and improvements could result in identical properties paying grossly disproportionate amounts of realty taxes. The purpose of the assessment law is to prevent this harm from occurring. Therefore, the blind application of the common-level ratio to fair market value for conversions, new construction, and improvements directly contravenes section 8842(b) and the uniformity clause of the Pennsylvania Constitution. 288

7-4

It is not suggested that the assessor equalize a property above the common-level ratio value, as that would run afoul of other statutory provisions and invite an immediate appeal. Obviously, the assessment appeals board would be required to reduce the assessment to reflect fair market value multiplied by the applicable common-level ratio. 7-4

General Ratio Law

The Pennsylvania appellate courts have held that a property owner is entitled to have his or her assessment reduced to conform with the common level of assessment in the taxing district. This common-level ratio requirement did not permit a taxing district to apply one assessment-to-fairmarket-value ratio to one type of property, such as residential, and a different ratio to another type, such as commercial or industrial. Rather, all properties are comparable in constructing the appropriate ratio of assessed value because the uniformity requirement of the Pennsylvania Constitution has been construed to require that all real property is a class that is entitled to uniform treatment. Keebler Co. v. Board of Revision of Taxes of Philadelphia, 436 A.2d 583 (Pa. 1981). Traditionally, county commissioners selected a predetermined ratio of assessment to market value to apply in their respective counties. This established predetermined ratio is the ratio of assessed value to market value established by the county commissioners and uniformly applied in determining assessed value in any year. 53 Pa.C.S. § 8842(a) states: Predetermined ratio.—The county assessment office shall assess

real property at a value based upon an established predetermined ratio which may not exceed 100% of actual value. The ratio shall be established and determined by the board of county commissioners by ordinance. In arriving at actual value, the county may utilize the current market value or it may adopt a base-year market value. Because of the erosion caused by inflation, this predetermined ratio would vary from the common-level ratio over a period of time. The commonlevel ratio is distinguishable from the established predetermined ratio because it is not an arbitrary number selected by the government, but rather the true mathematical relationship between the total assessments and their current values throughout the taxing district. As stated above, the predetermined ratio will erode unless the underlying market base is subject to continuous revaluations and extensive fine tuning. Therefore, the discrepancies between the established predetermined ratio and the common-level ratio resulted in numerous court challenges under the uniformity clause. Practical considerations prohibited the construction of a common-level ratio by way of an evaluation of the assessment and fair market value of each and every parcel of realty in the taxing district. The courts have al289

Uniformity, Equalization, and Ratio Law

lowed the taxing districts to produce evidence regarding the ratios of assessed values to market values as the latter are reflected in actual sales of any other real estate in the district for a reasonable period before the assessment date. Thus, a party could have an expert witness select a number of recent representative sales and offer testimony with respect to such sales as proof of the ratio in the taxing district. Deitch, 209 A.2d 397. Because of the complicated problems created by the courts in legally establishing proof of a county’s common-level ratio, the General Assembly created a new statutory scheme in 53 Pa.C.S. § 8802. The act created the following statutory definitions, among others: “Base year.”—The year upon which real property market values are based for the most recent countywide revision of assessment of real property or other prior year upon which the market value of all real property of the county is based for assessment purposes. Real property market values shall be equalized within the county and any changes by the board shall be expressed in terms of base-year values. “Common level ratio.”—The ratio of assessed value to current

market value used generally in the county and published by the State Tax Equalization Board on or before July 1 of the year prior to the tax year on appeal before the board under the act of June 27, 1947 (P.L. 1046, No.447), referred to as the State Tax Equalization Board Law. “Established predetermined ratio.”—The ratio of assessed value

to market value established by the board of county commissioners and uniformly applied in determining assessed value in any year. The common-level ratio is a statutorily created statistical calculation performed by the State Tax Equalization Board tto determine an average ratio of assessed value to current market value of real property in a particular county, based on data gathered from the prior calendar year. The General Assembly in this act authorized assessment appeals boards and common pleas courts to accept STEB’s determination of a county’s common-level ratio. The purpose was to end the uncertainty caused by protracted legal sparring stemming from the inefficient and inconsistent method of determining common-level ratio in each individual appeal. The board or trial court must first determine the property’s current market value. Then, the board or court must apply the predetermined ratio to obtain an assessed value on the property unless the STEB commonlevel ratio determined varies from the established predetermined ratio by more than 15 percent. When this statistical variation is found, the board or court must apply the common-level ratio to the current market value to obtain the assessed value of the property. 290

7-6

7-5

Determining Common-Level Ratio by Splitting the Difference Between Each Side’s Evidence

The Pennsylvania Supreme Court, in Westinghouse Electric Corp. v. Board of Property Assessment, Appeals & Review of Allegheny County, 652 A.2d 1306 (Pa. 1995), analyzed the application of expert testimony in challenges to a common-level ratio. In this case, the taxpayers challenged the ratios applied in Allegheny County for the tax years 1977 through 1979, before the establishment of STEB as the official determiner of each county’s common-level ratio. Therefore, the trial court heard testimony presented by each side’s witnesses as to the common-level ratio that prevailed in Allegheny County for the years in issue. In determining the ratio, the court merely split the difference between the respective ratio percentages presented by each side. On appeal, the Commonwealth Court held, “The ‘splitting the difference’ approach, not inappropriate in determining fair market value by the trial court, is totally erroneous when used in determining the common level ratio.” Westinghouse Elec. Corp. v. Board of Prop. Assessment, Appeals & Review of Allegheny County, 595 A.2d 1145 (Pa.Cmwlth. 1991). The Supreme Court affirmed the appellate court and held that the trial court’s method as to the common-level ration was arbitrary and not supported by the evidence. The high court quoted Deitch, 209 A.2d at 402: In determining, however, whether the constitutional requirement with respect to uniformity has been complied within a taxing district, all properties are comparable in constructing the appropriate ratio of assessed value to market value. This is because the uniformity requirement of the Constitution of Pennsylvania has been construed to require that all real estate is a class which is entitled to uniform treatment. It is interesting to note that the Supreme Court allowed the trial court to split the difference between expert witnesses as to valuation, but not as to ratio determination. It appears to be a semantic distinction without a real difference. 7-6

Attacking the Mechanics of the STEB Ratio

Under 71 P.S. § 1709.1516a(c), challenges to the STEB common-level ratio must first be filed with the board itself, and any appeal must then be taken to the Commonwealth Court. Therefore, a taxpayer or taxing district cannot attempt to impeach statistical evidence of the STEB ratio for the first time at trial in the common pleas court. Even a back-door attempt to attack STEB’s mechanics on a constitutional basis must fail because there is an adequate remedy available to the party that disagrees with the board’s mathematical calculations. 291

Uniformity, Equalization, and Ratio Law

In Phillips v. Pennsylvania State Tax Equalization Board, 948 A.2d 889 (Pa.Cmwlth. 2008), three property owners in Allegheny County appealed their assessments for tax years 2006 and 2007 to the assessment appeals board. While that appeal was pending, they filed a petition for review in the Commonwealth Court, attacking STEB’s determination of the county’s common-level ratio for 2006. The salient issue before the court was whether it had subject matter jurisdiction over the taxpayers’ complaint. The court noted that the controlling statute, 72 P.S. § 4656.16a(c) (now repealed), read: Any political subdivision or taxpayer aggrieved by any finding, conclusion or any method or technique of the board made pursuant to this section may, in writing, state objections thereto and may appeal de novo such ratio determination to the Commonwealth Court. After receiving any objections, the board may grant a hearing and may modify or adjust its findings and computations as it shall appear proper. The court refused to hear the petition on the basis that the taxpayers failed to exhaust their administrative remedies as mandated by the statute. The court held: It has long been established that “[w]here a remedy is provided by an act of assembly, the directions of the legislation must be strictly pursued and such remedy is exclusive.” Lurie v. Republican Alliance, 412 Pa. 61, 63, 192 A.2d 367, 369 (1963). This Court has explained that “where a statutory remedy exists, it is exclusive unless the jurisdiction of the courts is preserved thereby.” Lashe v. Northern York County School District, 52 Pa. Commw. 541, 417 A.2d 260, 264 (Pa. Cmwlth. 1980) (emphasis added) (holding that a litigant could not avoid the procedure prescribed by statute in favor of a class action in equity). Where the statutory remedy is an administrative remedy, a court lacks jurisdiction. Lilian v. Commonwealth, 467 Pa. 15, 18, 354 A.2d 250, 252 (1976). The existence of the statutory remedy in Section 16.1(c) of the Act for resolving objections to the Board’s methodology for calculating the common level ratio precludes this Court from proceeding with Taxpayers’ complaint. Phillips, 948 A.2d at 893. The court, under 42 Pa.C.S. § 5103(a) of the Judicial Code, transferred the matter to STEB for an administrative determination and exhaustion of administrative remedies.

292

7-7.1

7-7 7-7.1

Appellate Court Interpretation of the STEB Ratio Law Constitutionality of the STEB Statute—Uniformity and Equal Protection

Do Pennsylvania’s assessment laws violate the uniformity clause of the Pennsylvania Constitution and the equal protection clause of the U.S. Constitution because they allegedly give different treatment to taxpayers who appeal and taxpayers who do not? Taxpayers who appeal are subject to the statutory provision under which the fair market value of their property is determined by the assessment appeals board and/or trial court and then multiplied by either the predetermined ratio or, when that varies by more than 15 percent from STEB’s determination of the common-level ratio, the STEB ratio. The Pennsylvania Supreme Court has placed a heavy burden on a party attacking the constitutionality of the statute and stated in Pennsylvania Liquor Control Board v. Spa Athletic Club, 485 A.2d 732, 735 (Pa. 1984): The strong presumption of constitutionality enjoyed by acts of the General Assembly and the heavy burden of persuasion on the party challenging an act have been so often stated as to now be axiomatic. Legislation will not be invalidated unless it clearly, palpably, and plainly violates the Constitution, and any doubts are to be resolved in favor of a finding of constitutionality. In Leonard v. Thornburgh, 489 A.2d 1349 (Pa. 1985), the court analyzed the pertinent law where a taxpayer attacks a tax statute under the Pennsylvania Constitution’s uniformity clause and the U.S. Constitution’s equal protection clause. The court stated: The principles which govern the analysis of claims of nonuniform taxation are well established. The legislature possesses wide discretion in matters of taxation. Aldine Apartments v. Commonwealth, 493 Pa. at 487, 426 A.2d at 1121. The burden is upon the taxpayer to demonstrate that a classification, made for purposes of taxation, is unreasonable. F.J. Busse Co. v. Pittsburgh, 443 Pa. 349, 359, 279 A.2d 14, 19 (1971). Accord, Amidon v. Kane, 444 Pa. 38, 51, 279 A.2d 53, 60 (1971) (“[T]he challengers of the constitutionality of state or local taxation bear a heavy burden. . . .”). Indeed, tax legislation will not be declared unconstitutional unless it “ ‘clearly, palpably, and plainly violates the Constitution.’ ” Commonwealth v. Life Assurance Co. of Pa., 419 Pa. 370, 377, 214 A.2d 209, 214 (1965), appeal dismissed, 384 U.S. 268, 86 S.Ct. 1476, 16 L.Ed.2d 524 (1966). See also, Campbell v. Coatesville Area School District, 440 Pa. 496, 501, 270 A.2d 385, 388 (1970). 293

Uniformity, Equalization, and Ratio Law

Under the equal protection clause, and under the Uniformity Clause, absolute equality and perfect uniformity in taxation are not required. Columbia Gas Corp. v. Commonwealth, 468 Pa. 145, 151, 360 A.2d 592, 595 (1976). In cases where the validity of a classification for tax purposes is challenged, the test is whether the classification is based upon some legitimate distinction between the classes that provides a non-arbitrary and “ ‘reasonable and just’ ” basis for the difference in treatment. Aldine Apartments v. Commonwealth, 493 Pa. at 487, 426 A.2d at 1121–1122. See also, F.J. Busse Co. v. Pittsburgh, 443 Pa. at 358, 279 A.2d at 19. Stated alternatively, the focus of judicial review is upon whether there can be discerned “some concrete justification” for treating the relevant group of taxpayers as members of distinguishable classes subject to different tax burdens. Columbia Gas Corp. v. Commonwealth, 468 Pa. at 150-153, 360 A.2d at 595–597. When there exists no legitimate distinction between the classes, and, thus, the tax scheme imposes substantially unequal tax burdens upon persons otherwise similarly situated, the tax is unconstitutional. Commonwealth v. Staley, 476 Pa. 171, 180, 381 A.2d 1280, 1284 (1978). See also, Amidon v. Kane, 444 Pa. at 55, 279 A.2d at 63. Id. at 1351–52 (emphasis in original). One could argue that a taxpayer who does not appeal an assessment cannot have it changed outside a substantial modification to the property or a countywide reassessment and, therefore, receives substantially different treatment than a taxpayer who appeals and can have his or her assessment raised or lowered. But the response is obviously and simply that a taxpayer who does not appeal is satisfied that his or her assessment is proper. To allow only a taxpayer who appeals to have an assessment lowered rather than raised if it is incorrect would violate the taxing authority’s rights to have the assessments in its taxing properly calculated. 53 Pa.C.S. § 8855 gives taxing authorities the right to appeal any assessment within their districts. This section states: A taxing district shall have the right to appeal any assessment within its jurisdiction in the same manner, subject to the same procedure and with like effect as if the appeal were taken by a taxable person with respect to the assessment, and, in addition, may take an appeal from any decision of the board or court of common pleas as though it had been a party to the proceedings before the board or court even though it was not a party in fact. A taxing district authority may intervene in any appeal by a taxable person under section 8854 (relating to appeals to court) as a matter of right. 294

7-7.1

The Commonwealth Court in In re Appeal of Meadowbrook Properties, 492 A.2d 766 (Pa.Cmwlth. 1985), held that the provision that allows a taxpayer’s assessment to be raised or lowered is constitutional. The court also addressed the specific issue of the statutory authority of Montgomery County and a school district to increase their real estate taxes as a result of an assessment increase following an appeal from an assessment where none of the taxing authorities appealed the original assessment. The court specifically ruled that the county and the school district had an inherent power to increase the assessment. In In re Appeal of Armco, Inc., 515 A.2d 326 (Pa.Cmwlth. 1986), the court examined the creation of uniformity of taxation by the use of the STEB common-level ratio. In this case, Butler County challenged trial court orders upholding the constitutionality of section 704 of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.704 (now repealed), and the reduction of the assessed value of two industrial properties by applying the STEB common-level ratio to their 1984 market values. The county argued that its predetermined ratio should have been applied. Butler County had adopted 1969 as its base year and a predetermined ratio of 75 percent of the property’s base-year market value under section 602 of the assessment law, 72 P.S. § 5453.602 (now repealed). The applicable portion of the Consolidated County Assessment Law, 53 Pa.C.S. § 8854(a), states: (1) Following an appeal to the board, any appellant, property owner or affected taxing district may appeal the board’s decision to the court of common pleas in the county in which the property is located in accordance with 42 Pa.C.S. § 5571(b) (relating to appeals generally) and local rules of court. (2) In any appeal of an assessment the court shall make the following determinations: (i)

The market value as of the date the appeal was filed before the board. In the event subsequent years have been made a part of the appeal, the court shall determine the market value for each year.

(ii)

The common level ratio which was applicable in the original appeal to the board. In the event subsequent years have been made a part of the appeal, the court shall determine the applicable common level ratio for each year published by the State Tax Equalization Board on or before July 1 of the year prior to the tax year being appealed.

295

Uniformity, Equalization, and Ratio Law

(3) The court, after determining the market value of the property pursuant to paragraph (2)(i), shall then apply the established predetermined ratio to that value unless the corresponding common level ratio determined pursuant to paragraph (2)(ii) varies by more than 15% from the established predetermined ratio, in which case the court shall apply the applicable common level ratio to the corresponding market value of the property. *

*

*

(9) Nothing in this subsection shall: (i)

Prevent an appellant from appealing a base-year valuation without reference to ratio.

(ii)

Be construed to abridge, alter or limit the right of an appellant to assert a challenge under section 1 of Article VIII of the Constitution of Pennsylvania.

According to the statute, once a taxpayer appeals an assessment to the court of common pleas, the court must determine the property’s current market value for the year in question and the appropriate ratio. The law requires the court to apply the STEB common-level ratio to the current market value if the STEB ratio varies by more than 15 percent from the established predetermined ratio. Butler County’s appeal was predicated on the belief that 72 P.S. § 5453.704 (now repealed) violates the uniformity clause of the Pennsylvania Constitution and the equal protection clause of the U.S. Constitution. The county contended that once it adopted the established predetermined ratio and the base-year market value real estate method, application of section 704 of the law resulted in discriminatory treatment of taxpayers by requiring the use of one method of assessing real estate administratively and a different method of assessment for taxpayers who appeal. In refuting the county’s arguments, the Commonwealth Court found that the use of the STEB ratio established uniformity of taxation. The court stated: After studying the Law and ascertaining the purpose of sections 602 and 704, we are unable to conclude that there exists any discriminatory intent or effect inherent in the law. Taking into account that a countywide assessment or reassessment may take several years to accomplish, section 602 provides an efficient administrative method of assessing real estate by permitting a county to use a base year market value which may or may not reflect the property’s current year market value, and for the sake of constancy with respect to ratio— avoiding annual changes of ratio—permits the county to use a 296

7-7.1

predetermined ratio not exceeding 75%. However, section 704 provides counties with an incentive to maintain the consistency and integrity of their administrative assessments by establishing a method of reviewing administrative assessments that is based upon applying the STEB common level ratio to a property’s current market value. Armco, 515 A.2d at 329 (emphasis in original). The court then examined the application of the STEB common-level ratio and stated: The common level ratio is the ratio of assessed value to current market value as determined by the STEB. In determining the common level ratio, the STEB uses a methodology known as the aggregate market value or sales ratio studies approach. 61 Pa. Code § 603.1. As part of this method, the STEB develops market value conversion indexes using data from transfers of property in which there are bona fide selling prices. See 61 Pa. Code § 603.31. The county provides the data to the board on a monthly basis. Unlike the review assessment method of section 704, the administrative assessment method of section 602 appears to assume constancy in the value of real estate. Therefore, the administrative method is immune to dynamic factors which operate to cause a piece of real estate’s value to appreciate or depreciate. Accordingly, unremitting adherence to the administrative method could distort the assessment picture. A taxpayer could pay substantially more or less than his proportionate share of government by paying taxes based upon a predetermined ratio of a property’s base year value where the current market value is, in fact, substantially less or greater than its base year value. Id. at 329–30. This case clearly indicates that the use of the STEB ratio establishes uniformity. This court followed the Pennsylvania Supreme Court’s ruling in In re Appeal of Johnstown Associates, 431 A.2d 932, 934 (Pa. 1981), which stated: Indeed, this Court has held that the constitutional requirement of uniformity is satisfied so long as the taxing authority assesses all property at the same percentage of its actual value; by maintaining such a uniform ratio, each property will be held accountable for its pro rata share of the burden of local government. Deitch Co. v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965).

297

Uniformity, Equalization, and Ratio Law

In summing up decision, the Commonwealth Court concluded: Quite apparently, the Law’s theory is that, by holding out to property owners the opportunity to take appeals which can test the base-year-value predetermined-ratio equation, the results of those appeals will inform the county and force it to monitor and reform its assessment levels to reflect reality. The STEB common level ratio operates as a multiplier used to convert current market values to equivalent base-year assessed values. Here the county failed to make that conversion. Armco, 515 A.2d at 330. This case law holds that the use of the STEB common-level ratio establishes constitutionally mandated uniformity. It can therefore be concluded that the statutes in question do not clearly, palpably, and plainly violate the U.S. or Pennsylvania Constitution. 7-7.2

Application of the STEB Ratio

In City of Wilkes-Barre Industrial Development Authority v. Board of Tax Assessment Appeals of County of Luzerne, 514 A.2d 1012 (Pa.Cmwlth. 1986), the Commonwealth Court examined and explained the application of the common-level ratio in relation to the established predetermined ratio. In this case, the assessment appeals board took the position that the established predetermined ratio was 21 percent for tax year 1983. STEB established the common-level ratio for the year at 14.7 percent for Luzerne County. The county argued that the common-level ratio should not be applied in this case because it did not deviate by more than 15 percentage points from the county’s established predetermined ratio of 21 percent (21% – 15% = 6%), citing 72 P.S. § 5350(a.1) (now repealed and replaced by 53 Pa.C.S. § 8854(a)(3)). In rejecting this argument, the Commonwealth Court stated: First, the statute itself is clear on its face and states “fifteen percent from the established predetermined ratio.” . . . And lastly, if we interpreted [the law] as the Board suggests it would permit a deviation of fifteen percentage points above the county’s established predetermined ratio as well as a deviation of fifteen percentage points below that ratio; in other words, a thirty point spread between the highest allowable ratio of 36% (21%+15%) and the lowest of 6% (21% – 15%). Such a circumstance is palpably violative of Article 8, Section 1 of our State Constitution requiring all taxes to be uniform upon the same class of subjects, and in addition violates the principle of statutory construction that the General Assembly does not intend an absurd or unreasonable result. See generally,

298

7-7.3

Section 1922(1) of the Statutory Construction Act of 1972, § 1 Pa.C.S., § 1922(1). City of Wilkes-Barre, 514 A.2d at 1016 (emphasis in original). The court took the position that the term 15 percent provided in this section referred to a 15 percent deviation from the county’s established predetermined ratio and not a 15-point deviation in the figures. Therefore, if the STEB common-level ratio deviates from the county’s established predetermined ratio, then the STEB ratio must be used by the assessment appeals board and the trial court. 7-7.3

Use of the STEB Ratio

The General Assembly enacted two significant pieces of legislation in 1986 that significantly affected the application of the STEB ratio to the fair market value of real property in Pennsylvania: Act No. 1986-194, amending the General County Assessment Law, and Act No. 1986-132, amending the Second Class A and Third Class County Assessment Law. Both of these acts specifically delineate the date as of which a property’s current market value is to be determined by assessment appeals boards and trial courts. Also regulated by these amendments is the application of the STEB common-level ratio to be used by the boards and trial courts. Finally, the enactments provide that they are effective upon all cases pending on the effective date of the acts or arising thereafter before an assessment appeals board, county commissioners, or a court. The following discusses the effects on pending litigation, assessment trials, and hearings. The amendments to the Second Class A and Third Class County Assessment Law contained in Act No. 1986-132 have been incorporated into the Consolidated County Assessment Law at 53 Pa.C.S. § 8854(a)(2): (2) In any appeal of an assessment the court shall make the following determinations: (i)

The market value as of the date the appeal was filed before the board. In the event subsequent years have been made a part of the appeal, the court shall determine the market value for each year.

(ii)

The common level ratio which was applicable in the original appeal to the board. In the event subsequent years have been made a part of the appeal, the court shall determine the applicable common level ratio for each year published by the State Tax Equalization Board on or before July 1 of the year prior to the tax year being appealed.

299

Uniformity, Equalization, and Ratio Law

The amendments to the General County Assessment Law contained in Act No. 1986-194, effective December 17, 1986, are contained in 72 P.S. § 5020-518.2, and read as follows: (a) In any appeal of an assessment the court shall make the following determinations: (1)

The market value as of the date such appeal was filed before the county commissioners, acting as a board of revision of taxes, or the board for the assessment and revision of taxes. In the event subsequent years have been made a part of the appeal, the court shall determine the respective market value for each such year.

(2)

The common level ratio which was applicable in the original appeal to the county commissioners, acting as a board of revision of taxes, or the board for the assessment and revision of taxes. In the event subsequent years have been made a part of the appeal, the court shall determine the respective common level ratio for each such year published by the State Tax Equalization Board on or before July 1 of the year prior to the tax year being appealed.

(b) The court, after determining the market value of the property pursuant to subsection (a)(1), shall then apply the established predetermined ratio to such value unless the corresponding common level ratio determined pursuant to subsection (a)(2) varies by more than fifteen per centum (15%) from the established predetermined ratio, in which case the court shall apply the respective common level ratio to the corresponding market value of the property. (b.1) When a county has effected a countywide revision of the assessment which was used to develop the common level ratio last determined by the State Tax Equalization Board, the following shall apply: (1)

300

If a county changes its assessment base by applying a change in predetermined ratio, the court shall apply the percentage change between the existing predetermined ratio and newly established predetermined ratio to the county’s common level ratio to establish the certified revised common level ratio for the year in which the assessment was revised.

7-7.3

(2)

(c)

If the county performs a countywide revision of assessments by revaluing the properties and applying an established predetermined ratio, the court shall utilize the established predetermined ratio instead of the common level ratio for the year in which the assessment was revised and until such time as the common level ratio determined by the State Tax Equalization Board reflects the revaluing of properties resulting from the revision of assessments.

Nothing herein shall prevent any appellant from appealing any base year valuation without reference to ratio.

Section 5 of the Act of December 17, 1986, P.L. 1680, No. 194, states: Sections 2 and 3 of this act shall apply to all cases pending on the effective date of this act or arising thereafter before a board of assessment, county commissioners or court. The goal of the statutory change was to fine-tune the assessment process and assessment law originally established by the legislature in 1982 in the General County Assessment Law and the Second Class A and Third Class County Assessment Law. The catalyst for these changes was the Commonwealth Court’s decision in In re Appeal of Jostens, Inc., 508 A.2d 1319 (Pa.Cmwlth. 1986). In this case, the parcel in question was an industrial structure used for manufacturing and consisting of 20 acres of land located in an industrial park in Centre County. The assessment as of January 1, 1984, was $169,800. Jostens appealed, and the assessment appeals board increased the assessment to $175,200. The common pleas court conducted a de novo hearing and determined that the fair market value as of January 1, 1984, was $1.39 million. The court found that Centre County’s established predetermined ratio was 20 percent and that the STEB common-level ratio for 1984 was 8.6 percent, a difference of more than 15 percent. The court then multiplied the market value by the common-level ratio of 8.6 percent, yielding an assessment of $119,540. On appeal to the Commonwealth Court, the board’s main argument was that the trial court erred in using the STEB common-level ratio for 1984 rather than the ratio for 1983. The board claimed that the trial court was required to use the common-level ratio last determined and published by STEB before the assessment of January 1, 1984, which was 10.1 percent for Centre County for the calendar year 1983, published by STEB in 1984. The appellate court, in a 2–1 decision, found that the trial court correctly applied the last-published STEB ratio rather than the ratio available to the assessment appeals board when it heard the case.

301

Uniformity, Equalization, and Ratio Law

The court specifically examined the language in 72 P.S. § 5453.704(b) and stated: Appellant Board’s argument is that since January 1, 1984, is the beginning of the tax year in question, the STEB ratio “last determined” means that the last STEB figure published prior to that date is required to be used by the trial court and the Board throughout all phases of the assessment appeal. We disagree. This approach assumes that the common level ratio [used] by the trial court must be the one published during the tax year in question. Our reading of the statute is that the Board and the trial court are free to use the common level ratio last determined by the STEB, even if that common level ratio is published the year subsequent to the tax year in question, so long as the tax year spans the calendar year which the last determined STEB ratio is reflecting values for. First, we note that the language of Section 704(b)(2) does not contain the phrase “for the tax year in question” found in Section 704(b)(1) of the Act. The omission of this language seriously undercuts the Board’s argument that the STEB common level ratio to be utilized must be published in the tax year in question. Nor is there an identifiable tax year to which a STEB-determined common level ratio would correspond, as calendar years and not tax years are the basis of STEB calculations. See Section 7(9) of the State Tax Equalization Board Law. Since the common level ratio calculated by STEB is based on the prior calendar year, the Board’s argument that the common level ratio used by the trial court in a de novo assessment appeal must be published during the tax year for which market value is being calculated seems inapposite. Had the legislature intended to bind the trial court to estimating the common level ratio for the tax year in question by using the common level ratio published during that tax year, it could have so stated in the Assessment Law. Instead, it directed the trial court to use calendar year based calculations made by STEB, so long as they were the “last determined” calculations. Because a common level ratio published in the current calendar year would reflect values from the prior calendar year, and the tax year overlaps either of two calendar years, the court should be able to simply use the ratio “last determined,” so long as the calendar year for which the values were drawn is spanned by the tax year in question. Jostens, 508 A.2d at 1321.

302

7-8

Finally, the court stated: “Had the 1984 figures been unavailable, then the 1983 figures could be used. . . . Consequently, the Board’s argument in this regard must be rejected.” Id. at 1322. The Commonwealth Court established two ratios to be applied on assessment appeals. It held that a taxpayer who files an appeal to the board before September 1 of the calendar year for taxes effective January 1 of the subsequent year must use the STEB ratio that was applicable to the prior year because that is the only STEB ratio available. The taxpayer can then appeal to the common pleas court, and by the time the case is heard, a lower STEB ratio would have been published and available. The appellate court established a situation wherein taxpayers who appeal to the trial court will be treated differently from taxpayers who did not elect to appeal. This decision of the Commonwealth Court violates the doctrine of tax uniformity. The decision in question was totally inconsistent with the overriding purpose of equality in taxation. It was not the legislative intent that taxpayers could lodge appeals from real estate assessments solely in the hope that they would benefit from a later and lower STEB figure. This loophole was closed by the amending legislation. The appellate court established an unfair and inequitable situation in which taxpayers who appealed to the trial court would be treated differently from those who did not. The court’s decision violated the doctrine of tax uniformity and was totally inconsistent with the overriding purpose of equality in taxation. The General Assembly’s original 1982 legislation did not intend that taxpayers could lodge appeals from real estate assessments solely in the hope that they would benefit from a later and lower STEB figure. The General Assembly closed this loophole with the 1986 amendments, clearly intending to overrule the inequitable effect of Jostens. Therefore, the amendments clearly stated the legislature’s original intent and, through their specific retroactive applications, affected all pending cases on the effective date of the legislation While the Commonwealth Court followed Jostens in Walnut-Twelve Associates v. Board of Revision of Taxes of City of Philadelphia, 570 A.2d 619 (Pa.Cmwlth. 1990), the court in In re Assessment Appeal of Reese, 620 A.2d 605 (Pa.Cmwlth. 1993), retroactively applied the ratio statutes and distinguished Walnut-Twelve Associates. 7-8

Ratio Applications to Third Class City Assessments

The Commonwealth Court in In re Appeal of Park Terrace Apartments, Inc., 646 A.2d 614 (Pa.Cmwlth. 1994), examined the application of the common-level ratio to cities of the third class that handle their own assessing. At the time of this case, Chester was a third class city in Delaware County operating under the Third Class City Code, 53 P.S. § 35101 et seq. (now repealed). Park Terrace Apartments appealed its assessment to the city’s tax appeals board, which applied a predetermined ratio of 20 percent 303

Uniformity, Equalization, and Ratio Law

to the property’s fair market value. Delaware County’s common-level ratio for the year in question as last determined by STEB was 3.3 percent. Park Terrace appealed, arguing that the board was mandated under the law to use the county’s common-level ratio rather than the city’s predetermined ratio. The common pleas court agreed with Park Terrace and ordered that the common-level ratio for Delaware County be used. The taxing authorities appealed this decision to the Commonwealth Court. They claimed that the existence of a common-level ratio for a county does not prohibit a third class city from using its own predetermined ratio for city assessments. They further argued that the STEB ratio provides for a common-level ratio applicable only to county assessments, not those made for third class city purposes only. At the time of this case, 72 P.S. §§ 5350j(a) and (b) (now repealed), provided that any qualified city could enact an ordinance specifically accepting the provisions of the Second Class A and Third Class County Assessment Law (now the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq.). The city could then establish its own predetermined ratio. If the city established a different predetermined ratio than the county, it had to apply this ratio to the actual values supplied by the county in order to determine the assessments for real property. The city’s predetermined ratio could be set at any value up to and including the actual valuation set by the county. The Commonwealth Court, in reviewing the record, found that Chester had never adopted an ordinance expressly subjecting itself to the provisions of the Second Class A and Third Class County Assessment Law. “Because the City failed to comply with the Act’s mandatory provisions it is without authority to tax as if it complied with the Act.” Park Terrace, 646 A.2d at 616. The court based its justification for applying the county’s commonlevel ratio rather than the city’s predetermined ratio on the following: The only other statute whereby the City derives the power to tax real estate is the Third Class City Code (Code), 53 P.S. §§ 35101–39701. Pursuant to the Code the City enjoys the authority to assess and tax. To maintain a check upon the amount such cities may assess there is a statutory requirement that their ratios may not vary more than 15% from the common level ratio. 53 P.S. § 37521(c). . . . In the present case the common pleas court, based upon the testimony of the Assessor for the City, found the City’s established predetermined ratio to be 20%. Pursuant to the Code the common pleas court’s first calculation is to take 15% of the established predetermined ratio (15% of 20% = 3%). Next, the common pleas court both added this figure to the established predetermined ratio (20% + 3% = 23%) and subtracted this figure from the established pre304

7-9

determined ratio (20% – 3% = 17%). The result was a “window” (between 17% and 23%) within which the common level ratio must fall. Since the common level ratio of 3.3% does not fall within the “window” then the common pleas court properly applied the common level ratio as required under the Code. Id. at 616–17. Unless a third class city has formally accepted the provisions of the Consolidated County Assessment Law, its assessment system will be governed by the provisions of the Third Class City Code. Some statistical inequities can develop when the ratio of assessment to fair market values for the county may substantially vary from that of the city. Real estate sales on the larger county level can very easily differ from those of a smaller city. Cities of the third class that wish to continue their own assessment operations should carefully study the impact of the assessment laws in order to determine the direction in which to proceed. The financial impact of these statutes can have variable outcomes for third class cities in different areas of the Commonwealth. 7-9

The Relationship of Third Class City and County Predetermined Ratios

Penn-Aire Aviation v. City of Oil City Board of Tax Revision & Appeals, 715 A.2d 568 (Pa.Cmwlth. 1998), examined the relationship between the predetermined ratios of counties and third class cities. A corporate taxpayer in Oil City, Venango County, appealed its assessment to the city’s tax and appeals board. The county’s predetermined ratio was 75 percent, and the STEB common-level ratio for the county was 22.1 percent. The established predetermined ratio for Oil City was 100 percent. It was clear mathematically that the common-level ratio varied by more than 15 percent from both the city and county predetermined ratios. The question was whether to use the STEB 22.1 percent common-level ratio or to adjust it to reflect the proportionate difference between the county and city predetermined ratios. This choice would have a huge impact on the appellant’s tax load. The board affirmed the assessment, and the taxpayer appealed. The common pleas court found that the STEB ratio of 22.1 percent must be increased by 33.3 percent because the Oil City’s predetermined ratio was 100 percent and Venango County’s predetermined ratio was 75 percent. This decision was appealed to the Commonwealth Court. The Third Class City Code, 53 P.S. § 37521 (now repealed), provided that after the fact finder determined the property value, it had to then apply either the predetermined ratio or the common-level ratio if it varied by more than 15 percent from the established predetermined ratio. The code, at 53 P.S. § 37503.1 (now repealed), defined common-level ratio as “the ra-

305

Uniformity, Equalization, and Ratio Law

tio of assessed value to current market value used generally in the county as last determined by the State Tax Equalization Board.” The taxpayer argued that a clear reading of these statutes implied that the legislature intended a third class city to apply the county common-level ratio rather than an adjusted common-level ratio. The board argued that the 22.1 percent STEB ratio without an adjustment would result in unequal taxes for those who appeal and those who do not and thus violated the doctrine of tax uniformity. The appellate court rejected the taxpayer’s argument and affirmed the trial court’s method of mathematically adjusting the STEB ratio upward to reflect the difference between the city and county predetermined ratios. The court stated: For a non-appealing taxpayer owning property in Oil City, the market value of the property is multiplied by 75% to arrive at the Venango County assessment and by 100% to arrive at the Oil City assessment. 100% is 33.3% greater than 75%. For the taxpayer owning property in Oil City who appeals the Venango County assessment, the market value of the property (as determined by the trial court) is multiplied by 22.1%, which is the STEB-established common level ratio for Venango County, to arrive at the Venango County assessment. However, if the taxpayer appeals the Oil City assessment, the 22.1% STEB common level ratio that was established for Venango County must be adjusted upward by 33.3% in order to maintain uniformity of taxation between the non-appealing and the appealing taxpayer. The revised common level ratio is thus 29.5%, which is the percentage by which the trial court properly multiplied the market value of [the taxpayer’s] property in order to arrive at the assessment for Oil City tax purposes. Penn-Aire Aviation, 715 A.2d at 569–70. This decision flies in the face of the Statutory Construction Act, 1 Pa.C.S. § 1501 et seq., because the Third Class City Code, which defined the common-level ratio, was clear and unambiguous. The statute stated plainly that the county common-level ratio must be used. If the legislature had wanted this ratio to be adjusted, it would have indicated so. In fact, it specifically authorized adjustments to the STEB common-level ratio in the Second Class A and Third Class County Assessment Law and the Fourth to Eighth Class County Assessment Law (now the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq.). While inequality of taxation might occur, this is not an excuse for the judiciary to rewrite the statute. There is no prohibition for the nonappealing taxpayers to file appeals and obtain similar treatment. If Oil City needed redress on this issue, it should have simply petitioned the legislature to amend the statute.

306

8 Tax Payments and Assessment Settlements

8-1

Payment of Taxes During an Assessment Appeal and Tax Payments under Protest

The General Assembly has codified, at 72 P.S. § 5020-518.1 and 53 Pa.C.S. § 8854, provisions relating to the payment of taxes during the pendency of an assessment appeal to the court of common pleas from a board of assessment appeals. The statutes specifically provide that no appeal will prevent the collection of the disputed taxes. The appellant must pay his or her full share of taxes based on the board’s adjusted or unadjusted assessment. When a board reduces an assessment, the appellant is entitled to the difference between the reduced assessment and the actual assessment he or she had already paid to the tax collector even if the municipality appeals the board’s decision. Section 5020-518.1(a) does provide that an appellant may pay the full amount of taxes in question under protest. To effectuate this protest, he or she must protest in writing when the tax is paid to the local tax collector. The appellant should protest on each tax payment for each taxing district. The tax collector, upon receiving full payment of the taxes in protest, must immediately deliver the protest to the taxing district in writing. The taxing district, with the exception of cities of the second class and school districts of the first class A, must segregate 25 percent of the amount of tax paid over and deposit the money in a separate account in the depository in which the district holds its funds. The law prohibits the taxing district from spending any portion of the segregated amount unless it first petitions the common pleas court. The taxing district, in petitioning the court, must allege that the segregated amount paid under protest is unjustly withheld. The court may allow the taxing district to use any portion of the segregated funds that appears to the court to be reasonably free from dispute. The taxing district must segregate the remainder of the escrowed amount until the final disposition of the appeal. At that time, the amount found to be due to the ap307

Tax Payments and Assessment Settlements

pellant as a refund, together with any applicable interest, shall be a legal set-off of credit against any taxes assessed against the appellant by the same taxing district. The scheme of the legislature seems to provide that unless tax money is paid under protest, a successful appellant is entitled only to credits, and a taxing district does not have to pay a refund in cash. If a taxing district claims it is unable to credit all the refund in one year, the trial court, upon application of either party, must determine in what period of time the refund must be made and will fix the amount that should be credited over a period of years. The statute mandates that all taxes must be paid in full while the appeal is pending in the common pleas court. Only where an appellant has paid taxes under written protest is any suit fund created; if this is not done, all refunds due a successful appealing taxpayer must be taken as tax credits or refunds over a period of years as determined by the court of common pleas. 8-2

Payment under Protest in Order to Obtain Cash Refunds

Does a taxpayer have to pay his or her taxes under protest in order to obtain a cash refund at the successful conclusion of a tax assessment appeal? More specifically, if a taxpayer does not pay his or her taxes under protest, is the taxpayer limited to future credits against taxes and precluded from receiving cash refunds? The Commonwealth Court answered these questions in Air Products & Chemicals, Inc. v. Board of Assessment Appeals of Lehigh County, 720 A.2d 790 (Pa.Cmwlth. 1998), where the taxpayer litigated its assessment in the common pleas court and received a favorable decsision. The county argued that because the taxpayer had failed to pay its taxes under protest, it was entitled only to a credit against future taxes under 72 P.S. § 5020-518.1. The Commonwealth Court rejected the county’s argument and held: Our research has not revealed any cases supporting the County’s interpretation of the statute. As drafted, however, the statute does not limit the form of a return of an overpayment of taxes to a credit. To the contrary, it clearly provides that if the taxes are reduced on appeal, then the excess “shall be returned” to the taxpayer. Accordingly, we conclude the trial court did not err in awarding the refund. Air Products, 720 A.2d at 795.

308

8-4

8-3

Implementation of Assessment Appeal Reductions

The Consolidated County Assessment Law, at 53 Pa.C.S. § 8847, closes a major point of controversy. Traditionally, assessment appeals boards administratively delayed the imposition of assessment changes in order to avoid the payment of school district refunds. This situation occurred when a taxpayer successfully appealed an assessment, which was then lowered beginning January 1 of the next calendar year. The taxpayer had already paid school taxes on a fiscal year basis, i.e., July to July. Based on the assessment reduction effective January 1, the taxpayer had overpaid his or her school tax for the period of January 1 to June 30 and was entitled to a refund. Assessment appeals boards and school districts have incorrectly taken the position that the new assessment does not take effect for school district purposes until the start of the school district fiscal year, July 1, thus depriving the taxpayer of his or her six-month refund. This position has never had any statutory basis in law but was more a policy of custom and usage throughout Pennsylvania. When confronted by a taxpayer demanding a refund, many school districts have quietly paid that taxpayer but never changed their general policy of not making refunds. Section 8847(a) provides that when there is a change of assessment made as a result of a successful assessment appeal, the assessment shall be applied by a taxing district in computing taxes in the district’s next fiscal year following the fiscal year in which the board heard the appeal and rendered its decision. The statute does not apply to interim assessment, assessment changes due to catastrophic losses, and the correction of clerical and mathematical errors. 8-4

Interest on the Overpayment of Taxes and the Taxpayer’s Bill of Rights

In recent cases, the Commonwealth Court has cited the proposition that interest on overpayment of taxes on an assessment appeal is to be calculated from the date of overpayment rather than from the date of the resolution of the case. In Moore v. Berks County Board of Assessment Appeals, 888 A.2d 40 (Pa.Cmwlth. 2005), the court held that Air Products was superseded by the Local Taxpayers Bill of Rights Act, 53 Pa.C.S. § 8426, effective January 1, 1999. The law states that “overpayments of tax due a local taxing authority, including taxes on real property, shall bear simple interest from the date of overpayment until the date of resolution” of the case. In In re Appeal of Sullivan, 37 A.3d 1250 (Pa.Cmwlth. 2012), a trial court’s decision had resulted in a tax refund. The appellants argued before the Commonwealth Court that their refund should include interest from the date of overpayment, not the date of the court’s decision. The appellate court agreed and disavowed its earlier decision in Welsh Grant Developers 309

Tax Payments and Assessment Settlements

Co. v. Board of Revision of Taxes of City of Philadelphia, 503 A.2d 98 (Pa.Cmwlth. 1986), which held that interest must be calculated from the date of the court decision. The court noted that since its decision in Welsh, the General Assembly passed the Local Taxpayers Bill of Rights, which therefore controlled. The court held that the refund must include interest from the date of overpayment. Practice Tip: When drafting a stipulation for settlement, make sure you specifically state that you want interest paid from the date of overpayment. Many taxing jurisdictions will not pay out interest unless they are specifically requested to via stipulation. Also, interest could be used as a bargaining chip in settlement negotiations. You can ask for a lower fair market value in exchange for waiving interest. Interest on overpayments is calculated under 72 P.S. § 806.1.

8-5

Settlement of Tax Assessment Cases

In American Home Products Corp. v. Board of Assessment Appeals of Northumberland County, 476 A.2d 497 (Pa.Cmwlth. 1984), the Commonwealth Court handed down a 2–1 decision dealing with trial courts’ acceptance of settlement stipulations. In this case, the common pleas court, pursuant to a settlement stipulation entered into by the taxpayer and the assessment appeals board, reduced the overall assessment on the property in question from $992,650 to $620,000 effective for the year 1980 and ordered the taxing authorities to pay refunds for the years 1980 to 1982. The parties had held nonevidentiary conferences with the trial court judge, which were not of record. The taxing authorities, which were not parties to the assessment case, appealed to the Commonwealth Court. The court found the key issue in the case was whether a revision of the assessment can be accomplished by a settlement between the taxpayer and the county assessment board without any presentation of evidence or the making of any record. The court interpreted the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.704 (now repealed), in the following manner: Here we have no evidentiary record. Yet the taxpayer alleges that it and the county board each obtained expert appraisals, and that those appraisals provided an informed basis for the settlement agreement. The borough and school district point out that no such appraisals are upon the record and therefore are not before us. If one or more informative appraisals did exist, the taxpayer and the county board could have placed them

310

8-6

upon the record, to provide the evidentiary basis which the statute so specifically demands. Our conclusion, therefore, is that the statute itself requires that we reject an assessment revision achieved in the common pleas court by settlement agreement alone; the statutory wording leaves no alternative to the providing of evidence in this kind of case, the nature of which directly affects the public revenues and therefore the public in general. We do not reach the question of whether or not notice of a settlement should have been afforded to the non-participating taxing bodies because we conclude that the statute prohibits a decision based upon a settlement agreement without an evidentiary record. American Home Products, 476 A.2d at 499. It must be pointed out that 72 P.S. § 5453.704 has been repealed and dealt only with fourth to eighth class counties. Therefore, while this case was not directly controlling for all counties, it was essential that prior to any arrangements in pending court cases between taxpayers and assessment appeals boards in fourth to eighth class counties, all the appropriate taxing authorities enter into the agreement. The statute clearly allowed the taxing authority to appeal to the appellate court any settlement made by the parties to the case even where the taxing authority had not taken any position or entered its appearance in the litigation. The holding in American Home Products does not apply in second class A and third class counties. That is, an evidentiary hearing prior to the court’s acceptance of a stipulation in a tax assessment appeal case is not required. The General County Assessment Law also did not require a hearing on a tax settlement. Truck Terminal Motels of America, Inc. v. Berks County Bd. of Assessment Appeals, 561 A.2d 1305 (Pa.Cmwlth. 1989). It is unclear how the interpretation of the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq., will affect the holding in American Home Products. 8-6

Limitation of Court Stipulations in Assessment Appeals

In Wheeling-Pittsburgh Steel Corp. v. Board of Revision of Taxes & Appeals of City of Monessen, 565 A.2d 504 (Pa.Cmwlth. 1989), the Commonwealth Court significantly altered the law in the area of tax assessment settlements by limiting all settlements and tax assessment cases to the years of pending litigation and the present tax year. The court overturned a future stipulation made by the taxpayer and all concerned taxing districts, holding that a taxpayer’s right to litigate future year assessments cannot be waived by court stipulation. The court held that prospective application of stipulations on tax assessment violated 72 P.S. 311

Tax Payments and Assessment Settlements

§ 5344(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), which provided: It shall be the duty of said board . . . to make and have supervision of the making of annual assessments of . . . property made subject to assessment for taxation for [the various taxing bodies] purposes, and to make and have supervision of listing and valuation of property excluded or exempted from taxation. This law required the board to annually examine and revise the assessments, taking into account increases or decreases in property value, and further provided that any person aggrieved by any assessment (whether or not the property value had been changed since the preceding annual assessment), or any taxing body having interest therein, may appeal to the board for relief. The Commonwealth Court found that these sections prohibited the application of prospective assessment stipulations even with court approval. Wheeling-Pittsburgh Steel clearly limits court stipulations to the years in litigation as well as the present year of settlement. Any other prospective settlements are precatory only and are not enforceable by any of the signing parties. The Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq., appears to be consistent with the holdings in the case. 8-7

A Taxing Body’s Approval of Assessment Settlements

The issue of the final settlement of tax assessment appeal and acquiescence of a taxing body to the settlement was addressed in Chartiers Industrial & Commercial Development Authority v. Allegheny County Board of Property Assessment, Appeals & Review, 645 A.2d 944 (Pa.Cmwlth. 1994). In this case, the taxpayers appealed their assessment increase to the board, unsuccessfully, and then appealed to the common pleas court. The taxing school district and township were sent notices of the appeal, but did not enter an appearance or file a pleading in response to the appeal. The trial court assigned the case to the Allegheny County Board of Viewers to conduct conciliation. The board sent notice of all conciliation conferences to the parties of record as well as the school district and township. At the conciliation conference, the parties agreed on a reduced assessment for the tax years in question. Shortly thereafter, the trial court signed an order of settlement and discontinuance, copies of which were sent to the township and school district on February 2, 1993. No appeals were filed within 30 days of the entry of the order. On May 2, 1993, the school district filed a motion to strike the order, arguing that it was an error of law for the court to enter an order to settle and discontinue the case without the district’s approval. The Commonwealth Court rejected this contention and held that the school district’s 312

8-8

failure to participate in the litigation amounted to a waiver of its rights. The court held: The District’s second argument asserts that the trial court’s order of settlement and discontinuance is invalid on its face as all parties in interest were not present; and all parties must assent to the settlement agreement for it to be valid. We disagree. As an “interested party,” the District has a right to participate in all phases of litigation. However, this right can be waived by failure to appear when properly served. As previously discussed, the record clearly reveals proof that the District was sent notice. As the District failed to overcome the presumption of notice being sent, their absence at the conciliation of January 28, 1993 is dispositive of its choice to not participate in the outcome of the proceeding. Id. at 946. The holding of this case points out the fact that a school district or municipality that does not intervene in a tax assessment case cannot complain about the outcome of the litigation. A different result might occur in a situation where an appeal from the trial court’s order was timely filed. The decision in American Home Products mandates a different determination in a fourth to eighth class county, where a timely appeal would result in a court review of the settlement. The case of Truck Terminal Motels, 561 A.2d 1305, pertaining to second class A and third class counties, is consistent with the rationale of Chartiers Industrial. 8-8

Senior Citizen Tax Deferral

Under 72 P.S. § 5860.504, county commissioners may enact legislation that provides that, if the county tax claims bureau has reason to believe that residential real estate is owned and occupied solely by a person 65 years of age or older, or jointly by persons who are all 65 or older, and the applicant’s household income is equal to or less than the maximum household income necessary to qualify for a property tax and rent rebate under the Act of March 11, 1971 (P.L. 104, No. 3), known as the Senior Citizens Rebate and Assistance Act, it may defer a tax claim to a later date. The county legislation may authorize the tax claim bureau to inquire and determine if the owner of any property subject to a tax claim is 65 or older, meets the income requirements, and otherwise qualifies for special consideration. The county legislation may authorize any of those actions as long as it does not ultimately result in loss to the bureau or the taxing district. The act extends the period for discharge of the tax claim for up to three additional months if it appears to the bureau that suitable arrangement for payment of the claim may be made within that period. The act 313

Tax Payments and Assessment Settlements

further provides that if it is determined that the owner desires to continue to reside in the residence, cannot afford to pay the tax claim, and continues to live a comfortable lifestyle, the bureau may stay the tax sale and defer payment of the tax claim until title to the property is transferred or the owner is no longer the sole occupant of the property. All deferred taxes will constitute a prior lien on the property in favor of the taxing district, will attach as of the date of lien, and will be collected in the same manner as other liens for taxes. The taxes will be due and payable only when title to the property is transferred or the eligible owner is no longer the sole occupant. If it is determined that the owner no longer desires to continue to reside in the residence, or that a deferral of tax would jeopardize ultimate recovery of the tax claim in full, and it appears that the owner has equity in the residence that would be lost in a regular tax sale, a special sale of the residence can be arranged. At least two independent appraisals of the residence must be obtained, and the residence is to be placed on the market at a price midway between those appraisals for a period not to exceed 11 months from the date the property was initially scheduled for sale. If the property is sold within that period, the proceeds are to be distributed as mentioned above and cost of the appraisal and seller’s cost of the sale must be paid by the owner. If the property is not sold within that period, it is to be sold at the next regularly scheduled tax sale, at which the bureau will recoup its costs. The act provides that all taxes deferred under this provision shall bear simple interest from the date they become due and payable until the date they are paid. 8-9

Taxes and Reassessments 53 Pa.C.S. § 8823 states: (a)

314

Scope.—

(1)

Except as set forth in paragraph (2), this section applies to taxing districts in counties within the scope of this chapter under section 8801(b)(1) (relating to short title and scope of chapter).

(2)

This section does not apply to a school district subject to section 327 of the act of June 27, 2006 (1st Sp.Sess., P.L.1873, No.1), known as the Taxpayer Relief Act.

(3)

Except as set forth in subsection (f), this section shall apply to all rates of taxes levied on an assessment roll after a countywide revision as provided in subsection (b), including millage rates established by referendum.

8-9 (b)

Initial rate.—In the first year that any county implements a countywide revision of assessment by revaluing the properties and applies an established predetermined ratio or changes its assessment base by applying a change in the predetermined ratio, a taxing district levying its real estate taxes on the revised assessment roll for the first time shall reduce each tax rate levied by the taxing district, if necessary, so that the total amount of taxes levied for that year against the real properties contained in the duplicate for that rate does not exceed the total amount it levied on the properties in the preceding year. Each tax rate shall be fixed at a figure that will accomplish this purpose.

(c)

Final tax rate.—After establishing a tax rate under subsec-

tion (b), a taxing district may, by a separate and specific vote, establish a final tax rate for the first year in which the reassessment is implemented to levy its real estate taxes on the revised assessment. Each tax rate under this subsection shall be fixed at a figure which limits the total amount of taxes levied for that year against the real properties contained in the duplicate for the preceding year to not more than 10% greater than the total amount it levied on the properties the preceding year, notwithstanding the increased valuations of the properties under the revised assessment. (d)

New construction.—For the purpose of determining the total amount of taxes to be levied for the first year under subsections (b) and (c), the amount to be levied on newly constructed buildings or structures or on increased valuations based on new improvements made to existing houses need not be considered.

(e)

Court approval.—With the approval of the court of common

pleas, upon good cause shown, any taxing district may increase the tax rate prescribed in this section, notwithstanding the provisions of this section. (f)

Limitations on changes to certain rates.—Notwithstanding subsection (c) or (e), the rate of any tax which was established by referendum and adjusted as provided in subsection (b) shall be subject to any subsequent increase, decrease or elimination only as provided otherwise by law.

315

Tax Payments and Assessment Settlements

8-10

Reassessment and School Districts of the First Class

Tax rates are addressed at 53 Pa.C.S. § 8563, which states: (a)

316

General rule.—Notwithstanding the provisions of section 696(h) of the Public School Code of 1949 or any other provision of law, the following shall apply to any city or county of the first class:

(1)

For the reassessment year and the two years thereafter, the rate of any tax authorized by a city of the first class or county of the first class to be levied for a school district of the first class or dedicated to the school district of the first class in accordance with section 696(h)(1) of the Public School Code of 1949 may be adjusted so that the yield on taxes based on assessed values of real estate authorized by the city of the first class or county of the first class for the school district of the first class, as estimated and certified by the director of finance of the city of the first class, is equal to an amount equal to or greater than the highest yield of the taxes based on assessed values of real estate authorized by the city of the first class or county of the first class to be levied by the school district of the first class or dedicated to the school district of the first class during any of the three full preceding years prior to the reassessment year. In the third and fourth years following the reassessment year, the rate of any tax authorized by the city of the first class or county of the first class to be levied for the school district of the first class or dedicated to the school district of the first class shall be not less than the rate authorized in the immediately preceding year.

(2)

In the reassessment year and each year thereafter, in any year in which the school district of the first class is subject to a declaration of distress pursuant to section 696 of the Public School Code of 1949, the school district of the first class may levy taxes on real estate under any of the following acts to the extent the estimated yield on all taxes on real estate for the year is less than an amount equal to the yield in the year prior to the reassessment year, increased by an amount proportional to the increase since the year prior to the reassess-

8-10

ment year in total assessed value of real estate in the city of the first class:

(3)

(i)

Section 652 of the Public School Code of 1949.

(ii)

The act of May 23, 1949 (P.L. 1661, No. 505), entitled, “An act to impose a tax on real estate for public school purposes in school districts of the first class and of the first class A for current expenses.”

(iii)

The act of July 8, 1957 (P.L. 548, No. 303), entitled “An act to impose an additional tax on real estate for public school purposes in school districts of the first class for current expenses.”

(iv)

The act of November 19, 1959 (P.L. 1552, No. 557), entitled “An act imposing a tax on real estate for public school purposes in school districts of the first class and first class A for current expenses.”

(v)

The act of August 8, 1963 (P.L. 592, No. 310), entitled “An act to impose an additional tax on real estate for public school purposes in school districts of the first class for general public school purposes.”

(vi)

Any other statute authorizing the school district of the first class to levy taxes without authorization of the city of the first class.

Paragraph (1) shall affect only the rate of the taxes authorized by the city of the first class or county of the first class to be levied by the school district of the first class or dedicated to the school district of the first class for the reassessment year and the four years immediately thereafter. Nothing under this subsection shall: (i)

Repeal or modify the obligation of the city of the first class or the county of the first class to fully comply with section 696(h)(1) for each year while the school district of the first class is subject to a declaration of distress.

317

Tax Payments and Assessment Settlements

(ii)

(b)

Repeal or affect the taxing authority of a city of the first class under the act of August 5, 1932 (Sp.Sess., P.L. 45, No. 45), referred to as the Sterling Act.

Definitions.—As used in this section, the following words and phrases shall have the meanings given to them in this subsection unless the context clearly indicates otherwise: “Public School Code of 1949.” The act of March 10,

1949 (P.L. 30, No. 14), known as the Public School Code of 1949. “Reassessment year.” The year immediately follow-

ing the year in which the director of finance in a city of the first class first certifies that the total assessed value of all real property in the city of the first class is at full market value. 8-11

Calculation of Taxes for Nonpayment of Taxes During Pendency of an Appeal

In fourth to eighth class counties, penalties and interest for nonpayment of local real property taxes are based on taxes assessed at the conclusion of the appeal process, not the original assessment appealed. See PPL Holtwood, LLC v. Pike County Bd. of Assessment & Revision of Taxes, 846 A.2d 201 (Pa.Cmwlth. 2004). 8-12

Tax Refund Statute

Under the Refund Act, 72 P.S. § 5566b, a taxpayer has a remedy if he or she pays a political subdivision any taxes to which it is not entitled. In that case, upon the filing of a written and verified claim for refund of the payment, the political subdivision is required to make budget appropriations to repay the amount to which it was not entitled. Claims for refunds must be filed within three years after payment. Subsection (b) of the statute limits the right to a refund as follows: The right to a refund afforded by this act may not be resorted to in any case in which the taxpayer involved had or has available under any other statute, ordinance or resolution, a specific remedy by way of review, appeal, refund or otherwise, for recovery of moneys paid as aforesaid, unless the claim for refund is for the recovery of moneys paid under a provision of a statute, ordinance or resolution subsequently held, by final

318

8-13

judgment of a court of competent jurisdiction, to be unconstitutional, or under an interpretation of such provision subsequently held by such court, to be erroneous. If a political subdivision fails to make the requested refund, the taxpayer has the right to file an action in assumpsit in the court of common pleas where the political subdivision is located. The statute also provides for interest to be paid on the refund at the legally prescribed rate. 8-13

Retroactive Refund Requests Due to Allegedly Unconstitutional Assessment Procedures

In Lutes v. Fayette County Board of Assessment Appeals, 936 A.2d 573 (Pa.Cmwlth. 2007), the court considered whether retroactive assessment appeals are a proper vehicle to obtain refunds for alleged overpayment of real estate taxes under a purported unconstitutional assessment scheme. In 1958, Fayette County completed a countywide reassessment, adopted a base year market value, and created a rate book. Until the mid-1970s, all county properties were assessed in a uniform manner using the 1958 rate book. The assessment appeals board then began using a new assessment method for newly purchased or improved properties. The board continued to apply the 1958 rates to all properties that were not purchased or improved after the mid-1970s. This new assessment method resulted in substantially higher assessments on properties that were assessed based on the 1958 rate scheme. As a consequence, owners of new properties paid a disproportionate share of county property taxes. In 1999, several property owners brought a class-action civil rights case seeking injunctive and monetary relief against the county. Ultimately, the Commonwealth Court rejected this challenge. Jordan v. Fayette County Bd. of Assessment Appeals, 782 A.2d 642 (Pa.Cmwlth. 2001). The court cited Murtagh v. County of Berks, 715 A.2d 548 (Pa.Cmwlth. 1998), which held that the existence of adequate state law remedies barred taxpayers from maintaining their equal protection challenges under 42 U.S.C. § 1983. Murtagh also held that the existence of adequate state remedies made it inappropriate for the court to exercise equity jurisdiction over the taxpayers’ uniformity challenge. The Jordan court pointed out that there were statutory remedies available to the petitioners for the overpayment of taxes. In 2002, the county performed a countywide reassessment. In July of that year, one of the plaintiffs in the civil rights case, Linda Lutes, filed an appeal with the assessment board, challenging her 2003 tax assessment. Lutes titled her appeal a class-action appeal and sought retroactive relief for past overpayments of taxes based on alleged overassessments under the county’s post-1958 dual assessment scheme. Lutes’s property was assessed under the new assessment scheme, not the 1958 assessment. The 319

Tax Payments and Assessment Settlements

board reduced Lutes’s 2003 assessment but denied her claim for retroactive tax relief. Subsequently, Lutes appealed to the court of common pleas as an alleged class action. The trial court denied Lutes any relief, noting that her appeal was in fact for tax year 2003 and was based on the countywide reassessment of 2002. Therefore, Lutes’s appeal was not timely filed and in violation of 72 P.S. § 5453.701(b) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). That section stated, “Any person or such taxing districts desiring to make an appeal shall, on or before the first day of September, file with the board an appeal.” The trial court concluded that it had no jurisdiction to address claims over the prior years in which Lutes claimed she was overassessed. Lutes appealed to the Commonwealth Court. As to to the claim for retroactive tax relief, the court stated: [F]or the following reasons, the three statutes referenced in Jordan cannot form the basis for the retroactive tax refunds Lutes now seeks. First, Section 511 of the General Assessment Law concerns assessment appeals, not refunds. Although Section 511(a) provides the assessment board “may hear all persons who apply for redress; and grant such relief as to them shall appear just and reasonable,” this is limited to the current assessment year. 72 P.S. § 5020-511(a). Second, Section 703.3 of the County Assessment Law, 72 P.S. § 5453.703c, pertaining to errors in assessments and refunds, applies only to mathematical or clerical errors, not to substantive validity challenges. Third, the Refund Act limits refunds to written claims filed with the political subdivision that received the taxes into its treasury within three years of payment. See Section 1(a), 72 P.S. § 5566b(a). If the authorities in that political subdivision refuse or fail to make the refund, Section 2 of the Act authorizes a civil action in common pleas court for recovery of the refund. 72 P.S. § 5566c. Here, however, Lutes did not file a request for refunds from the County pursuant to the Refund Act. Rather, she sought to retroactively appeal her assessments to the time of purchase in 1989–90. See Stranahan v. County of Mercer, 697 A.2d 1049 (Pa.Cmwlth. 1997) (narrowly construing statutory procedures of Refund Act, failure to file for refund with political subdivision that received the taxes precludes later suit to recover overpayments of tax). The trial court did not err in determining county assessment laws do not permit such retroactive assessment appeals.

320

8-14

Lutes, 936 A.2d at 580–81. The court rejected Lutes’s arguments and affirmed the lower court opinion. In substance, the court found that Lutes failed to file timely appeals as prescribed by the county assessment law, and any remedy was lost beyond recall. There was no subject matter jurisdiction and, therefore, neither the common pleas court nor the appellate court could provide relief. 8-14

Tax Refund Law Cannot Be Used for Retroactive Assessment Appeals

In Locust Lake Village Property Owners Association, Inc. v. Monroe County Board of Assessment Appeals, 940 A.2d 591 (Pa.Cmwlth. 2008), the Commonwealth Court examined retroactivity in relation to condominium assessment appeals. Locust Lake Village, a planned community under Uniform Planned Community Act (UPCA), 68 Pa.C.S. §§ 5101–5414. consists of individual homes and common areas owned by the association for the benefit of the homeowners. The common areas are 36 parcels of land consisting of green space, access drives to a beach, parking, and an office building. The association filed an assessment appeal for those 36 parcels on the basis that they were common facilities within the meaning of the UPCA and, therefore, exempt from taxation. The assessment appeals board found 35 of the 36 parcels to be exempt. See Saw Creek Community Ass’n v. County of Pike, 866 A.2d 260, 261 (Pa. 2005). The one lot that was not exempt was used to house the association’s administrative office in part and also to generate rental income from a lease to a third party, not a homeowner. The association filed a written demand to the taxing authorities, seeking a refund of real estate taxes paid for tax years 2001–2003 on the 35 parcels. The matter was appealed to the court of common pleas, where the taxing authorities argued that the association could have filed an assessment appeal as early as 1997, when the UPCA’s tax exemption for the association’s common facilities became effective. The trial court denied the association’s claim and found that the Refund Act states that a taxpayer is not entitled to a refund where another statutory remedy is available. This remedy was an assessment appeal under the then-existing Fourth to Eighth Class County Assessment Law, 72 P.S. §§ 5453.101–5453.706 (now repealed). On appeal, the Commonwealth Court denied relief to the association under both the Refund Act, 72 P.S. § 5566b(a), and the Fourth to Eighth Class County Assessment Law. The court stated: It is the responsibility of the taxpayer to challenge an assessment in the year the assessment is issued in order to avoid the imposition of improper taxes. Indeed, the Pennsylvania Supreme Court has explained that 321

Tax Payments and Assessment Settlements

[i]f no appeal is taken from the assessment of taxes within the time allowed by law it becomes binding and conclusive[, and] neither the common pleas nor an appellate court can afford any relief. *

*

*

Such a result “is salutary because the revenue base of taxing bodies should not be left open indefinitely” to retrospective claims. Lincoln Philadelphia Realty Associates I v. Board of Revision of Taxes of City and County of Philadelphia, 563 Pa. 189, 210–211, 758 A.2d 1178, 1190 (2000) (quotation omitted) (emphasis added). This principle applies not only where the taxpayer challenges the amount of an assessment but also where the taxpayer claims to be exempt from taxation. See Academy Plaza Association, Ltd. v. Board of Revision of Taxes, City of Philadelphia, 94 Pa. Commw. 517, 503 A.2d 1101, 1102–03 (Pa. Cmwlth. 1986) (noting that a court has no jurisdiction to resurrect the question of a real property tax exemption). Locust Lake, 940 A.2d at 596. In summary, the Commonwealth Court held: By asserting a claim for a retrospective tax refund under the Tax Refund Law, the Association, in effect, seeks a retrospective assessment on the 36 parcels for three years preceding its appeal in 2003. However, as has been explained by our Supreme Court, an unchallenged assessment of taxes is conclusive and binding. Lincoln Philadelphia Realty Associates I, at 210, 758 A.2d at 1190. The Association’s remedy under the Assessment Law was complete and would have afforded the same relief it now seeks under the Tax Refund Law. This remedy under the Assessment Law forecloses the Association’s right to invoke the Tax Refund Law and, thus, we affirm the trial court’s holding that the Association was not entitled to a retrospective tax refund under the Tax Refund Law for tax years 2001 to 2003. Id. at 596–97. This case stands for the basic principle that statutory deadlines under the assessment laws must be strictly followed in order to achieve tax relief. A party cannot use the refund law to bypass the assessment appeal deadlines. A back-door attempt to avoid these deadlines will be unsuccessful. This clearly makes sense under the statutory taxation scheme so that municipalities can make the appropriate budgetary determinations without

322

8-15

the worry of funding retroactive tax refunds or situations that are totally out of their control. 8-15

Interpretations of the Fiscal Code Refund Act

The Commonwealth Court has explored when refunds to a taxpayer are warranted for money collected by taxing districts that they were not legally entitled to collect and when an assessment appeal must be filed as condition precedent to collect the refund. In Extended Care Centers, Inc. v. County of Erie, 749 A.2d 566 (Pa.Cmwlth. 2000), the taxpayers owned deteriorated commercial property in the city of Erie. After making improvements to the propert, they applied for exemptions under the Local Economic Revitalization Tax Assistance Act (LERTA). They had received building permits in 1984, and the county assessment appeals board granted exemptions to run from 1985 through 1989. The taxpayers’ improvements were separately assessed pursuant to LERTA in 1986. This separate assessment continued until 1989, and the taxpayers paid the full assessment for 1990 and 1991. In 1992, the Commonwealth Court held in MacDonald, Illig, Jones & Britton v. Erie County Board of Assessment Appeals, 604 A.2d 306 (Pa.Cmwlth. 1992), that LERTA does not authorize taxing authorities to begin the exemption in a year other than the year after the completion of the improvements. In this case, the taxpayers requested a refund for taxes paid for improvements for 1990 and 1991. The court of common pleas ordered a refund with interest for the years at issue. The taxing authorities argued on appeal that the lower court’s refund order was issued pursuant to the Refund Act in the Fiscal Code, 72 P.S. § 5566b, and that the taxpayers had waived any refund because they never filed timely appeals to the assessment appeals board after receiving the assessments for 1990 and 1991. The taxpayers claimed that they were entitled to the refund without filing an appeal because the taxing school district was not legally entitled to the money. The refund law states: (a) Whenever any person . . . of this Commonwealth has paid . . . into the treasury of any political subdivision, directly or indirectly, voluntarily or under protest, any taxes of any sort, . . . to which the political subdivision is not legally entitled; then, in such cases, the proper authorities of the political subdivision, upon the filing with them of a written and verified claim for the refund of the payment, are hereby directed to make . . . refund of such taxes . . . . (b) The right to a refund afforded by this act may not be resorted to in any case in which the taxpayer involved had or has available under any other statute, ordinance or resolution, a specific remedy by way of review, appeal, re323

Tax Payments and Assessment Settlements

fund or otherwise, for recovery of moneys paid as aforesaid, unless the claim for refund is for the recovery of moneys paid under a provision of a statute, ordinance or resolution subsequently held, by final judgment of a court of competent jurisdiction, to be unconstitutional, or under an interpretation of such provision subsequently held by such court, to be erroneous. The lower court had concluded that the taxpayers had either exhausted all their remedies or paid tax payments pursuant to an invalid ordinance or interpretation of a statute later held to be erroneous, and under these circumstances it was not necessary to file tax assessment appeals from the initial LERTA assessments in 1990 and 1991. The Commonwealth Court, in upholding the lower court, pointed out that the taxpayers were not challenging the reassessments or amounts eligible for assessment but rather, after the decision in MacDonald, Illig, were pursuing a refund based on an invalid interpretation of a statute. The court stated: [A]fter the decision in MacDonald, Illig rendered the local exemption provisions invalid—which occurred two years after the expiration of their exemptions—the Taxpayers sought a refund of taxes to which the local authorities were not legally entitled, based on the invalid provisions. The Taxpayers need not have filed assessment appeals in order to proceed under the Refund Act. Extended Care Centers, 749 A.2d at 571. The Pennsylvania Supreme Court examined the operation of the Refund Act in the context of a personal property tax assessment case, Annenberg v. Commonwealth, 757 A.2d 338 (Pa. 2000). Here, taxpayers challenged the application of Montgomery County’s four-mill personal property tax, codified at 72 P.S. §§ 4821–4902. They claimed that the taxation of stock of companies that did not operate in Pennsylvania and/or pay the capital stock franchise tax violated the interstate commerce clause of the U.S. Constitution. The Pennsylvania Supreme Court in Annenberg v. Commonwealth, 757 A.2d 333 (Pa. 1998), found that the stock-related provision of section 4821 facially discriminated against interstate commerce. The Supreme Court held in its 2000 opinion that the whole statute was not unconstitutional and struck down only the section of the act that exempted companies subject to Pennsylvania’s capital stock and franchise tax. The taxpayers sought relief by way of the Refund Act, 72 P.S. § 5566b, for personal property taxes paid on stock ownership in nonexempt companies. Specifically, they argued that once the court determined there was constitutional violation, the taxpayer was entitled to a remedy,

324

8-16

which is a refund of the moneys paid plus interest. The court disagreed and stated: In its simplest terms, Section 5566b provides a mechanism for the refund of taxes “to which the political subdivision is not legally entitled.” However, Section 5566b is inapplicable to this case. We have not concluded that the Counties are not legally entitled to levy a personal property tax on corporate stock holdings. Rather, we have determined that in levying a personal property tax on corporate stock holdings, the Counties are not legally entitled to grant the exemption contained in 72 P.S. § 4821 to stock in corporations which have a taxable nexus with Pennsylvania because doing so discriminates against interstate commerce in violation of the Commerce Clause. By severing the exclusionary language in the stock clause which renders the stock clause unconstitutional, we have left intact the Counties’ ability to levy a personal property tax on corporate stock holdings generally. The tax levied by Montgomery County on the [taxpayers’] corporate stock holdings constituted a tax to which Montgomery County was legally entitled. It was the granting of the exemption limited to the [taxpayers’] stock in corporations which have a taxable nexus with Pennsylvania which constituted the illegal act by Montgomery County. Since 72 P.S. § 5566b limits its mandated refund to taxes which a political subdivision is not legally entitled, it is inapplicable to a case such as this. Montgomery County has not levied a tax to which it was not legally entitled, but has instead granted an illegal exemption from a tax to which it was legally entitled. Section 5566b does not therefore limit the broad range of remedies permissible under the United States Constitution to the refund of taxes collected by the Counties. Annenberg, 757 A.2d at 352 (emphasis in original). Although the Refund Act appears broad on its face, the appellate courts have narrowed its application to fit the specific facts of each type of case before them. 8-16

PURTA and Interim Tax Changes

Atlantic City Electric Co. v. United School District, 780 A.2d 766 (Pa.Cmwlth. 2001), dealt with spot assessments and changes to the Public Utility Realty Tax Act (PURTA), 72 P.S. § 8101-A et seq. The taxpayers in this case owned Conemaugh Station, a power plant in Indiana County. In ac-

325

Tax Payments and Assessment Settlements

cordance with changes to the PURTA rules, electricity generation plants were transferred from state to county taxation effective January 1, 2000. Originally, Conemaugh Station had been listed on the county’s tax duplicate rolls as exempt from local taxation pursuant to PURTA, and the taxpayers paid PURTA taxes to the state in lieu of local real estate taxes. On June 8, 1999, the United School District imposed an 87-mill real estate tax on the assessed value of real property for the 1999–2000 fiscal year. On December 14, 1999, the school district responded to the transfer of power plants back to local taxation by adopting a resolution to apply its previous fiscal year tax to Conemaugh Station, effective January 1, 2002. The resolution further directed the county assessment appeals board to inspect and assess all power plants within the school district effective January 1, 2000, pursuant to 24 P.S. § 6-677.1, a provision of the School Code normally used to request the county to add new construction and improvements to its tax rolls. Tax bills were sent out to the taxpayers for a six-month interim period of January 1, 2000, to June 30, 2001. The taxpayers appealed this matter to the court of common pleas, which denied them relief. In their appeal to the Commonwealth Court, the taxpayers argued that the addition of Conemaugh Station to the tax rolls was a spot assessment and that without a countywide reassessment it was illegal to add the property to the tax rolls. They further argued that the singling out of electricity generation plants violated the uniformity provision of the Pennsylvania Constitution. This appellate court rejected this contention. It held that the addition of property to the tax rolls after an exemption was statutorily abolished because of a change of legislative policy on regulation of the industry, which was not a violation of the uniformity clause, nor could the addition of Conemaugh Station to the tax rolls as an interim assessment be considered a spot assessment. 8-17

Limitation of Payments in Lieu of Taxes

School District of City of Monessen v. Farnham & Pfile Co., 878 A.2d 142 (Pa.Cmwlth. 2005), examined a taxing authority’s ability to collect voluntary payments in lieu of taxes (PILOTs) for municipal services from an owner of property in a Keystone Opportunity Zone (KOZ). The property in this case was a former steel mill owned by the Westmoreland County Redevelopment Authority. In October 1998, the General Assembly enacted the Keystone Opportunity Zone Act (KOZ Act), 73 P.S. § 820.101–820.1309, which offers tax incentives to spur development in abandoned or unused areas. Persons and businesses within the zone are eligible for relief from real property taxes and other taxes for up to 15 years. The act requires qualified political subdivisions to abate 100 percent of the real property taxation on the assessed value of the deteriorated property in an area designated as a KOZ subzone. 326

8-17

In November 1998, the redevelopment authority and the Monessen School District entered into an agreement under which the redevelopment agency, as owner of the steel mill property, would make payments in lieu of taxes (PILOTs) to the county, township, and school district. These payments were described in the agreement as “contributions or payments . . . for municipal services and other services to be rendered to the property.” Farnham, 878 A.2d at 145. The school district then applied to the state to have the property designated as a KOZ subzone and passed a resolution exempting the property from all real estate taxes, as required under the KOZ Act. In 2001, Farnham & Pfile Co. (F&P) bought the property for $1.45 million. The school district then demanded that F&P pay the fees for municipal services that had been covered in the PILOT agreement. F&P refused, claiming it had no legal duty or obligation to do so. The city of Monessen and the school district filed a complaint seeking a declaratory judgment that F&P was obligated to make the payments. The court granted the taxing districts summary judgment, finding that F&P’s sales agreement with the redevelopment authority clearly provided that the company agreed to make the PILOTs. After F&P filed a notice of appeal, the trial court issued an opinion saying that it incorrectly granted summary judgment in favor of the taxing districts. F&P contended that the PILOT agreement was unenforceable, illegal, and invalid because it imposed the substantive equivalent of real property taxes on the owner of a KOZ subzone property and that these taxes were prohibited by the KOZ Act. The court stated: According to the undisputed facts, the Authority and IDC agreed (pursuant Paragraph 1(a) of the PILOT Agreement), to pay “the sum of $ 0.40 per square foot per year . . . in a pro rata share to the City, County and School District based upon their respective millage.” . . . The School District claims this “sum” was a “fee” for municipal services, not a property tax. However, the sum was not correlated to any specific services and it did not reflect the fair cost of any particular service provided to the Property by the School District. Nor did the 1998 PILOT Agreement identify any specific service that the School District would provide in exchange for the “fee.” The School District’s contention that the static amount of $ 0.40 per square foot per year is not computed, calculated, billed or discounted as though taxes were involved is also unconvincing. Tax charges are a product of the property’s assessed valuation and millage, and millage is based on total assessed value of all properties in the city, county or school district. Contrary to the School District’s argument, the so327

Tax Payments and Assessment Settlements

called annual fee for services was computed precisely as though ad valorem property taxes were involved. Id. at 151 (emphasis in original). The court, in ruling for F&P, held that the school district had no power or authority to collect this tax disguised as a payment in lieu of taxes. The court restated the basic principles of taxation in Pennsylvania: Because the PILOTs were calculated and billed like taxes and were not linked to the taxing authority’s supply of needed services, this Court concludes that the PILOTS were the equivalent of real property taxes, merely disguised as payments for municipal services. Liability for the payment of taxes in Pennsylvania arises not by reason of a contractual relationship between the taxing body and the taxable, but strictly by operation of law, and the law is well established that taxes can be collected only as provided by statute. In the Matter of Appointment of Viewers, 406 Pa. 6, 178 A.2d 149 (1962). Moreover, pursuant to the Pennsylvania Constitution, the power to determine which property shall be subject to taxation and which shall be exempt from taxation is, subject to certain limitations, vested exclusively in the General Assembly. Southwest Delaware County Municipal Authority v. Aston Township, 413 Pa. 526, 198 A.2d 867 (1964); Commonwealth of Pennsylvania State Employes’ Retirement System v. Dauphin County, 335 Pa. 177, 6 A.2d 870 (1939); Radnor Township School District v. Valley Forge Military Academy Foundation, 59 Pa. D&C 2d 768 (C.P. Del. 1970). Id. at 152. The court found that, even though F&P might have initially agreed to the payments, the PILOT agreement was an unenforceable contract, void as against public policy. The court’s decision unquestionably shows that taxing statutes must be strictly construed and that taxing authorities must not try to circumvent the clear intent of the legislature and attempt to levy taxes without clear statutory authority. 8-18

Enforcement of Payments in Lieu of Taxes

In recent years, many nonprofit entities have agreed to make payments in lieu of taxes to local taxing jurisdictions in order to avoid the costs and risks of litigation over whether the organization is a “purely public charity.” Unfortunately, taxing jurisdictions in Pennsylvania are using every means possible to pressure nonprofit entities into entering these types of agreements in order to forego costs of litigation. Specifically, taxing jurisdictions have been known to use the media to call out a nonprofit for seeking exempt status on a property and thus removing much 328

8-18

needed tax revenues from a struggling school district or municipality. Some taxing jurisdictions have publicly disclosed what one nonprofit entity was paying in a PILOT agreement with the expectation that another nonprofit seeking an agreement would agree to pay the same amount. Undoubtedly, PILOT agreements will have an adverse financial impact on nonprofit groups that agree to pay them, and, as stewards of taxexempt donor funds, nonprofits might be coerced into making payments that do not necessarily fall within their particular charitable purpose. Consequently, nonprofit entities must walk a fine line between being “good corporate citizens” and fulfilling their charitable missions. PILOT agreements have one big advantage: they are contracts between nonprofit entities and taxing jurisdictions and thus can be structured in any way that the parties agree. Accordingly, a PILOT agreement should be looked at with a “think outside the box” mentality. The agreement doesn’t have to be exclusively about money changing hands from the nonprofit entity to the taxing jurisdiction. In fact, a nonprofit can donate its services or facilities in exchange for the taxing jurisdiction’s agreement to not dispute its tax-exempt status. One of the main issues when dealing with a PILOT agreement is whether the property at issue is a newly created property that could now be taxed or is one that was taxed and could now be nontaxable. PILOTs should be easier to agree to when dealing with a property that was never taxed and could now possibly be taxed because the taxing jurisdictions were never financially dependent on any revenue from that property. It is a whole other ball game when a large taxable property is sold to a nonprofit entity and could possibly be deemed exempt going forward because the taxing jurisdictions need to figure out how to fill that budget gap. In these instances, a stepped-down payment plan works best so that the taxing jurisdictions can adjust their budgets accordingly going forward. There has not been a lot of litigation regarding PILOT agreements in Pennsylvania. In one case, In re Appeal of Springfield Hospital, 179 A.3d 632 (Pa.Cmwlth. 2018), the Commonwealth Court upheld a trial court order granting a petition to enforce a PILOT agreement. Here, taxing authorities sought to impose property taxes on a nonprofit hospital operator after it expanded its health campus to include medical office buildings, a sports club, and a parking garage, which the taxing authorities asserted were not entitled to an exemption. The parties entered into a PILOT agreement that specified that the hospital and its successors and assigns would not be subject to real property tax as long as the existing hospital building was used solely for hospital purposes by the taxpayer or by another tax-exempt entity. When the property was sold to a for-profit entity, the taxing authorities sought to impose property tax effective on the date of transfer. The trial court found, and the Commonwealth Court agreed, that the plain language of the PILOT agreement stated that the property would 329

Tax Payments and Assessment Settlements

become taxable on transfer to a nonexempt entity. The Commonwealth Court further found that making the assessment of taxes effective as of the date of transfer under the PILOT agreement did not violate the “tax assessment day” rule as the change in taxation was not pursuant to a reassessment. The court added that the parties acknowledged in the PILOT agreement that tax would be due on the property when and if the property was not owned by a hospital that was exempt from federal taxation. This decision is troublesome because the rule in Pennsylvania has always been that if a property is tax-exempt on the day of assessment, it remains exempt for the entire year. Accordingly, if a property is exempt on January 1, it is exempt until December 31. Likewise, if a property is taxable on January 1, it is taxable until December 31. The rationale is that the taxing jurisdictions can budget accordingly if they know that a property is taxable or nontaxable for the entire year, instead of only part of the year. Under the court’s decision, nonprofit entities should be careful how they address the sale of an exempt property in a PILOT agreement. Because the agreement is a contract, the parties can agree that a property will be taxable January 1 of the year after the property is sold to a forprofit entity. This will give the buyer certainty of future local real estate tax liabilities that potentially could help close the sale.

330

9 Countywide Reassessment

9-1

Countywide Reassessment

The courts have refused to allow boards of assessment appeals to selectively reassess or spot assess. This prohibition is contained in the General County Assessment Law at 72 P.S. § 5020-402(a), which reads in part: Except in counties of the first class, no political subdivision shall levy real estate taxes on a county-wide revised assessment of real property until it has been completed for the entire county. This provision mandates that any changes stemming from a countywide reassessment are not effective until the completion of that reassessment. As noted, this statute is inapplicable to counties of the first class and, through court decision, has limited application to counties of the second class. Therefore, the application of selective reassessment prohibition applies to second class A. 53 Pa.C.S. § 8817 provides: (a)

General rule.—In addition to other authorization provided

in this chapter, the assessors may change the assessed valuation on real property when a parcel of land is subdivided into smaller parcels or when improvements are made to real property or existing improvements are removed from real property or are destroyed. The recording of a subdivision plan shall not constitute grounds for assessment increases until lots are sold or improvements are installed. The painting of a building or the normal regular repairs to a building aggregating $2,500 or less in value annually shall not be deemed cause for a change in valuation. (b)

Construction.—A change in the assessed valuation on real property authorized by this section shall not be construed as a spot reassessment under section 8843 (relating to spot reassessment). 331

Countywide Reassessment

The courts have interpreted these provisions broadly to prohibit spot and selective assessments; while a county may at any time correct mathematical or clerical errors, this correction cannot be used as a guise for a selective reassessment. See Croasdale v. Dauphin County Bd. of Assessment Appeals, 492 A.2d 793 (Pa.Cmwlth. 1985). The term “countywide revision of assessment” is defined in 53 Pa.C.S. § 8802 as a “change in the established predetermined ratio or revaluation of all real property within a county. In general, a countywide reassessment involves a determination of market value, including a review of recent transfers of real estate within the neighboring area; a visual inspection of the exterior appearance of the property; and a correlation of any other unique factors that may affect the value of the real estate. The assessor correlates these factors and, through the use of his or her expertise and training, arrives at an estimate of the property’s fair market value. This figure is then multiplied by the “established predetermined ratio,” which is defined at 53 Pa.C.S. § 8802 as “the ratio of assessed value to market value established by the board of county commissioners and uniformly applied in determining assessed value in any year.” The multiplication of the market value by the established predetermined ratio equals the assessment on the property. Property taxes are then paid upon a certain percentage of these assessed values depending on the local millages involved. While the assessment law is silent on the issue of how to order a countywide reassessment, there is enough peripheral statutory language to guide the effectuation of a countywide reassessment program. The General County Assessment Law and the Consolidated County Assessment Law do not authorize a county board of commissioners to order a countywide reassessment. The county commissioners have the authority to set the predetermined ratio, as delineated by 53 Pa.C.S. § 8842(a): Predetermined ratio.—The county assessment office shall assess real property at a value based upon an established predetermined ratio which may not exceed 100% of actual value. The ratio shall be established and determined by the board of county commissioners by ordinance. In arriving at actual value, the county may utilize the current market value or it may adopt a base-year market value.

Therefore, the power to institute a reassessment would appear to rest with the county’s assessment appeals board. The powers of the board of commissioners would be limited to providing the funds and/or personnel to accomplish the reassessment and to establish the predetermined ratio for the county at the completion of the reassessment.

332

9-1

The parameters of effectuating a countywide reassessment for tax purposes are delineated in 53 Pa.C.S. § 8842(b), which states: (1) Except as set forth in paragraph (2), the following apply: (i)

In arriving at actual value, the price at which any property may actually have been sold, either in the base year or in the current taxable year, shall be considered but shall not be controlling.

(ii)

The selling price shall be subject to revision by increase or decrease to accomplish equalization with other similar property within the county.

(iii) In arriving at the actual value, the following methods must be considered in conjunction with one another: (A)

Cost approach, that is, reproduction or replacement, as applicable, less depreciation and all forms of obsolescence.

(B)

Comparable sales approach.

(C)

Income approach.

(2) The valuation of real property used for the purpose of wind energy generation for assessment purposes shall be developed by the county assessor utilizing the income capitalization approach to value. The valuation shall be determined by the capitalized value of the land lease agreements, supplemented by the sales comparison data approach as deemed necessary by the county assessor. The lessee, or lessor on behalf of the lessee, shall provide the nonproprietary lease and lease income information reasonably needed by the county assessor to determine value by September 1. There are limits to which a municipal subdivision can raise its taxes at the completion of a countywide reassessment. These are enumerated at 53 Pa.C.S. § 8823, which states: (a)

Scope.—

(1)

Except as set forth in paragraph (2), this section applies to taxing districts in counties within the scope of this chapter under section 8801(b)(1) (relating to short title and scope of chapter).

(2)

This section does not apply to a school district subject to section 327 of the act of June 27, 2006 (1st 333

Countywide Reassessment

Sp.Sess., P.L. 1873, No.1), known as the Taxpayer Relief Act. (3)

Except as set forth in subsection (f), this section shall apply to all rates of taxes levied on an assessment roll after a countywide revision as provided in subsection (b), including millage rates established by referendum.

(b)

Initial rate.—In the first year that any county implements a countywide revision of assessment by revaluing the properties and applies an established predetermined ratio or changes its assessment base by applying a change in the predetermined ratio, a taxing district levying its real estate taxes on the revised assessment roll for the first time shall reduce each tax rate levied by the taxing district, if necessary, so that the total amount of taxes levied for that year against the real properties contained in the duplicate for that rate does not exceed the total amount it levied on the properties in the preceding year. Each tax rate shall be fixed at a figure that will accomplish this purpose.

(c)

Final tax rate.—After establishing a tax rate under subsec-

tion (b), a taxing district may, by a separate and specific vote, establish a final tax rate for the first year in which the reassessment is implemented to levy its real estate taxes on the revised assessment. Each tax rate under this subsection shall be fixed at a figure which limits the total amount of taxes levied for that year against the real properties contained in the duplicate for the preceding year to not more than 10% greater than the total amount it levied on the properties the preceding year, notwithstanding the increased valuations of the properties under the revised assessment. (d)

New construction.—For the purpose of determining the total amount of taxes to be levied for the first year under subsections (b) and (c), the amount to be levied on newly constructed buildings or structures or on increased valuations based on new improvements made to existing houses need not be considered.

(e)

Court approval.—With the approval of the court of common

pleas, upon good cause shown, any taxing district may increase the tax rate prescribed in this section, notwithstanding the provisions of this section. 334

9-1.1 (f)

Limitations on changes to certain rates.—Notwithstanding subsection (c) or (e), the rate of any tax which was established by referendum and adjusted as provided in subsection (b) shall be subject to any subsequent increase, decrease or elimination only as provided otherwise by law.

Therefore, to effectuate a countywide reassessment, the assessment appeals board must formally make the decision. To comply with the Sunshine Law, the board should advertise in the appropriate publications its intention to meet on the subject of reassessing the county. At that meeting, the chief assessor should articulate the necessity of a reassessment, and any interested party should be heard on the issue. The board in public session should formally vote on the reassessment. If the board votes to proceed, the county commissioners then must be requested to provide the needed funding and staff. At the completion of the physical aspect of the reassessment and before its effective implementation date, the county commissioners should hold a public hearing on the established predetermined ratio to be used. Once again, notice of this hearing is subject to advertising provisions of the Sunshine Law. At the completion of the hearing, the commissioners should publicly vote to adopt an established predetermined ratio. The assessment appeals board must then apply that ratio to the actual value of all real property to formulate the new assessment roll. At the completion of this process, the board must mail to all property owners, by the first day of July prior to the effective tax year of the reassessment, an assessment notice containing the value of the old assessment and the value of the new assessment as well as the old and new ratios. This notice informs the taxpayer that he or she has 40 days from the mailing date of the notice to appeal to the board of assessment appeals. The board can then begin hearing appeals within 30 days after mailing the initial notice of reassessment, subject to having notified all parties 20 days before the hearing. All appeals must be heard and acted upon by the board no later than October 31. On or before November 15, the board must certify the assessment roll based on the reassessment. 9-1.1

Notices of Countywide Reassessment

The notice requirements for a countywide reassessment are set forth at 53 Pa.C.S. § 8848(a): (1) Each property owner shall be notified by mail at the property owner’s last known address of the value of the new assessment, the value of the old assessment and the right to appeal within 40 days as provided in subsection (c)(1). The notice shall state a mailing date and shall be deposited in the United States mail on that date. The notice 335

Countywide Reassessment

shall be deemed received by the property owner on the date deposited in the United States mail. (2) The chief assessor shall maintain a list of all notices and the mailing dates for each and shall affix an affidavit attesting to the mailing dates of the assessment notices. This list shall be a permanent public record of the county assessment office and available for public inspection. 9-1.2

Reassessment Appeal Process

The appeals process is set forth at 53 Pa.C.S. §§ 8848(c) and (d): (c)

(d)

336

Appeal process.

(1)

All property owners and affected taxing districts shall have the right to appeal any new assessment value within 40 days of the mailing date stated on the notice.

(2)

The county assessment office shall mail all notices on or before July 1. The board in its discretion may commence with the hearing of appeals 40 days following the mailing of the initial notices of reassessment.

(3)

The county assessment office shall notify each appellant, property owner, if not the appellant, and each affected taxing district of the time and place of hearing on the appeal by mailing a notice no later than 20 days prior to the scheduled hearing date. Any appellant who fails to appear for hearing at the time fixed shall be conclusively presumed to have abandoned the appeal unless the hearing date is rescheduled by the mutual consent of the appellant and the board.

(4)

On or before November 15, the county assessment office shall certify to the taxing districts new assessment rolls resulting from the countywide revision of assessments.

(5)

All appeals shall be heard and acted upon by the board not later than October 31.

Common level ratio.—If a county has effected a countywide revision of the assessments, which was used to develop the common level ratio last determined by the State Tax Equalization Board, the following shall apply:

9-1.3

(1)

If a county changes its assessment base by applying a change in predetermined ratio, the board shall apply the percentage change between the existing predetermined ratio and newly established predetermined ratio to the county’s common level ratio to establish the certified revised common level ratio for the year in which the assessment was revised.

(2)

If the county performs a countywide revision of assessments by revaluing the properties and applying an established predetermined ratio, the board shall utilize the established predetermined ratio instead of the common level ratio for the year in which the assessment was revised and until the time that the common level ratio determined by the State Tax Equalization Board reflects the revaluing of properties resulting from the revision of assessments.

9-1.3

Auxiliary Boards of Assessment Appeals

53 Pa.C.S. § 8853 provides: (a)

Establishment and authority.—The county commissioners

may establish temporary auxiliary appeal boards for terms of existence necessary to hear and determine appeals in a manner consistent with this chapter and the regulations of the board. The authority of the board is restricted to hearing and determining the following matters:

(b)

(1)

Appeals from assessment values determined in accordance with this chapter, except that an auxiliary appeal board shall not hear exemption appeals.

(2)

Appeals arising from applications for the homestead exclusion under Subchapter F of Chapter 85 (relating to homestead property exclusion) or Subchapter E of Chapter 3 of the act of June 27, 2006 (1st Sp.Sess., P.L.1873, No.1), known as the Taxpayer Relief Act.

Membership.—An auxiliary appeal board shall be composed of three residents of the county trained in accordance with section 8852 (relating to regulations and training of boards). An auxiliary appeal board shall not hear an appeal unless all three members are physically

337

Countywide Reassessment

present. Any salary of members of an auxiliary appeal board shall be fixed by the salary board of the county. 9-1.4

Informal Taxpayer-Designee Meetings During Countywide Reassessments

53 Pa.C.S. § 8848(b) states: Informal review.—In conjunction with a countywide revision of

assessments, a designee of the county assessment office may meet with property owners to review all proposed assessments and correct errors prior to the completion of the final assessment roll. The act is silent on who can be designated to meet with the taxpayers and what constitute “errors.” Are they related to the physical properties of the buildings? Are they mathematical or clerical mistakes or errors of judgment in the valuation process? The act does not state whether the assessment appeals board must approve the correction of errors before publishing the final assessment roll. 9-2

Validity of the Base-Year Assessment System

Pennsylvania’s assessment laws neither require nor prohibit periodic reassessments of real estate in each county. They permit property taxes to be levied on property values that are allegedly stagnant and based on a “base-year value” for an indefinite period of time. The Supreme Court examined the constitutionality of the base-year assessment system in Clifton v. Allegheny County, 969 A.2d 1197 (Pa. 2009). The trial court had found that because the base-year value system did not require annual reassessments, it was facially unconstitutional. The Supreme Court disagreed that the whole system was unconstitutional but found that the application of the base-year value system in Allegheny County did violate the uniformity clause of the Pennsylvania Constitution. The appropriate remedy was for the lower court to order a reassessment of all real estate in the county. The Supreme Court’s decision, mandating a reassessment, appears to be in harmony with numerous Commonwealth Court decisions over the last several decades, starting with the City of Lancaster v. County of Lancaster, 599 A.2d 289 (Pa.Cmwlth. 1991); Chester County Board of Assessment Appeals v. Behe, 632 A.2d 1102 (Pa.Cmwlth. 1993); City of Harrisburg v. Dauphin County Board of Assessment Appeals, 677 A.2d 350 (Pa.Cmwlth. 1996) (Croasdale II); Ackerman v. Carbon County, 703 A.2d 82 (Pa.Cmwlth. 1997); and Millcreek Township School District v. County of Erie, 714 A.2d 1095 (Pa.Cmwlth. 1998). These cases all revolve around the premise that local courts of common pleas, under the existing statutory assessment 338

9-2

scheme, have the power to order county governments to conduct countywide reassessments when the existing tax assessments run afoul of constitutionally mandated tax uniformity. What is unique about Clifton is that the trial court went beyond the preexisting remedies outlined in these cases and ruled that the whole tax system was unconstitutional when a less severe remedy was available. In this case, the Pennsylvania Supreme Court analyzed the various measures of uniformity outlined by the International Association of Assessing Officers (IAAO), which has statistically standardized the measures of assessment uniformity. In particular, the court used the coefficient of dispersion (COD). The COD is the average deviation from the median, mean, or weighted mean ratio of assessed value to fair market value, expressed as a percentage of that figure. A high COD indicates that the assessments have a large variance from the mean, while a low COD indicates that the assessments are assessed at a closer to equal rate. The price-related differential (PRD) is a widely accepted indicator of inequality between high- and low-priced properties. A PRD above 1.03 tends to indicate that high-end properties are assessed at a lower rate than low-end properties, and a PRD below 0.98 indicates that high-end properties are assessed higher than low-end properties. In 2005, Allegheny County had a COD of 30.2 and a PRD of 1.10. Clearly, these numbers were substantially above the IAAO acceptable standards for measures of tax equality. The Pennsylvania Supreme Court held: The evidence presented at trial demonstrates that the Allegheny County scheme, which permits a single base year assessment to be used indefinitely, has resulted in significant disparities in the ratio of assessed value to current actual value in Allegheny County. The disparity is most often to the disadvantage of owners of properties in lower-value neighborhoods where property values often appreciate at a lower rate than in higher-value neighborhoods, if they appreciate at all. For the reasons that follow, we conclude that, to the extent that the provisions of the General County Assessment Law, 72 P.S. § 5020-402(a), and the Second Class County Assessment Law, 72 P.S. § 5452.4(a.2), permit indefinite use of a base year method of valuation, those provisions, as applied here, violate the Uniformity Clause. Preliminarily, however, we make clear that, unlike the trial court, we are not prepared to hold the statutory base year provisions facially unconstitutional. Clifton, 969 A.2d at 1222.

339

Countywide Reassessment

The court examined whether the use of the STEB common-level ratio in the appeal process was sufficient to mitigate the tax inequality and held: The County’s argument respecting the CLR—the ratio of assessed to current market value in a county—is similarly unpersuasive. The County submits that case-by-case, corrective application of a county’s CLR, through the appeal process, adequately satisfies the proportionality principle and the Uniformity Clause. The County maintains that use of the CLR, which reflects “the reality of property appreciation and depreciation,” as opposed to the EPR [established predetermined ratio], fully comports with the proportionality principle. . . . The County thus contends that a taxpayer’s right to an assessment appeal to correct individual disparities arising from the absence of a recent countywide reassessment satisfies uniformity by allowing the EPR to be replaced by the CLR. *

*

*

There may well be circumstances where use of the CLR and the individual appeal process adequately serves to address cases of particular inequity, and as case law demonstrates, both taxpayers and municipalities make use of the appeals process. But that process is not adequate when the inequity is pervasive, as the evidence demonstrates that it has become the case in Allegheny County. The County cannot satisfy the proportionality requirement by shifting the burden of achieving uniformity to the taxpayer or aggrieved taxing entity (most often the local public school district), whom the County would task with correcting its own constitutional deficiency. Relying upon taxpayers to “force” application of the CLR through individual assessment appeals is no substitute for a constitutionally uniform property assessment in the first instance. Id. at 1227–28. The Supreme Court found that the statutory base-year system, as applied in Allegheny County, which approved a prolonged and potentially indefinite use of an outdated base-year assessment to establish property taxes, violated the uniformity clause of the state Constitution. The court found that the base-year system itself was constitutional, but through the passage of time the system can become stale and unconstitutional. The court pointed out that it is not its job to determine the best system of assessment, but that it is the task of the General Assembly to do so. The high court has rejected Allegheny County’s attempts to have the court reconsider its decision.

340

9-3

The Commonwealth Court dealt with a base-year value system in In re Appeal of Springfield School District, 101 A.3d 835 (Pa.Cmwlth. 2015). The court rejected the taxpayer’s argument that the property should be assessed for tax year 2011 and 2012 based on the 1998 base-year market values. The court held that nothing in the Consolidated County Assessment Law supported such an argument. While the law does allow a taxpayer to challenge a base-year value without reference to ratio, it does not allow an alternative base-year valuation method. The court held that the law is clear that it is the duty of a court to determine the property’s current fair market value and then apply the applicable ratio. In addition, evidence produced at trial demonstrated that the base-year value no longer reflected current market value. The court concluded that the trial court properly assessed the property based on current market values. 9-3

Reassessment and Ratio

A separate ratio determination for the year of a reassessment has been established by statute. Obviously, the statutory scheme of using the State Tax Equalization Board (STEB) common-level ratio against the predetermined ratio is a meaningless exercise in the first year of a reassessment. It is the proverbial comparing of apples and oranges. Comparing the common-level ratio for a county based on two-year-old sales against new, revised property values based on a new base-year method would lead to an absurd result. The revised values applied against a common-level ratio based on a different base year could lead to gross inequities in tax treatment for those who appeal and those who do not. Therefore, the General Assembly enacted a provision in the General County Assessment Law, 72 P.S. § 5020-511(b.1), which states: When a county has effected a countywide revision of the assessment which was used to develop the common level ratio last determined by the State Tax Equalization Board, the following shall apply: (1)

If a county changes its assessment base by applying a change in predetermined ratio, the board shall apply the percentage change between the existing predetermined ratio and newly established predetermined ratio to the county’s common level ratio to establish the certified revised common level ratio for the year in which the assessment was revised.

(2)

If the county performs a countywide revision of assessments by revaluing the properties and applying an established predetermined ratio, the board 341

Countywide Reassessment

shall utilize the established predetermined ratio instead of the common level ratio for the year in which the assessment was revised and until such time as the common level ratio determined by the State Tax Equalization Board reflects the revaluing of properties resulting from the revision of assessments. Similar provisions have been adopted in the Consolidated County Assessment Law at 53 Pa.C.S. § 8848(d). 9-4

Mass Appraisal Companies and the Assessors Certification Act

Employees of mass appraisal companies that are hired by counties to perform countywide reassessments are subject to the Assessors Certification Act, 63 P.S. § 458.1 et seq. It is important to note that the violation of this statute results in strong civil and criminal penalties. Section 458.2 defines “revaluation company” as a mass appraisal company. Section 458.6 lists the minimum qualification level for mass appraisal company employees: (a)

Requirement. All persons responsible for the valuation of

real property for ad valorem taxation purposes in this Commonwealth and all revaluation company personnel shall be certified under this act. (b)

342

Application. Application for certification shall be made to the board by completion of the board’s prescribed application form and shall be accompanied by the appropriate fee established by the board. An applicant shall:

(1)

(Reserved).

(2)

Have a high school diploma, or its equivalent, or two years of assessing experience.

(3)

Be at least 18 years of age.

(4)

Be a resident of this Commonwealth for at least six months. This paragraph does not apply to revaluation company personnel.

(5)

Have successfully completed a minimum of 90 hours of the basic courses of study approved by the board covering the appraisal assessing profession or any other professional courses acceptable to the board. The basic course of study shall include instruction on judicial interpretation of the unifor-

9-4

mity clause of the Constitution of Pennsylvania. At the discretion of the county commissioners of a county, the county may reimburse county assessors for the costs of completing the courses of study required by this subsection. (c)

Examination. Applicants shall successfully complete a com-

prehensive examination covering all phases of the appraisal process and the assessment function established by the assessment statutes of this Commonwealth. Any such examination shall be prepared and administered by a qualified and approved professional testing organization in accordance with section 812.1 of the act of April 9, 1929 (P.L. 177, No. 175), known as The Administrative Code of 1929. (d)

Certification. Upon successful completion of the comprehensive examination, the board shall issue a Certified Pennsylvania Evaluator’s Certificate to the applicant. A certificate shall be valid for two years or until the next renewal cycle administered by the board for other professional certification renewals, whichever occurs earlier.

(e)

Licensure. Nothing in this act shall relieve any individual or company from any otherwise applicable legal obligation to be licensed as a real estate broker pursuant to the act of February 19, 1980 (P.L. 15, No. 9), known as the Real Estate Licensing and Registration Act, or to be certified as a certified State real estate appraiser under the act of July 10, 1990 (P.L. 404, No. 98), known as the Real Estate Appraisers Certification Act.

The first determination to be made is whether or not a particular employee of a revaluation company is directly responsible for the valuation of real property. One could make a common-sense interpretation of the term “directly responsible,” to refer to the employee who initially determines the value of any property, as well as any individual who supervises his or her work. While persons who merely collect physical data may not be covered by this section, anyone who makes any judgment decisions on value, even at the preliminary level, must comply with the act. The argument that only supervisory personnel of the revaluation company must comply is a strained interpretation of the act. The “hands-on person” who reviews the raw physical data on the property and makes the initial valuation decision clearly is the first person directly responsible for the valuation of the property. It is a clear and direct contravention of the act to have only the revaluation company’s supervisors competently trained and educated. All employees who have any input in the valuation process in 343

Countywide Reassessment

any way must be trained and educated pursuant to the mandates of the Assessors Certification. Anything less is an invitation for a lawsuit to throw out the reassessment. Any revaluation company taking the position that only supervisors must meet the requirements is embarking on a very dangerous legal course that could expose that company to immense damages for breach of contract, including compensatory, incidental, and punitive awards against it. An argument can easily be crafted that a countywide reassessment should be overturned by a court where there has been a total disregard of the Assessors Certification Act by a revaluation company. The use by the revaluation company of personnel who have not complied with the educational requirements of the act is flagrant violation of the act. The revaluation company cannot use incompetent individuals to perform tasks that are delegated by law solely to people meeting the educational requirements of the act. This argument can rise to levels strong enough to persuade a court to suppress a countywide reassessment and outlaw its results, causing millions of dollars in losses to the county and its taxpayers, which would be recoverable from the mass appraisal company. It must be pointed out that any violation of this act also contains both civil and criminal penalties for which the company and its employees could be held liable. Any county contracting for the services of a mass appraisal company to conduct a countywide reassessment should closely scrutinize the employment practices of the company. It must insist that only legally qualified people be hired to work on a reassessment. 9-5

Reassessment by Court Order

In City of Lancaster v. County of Lancaster, 599 A.2d 289 (Pa.Cmwlth. 1991), the Commonwealth Court ordered the county to conduct a court-supervised countywide reassessment. The petitioners-appellants were municipalities and individuals who were allegedly aggrieved by the county’s assessment scheme. They had asked the common pleas court to roll back all spot assessments conducted under the county’s “maintenance assessment” program and order a countywide reassessment. When the case was filed in 1987, the most recent countywide reassessment was conducted in 1960 and became effective on January 1, 1962. At that time there were 82,890 parcels of taxable real estate in the county. By 1989, the number had increased to 153,700. The county applied a predetermined ratio of 25 percent from 1962 to 1985, when it was increased to 100 percent. At the time of trial, the assessment appeals board assessed properties using 1960 as its base year and applied a predetermined ratio of 100 percent of the property’s base-year market value. The county common-level ratios for the years 1985 to 1988, as calculated by the State Tax Equalization Board, were 23.7 percent, 22.7 percent, 21.8 percent, and 21.4 percent, respectively. 344

9-5

In 1984, the county held a series of meetings with school boards and municipalities regarding its plan to increase its 25 percent assessment ratio and to address consideration of performing a countywide reassessment. After these meetings, the county concluded that the cost of a complete reassessment outweighed the benefits. The county decided instead to develop a program of “increased maintenance” by computerizing and hiring additional staff. The assessment board then tried to determine which of the county’s 60 taxing districts appeared to be out of line with the rest of the county. Between 1986 and 1988, the county reviewed 10 taxing districts that had a common-level ratio 15 percent higher or lower than the common-level ratio for the county. The board’s appraisers examined every property in each of the reviewed districts, using the same procedures used previously for all new assessments and assessment reviews since 1960. As a result of these reviews, assessments were changed and implemented beginning in 1987. The petitioners claimed that the board’s actions violated the uniformity clause of the Pennsylvania Constitution, which provides that “[a]ll taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” They further argued that the county’s selective reassessment in the 10 districts was arbitrary and resulted in unequal tax treatment. The common pleas court denied the petitioners’ claims. On appeal, the county argued that “value corrections may be made to an individual parcel of land for a particular year without requiring that all properties in the county be reassessed that year,” quoting Carino v. Board of Commissioners of County of Armstrong, 468 A.2d 1201, 1203 (Pa.Cmwlth. 1983). The Commonwealth Court disagreed, stating that the “value corrections” referred to in Carino encompass periodic changes in the valuation of individual parcels as a result of the addition or removal of improvements, physical changes in land, or significant changes in the economy affecting real estate values. The court also noted that Carino involved a statutory construction and not a constitutional challenge, as in the Lancaster County case. The appellate court stated: We held [in Carino], based on our interpretation of the statute, that such a county-wide review was discretionary and need not be conducted on an annual basis. Interestingly, we alluded to the fact that a different result might have been reached had the appellants argued that the Board fraudulently failed to exercise its discretion. City of Lancaster, 599 A.2d at 296. At trial, the lower court had placed great weight on the coefficient of dispersion (COD) as an indicator of whether the constitutional requirement of uniformity was satisfied and as a factor in determining whether a 345

Countywide Reassessment

countywide reassessment was necessary. The COD is a statistical tool, expressed as the average percentage deviation between the ratio of the property’s assessed to market value and the county’s common-level ratio. For example, a COD of 20 indicates a 20 percent average deviation between the assessed to market values of properties sold in a given year and the county’s common-level ratio. The lower court found that a COD of 20 percent is recognized as being good or tolerable and that the COD for Lancaster County was 26.4 percent in 1985, 26.9 percent in 1986, 24.8 percent in 1987, and 17.8 percent in 1988. The appellants maintained that there was no evidence produced to show that a COD of 20 percent was considered acceptable by the assessment industry for all types of property in a county. The Commonwealth Court stated: We are in agreement with appellants that there is not substantial competent evidence of record to support Common Pleas’ finding regarding the acceptable COD and that such finding was in error. In accordance with the text quoted above, assuming the acceptable maximum is fifteen percent for all but infrequently sold properties, then the evidence produced by the County shows that it has not been able to attain that maximum. It is apparent to this Court that the overwhelming evidence in this matter indicates that, as a matter of law, the County’s taxing scheme is outdated and replete with inequities. Id. at 297. The appellate court found that the International Association of Assessing Officers (IAAO) recommended cyclical reassessments from two- to six-year periods. The court found that the appellants’ expert testimony indicated that a lapse of 27 years between reassessments was not acceptable under IAAO standards. The court, in overturning the assessments in the 10 taxing districts, stated: Further, we emphasize that this is not a case involving the revaluation of a single property or properties based on improvements or other specific changes in circumstances but a general re-valuation of large areas of property apparently in an effort to show a better overall picture in terms of percentages and to obviate the need for reassessing all properties at a higher cost. We believe that such a partial re-valuation clearly created the probability that two standards of valuation would be used and that there would result an uneven allocation of the tax burden.

346

9-5

This Court, in reaffirming the long-standing policy of allocating taxes on an equitable and comprehensible basis, quoted the Pennsylvania Supreme Court as follows: While every tax is a burden, it is more cheerfully borne when the citizen feels that he is only required to bear his proportionate share of that burden measured by the value of his property to that of his neighbor. This is not an idle thought in the mind of the taxpayer, nor is it a mere speculative theory advocated by learned writers on the subject, but it is a fundamental principle written into the constitutions and statutes of almost every state in this country. Kenney v. Keebler Company, 53 Pa.Commonwealth Ct. 507, 512, 419 A.2d 210, 212 (1980) (quoting Delaware, Lackawanna & Western Railroad Co.’s Tax Assessment (No. 1), 224 Pa. 240, 243, 73 A. 429, 430 (1909). We conclude that, as a matter of law, the County, in singling out ten of the County’s taxing districts, in utilizing a different method of assessment on the properties in those districts, and in making unsubstantiated wholesale adjustments to grade and depreciation factors of certain of those properties, violated both the uniformity requirement of Article VIII, Section 1 of the Pennsylvania Constitution and the equalization requirement of 72 P.S. § 5348(d). *

*

*

Although this is a difficult question, and the evidence not as compelling as that before us in Croasdale v. Dauphin County Board of Assessment Appeals, 89 Pa. Commonwealth Ct. 409, 492 A.2d 793 (1985), we must conclude that the County’s present plan to update its assessment program constitutes a de facto county-wide assessment. Were we to accept Common Pleas’ interpretation of 72 P.S. § 5348(a), we would be rendering the provisions of 72 P.S. § 5020-402(a) meaningless. Obviously, counties could perform county-wide reassessments in portions, realizing the increased revenues from each portion prior to finishing the review for the entire county thereby circumventing the prohibition of 72 P.S. § 5020-402(a). We believe that such an absurd result was not intended by the legislature in its enactment of the two sections at issue. It is our belief, based on facts of record, that the County implemented the present system of reassessment in lieu of a complete reassessment in order to avoid the expense of the latter. We sympathize with the County in that a total reassessment 347

Countywide Reassessment

is a costly undertaking. However, where, as here, there has not been an assessment of the entire County since 1960, there can be no uniformity of assessment. Moreover, cost is not a relevant factor in determining whether a county’s taxing scheme is in accordance with the uniformity requirement of the Pennsylvania Constitution. The evidence demonstrates that the Board’s plan is a countywide reassessment by another name. Therefore, the County’s levying on the assessments in the ten districts is a violation of Section 402(a) of the General County Assessment Law. Id. at 298–300. Finally, the Commonwealth Court addressed the count of mandamus in the appellant’s pleadings and ordered Lancaster County to implement a countywide assessment. The appellate court stated: Appellees argue that mandamus relief is not proper in this instance because adequate remedies are provided to the aggrieved taxpayers through the appeals process. Mandamus is an extraordinary writ, which may only be granted to compel the performance of a ministerial act or mandatory duty where there exists a clear, legal right in the plaintiffs, a corresponding duty in the defendants, and a want of any other adequate remedy. Carino. “[M]andamus will not lie to compel the performance of discretionary acts except where the failure to exercise discretion is arbitrary, fraudulent or based on an erroneous view of the Law.” Carino, 79 Pa. Commonwealth Ct. at 244, 468 A.2d at 1202. We have held that where the statutory remedies are clearly adequate and the facts of a case fail to rise to the level necessary to invoke equity, mandamus will not lie. Kenney; Runyan v. Board of Assessment Appeals, 43 Pa. Commonwealth Ct. 86, 401 A.2d 870 (1979). Appellants argue that here there is no adequate remedy through the appeals process because the inequality created by the county’s recent re-valuations pervades the entire taxing scheme. We agree. The facts here speak for themselves. To force every aggrieved taxpayer to assume the task of appealing, when the larger question can be expeditiously and efficiently resolved in a single action, would be unnecessarily burdensome on both property owners and the judicial system. Id. at 300. The court then ordered Lancaster County to implement a countywide reassessment plan in a time frame set by the common pleas court and to reinstate in the 10 reviewed districts, prospectively only (i.e., no refunds), the assessment that existed before the reviews of 1968 to 1988, ex348

9-5

cept in individual cases resolved through the appeals process or in which the appeals had been timely filed but not yet adjudicated. In this decision, the Commonwealth Court for the first time in recent history found that it could grant a writ of mandamus to compel a countywide reassessment. In taking this action, the court has appropriated the supervisory power in the tax assessment field that appears to be contrary to the existing statutory language set up by the General Assembly. The court cited no authority for this action but, by implication, indicated that (1) where the base-year reassessment occurred so far in the past that the values are not logically related to the present and (2) where the assessment appeals board’s actions appeared to be arbitrary, fraudulent, or based on an erroneous view of the law, the taxing authority’s actions permeate and pervade the entire taxing system. Therefore, in subsequent cases that reach the court, testimony will revolve around whether any county action in maintaining its assessment system was arbitrary, fraudulent, or based on an erroneous view of the law so as to pervade, permeate, and pervert through inequities the county’s taxing system. A further issue that will be addressed will be the length of time between the litigation and the last countywide reassessment. The court, citing IAAO standards, would find to be acceptable reassessments that occurred between two to six years earlier. Anything beyond that point may be questionable. Finally, the court in City of Lancaster rejected the idea of assessment equity as determined by the COD average for the whole county, and instead recommended that the COD technique be used on a stratified basis checking different types of property. This decision appears to open the floodgates of litigation throughout Pennsylvania on the issue of whether a countywide reassessment should be ordered, by which protracted and complex litigation will result in each assessment test on the individual county basis. Expert witnesses will be required by both sides to determine assessment equity within the county borders. Extensive discovery and courtroom time will be needed to build a record in order for the fact finder to make a determination of county assessment equity. The other significant holding in City of Lancaster is the court’s right to set a timetable for a countywide reassessment. The decision appears to enlarge the power of the court over administrative bodies that conduct assessment matters. Judges with no practical experience in the hands-on assessment field will be making decisions as to the length, timing, and manner of reassessments. The implications of City of Lancaster are of such a nature as to fundamentally alter the assessment scheme in Pennsylvania. The Chester County Court of Common Pleas followed the appellate court’s decision and held that a taxpayer action to force a countywide reassessment pursuant to 42 U.S.C. § 1983, the uniformity clause of the Pennsylvania Constitution, and the Second Class A and Third Class County Assessment Law, 72 349

Countywide Reassessment

P.S. § 5342 (now repealed), was warranted. The court found that the existing assessments discriminated among taxpayers, which could only be cured by the remedy of reassessment. The court specifically rejected the argument that piecemeal reassessment or spot assessment was an appropriate remedy and therefore ordered a court-supervised countywide reassessment. The Commonwealth Court affirmed the lower court in a memorandum opinion. Chester County Bd. of Assessment Appeals v. Behe, 632 A.2d 1102 (Pa.Cmwlth. 1993), This case law has established the common pleas court’s authority to order, mandate, and, if necessary, supervise a countywide reassessment. See also Croasdale II, 677 A.2d 350. In Ackerman v. Carbon County, 703 A.2d 82 (Pa.Cmwlth. 1997), the Commonwealth Court once again affirmed a lower court that had ordered a countywide reassessment. This scenario has become extremely repetitious in the last several years, and a countywide revaluation has become the standard legal tool for correcting large-scale inequities in the assessment system. In this case, the last countywide reassessment had been conducted over 25 years earlier. When a new property was added to the tax rolls, the Carbon County assessment office used only the cost approach. Under this approach, the value is determined by estimating the construction cost, subtracting accrued depreciation, and adding the estimated land value. Complicating this process was the county’s use of 1969 construction costs to value properties built since that time. Properties that were in existence in 1969 received a 35 percent depreciation credit, but the original gap in favor of older properties had never been equalized. Market values significantly changed in the county since 1969, as an interstate highway was built and large subdivisions were opened, adding many newly constructed types of properties to the tax rolls. The ratio for Carbon County relevant to this litigation was 8.6 percent, and evidence introduced by the taxpayers indicated that 44 percent of all property transfers in the county during that period were more than 15 percent overassessed and that 29 percent of all transactions were more than 15 percent underassessed. Expert testimony indicated that the coefficient of dispersion was 40 percent, where the acceptable level under IAAO standards was not more than 15 percent for residential properties. The Commonwealth Court affirmed the lower court’s order of a countywide reassessment. The appellate court categorically rejected the county’s argument that the lower court lacked authority to order a countywide revaluation. In 1998, the Commonwealth Court revisited the issue of court-ordered countywide reassessment in Millcreek Township School District v. County of Erie, 714 A.2d 1095 (Pa.Cmwlth. 1998). In this case, a school district filed an action in mandamus against Erie County and its assessment appeals board, seeking a court order to compel the county to institute a coun350

9-6

tywide reassessment. The school district alleged that the assessment system was outdated and nonuniform and therefore violated the Pennsylvania Constitution. Erie County had not conducted a countywide reassessment since 1969. The county’s predetermined ratio was 40 percent of the 1969 fair market value. Its common-level ratio as set by the State Tax Equalization Board for 1995 was 9.4 percent and varied by more than 15 percent from the established predetermined ratio. This variance normally occurs where a countywide reassessment has not occurred for a long period of time, the assessments remain stable, and the overall fair market values of property in the county have been on the rise. These conditions reduce the comparable ratio between the assessed values of property and their actual value. The overall STEB-based coefficient of dispersion for Erie County in 1995 was 30 percent. The COD is a measure of the average error in assessment. A COD of 30 percent indicates that a 30 percent deviation exists between the county’s STEB ratio and its predetermined ratio. The lower court ordered Erie County to perform a countywide reassessment, and the Commonwealth Court affirmed. The appellate court found that where the COD was at the unacceptable level of 30 percent and where the expert testimony buttressed this lack of uniformity, the lower court was correct in ordering the county revaluation of property. The Commonwealth Court cited City of Lancaster, 599 A.2d 289, as precedent for the power of a county court to order reassessment where the existing assessment system promotes nonuniformity of taxation. This case follows previous appellate court decisions that found that the common pleas courts have the inherent constitutional authority to order a county to undertake a countywide reassessment. 9-6

Petition to Reassess a County is Not a Nonjusticiable Political Question

In Millcreek, 714 A.2d 1095, Erie County also argued that the decision to conduct a countywide reassessment is a nonjusticiable political question that can only be determined by the county council, the legislative branch of government in Erie County pursuant to its home rule charter. Further, it argued that an order to reassess by the judicial branch violates the separation-of-powers doctrine. The county relied on the U.S. Supreme Court’s landmark decision in Baker v. Carr, 369 U.S. 186 (1962), which dealt with the separation of powers doctrine between the judiciary and the legislature under the U.S. Constitution. The county’s argument was as follows: The Home Rule Charter has constitutionally committed the time and funding for a countywide reassessment to a policy determining body of the County of Erie, namely, County Council. It is impossible for this Court to decide whether to conduct a 351

Countywide Reassessment

countywide reassessment “without an initial policy determination of a kind clearly for non-judicial discretion.” . . . Thus, the Court may not order a countywide reassessment without expressing a lack of respect due to the coordinate branches of government, as the revision of assessments have been exclusively committed to the Defendant for self-monitoring while the determination to fund a countywide reassessment has been exclusively committed to County Council under the Home Rule Charter. Millcreek, 714 A.2d at 1102. The Pennsylvania Supreme Court in Blackwell v. City of Philadelphia, 684 A.2d 1068, 1071 (Pa. 1996), defined the political question doctrine as follows: A non-justiciable political question is presented where there is a challenge to legislative power which the Constitution commits exclusively to the legislature. . . . Courts will not review actions of another branch of government where political questions are involved because the determination of whether the action taken is within the power granted by the constitution has been entrusted exclusively and finally to political branches of government for self-monitoring. The Commonwealth Court unequivocally found that the issue of county reassessment was not a nonjusticiable political issue, but rather one of constitutional dimension where the court is available to provide redress of grievances. The court held: A determination that an issue is a nonjusticiable political question is essentially a matter of judicial abstention or restraint. As our Supreme Court has said: “To preserve the delicate balance critical to a proper functioning of a tripartite system of government, this Court has exercised restraint to avoid an intrusion upon the prerogatives of a sister branch of government. . . . Whatever theory is employed, the legitimacy of the abstention is dependent upon the situation presented.” . . . Here, Petitioners allege various constitutional violations. In such cases, we will not abdicate our responsibility to “insure that government functions within the bounds of constitutional prescription . . . under the guise of deference to a co-equal branch of government. . . . It would be a serious dereliction on our part to deliberately ignore a clear constitutional violation.” Millcreek, 714 A.2d at 1103–04 (emphasis added). The Commonwealth Court then found that Erie County’s failure to reassess since 1969 created inequities of constitutional proportions and that

352

9-7

these constitutional violations trumped the doctrine of nonjusticiability propounded by the county. 9-7

Equity Action Attacking the Mechanics of a Countywide Reassessment

The Pennsylvania Supreme Court, in Beattie v. Allegheny County, 907 A.2d 519 (Pa. 2006), addressed an attack on the mechanics of a countywide reassessment. Taxpayers had brought a class-action equity suit alleging that Allegheny County’s reassessment for tax years 2001 and 2002 resulted in 80,000 lower-valued homes to be overassessed and a significant number of higher-valued homes to be underassessed. The complaint alleged that the computer-assisted mass appraisal (CAMA) system in use had systematic programming flaws that resulted in statistical inequalities. The county filed preliminary objections arguing that equity was the inappropriate remedy and that the taxpayers had an adequate remedy at law by appealing to the assessment appeals board under the Second Class County Assessment Law. The trial court dismissed the complaint on the basis that the taxpayers had an adequate remedy at law. The Commonwealth Court affirmed. The Supreme Court found that, although there may have been grounds to let the case proceed in equity, the relief sought was more in the nature of mandamus, and the taxpayers had not presented sufficient allegations of facts in their complaint to meet the standards for mandamus relief. The court stated: [A] central part of the trial court’s basis for dismissal related to Appellants’ failure to plead with specificity in this regard. We believe the court expressed a legitimate concern. In the first place, although the complaint alleged that there was a systemic under-valuation in the high-end properties and the opposite effect for low-end parcels, “taxation is not an exact science,” and hence, “perfect uniformity or absolute equality is not required,” . . . [I]nstead, some practical inequalities are anticipated, and rough uniformity with a limited amount of variation is permitted so long as the taxing scheme does not impose substantially unequal tax burdens. . . . Thus, to support the proposition that the County was duty-bound to re-apply the CAMA system in an alternate manner, Appellants’ allegations would preliminarily have had to demonstrate the absence of rough or substantial equality in the present operation of the CAMA system. They would also necessarily have had to specify the manner in which the system should be re-applied so that constitutionally acceptable results would obtain. Id. at 529–30. 353

Countywide Reassessment

Finally, the court stated: Where, however, a mass reappraisal of the entire county has just been completed, and there is no allegation that the same was undertaken in bad faith, the trial court could reasonably conclude that, absent more specific allegations as to how and/ or why the techniques used were faulty, and the particular manner in which the County should correct the perceived inequities, the court was in essence—and improperly—being asked to “assume responsibility for the operation of the assessment system” that was otherwise the exclusive responsibility of the local agency. Under such circumstances, we find that the court acted within its discretion in dismissing the Complaint. Id. at 530–31. In summary, the Supreme Court found that while the lower courts have equity power to rule on whether a countywide reassessment is warranted, they have much more limited equity power to review the actual conduct and mechanics of the revaluation, and such review is best left to the local agency to handle initially, subject to later court review.

354

10 Spot Assessment and Selective Reassessment

10-1 10-1.1

Litigation Approaches to Spot Assessment Cases State Equity Action

In preparing a case arising from a spot assessment, it is suggested that an action for equitable relief according to state constitutional and statutory law be instituted, specifically alleging that the assessment appeals board’s practices violated the uniformity clause of the Pennsylvania Constitution, Article VIII, Section 1, as well as the statutory prohibitions against spot assessments, 53 Pa.C.S. § 8843. The Pennsylvania Supreme Court held in Borough of Greentree v. Board of Property Assessment, Appeals & Review of Allegheny County, 328 A.2d 819 (Pa. 1974), held that common pleas courts have equitable jurisdiction to hear cases alleging violations of the uniformity clause, even where the statutory appeal procedure has been bypassed. The court stated that the statutory appeal proceedings would be of little benefit or utility in determining the constitutionality of the assessment law and that any benefit derived from filing individual appeals with the board would be “far outweighed by the inconvenience, delay and expense involved.” Id. at 825. In Tredyffrin-Easttown School District v. Valley Forge Music Fair, 627 A.2d 814 (Pa.Cmwlth. 1993), a concert and entertainment venue filed an action against the taxing district for equitable and declaratory relief, claiming that the effect, operation, and enforcement of an amusement tax violated the due process and equal protection clauses of the U.S. Constitution and the uniformity clause of the Pennsylvania Constitution. The plaintiff, the Valley Forge Music Fair, admitted that it suspected in 1980 that the taxing district was selectively enforcing the tax, which was enacted in 1969, but it did not file its suit until 1985. At that time, the assessment law, 72 P.S. § 5566b, required taxpayers to file a claim for a refund within two years of the payment. The trial court noted that the district intentionally concealed and misrepresented information about the tax and its settlements with other venues. These settlements were not made public, so Valley Forge could not 355

Spot Assessment and Selective Reassessment

have learned about them by exercising due diligence. Therefore, the court held that the defense of laches did not apply. The trial court then ruled that the district had “intentionally, systematically and selectively enforced” the tax in violation of the equal protection clause and the uniformity clause. It ordered the district to refund Valley Forge’s taxes and pay its attorneys’ fees. The Commonwealth Court affirmed. “The test to determine if laches applies in an equity suit is not that a certain definite time has lapsed since a cause of action accrued, but whether the complaining party is chargeable with want of due diligence in failing to institute a claim under the circumstances. . . . The question of whether a claim is barred by laches is factual and must be determined by an examination of the circumstances presented in a particular case.” Tredyffrin-Easttown. 627 A.2d at at 818. The appellate court found that the two-year limit in section 5566b did not apply in equitable actions challenging the constitutionality of a tax statute. The court stated: The District argues that the [refund] award should not have been granted as [Valley Forge] did not file a verified claim and the remedy exceeds the two-year cap provided in 72 P.S. § 5566b. When the statutory remedy is inadequate, however, equity will afford relief. Borough of Green Tree v. Board of Property Assessment, Appeals & Review, 459 Pa. 268, 328 A.2d 819 (1974). Furthermore, a party may challenge the constitutionality of a local tax ordinance by an action in equity and is not limited to filing an action for a refund. Id. at 823. On the issue of attorneys’ fees, the court stated: With respect to the grant of attorney fees, the District argues that absent an agreement or statutory allowance, each party must pay its own attorney fees. Corace v. Balint, 418 Pa. 262, 210 A.2d 882 (1965). The District further argues that the trial court erroneously relied upon 42 Pa.C.S. § 2503(9) when it awarded attorney fees as that section is limited to conduct after litigation is commenced and attorney fees cannot be based on pre-litigation conduct. A trial court sitting in equity possesses broad powers in fashioning the relief that justice and good conscience dictate. Weissman v. Weissman, 384 Pa. 480, 121 A.2d 100 (1956). Id. at n.8. There appears to be an adequate predicate for the court to entertain equity jurisdiction where the government has followed a consistent, longterm policy of violating taxpayers’ rights by imposing disproportionate tax rates. Such a policy is at odds with the tax uniformity requirement of the

356

10-1.3

state Constitution and thus results in an unlawful taking of property without due process of law under the U.S. Constitution. 10-1.2

Action for Declaratory Judgment

It is recommended that a declaratory judgment from the common pleas court be sought when the assessment appeals board violated federal and state constitutional provisions as well as state substantive law. 10-1.3

Action under Spot Reassessment Statute—Retroactivity

The Consolidated County Assessment Law at 53 Pa.C.S. § 8802 defines “spot reassessment” as: The reassessment of a property or properties by a county assessment office that is not conducted as part of a countywide revision of assessment and which creates, sustains or increases disproportionality among properties’ assessed values. The term does not include board action ruling on an appeal. The law bars assessment boards from engaging in spot reassessment and provides for refunds to affected taxpayers. Section 8843 states: The County assessment office is prohibited from engaging in the practice of spot reassessment. In the event that the county assessment office engages in the practice of spot reassessment, the property owner may file an appeal to the board, limited to the issue of spot reassessment, in accordance with this chapter. Upon a finding by the board or an adjudication by the court that the property owner has been subjected to a spot reassessment, the property owner shall be entitled to a refund of any taxes paid pursuant to a spot reassessment and interest thereon from the date of payment at the same rate and in the same manner as the Commonwealth is required to pay interest pursuant to section 806.1(b) of the act of April 9, 1929 (P.L. 343, No. 176), known as The Fiscal Code. A change in assessment resulting from an appeal to the board by a taxpayer or taxing district shall not constitute a spot reassessment. Under 53 Pa.C.S. § 8817, any county assessment office may reassess a property only when one of the following conditions is met: (1) pursuant to a countywide reassessment, (2) when a parcel of land is subdivided into smaller lots, (3) when improvements are made to real property, or (4) when existing improvements are removed or destroyed. The painting of a building or the normal regular repairs to the building aggregating $2,500 or less in value annually are not cause for a reassessment. If this provision is violated, the assessment appeals board, as well as the trial court, is au-

357

Spot Assessment and Selective Reassessment

thorized to roll back the assessment and order a refund of any taxes paid, plus interest at the statutory rate, to the aggrieved taxpayer. Section 8817(b) states, “A change in the assessed valuation on real property authorized by this section shall not be construed as a spot reassessment under section 8843 (relating to spot reassessment).” Where the alleged violation took place before the operative date of the statute, it can be pleaded and argued that the statute should be applied retroactively. A statute need not state explicitly that it is to be applied retroactively before it receives that treatment. Gehris v. Dep’t of Transp., 369 A.2d 1271 (Pa. 1977). A statute that merely confirms rights already in existence does not come within the general rule against retroactive operation of statutes. F.W. Woolworth Co. v. City of Pittsburgh, 284 A.2d 143 (Pa.Cmwlth. 1971). A law is retroactive in its application only when it relates back and gives a previous transaction a legal effect different from the one it had under the law in effect when it transpired. McMahon v. McMahon, 612 A.2d 1360 (Pa.Super. 1992); Pennsylvania Dep’t of Labor & Industry, Bur. of Empl. Sec. v. Pennsylvania Eng’g Corp., 421 A.2d 521 (Pa.Cmwlth. 1980). Spot reassessment violated Article VIII, section 1, of the Pennsylvania Constitution before the enactment of 72 P.S. § 5348.1 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), and application of this statute to an assessment board’s practices is not, as a result, “retroactive.” A statute is not retroactively construed if it is applied to a condition existing on its effective date even if the condition results from events that occurred before that date. McMahon, 612 A.2d 1360; R&P Servs., Inc. v. Department of Revenue, 541 A.2d 432 (Pa.Cmwlth. 1988). The spot assessments at issue were in effect on the effective date of section 5348.1 and are still in effect today. In discussing the provisions of 53 Pa.C.S. § 8843 which provides for “a refund of any taxes paid pursuant to a spot reassessment,” two basic canons of statutory construction cannot be ignored: (1) statutes involving taxes should be strictly construed in favor of the taxpayer and against the taxing authority (1 Pa.C.S. § 1928(b) ) and (2) a statute should be interpreted to give effect, if possible, to all its provisions (1 Pa.C.S. § 1921(a)). Section 5348.1 explicitly provided for a refund of all taxes, not merely those paid within the course of a pending appeal; further, section 5349(c) permitted an appeal from an assessment whether or not it had changed “since the preceding annual assessment.” 10-1.4

Action for Assessment Rollback

The Commonwealth Court in City of Lancaster v. County of Lancaster, 599 A.2d 289 (Pa.Cmwlth. 1991), strongly condemned any spot assessment and mandated rollbacks of all assessments by the Lancaster County Board of Assessment Appeals performed in 10 of its 60 taxing districts. 358

10-1.5

The court did not provide for refunds of excessive taxes paid but ordered the assessments reduced to the original number before the de facto countywide reassessment. It must be noted that this case was decided before the 1991 amendment to the Second Class A and Third Class County Assessment Law, which prohibited spot assessments. The statute at 53 Pa.C.S. § 8801 et seq.) prohibited the board from engaging in the practice of spot reassessment and provided that the property owner could have appealed the assessment to the board or to the court and, upon a finding by the board or an adjudication by the court that the property owner had been subject to a spot reassessment, the property owner was entitled to a refund of any taxes paid (plus interest) pursuant to a spot reassessment. Therefore, it was clear that spot reassessments were prohibited under federal and state law in Pennsylvania before the enactment of the 1991 spot reassessment act (Act 1991-21), and that common pleas courts and assessment appeals boards were empowered by the Commonwealth Court to rule that any spot reassessments were void ab initio and, at a minimum, to reduce the assessment to its original state. The Commonwealth Court discussed the doctrine of assessment void ab initio in City of Connellsville v. Fayette County Tax Claim Bureau, 632 A.2d 1065 (Pa.Cmwlth. 1993). This case addressed the timing of the removal of tax-exempt status from a property. The city alleged that the assessment board failed to comply with the notice requirements of 72 P.S. § 5453.701(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). The appellate court upheld the trial court’s decision that the assessment change was void ab initio because the board failed to provide the city with proper and timely notification of the change. The lower court had found that the taxing authorities did not produce any evidence establishing that the notice of change in the city’s assessment status was mailed within five days after the date the change was made. Their failure to directly notify the city violated the statute and was therefore a fatal defect that rendered the purported change in tax status void ab initio. This proposition can be applied in two ways. First, the spot assessment was initially illegal and void ab initio, and therefore any taxes collected on the increase in assessment value must be refunded to the taxpayer. Second, any taxes collected on the increased assessment prospectively from the filing date of the instant action must be refunded. 10-1.5

Applicability of the Refund Statute

Under 72 P.S. § 5566b, a taxpayer has a remedy if he or she pays a political subdivision any taxes to which it is not entitled. In that case, upon the filing of a written and verified claim for refund of the payment, the political subdivision must make budget appropriations to repay the amount to which it was not entitled. Claims for refunds must be filed within three years after payment. 359

Spot Assessment and Selective Reassessment

Section 5566b(b) limits the right to a refund in the following manner: The right to a refund afforded by this act may not be resorted to in any case in which the taxpayer involved had or has available under any other statute, ordinance or resolution, a specific remedy by way of review, appeal, refund or otherwise, for recovery of moneys paid as aforesaid, unless the claim for refund is for the recovery of moneys paid under a provision of a statute, ordinance or resolution subsequently held, by final judgment of a court of competent jurisdiction, to be unconstitutional, or under an interpretation of such provision subsequently held by such court, to be erroneous. It may be argued that actions of any assessment appeals board in spot assessing any residents are an erroneous interpretation of the assessment law in light of the existing case law and statutes. The question arises as to whether a taxpayer is procedurally required to petition the political subdivisions for a refund of all taxes paid on the increased assessments within the last three years. Section 5566c provides that in the event a political subdivision fails to make the requested refund, the taxpayer has the right to file an action in assumpsit in the common pleas court where the political subdivision is located. The statute also provides for interest on the refund at the legally prescribed rate. The securing of a declaratory judgment that the actions of an assessment appeals board in increasing the assessments of any taxpayers were an erroneous interpretation of the statute would serve as the predicate to meet the limitation in section 5566b(b). As the Commonwealth Court held in in Tredyffrin-Easttown School District, 627 A.2d 814, a successful action in equity bypasses this statute with its three-year limitation provision and its exhaustion-of-remedies mandate. 10-2

Constitutional Prohibition against Spot Assessing

The U.S. Supreme Court dealt with tax assessment uniformity in Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, 488 U.S. 336 (1989), where West Virginia landowners challenged the values placed on their properties for taxation purposes. The trial court held that the county’s assessment system violated the equal protection clause of the U.S. Constitution. The state’s highest court reversed, and the Supreme Court granted certiorari to decide whether the tax assessments denied the petitioners the equal protection of law and, if so, whether they could constitutionally be limited to the remedy of seeking to raise the assessments of other properties. The Webster County tax assessor valued the petitioners’ real property on the basis of recent purchase price but made only minor changes to the 360

10-2

assessments of land that had not been recently sold. This practice resulted in gross disparities in the assessed value of generally comparable properties and resulted in an adjustment policy that would have required more than 500 years to equalize. The county argued that the assessment scheme was rationally related to its purpose of assessing a property at true current value: the price at which it was recently purchased. The county said that as data grew stale, it periodically adjusted assessments based on some perception of the general change in property area values. The court noted that while there might be some validity in the theoretical basis of such a method, it is the impact of the method that counts. “The use of a general adjustment as a transitional substitute for an individual reappraisal violates no constitutional command. As long as general adjustments are accurate enough over a short period of time to equalize the differences in proportion between the assessments of a class of property holders, the Equal Protection Clause is satisfied. . . . In each case, the constitutional requirement is the seasonable attainment of a rough equality in tax treatment of similarly situated property owners.” Id. at 343. The court recognized that the case did not involve permissible transitional inequality. The court found no constitutional defect in a scheme that bases an assessment on recent arm’s-length purchase prices of the properties but uses a general adjustment as a transitional substitute for an individual reappraisal of other parcels. The problem was that, because of the difference in the dates of the appraised values, some of the petitioners’ property was assessed at roughly 35 times that of comparable property. The equal protection clause permits a state to divide different kinds of property into classes and to assign to each a different tax burden as long as the determinations are neither arbitrary nor capricious. West Virginia law and its constitution provide that all property of the kind held by the petitioners must be taxed uniformly according to its estimated market value. The court found that the county assessor was substituting her own judgment and procedures in place of the state’s constitutional requirements. The court therefore held that the petitioners were denied equal protection of the laws guaranteed to them by the Fourteenth Amendment. The court determined that the petitioners had no constitutional complaint simply because their property is assessed for real property tax purposes as a figure equal to 50 percent of the price paid for it. The court determined, however, that their real complaint is a comparative one, namely, the quality of their assessments in relation to others on properties that had not recently been sold. While the West Virginia high court had indicated that the petitioners’ remedy was to commence an action demanding the state increase low assessments on properties that had not been recently sold, the Supreme Court held that the petitioners may not be remitted to the remedies specified by that court. 361

Spot Assessment and Selective Reassessment

The Supreme Court recognized the volatility of real estate values in response to economic circumstances, and it stated that it is not required that there be an immediate general adjustment on the basis of the latest market developments. The constitutional requirement is the reasonable attainment of a rough equality in tax treatment of similarly situated property owners. The states have broad taxing powers. But even so, the determinations that are made must comport with the wording and criteria set out by the state’s constitution, laws, and regulations. Within those confines, the usual platitudes apply. Most of the strictures come down to the issues of reasonableness, equality, and an absence of arbitrariness or capriciousness on the part of the taxing authorities. The Supreme Court determined that there was no need to decide whether the Webster County assessment method would stand on a different footing if it were the law of a state, generally applied, instead of the aberrational enforcement policy it seems to be. This determination was apparently the result of a close reading of the state constitution, as well as statutes and practice. The opinion stated that the justices were not aware or advised of any West Virginia statute or practice that authorized individual counties to fashion their own substantive assessment policies independently of state statutes. In support of this contention, the court noted that West Virginia has a state tax commissioner who recommends levels of value on assessment in guidelines published for use by local assessors. Therefore, the practice under consideration appeared to be contrary to those guidelines. The court placed great reliance on the individual and explicit language of the state constitution and, consequently, stated that a method of assessing properties that might be appropriate in one state might be inappropriate in another state because of different wording in their respective constitutions. Acknowledging constitutional variables, the court in a footnote mentioned a similar policy adopted in California in 1978 that generally provides that property will be assessed at its 1975–1976 value and reassessed only when transferred or constructed upon, or in a limited manner for inflation. This system is grounded on the belief that taxes should be based on the original cost of property and should not tax unrealized paper gains in the value of property. 10-3

What Constitutes Spot Assessing

In Callas v. Armstrong County Board of Assessment, 453 A.2d 25 (Pa.Cmwlth. 1982), the Commonwealth Court held that an assessment appeals board had the authority and duty to correct erroneous and improper assessments to achieve mandated uniformity.

362

10-3

In the case, the taxpayers acquired real property that was appraised at $300 per front-foot at the time of purchase. The property’s net front-foot valuation, based on $300 per front-foot, amounted to $333.06, resulting in a land appraisal figure of about $18,500 and an assessment of $7,400. A previous countywide reassessment in 1956 established the front-foot valuation for land in that area of $500. In 1974 and 1975, the property appraisals were increased to $78,500 and $93,500, respectively (yielding respective assessments of $31,400 and $37,400), to reflect the gradual completion of a new two-story office building. In 1980, the assessment appeals board directed the chief assessor to recheck all property assessments in the county. The chief assessor discovered that the property’s land assessment was incorrect under the 1956 reassessment requirements. To correct this error, the land appraisal was adjusted to reflect the per frontfoot value of $500, resulting in an assessment increase of about $4,930 for the 1981 tax year. Based on this new assessment, the taxpayers appealed to the board and, subsequently, to the common pleas court. They argued that the $500 per front-foot valuation was incorporated into the 1974 and 1975 assessments, which raised the land appraisal in accordance with the 1956 reassessment. They alleged that the board could not adjust their 1981 property assessment unless and until all properties in the county had been reassessed. The court found that the 1974 and 1975 assessments reflected an increase in the valuation of the improvements on the land rather than of the land itself. Therefore, the court held that the 1981 assessment did not constitute a reassessment, let alone a selective reassessment, but simply represented a correction of a land valuation error. On appeal, the Commonwealth Court examined whether the assessment appeals board had the authority to correct this assessment error. The court stated: The taxpayers argue that, since there is no provision in the Fourth to Eighth Class County Assessment Law (Assessment Law) expressly permitting for the correction of assessment errors, any assessment change should be nullified. We recognize that the Assessment Law is not a flawless piece of legislation, and we note its failure to cover certain specific matters. The intent of the Assessment Law, however, is unmistakable: to achieve uniformity of assessments throughout each fourth to eighth class county based on the actual value of the properties assessed. Here, the original assessments had not been based on actual value as required by Section 602(a) of the Assessment Law. The Board directed the chief assessor to recheck valuations throughout the county. As a result of this investigation, the chief assessor corrected the valuation error by applying the $500 per front-foot schedule established in the 1956 363

Spot Assessment and Selective Reassessment

Assessment. If the taxing authority were not permitted to correct clerical or mathematical assessment errors, uniformity would not be maintained and such non-uniform assessments would be illegal as violative of both our Constitution and the Assessment Law. Such a result is absurd and would result in some taxpayers bearing an excessive tax burden. Accordingly, we conclude that the Board has the power (and, indeed, the duty) to correct erroneous and improper assessments to achieve the mandated uniformity. Id. at 27 (emphasis in original). Therefore, this case holds that assessment appeals board is permitted to correct clerical or mathematical assessment errors that were made during the most recent reassessment. In O’Merle v. Monroe County Board of Assessment Appeals, 504 A.2d 975 (Pa.Cmwlth. 1986), the Commonwealth Court examined the permissible scope of the correction of assessment errors. In this case, the county assessor’s office sent two appraisers to the taxpayers’ property, where, based on the property’s exterior appearance, an additional fireplace, and the enclosure of porches, they increased the cost and design factor from 0 to 10 percent, increased the grade factor from B+5 to B+10, eliminated a 15 percent depreciation factor, and increased the “ladder computation” of the property’s value. These changes raised the assessment on the house 41 percent to $13,600. All parties stipulated that the ratio of assessed value to market value was 11 percent before reassessment and 14 percent afterward, compared with the median ratio of 12.4 percent in the township. The taxpayers appealed to the Commonwealth Court from the dismissal of their appeal by the court of common pleas. The appellants claimed that the reassessment was not authorized by the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.101–5453.706 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). The Commonwealth Court cited Callas, 453 A.2d 25, for guidance on the permissible scope of correction of assessment errors. In Callas the court held that no explicit provision of the Fourth to Eighth Class County Assessment Law permitted the correction of prior assessment errors. Selective reassessment to correct errors will be presumed to be authorized based on both the intent of the assessment law and the mandates of the uniformity provision of the Pennsylvania Constitution. In O’Merle, the chief assessor stated: [O]ur fieldmen go out and look at every property at least once a year; pull the card—what triggered this originally, from 1980, was one of our field persons brought this property back to the attention of Mr. Fetherman because at that time we had a market value on it of forty-seven thousand, eight hundred and seventy, in 1980, and the actual purchase price was a hundred and seventeen thousand, 364

10-3

five hundred. This is not unusual. This sort of triggers a response to see whether everything is correct on the card. *

*

*

[C]ounty-wide reassessment may be barred by 72 P.S. § 5453.602(b) of the Assessment Law. See Croasdale v. Dauphin County Board of Assessment Appeals, 89 Pa. Commonwealth Ct. 409, 492 A.2d 793 (1985) (third class county may not levy reassessment on 90% of homes until county-wide reassessment is finished). O’Merle, 504 A.2d at 975, n.3 (emphasis in original). In evaluating whether the reassessment fit within the Callas exception, the court stated: We find that the lower court erred as a matter of law in finding the reassessment fit the Callas exception. Although the initial factors of an undiscovered second chimney and recently enclosed porch might arguably have been the animus for adjusting appellants’ assessment, the corpus of the operation thereafter performed on appellants’ tax card exceeded the mere correction of “clerical or mathematical assessment errors” contemplated by Callas. Id. at 277, 453 A.2d at 27. The power under Callas to correct mistakes does not permit the application of a tax increase under the guise of an updated methodology of assessment. It is clear from Chief Assessor Richter’s testimony that the purpose of this portion of the reassessment was not to correct mistakes in the 1972 reassessment, but to bring the assessment on the house into line with the current market value. The intent of the Board was evidenced by the notation on the appellants’ property tax card, which stated; “4/14/80—CHANGED GRADE AND C+D TO BRING HIS HOUSE INTO UNIFORMITY WITH OTHERS OF ITS TYPE—FOR EXAMPLE . . . [ANOTHER PROPERTY TAX ID NUMBER].” Although appellees assert these changes were made “uniformly”, the new grade factor and depreciation factor methodology was only applied to reassessments initiated in the course of error correction, meaning that appellants’ home is being assessed using a post-1980 methodology, while other similar homes are being assessed using a 1972 methodology. It is clear from the record that the commissioners or the Chief Assessor had authorized selective reassessment of appellants’ house without formally instituting countywide reassessment. The additional changes using an updated methodology constituted 365

Spot Assessment and Selective Reassessment

a selective reassessment which went beyond mere correction. The action, therefore, was without statutory authority. Id. at 977. The Commonwealth Court remanded the case to the trial court with instructions that any correction to the assessment be made in accordance with methods in use at the time of the original 1972 assessment. O’Merle holds that no selective reassessment will be allowed under the guise of mathematical or clerical errors. Furthermore, any deviation in methodology from the previous countywide reassessment will not be permitted. Therefore, unless the assessor’s action complies with the law, it must be justified under the Callas exception, which permits the correction of clerical or mathematical errors. 10-4

The Death Knell of Spot Assessment

The Commonwealth Court’s decision in Althouse v. County of Monroe, 633 A.2d 1267 (Pa.Cmwlth. 1993), marked the death knell of spot assessment practices in Pennsylvania. The appellants in this case owned four properties in a subdivision named Birnam Woods. In a 1989 countywide reassessment, these four lots were respectively assessed at $3,800, $4,670, $4,320, and $4,540, representing respective fair market values of $15,200, $18,680, $17,280, and $18,160. At the time of the countywide reassessment there had not been enough sales of homes in Birnam Woods to establish internal analysis of property values, so the values of the appellants’ properties were based on comparable properties outside the subdivision. After the reassessment, other properties in Birnam Woods sold at prices higher than the value assigned to the taxpayers’ properties. The assessor’s office brought this to the attention of the Monroe County Board of Assessment Appeals, which ordered the assessments of the appellants’ properties raised to conform with the sale prices of the lots sold after the reassessment. The taxpayers appealed this action to the board, which made minor adjustments to the assessments but essentially denied the appeal. The court of common pleas held that the board was not authorized to reassess selected parcels without conducting a countywide reassessment and ordered the board to reduce the assessments to their original values. On appeal to the Commonwealth Court, the board justified its actions by citing Callas, 453 A.2d 25, where the taxing authorities were permitted to change assessments to correct mathematical or clerical errors. The appellate court totally rejected the application of Callas to the facts of this case, stating: In Callas, when the taxpayers acquired the subject property, the land was appraised at $300.00 per front-foot, although a previously completed county-wide reassessment established the front-foot valuation for land in that area as $500.00. The county assessor later adjusted the appraisal to reflect the cor366

10-4

rect front-foot value. On appeal by the taxpayers, we held that the Board of Assessment could correct clerical or mathematical assessment errors in order to achieve constitutionallymandated uniformity with the existing assessment structure. However, Callas is distinguishable from this case. First, the assessor in Callas rechecked property valuations throughout the county before determining that a valuation error had been made. Second, the correction merely brought the property assessment in line with the figure established in the prior county-wide reassessment; therefore, it was not a selective reassessment. Most importantly, the adjustment in valuation reflected a clerical or mathematical error, and not, as here, a perceived error in determining the market value of the property. We agree with Taxpayers that Callas contemplated allowing such adjustments only to correct clerical or mathematical assessment errors, not to bring an assessment into line with the property’s current market value. Althouse, 633 A.2d at 1270 (emphasis in original). The court said that O’Merle, 504 A.2d 975, controlled here. Where the true purpose of the assessment change is to bring the property in line with its current market value, the change cannot be semantically disguised as a correction of a clerical or mathematical error. The board claimed that it had relied on a provision of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.701(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), to perform the reassessment. The law stated: Upon receipt of the assessment roll from the assessor, or as soon thereafter as possible, the Board shall examine and inquire whether the assessments and valuations have been made in conformity with the provisions of this act, and shall revise the same, increasing or decreasing the assessments and valuations as in their judgment may seem proper, and shall add thereto such property or subjects of taxation as may have been omitted. . . . The board shall, on or before the fifteenth day of July prepare an assessment roll or list of persons and property subject to local taxation, together with the value placed upon each person and each parcel or tract of real property. The court rejected the board’s interpretation of the law and held that section 5453.701(a) did not authorize selective reassessment to update property values. It simply provided that the board may adjust and correct errors in order to prepare its assessment roll by July 15. This section did not authorize the board to correct errors any time it wished. 367

Spot Assessment and Selective Reassessment

The court further held: The Taxing Authorities also attempt to distinguish O’Merle from this case on the basis that the O’Merle reassessment was done using an updated method of valuation. We do not find this distinction to be significant. Here and in O’Merle, the taxing authorities wished to adjust the assessed value to make it reflect its current market value more accurately; this is impermissible without a county-wide reassessment. The Taxing Authorities also suggest that the type of “error” they made in this case, i.e., failing to anticipate the kind of prices at which the other property in the Birnam Woods subdivision would be sold, is the most serious assessment valuation error imaginable and that it is absurd not to allow them to correct it. We disagree. To begin with, we note that the sales of the Birnam Woods lots at higher-than-anticipated prices occurred after the 1989 assessment of the subject properties. The Taxing Authorities’ attempt to label the 1989 valuations as “erroneous” because circumstances changed later is contrived. In reality it is an attempt to update the assessment to reflect current market values. Moreover, even if the valuations were “erroneous,” such error is not the type which may be corrected without a county-wide reassessment. The Callas exception is limited to clerical or mathematical errors. Althouse, 633 A.2d at 1270–71 (emphasis in original). In a harshly worded final statement, the court admonished the taxing authorities: The Law does not permit reassessment of property except in certain limited circumstances, none of which apply here. This court will not allow the Taxing Authorities to reassess property in violation of the Law. Id. at 1271. This case is extremely significant because it involved a fourth to eighth class county. The 1991 amendments to the Second Class A and Third Class County Assessment Law, defining spot assessment and prohibiting its practice, did not apply to the Fourth to Eighth Class County Assessment Law. Therefore, it is clear that the practice of spot assessment was illegal prior to the 1991 amendments under then-existing statutory, case, and constitutional law. In Berwick Associates v. Columbia County Board of Assessment Appeals, 929 A.2d 708 (Pa.Cmwlth. 2007), the Commonwealth Court once again examined a county’s action in increasing the value of an individual property without reassessing the whole county. The result of this case was 368

10-5

consistent with the earlier line of cases dealing with spot assessment. Here, the assessment appeals board reevaluated the market value of a shopping mall and concluded that it had increased. Therefore, the board raised the assessment from $649,250 to nearly $1.1 million. The taxpayer appealed to the board and lost its case. Subsequently, the taxpayer appealed to the common pleas court on the basis that the increase was an illegal spot assessment and was excessive. The court reduced the assessment to $790,500 but did not address the spot assessment issue. On appeal, the Commonwealth Court evaluated whether the board’s action was an illegal spot assessment under the Fourth to Eighth Class County Assessment Law. The county argued that one of the conditions in 72 P.S. § 5453.602a (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) applied and permitted the increase in the assessment. The statute stated: The board may change the assessed value on real property when (i) a parcel of land is divided and conveyed away in smaller parcels; or (ii) when the economy of the county or any portion thereof has depreciated or appreciated to such extent that real estate values generally in that area are affected, and (iii) when improvements are made to real property or existing improvements are removed from real property or are destroyed. In this case the only possible basis for the board’s action was subsection (ii), which required a general increase in real estate value in the area as a result of an increase in the area’s economic activity. The only evidence in this case was that the economic activity of the shopping mall increased; there was no evidence to support the contention that real estate values increased because of increased economic activity in the area. Therefore, the appellate court ordered the board to reinstate the taxpayer’s assessment of $649,250 because the increase was an illegal spot assessment. Note that this part of the statute was not reenacted in the Consolidated County Assessment Law effective January 1, 2011. 10-5

Spot Assessment and Building Renovations

After more than a decade of lower court decisions, the Pennsylvania Supreme Court finally weighed in on illegal spot assessments in Groner v. Monroe County Board of Assessment Appeals, 803 A.2d 1270 (Pa. 2002). The taxpayer owned a commercial property that he converted from a clothing store to a brokerage office by removing dressing rooms, storage rooms, counters, carpeting, lighting, shelving, and hanging fixtures and by building partition walls to create three offices. The renovations cost $58,000, and the assessment appeals board increased the property’s fair market value 55 percent from $136,200 to $176,200. The taxpayer appealed the increase, lost at the board level, and then appealed to common pleas court, 369

Spot Assessment and Selective Reassessment

which reduced the assessment to the amount prior to the renovations. The Commonwealth Court affirmed. Before the Supreme Court, the taxpayer alleged that the renovations were cosmetic only and that the assessor used the grant of a building permit to investigate the renovations and engage in illegal spot assessing. The board countered that it had the legal authority to reassess, as the change of use of the property increased its value. The board contended that the renovations were an “improvement” to the property under the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.602a (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), and therefore a triggering event that would permit reassessment. The law also stated that “normal regular repairs to a building aggregating one thousand dollars ($1,000) or less in value annually shall not be deemed cause for a change in valuation.” The Supreme Court rejected the board’s argument and held that the reassessment was an illegal spot assessment. The court stated: Not every bit of work done to change a building constitutes an improvement. “Improvement” has been defined as a “permanent addition to or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs.” Spahr-Alder Group v. Zoning Board of Adjustment of Pittsburgh, 135 Pa. Commw. 561, 581 A.2d 1002, 1004 (Pa. Cmwlth. 1990). Here, the renovations exceeded $1,000 set forth in § 602a, but that figure is a floor, not a ceiling. That is, costs under $1,000 annually “shall not” be the cause of revaluing the property. However, the statute does not say that expenses over $1,000 are improvements per se. Indeed, $1,000 in today’s world might be consumed by common repairs such as replacing a water heater, air conditioner, or carpet, none of which enhance the capital value of the building. Groner, 803 A.2d at 1273. This case is significant because the Supreme Court has spoken on the matter and has taken a very strict interpretation of the prohibition against spot reassessment. The Commonwealth Court in In re Delphais, 903 A.2d 80 (Pa.Cmwlth. 2006), examined the extent of an assessor’s ability to reassess renovated commercial property. The taxpayers in this case owned a 68,000-squarefoot, single-story building in Chester County. In 1978, the taxpayers leased the front part of the building, which contained 20,000 square feet, to a racquetball and fitness club. The remaining portion of the building was used as warehouse space. At the time of the last countywide reassessment in 1998, the front portion of the building included a manager’s office, racquetball courts, locker rooms, saunas, and a swimming pool. The mez370

10-5

zanine level had a fitness club with a martial arts studio and four additional offices. In 2002, the operators of the fitness club terminated their lease and ceased operations on the premises. The taxpayers were unable to lease the space to a similar operator and restored the front area of the building to unfinished warehouse space. They removed all the interior improvements, replaced the split block facade on the front of the building, and added brick facade to parts of the side walls of the building. No changes were made to the rest of the building. Before the conversion back to all warehouse space, the building was assessed at $2.8 million. After the demolition and removal of the fitness club improvements, the county increased the property’s assessment by $1.2 million for a total assessment of $4 million for tax year 2005. The taxpayers appealed, not on the basis of the amount of the assessment, but on the assessment board’s power to reassess the property. They argued that the board lacked authority to reassess the property because the improvements in question were cosmetic in nature and did not constitute assessable “improvements.” The common pleas court denied the appeal. The Commonwealth Court rejected the taxpayers’ argument, citing 72 P.S. § 5347.1 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), which provided that an assessor may make changes in an assessment when improvements are made to real property or existing improvements are removed from real property or destroyed. The court quoted the Pennsylvania Supreme Court’s opinion in Groner, 803 A.2d at 1273, which defined an “improvement” for tax assessment purposes as a “permanent addition to or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs.” In applying Groner to the facts of this case, the Commonwealth Court stated: In this case, appellant John Dulin testified that the renovations involved removing all of the interior masonry walls and plumbing and most of the mechanical systems, some of which were replaced with new equipment. Taxpayers also replaced the exterior masonry facade with a brick facade and added showroom type windows to the front western elevation and north and south elevations. These changes went well beyond “cosmetic,” regular repairs and involved a significant expenditure of labor and money. They were also clearly designed to enhance the capital value of the building since Dulin admitted that Taxpayers’ sole motivation for completing the renovations was to lease the space to three new warehouse tenants. In

371

Spot Assessment and Selective Reassessment

sum, we agree with the trial court that the renovations to Taxpayers’ building constituted assessable improvements. Delphais, 903 A.2d at 83. 10-5.1

Timing of Assessment Due to Building Renovations

In Duke Energy Fayette II, LLC v. Fayette County Board of Assessment Appeals, 116 A.3d 1176 (Pa.Cmwlth. 2015), the court found that the board conducted an impermissible spot reassessment when it waited to reassess a power plant until it lost its tax-exempt status. The plant was built in 2003 in a Keystone Opportunity Zone (KOZ), making it exempt from property taxes until 2011. Because of the station’s KOZ status, the county reasoned that there would be no return on an investment to appraise and assess the station in 2003. After the station’s KOZ status expired in 2011, the county issued a new assessment, which the owner appealed as an improper spot assessment. The initial assessment in 2003 was $1.8 million for the land. The new assessment in 2011 was $27 million for land and $8.2 million for improvements, for a total of $35.2 million. The board refused to change the assessment, and the common pleas court denied the taxpayer’s appeal. The Commonwealth Court, finding for the taxpayer, held that the 2011 assessment was improper. The court reasoned that assessment of improvements must take place when the improvements are made and not at an arbitrary time in the future.1 In contrast, the court found in Fasnacht v. Board of Property Assessment Appeals of Schuylkill County, 156 A.3d 365 (Pa.Cmwlth. 2017), that the reassessment was not made at some arbitrary time and did not constitute an impermissible spot reassessment under 53 Pa.C.S. § 8817(b). The taxpayers in this case bought the property on November 6, 2013. On June 5, 2015, the county tax assessment office notified them of a change in the property’s assessment from $33,500 to $66,100. The taxpayers appealed to the assessment appeals board, which denied the appeal. They then appealed to the court of common pleas, contending that the change of assessed value was an impermissible spot reassessment. At trial, a field appraiser for the county testified that she received a copy of a building permit for a patio enclosure issued for the property on November 23, 2010. She also testified that she visited the property on January 5, 2011, and observed that construction had begun. She said that

1.

372

The Pennsylvania Supreme Court agreed to hear the case, but the appellant filed a praecipe for discontinuance before any further proceedings occurred. The issue to be considered on appeal was whether the county’s reassessment constituted a spot reassessment where it was performed the year immediately after the expiration of the KOZ tax exemption.

10-5.1

she visited the property several times afterward, including occasions after the date the taxpayers bought the property in November 2013. She stated that while she monitored the progress of work on the patio enclosure, she also observed construction that was not included on the permit: an addition to the rear of the home, increasing the living area of the second floor; a two-story attached garage with living area above that as well; and an aboveground pool or hot tub, which held no value for assessment purposes but was also something new. She introduced photographs taken in August 1995 and September 2015 to document these changes to the property. Although acknowledging that she did not document every visit to the property, the appraiser said her file notes reflect that the garage was still under construction on May 9, 2014. On April 20, 2015, she determined that the construction was complete and issued a change-of-assessment notice. She testified that on her earlier visits to the property she had observed lumber stacked up outside and people working on the home, whereas on April 20, 2015, she saw no activity and noticed that there were curtains in the living area above the garage. Accordingly, she testified that relying on her expertise and experience, she concluded that the improvements to the property were completed on April 20, 2015. The taxpayers testified that the previous owners of the property obtained the building permit and performed the renovations and that the taxpayers did not perform any construction on the property after their purchase in November 2013. The taxpayers testified that the only changes they made to the property after purchase involved landscaping and resurfacing the driveway. The trial court determined that the field appraiser’s testimony was credible. She established that she monitored the construction on the property on numerous occasions and changed the assessment when she reasonably determined, based on her experience and expertise, that construction was finally complete. Accordingly, the court concluded that the reassessment was valid. On appeal to the Commonwealth Court, the taxpayers argued that the property’s reassessment due to improvements made before they purchased the property constituted impermissible spot reassessment. They relied on Duke Energy in arguing that the county unreasonably delayed imposition of the reassessment, rendering it invalid. The court concluded that this case was factually different from Duke Energy because the construction in Duke Energy was completed and the county was notified and made aware of the improvements, but the county chose not to immediately reassess the property until the tax abatement was set to expire some eight years later. By contrast, in this case, the court found that the testimony showed that there was no indication that the county intentionally or negligently delayed applying the value of the improvements to the property’s reassessment when the field appraiser determined construction was completed.

373

Spot Assessment and Selective Reassessment

“In reaching this conclusion, we recognize that the statutory scheme, insofar as it contains no specific requirements governing the timing of appraisal visits or timelines for applying the value of improvements to a property’s reassessment, may result in potentially painful surprises to unwary purchasers of property. Unfortunately, while we are not unsympathetic, it is not within the power of this Court to fashion a remedy for such occurrences.” Fasnacht, 156 A.3d at 369. Practice Tip: The outcome in Fasnacht is very unsettling. If you represent someone who is purchasing a property, you need to ask the seller or seller’s agent if there have been any recent construction permits filed regarding the property and, if so, whether the property has been reassessed due to the construction. You may be abile to negotiate a lower purchase price depending on the answer to account for the potential reassessment of the property and increased property taxes.

10-6

Reassessment after Condominium Declarations

In Cunius v. Board of Assessment Appeals of Chester County, 976 A.2d 635 (Pa.Cmwlth. 2009), the issue was whether the county tax assessor properly increased the total assessed value of an apartment building after it was converted to condominiums. John Cunius and his son Edward owned a 68-unit apartment building as tenants-in-common. The property was assessed for $1.5 million. The Cuniuses filed a declaration of condominium and submitted the property to condominium ownership. The property was divided into two condominium units. Unit 1 consisted of 44 apartments and 62 percent of the common area and was conveyed to John Cunius. Unit 2 consisted of 24 apartments and 38 percent of the common area and was conveyed to Edward Cunius. The property was not physically improved or changed in any manner. After the declaration of condominium, the county assessment board assigned separate parcel numbers to each condominium unit and assessed Unit 1 at $1.85 million and Unit 2 at $1 million. The Cuniuses appealed their individual assessments, and the assessment appeals the board denied relief. The common pleas court affirmed. The issue on appeal to the Commonwealth Court was whether the increase in assessment was permitted under the Uniform Condominium Act, 68 Pa.C.S. §§ 3101–3414; the General County Assessment Law, 72 P.S. §§ 5020-1–5020-602; and the Second Class A and Third Class County Assessment Law, 72 P.S. §§ 5342–5350k (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.).

374

10-6

The court held that the increase was not an illegal spot assessment and was permitted under these laws, stating: First, prior to conversion of the property to a condominium, the property was assessed as one parcel of real estate. Thereafter, pursuant to Section 3105 of the Condominium Act, the creation of the condominium authorized the local assessment authority to treat each unit as a separate parcel of real estate, which the board then did, assigning a different tax parcel number to each unit. This action also resulted in a division of land for purposes of the Assessment Law. The subsequent conveyance of the units by deed effectuated a “conveyance in smaller parcels.” Importantly, prior to these events, each cotenant had an ownership interest in the entire property. Following conveyance of the units, however, John’s and Edward’s ownership interested was reduced. Thereafter, neither John nor Edward had an ownership interest in the entire property, nor retained any ownership interest in the other’s condominium unit. Clearly, the property has been divided and conveyed away in smaller parcels, making reassessment proper under the Assessment Law. Second, reassessment upon conveyance of the condominium units is consistent with the procedure envisioned by the Pennsylvania Municipalities Planning Code (MPC). Section 10513(b) of the MPC provides that the “recording of the plat shall not constitute grounds for assessment increases until such time as lots are sold or improvements are installed on the land included within the subject plat,” 53 P.S. § 10513(b). Noting the similarity between our tax statutes and the MPC, we have observed that both statutory schemes demonstrate the General Assembly’s intent “to forbear reassessing property merely because it has been subdivided, but once there has been a change in condition of the property, i.e., such as a sale or improvement, to allow a reassessment of each new lot to occur.” Kraushaar v. Wayne County Bd. of Assessment & Revision of Taxes, 145 Pa. Commw. 314, 603 A.2d 264 (Pa.Cmwlth. 1992). Accord Penn’s Grant Assocs. v. Northampton County Bd. of Assessment Appeals, 733 A.2d 23 (Pa. Cmwlth. 1999). Cunius, 976 A.2d at 639. The basic holding of this case is that any time a property is converted into a condominium, a local assessment board has the right to reassess each condominium unit at its present fair market value and is not subject to the anti–spot assessment provision in the Second Class A and Third Class County Assessment Law. Thus, upon the re-creation of the new unit 375

Spot Assessment and Selective Reassessment

after the condominium declaration, a county assessment office should determine the fair market value and apply the applicable ratio as determined by law and place the resulting assessment upon the property. 10-7

Assessment Freeze and Spot Assessments

In Wilkinsburg School District v. Board of Property Assessment, Appeals & Review of Allegheny County, 797 A.2d 1034 (Pa.Cmwlth. 2002), the Commonwealth Court examined the effects of the county’s assessment freeze and its relationship to tax uniformity. The property in this case, an apartment complex, had been assessed at $565,000 for tax year 1995. In December 1995, the tax assessor increased the assessment to $960,000, effective for tax year 1996, with the record indicating that this change was not attributable to any new buildings, construction, or improvements. The owner appealed, and the assessment appeals board rolled back the assessment to $565,000 for tax year 1996. The appeal was granted based on the board’s unwritten policy that reassessments of real property made in 1995 and effective for tax year 1996 that increased the value of a property were to be rolled back to the prior value unless they were based on new buildings, construction, or improvements. A local school district appealed to the common pleas court, which dismissed the appeal for tax years 1996 and 1997 but allowed the school district to proceed with the subsequently incorporated tax years of 1998 and beyond. The court found that for tax years 1996 and 1997, all Allegheny County property was assessed at 25 percent of its 1995 fair market value, but because of the assessment freeze, the value for 1996 and 1997 was not at 25 percent of its fair market value. This assessment freeze effectively halted all increased assessments except for new buildings, construction, improvements, and subdivisions. On appeal to the Commonwealth Court, the school district argued that the record did not establish that there was purposeful discrimination against the taxpayer. The court rejected this argument and held: A governmental body must apply the same methodology for valuing real property to all property within its jurisdiction. City of Lancaster v. Lancaster County, 143 Pa. Commw. 476, 599 A.2d 289 (Pa. Cmwlth. 1991). In City of Lancaster this Court concluded that Lancaster County’s use of different assessment methods in certain areas, as well as making unsubstantiated wholesale adjustments to grade and depreciation factors violated the uniformity requirement of Article VII, Section 1 of the Pennsylvania Constitution. We ordered a countywide reassessment pursuant to a court-ordered time frame. Here, the Board stipulated that the event that would trigger a new assessment was a new building, construction, improve376

10-8

ments, or subdivisions. There had been no such event that would cause an increase in the property’s value. Any successful appeal by the school district (or any other taxing body) during the 1996, 1997 tax years for any reason except the three triggering events would result in a de facto spot assessment. The school district’s remedy was to attack the legality of the freeze, not to take an action that would create a different methodology for one property owner. Id. at 1036. It should be noted that Allegheny County’s assessment freeze was really an attempt by the board to comply with the case law regarding spot assessments. Before the freeze, county tax assessors on a yearly basis increased assessments on some tax parcels that had sold at prices higher than their assessed valuations or increased them for other economic reasons without reassessing the whole county as required by 72 P.S. § 5020-402(a). This selective assessment practice resulted in properties with the same value having different methods applied to determine their assessments, a clear violation of the uniformity clause of the Pennsylvania Constitution. 10-8

Class Actions Attacking Court-Ordered Across-theBoard Assessment Increases

Dunn v. Allegheny County Board of Property Assessment, Appeals & Review, 794 A.2d 416 (Pa.Cmwlth. 2002), dealt with taxpayers’ right to file class actions attacking a court-imposed 2 percent across-the-board assessment increase in Allegheny County. In 1996, the county commissioners and assessment appeals board adopted an assessment freeze that was to last for five years, until the county completed a countywide revision of all assessments. It was this assessment freeze that actually ended the spot assessment practices that had been going on for many years in the county. In the future, no assessment could be increased without a triggering event, such as a new building, new construction, improvements, or subdivision. County taxpayers asserted that the assessment freeze adopted was illegal, alleging that even their properties were properly assessed, other properties throughout were not. They taxpayers further contended that the board failed to follow a uniform assessment system. In fact, the suit alleged that the assessment freeze was illegal because it halted spot assessments. The court of common pleas ruled that the assessment freeze was unlawful and ordered a countywide reassessment. Ordering a countywide reassessment was the appropriate remedy under the existing case law, but undoing the assessment freeze, which was merely a restatement of the constraints of the case law interpreting the uniformity clause of the Pennsylvania Constitution, was questionable. The lower court further ordered that the county remediate the alleged negative effects of the assessment freeze. 377

Spot Assessment and Selective Reassessment

In 1998, the assessment board filed a petition for modification of the order, asking the lower court to approve an across-the-board 2 percent assessment increase in fair market values for 1999, with an additional 2 percent increase the next year. The court granted the petition. It is unclear how this increase in fair market values comported with the existing case law and constitutional law in Pennsylvania. No statutory provision allows an assessment board, even with court approval, to increase assessments without any recognized triggering events in a non-reassessment year. Many years earlier, the Commonwealth Court held in Dana Corp. v. Wentz, 505 A.2d 639 (Pa.Cmwlth. 1986), that not all real estate values inflate or deflate in a uniform manner, and to treat the properties as if they do for assessment purposes clearly violates the constitutional requirement of uniformity of taxation. Further, the Supreme Court ruled in Deitch Co. v. Board of Property Assessment, Appeals & Review of Allegheny County, 209 A.2d 397 (Pa. 1965), that all assessments should be based on their relationship to actual value. Therefore, a 2 percent across-the-board assessment increase for all properties in the county cannot have a direct relationship to their actual values, but is merely a statistical device having some purpose that appears to be inconsistent with the existing case law. A group of taxpayers challenged the trial court’s order in a class action that described the class as “all owners of taxable residential, commercial, and industrial real estate in the County of Allegheny who received a Change Notice from the Board, or a tax bill on real property from the County, increasing their assessment by 2%, more or less.” Dunn, 794 A.2d at 420. The common pleas court denied certification, finding that there would be no benefit to the class because any damages award would be paid by increasing the class members’ taxes. If they were concerned by the 2 percent increase, their appropriate action would have been for the voters to elect school board members, township commissioners, and municipal council members who would reduce millage rates to offset the 2 percent increase in the assessments and taxes. Clearly, this was an unconventional ruling that basically amounted to taking away citizens’ rights to litigate what on its face appeared to be an ultra vires usurpation by the judiciary of the legislative power to tax, on the basis that if the tax is ruled illegal, the class members will be required to pay the refunds themselves. On appeal, the Commonwealth Court reversed and ordered that the class be certified. The court stated: Appellants respond that Common Pleas erred by engaging in speculation when it concluded that, “a class representative who brings a class action seeking monetary relief on behalf of a class is not representing the interests of the class if, by and large, the persons who will receive a monetary award will also ultimately provide the funds for the award.” . . . Appellants contend that there are a myriad of mechanisms to raise neces378

10-9

sary revenues available to municipalities, other than property taxes. They also point out that the taxing jurisdictions have been aware from the start that the taxes collected on the basis of the 2% tax increase in the assessment of all real estate was under attack. Finally, they assert that Common Pleas’ argument, if taken to its logical extension, would mean that no group of taxpayers could ever overturn and be refunded money garnered from an unlawful tax. We must agree. Id. at 425. Finally, the court concluded: In denying class certification, Common Pleas appeared unduly concerned with the motives of Appellants. Failure of certification here would mean that court-imposed/across-the-board identical assessment increases would mean more disparate tax burdens, the essence of this litigation, which would escape important review and would result in the impaired ability of property owners of this state to challenge universally applied tax increases on the grounds that any monies refunded would be, of necessity, provided by the taxpayers themselves. Id. at 427. It appears that the appellate court was of the opinion that the lower court’s peculiar ruling must be submitted for judicial review. 10-9

Spot Assessment under the Guise of Correction of Mathematical and Clerical Errors

In Radecke v. York County Board of Assessment Appeals, 798 A.2d 265 (Pa.Cmwlth. 2002), the Commonwealth Court reexamined what constitutes spot assessing in Pennsylvania. In this case, the subject property was originally assessed at $85,300 and reassessed in 1996 at $116,680 as part of a countywide reassessment. After the property sold for $138,000 a year later, a county assessment officer inspected the premises and discovered improvements that included an air conditioning system, a concrete patio, and an enclosed porch. The assessor also noted that there were two full bathrooms instead of one and a recreation room in the basement. The assessor calculated the value of the improvements to the property and increased the assessed value to $138,440. Consequently, the new owner appealed on the basis that he was subject to an illegal spot assessment in violation of 72 P.S. § 5348.1 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) and the tax uniformity clause of the Pennsylvania Constitution. The common pleas court found that the assessment office was permitted under Callas, 453 A.2d 25, to correct mathematical or clerical errors in order to make tax assessments uniform. The taxpayer appealed.

379

Spot Assessment and Selective Reassessment

The assessment office argued that its action in raising the assessment was merely to correct a clerical omission discovered during the validation of the sale for realty transfer tax purposes and for the accuracy of data collected for the State Tax Equalization Board. The chief assessor had testified that it was standard procedure to send an assessor out to a property after a sale to correct clerical or mathematical errors. The taxpayer, citing Althouse, stated that the purpose of an assessment adjustment should be to correct mathematical or clerical errors only, not to bring an assessment into line with the property’s current market value. The Commonwealth Court, in reversing the lower court, stated: Callas is distinguishable from the present factual situation because the assessor in Callas rechecked property valuations throughout the county before determining that a valuation error had been made. The adjustment in valuation reflected a clerical or mathematical error, and not a perceived error in determining the market value of the property. Moreover, a change in assessment must come when the improvements are made and not at an arbitrary time in the future. While an assessor may change the assessed valuation on real property when improvements are made to real property, the majority of the improvements in question were made prior to Taxpayer’s purchase. Upon examination of the record, we agree with the Taxpayer. While a taxing authority is permitted to correct clerical or mathematical assessment errors in an effort to maintain uniformity, we find that the Board improperly approved an increased assessment on Taxpayer’s property thereby subjecting Taxpayer to an impermissible spot reassessment. Here, the essence of the assessment was to bring the property in line with the fair market value of other properties in the neighborhood, not to simply correct mathematical or clerical errors. Radecke, 798 A.2d at 268. The sum and substance of what the county appeared to be doing is a review of every property sale, and when the sale price is found to be higher than the assessment on the property, an assessment investigation of that property is conducted. Obviously, if the sale price on a property is higher than its assessed value, there must be an error, and for that reason an assessor will be sent to the property to investigate. There are many types of assessment errors; some are legally correctable, but it is illegal to correct others. Mathematical errors are the result of mistakes such as multiplying the area of a 20-foot-by-20-foot building and arriving at a product of 4,000 square feet instead of 400 square feet. Clerical errors are mistakes made in writing or recording information. For 380

10-9

example, a clerk who enters into the assessment records that a property is 2,000 square feet in area when the original document it was copied from indicates that the property is 200 square feet has made a clerical error. Omission errors are made when fundamental taxable features are overlooked during the base-year reassessment. For example, in O’Merle, 504 A.2d 975, when it was discovered that a property had two chimneys but had only been charged with one chimney during the revaluation, it was proper to increase the assessment to reflect the second chimney using the base-year valuation for the chimney. Judgment errors are not correctable until the next reassessment. Any change or correction of judgment errors must wait until all such judgment errors are corrected at the same time; otherwise the selective reassessment of some of these properties would be considered an illegal spot assessment under 53 Pa.C.S. § 8843. To correct judgment valuation errors only after the properties are sold is a clear violation of this statute and an adoption of an illegal “welcome stranger” policy. Clearly, numerous judgment valuation errors exist for properties that do not sell, and to revalue only properties that sell is discriminatory and illustrative of spot assessment practices. Errors that are the result of inflation are not correctable and must be addressed during the next countywide reassessment. It is axiomatic that not all property values increase at the same rate; therefore, when several years have passed since the last countywide reassessment, the actual values of properties will begin to diverge from their base-year value assessments. The longer the time period, the more divergence that will exist. This trend will become apparent in the relationship between the sale price of properties and their assessments. The anti–spot assessment statute, 53 Pa.C.S. § 8843, prohibits any adjustments to correct the effects of inflation. The Radecke case merely reflected the state of the law in this area at the time, as it has developed since the Althouse decision and prevents counties from using clerical or mathematical errors as a pretense to correct judgment mistakes or inflation effects, which can only be corrected by a countywide reassessment. In Krohn v. Snyder County Board of Assessment Appeals, 62 A.3d 476 (Pa.Cmwlth. 2013), the Commonwealth Court considered the tax uniformity clause, as well as the concepts of spot reassessment and actual value, in making an assessment. The case involved two generations of the Krohn family. Krohn Sr. owned two parcels of land: a two-acre tract containing a barn and a vacant 122-acre tract known as the Krohn Farm. The farm had previously been the subject of a recorded subdivision plan, in which the property was to be divided into two lots, but it appeared that the plan was never pursued after the initial recording. Krohn Sr. transferred the farm (as a single parcel, notwithstanding the prior subdivision plan) to Krohn Jr. After the transfer, the county assessor’s office issued notices of reassessment for both parcels, stating its justification as “the sale of land and the assessment of a home site not as381

Spot Assessment and Selective Reassessment

sessed previously.” Id. at 477. At the time, the assessor’s office had a longstanding policy of including a “home site value” in the value of parcels determined to have a residential home site as their highest and best use. The office took the position that the reassessments were necessary to maintain uniformity with other parcels in the county. The Krohns both filed appeals of the reassessments, seeking relief on the ground that the reassessments were impermissible spot assessments and improperly included a hypothetical use in the valuation. The assessment appeals board denied both appeals. Further appeals to the court of common pleas followed, in which the Krohns, in a consolidated action, raised the same arguments for relief. The trial court, in denying the appeals, agreed with the board that the reassessments were necessary to comply with the uniformity clause of the Pennsylvania Constitution. Before the Commonwealth Court, the Krohns again pressed their case that the reassessments were invalid as impermissible spot assessments that improperly included hypothetical use value. This time, the appellate court agreed with them. In overturning the trial court’s decision, the court explained: The Uniformity Clause mandates uniform rates of taxation on similarly situated properties. The fact that the Board has chosen to arbitrarily increase the value of property by declaring homesites where no homes exist, and where no subdivision plan has been filed, designating the property as being an individual homesite, is simply a fictitious method of increasing the taxable value of the property by assigning it an unsupported hypothetical value. Id. at 480. The appellate court instructed the trial court to direct the board to nullify the reassessments and return both parcels’ assessments to their previous levels. 10-10

Additions to the Assessment Rolls and Spot Assessment

In In re Appeal of Young, 911 A.2d 605 (Pa.Cmwlth. 2006), the court examined the implications of adding land used to support cell towers to the assessment rolls. In 1997, the taxpayers in this case leased a 2,500square-foot area of their land to a telecommunications company, which built a 220-foot-high cellular tower on the leasehold in 1999. In 2002, Lawrence County performed a countywide reassessment. In 2005, the county assessment office notified the taxpayers that, without subdivision or survey, the county was setting aside a one-acre portion of the taxpayers’ property and valuing it at $89,200. This value was based upon an arbitrary monthly lease income of $1,000. The county, without any survey or subdivision, created a new tax parcel for the one-acre site. 382

10-10

Before this reassessment, the assessment office separately assessed the telecommunications company for the value of the cell tower on the property. The taxpayers appealed court of common pleas on the basis that the assessment office’s actions constituted an illegal spot assessment. They contended that the cell tower already existed on the property when the county conducted the 2002 reassessment and that none of the statutory circumstances allowing a reassessment had occurred (land divided and conveyed away in smaller parcels, increase in county economic activity, or improvements added to or removed from property). 72 P.S. § 5453.602a (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). The board’s position was that it added the one-acre parcel in light of the decision in Shenandoah Mobile Co. v. Dauphin County Board of Assessment Appeals, 869 A.2d 562 (Pa.Cmwlth. 2005), which held that cell towers may be taxed as real estate. The lower court ruled in the taxpayers’ favor and found that Shenandoah was distinguishable because the board here was not adding the cell tower itself to the rolls, but rather assigning a new tax identification number to the property and assessing this “new property” separately from the original assessed property. The county appealed to the Commonwealth Court, which sustained the lower court opinion. The appellate court pointed out that there are limited conditions that justify a reassessment of a property: (1) a countywide reassessment, (2) appeal of a property assessment by the owner or by a taxing authority, (3) mathematical or clerical errors under Callas, 453 A.2d 25, or (4) readjustments under 72 P.S. § 5453.703c and the three limited conditions set forth in 72 P.S. § 5453.602a (both statutes now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). The court noted that when a change in an assessment is based on improvements made to real property, the change must be made when the improvements are made and not at some arbitrary time in the future, citing Radecke, 798 A.2d 265. In rejecting the county’s argument, the court held: We agree with Landowners and the trial court that Shenandoah does not control here. Under Shenandoah, a cellular tower is considered an improvement to real property; therefore, the cellular tower on Landowners’ property constitutes an improvement which could authorize a reassessment pursuant to section 602.1 of the Assessment Law, 72 P.S. § 5453.602a. However, a review of the record reveals that, in its adjudication, the Board did not find that any “improvements” were made to the one-acre parcel that would increase its value. To the contrary, in its April 1, 2005, decision, the Board indicates that the value of the land, i.e., the one-acre parcel, was $ 71,400; the Board placed no value on any improvements made to Landowners’ one-acre parcel. . . . We question how the Board can argue on appeal that 383

Spot Assessment and Selective Reassessment

its 2005 reassessment of the one-acre parcels was based upon improvements when the Board found that no improvements were made to the one-acre parcel or, alternatively, that the improvements made to Landowners’ one-acre parcel had no value. Furthermore, to the extent that the construction of the cellular tower could be deemed an improvement to the one-acre parcel on which a reassessment could be based, we disagree with the Board’s contention that the improvement occurred in 2005. Instead, we agree with Landowners that this improvement occurred in 1997, when Landowners entered into the lease with the telecommunications provider or in 1999, when the cellular tower was constructed. As stated previously, when a change in an assessment is made based on a property owner improving the real property, the changes in the assessment must come when the improvements are made and not at an arbitrary time in the future. Shenandoah; Radecke. Prior to 2005, the Board: (1) knew of the lease agreement to use the one-acre parcel for a cellular tower; (2) knew that a portion of Landowners’ property had become income-producing property; (3) reassessed Landowners’ property, including the leased portion with the cellular tower on it, during the 2002 countywide reassessment; and (4) ultimately based its 2005 reassessment and valuation of the one-acre parcel on the value of the lease agreement. Young, 911 A.2d at 610–11 (emphasis in orginal). The court found that the county should have reassessed the property, at the latest, during the 2002 reassessment; therefore, the 2005 action was an impermissible spot reassessment. In a footnote to the opinion, the court questioned the practice of assigning a new parcel number for the one-acre parcel, when the property had been neither conveyed nor subdivided. This statement appears to condemn the frequent practice of assessment offices arbitrarily assigning new parcel numbers and identifications out of existing properties. This practice is very common when counties assign separate parcel numbers and assessments to leasehold interests and send tax bills directly to the lessee rather than to the owner of the land, who has a reversionary interest in the improvements. The question arises as to how the county tax claim office can sell a leasehold interest in realty when the lessee has not paid the taxes. This case holds that it is not the best practice to create new tax parcels in which a subdivision or a conveyance is involved. 10-11

Illegality of De Facto Reassessments

The Commonwealth Court in Croasdale v. Dauphin County Board of Assessment, 492 A.2d 793 (Pa.Cmwlth. 1985) (Croasdale I), reinterpreted 384

10-11

the definition of a countywide assessment. The applicable statute, 72 P.S. § 5020-402(a), states: It shall be the duty of the several elected and appointed assessors, and, in townships of the first class, of the assessors, assistant township assessors and assistant triennial assessors, to rate and value all objects of taxation, whether for county, city, township, town, school, institution district, poor or borough purposes, according to the actual value thereof, and at such rates and prices for which the same would separately bona fide sell. In arriving at actual value the county may utilize either the current market value or it may adopt a base year market value. In arriving at such value the price at which any property may actually have been sold either in the base year or in the current taxable year, shall be considered but shall not be controlling. Instead such selling price, estimated or actual, shall be subject to revision by increase or decrease to accomplish equalization with other similar property within the taxing district. In arriving at the actual value, all three methods, namely, cost (reproduction or replacement, as applicable, less depreciation and all forms of obsolescence), comparable sales and income approaches, must be considered in conjunction with one another. Except in counties of the first class, no political subdivision shall levy real estate taxes on a county-wide revised assessment of real property until it has been completed for the entire county. In this case, the last countywide reassessment of Dauphin County had occurred in 1973, and about 90 percent of the properties in the county were underassessed. In 1983, the county determined that a countywide reassessment was not economically feasible and instead decided to correct the underassessment problem with a neighborhood-by-neighborhood reassessment that would eventually encompass 90 percent of the county over a three-year period. A taxpayer in the only neighborhood where the revised assessments were implemented filed suit to prohibit collection of the increased tax. The common pleas court upheld the county’s assessment program. The Commonwealth Court reversed in a majority decision, stating: Hence, we must determine what constitutes a countywide assessment. William Collins, Director of Assessments for Dauphin County, testified before the trial court in this matter. When asked by Mr. McKeon, attorney for appellant, Mr. Collins stated that not only was the assessment plan to cover the entire county geographically, but that at least ninety percent of the properties in Dauphin County will be reassessed. The 385

Spot Assessment and Selective Reassessment

Board argues that since ten percent of the properties are assessed at an accurate market value and since ninety percent are not, that a reassessment of the remaining ninety percent would not constitute a county wide reassessment. This is a distinction without merit. In reality, the plan will cover virtually all of Dauphin County and, as such, we would be hiding behind the sheerest of semantic veils to find that the intended plan is not a county wide reassessment. Whether or not the Board calls its plan a piecemeal assessment, the plan’s effect as a county wide assessment is apparent. We find here a de facto reassessment of the entire county such that the delay provisions of Section 402(a), as it pertains to third class counties, must be triggered. Croasdale I, 492 A.2d at 795–96. The majority held that the taxpayer’s reassessment was part and parcel of a countywide reassessment and was therefore illegal until completion of the countywide reassessment. In summary, the law favors the remedy of countywide reassessment over the band-aid solution of spot reassessing. The U.S. and Pennsylvania Constitutions, Pennsylvania statutory law, and appellate court interpretations have eliminated spot assessment as a means of correcting assessment inequities. Therefore, when the assessment scheme is no longer synchronized with the ebbs and flows of the real estate market, a countywide reassessment is the preferred legal remedy. 10-12 10-12.1

Court-Mandated Remedies for De Facto Reassessment Lancaster County Reassessment

In City of Lancaster, 599 A.2d 289, the Commonwealth Court dealt with a de facto countywide reassessment and the remedy that should be provided to the taxpayers whose rights had been violated. Lancaster County’s last countywide reassessment was conducted in 1960 and became effective on January 1, 1962. In the 1980s, rather than doing a countywide reassessment, the county and its assessment appeals board opted to develop a program of “increased maintenance” by computerizing and hiring additional staff. The board then tried to determine which of the county’s 60 districts appeared to be out of line with the rest of the county. Between 1986 and 1988, the board reviewed 10 taxing districts that had a common-level ratio 15 percent higher or lower than the common-level ratio for the county. The board’s appraisers examined every property in each of the reviewed districts, using the same procedures used previously for all new assessments and assessment reviews since 1960. As a result of these reviews, assessments were changed and implemented beginning in 1987.

386

10-12.1

A group of municipalities and individual taxpayers filed suit, arguing that the county’s action violated the uniformity clause of the Pennsylvania Constitution. The common pleas court denied the petitioners’ claims. On appeal, the county argued that “value corrections may be made to an individual parcel of land for a particular year without requiring that all properties in the county be reassessed that year,” quoting Carino v. Board of Commissioners of County of Armstrong, 468 A.2d 1201 (Pa.Cmwlth. 1983). The Commonwealth Court stated: We note that Carino lends no support for Appellees’ argument. The “value corrections” referred to by the Court encompassed “periodic changes in the valuation of individual parcels” as a result of the addition or removal of improvements, physical changes in the land or significant changes in the economy affecting real estate values. Id., 79 Pa.Commonwealth Ct. at 245, 468 A.2d at 1203 (emphasis in original). *

*

*

We conclude that, as a matter of law, the County, in singling out ten of the County’s taxing districts, in utilizing a different method of assessment on the properties in those districts, and in making unsubstantiated wholesale adjustments to grade and depreciation factors of certain of those properties, violated both the uniformity requirement of Article VIII, Section 1 of the Pennsylvania Constitution and the equalization requirement of 72 P.S. § 5348(d). City of Lancaster, 599 A.2d 298–99. On the issue of the de facto countywide reassessment, the court held: Although this is a difficult question, and the evidence not as compelling as that before us in Croasdale v. Dauphin County Board of Assessment Appeals, 89 Pa.Commonwealth Ct. 409, 492 A.2d 793 (1985), we must conclude that the County’s present plan to update its assessment program constitutes a de facto county-wide assessment. Were we to accept Common Pleas’ interpretation of 72 P.S. § 5348(a), we would be rendering the provisions of 72 P.S. § 5020-402(a) meaningless. Obviously, counties could perform county-wide reassessments in portions, realizing the increased revenues from each portion prior to finishing the review for the entire county thereby circumventing the prohibition of 72 P.S. § 5020-402(a). We believe that such an absurd result was not intended by the legislature in its enactment of the two sections at issue. *

*

*

387

Spot Assessment and Selective Reassessment

The evidence demonstrates that the Board’s plan is a countywide reassessment by another name. Therefore, the County’s levying on the assessments in the ten districts is a violation of Section 402(a) of the General County Assessment Law. Id. at 300. The Commonwealth Court devised a remedy for the aggrieved taxpayers: in all 10 reviewed districts, reinstate prospectively (i.e., no refunds) the assessments that existed before the reviews of 1986-1988, except in the individual cases that had already been resolved through the appeal process or in which appeals had been timely filed but not yet adjudicated. It must be noted that this case was decided before the 1991 amendment to the Second Class A and Third Class County Assessment Law, which prohibited spot assessment. This statute prohibited the board from engaging in the practice of spot reassessment and provided that the property owner may appeal the assessment to the board or to the court and, upon a finding by the board or an adjudication by the court that the property owner has been subject to a spot reassessment, the property owner shall be entitled to a refund of any taxes paid pursuant to a spot reassessment and interest thereon. Therefore, it is clear that spot reassessments were prohibited under federal and state law in Pennsylvania prior to the 1991 spot reassessment act (Act 1991-21) and that the courts of common pleas and boards of assessment appeals are empowered by the Commonwealth Court to rule that any spot reassessments are void ab initio and at a minimum to reduce the assessment back to its original state. 10-12.2

Dauphin County Reassessment—Croasdale II

The Commonwealth Court revisited spot assessments and countywide reassessments in City of Harrisburg v. Dauphin County Board of Assessment Appeals, 677 A.2d 350 (Pa.Cmwlth. 1996) (Croasdale II). In this case, the last countywide reassessment of Dauphin County was performed in 1973. In 1983, the county determined that 90 percent of the properties in the county were underassessed but that a countywide reassessment was not economically feasible. Instead it decided to perform a neighborhood-byneighborhood reassessment that would eventually encompass 90 percent of the county over a three-year period. In 1984, using a ratio reassessment program, the county reassessed every property in the Shipoke neighborhood of Harrisburg. Other areas of the city were reassessed, but the county implemented the revised assessments only in Shipoke. In 1985, the Commonwealth Court invalidated the Shipoke reassessments in Croasdale I, finding that the county’s actions constituted a de facto reassessment prohibited by 72 P.S. § 5020-402(a). In 1985, the county implemented a countywide reassessment effective January 1, 1986. In this reassessment, the county established a predetermined ratio of 100 percent of the 1973 market values and then doubled the 388

10-12.2

1973 market values in order to arrive at a market value as of January 1, 1986. In 1987 and 1988, the county began reassessing allegedly remodeled or rehabilitated property in Harrisburg only. The methodology of this reassessment involved estimating the 1987–1988 market value of the allegedly rehabilitated property using a sales comparison approach. This current market value was then inserted into a formula to arrive at a current assessment. This approach was followed even though property that had not been rehabilitated was still being assessed under a base-year system using 1973 market values. Affected taxpayers brought suit in March 1990 on the basis that the county’s reassessment practices violated the uniformity clause of the Pennsylvania Constitution. They also alleged that the 1987-1988 remodeling reassessment violated the assessment equalization statute 72 P.S. § 5348(d) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), and once again was an illegal de facto reassessment prohibited by Croasdale I. The taxpayers presented expert statistical evidence on the effect of the county’s actions on assessment uniformity. The county did not present any qualified expert to rebut the taxpayers’ evidence. The trial court sitting in equity ordered a countywide reassessment, but refused to order the county to pay the taxpayers’ refunds, attorneys’ fees, or costs. On appeal, the county contended that doctrine of laches barred the taxpayers’ lawsuit. The Commonwealth Court dismissed this contention and held that because the relief granted by the lower court was prospective only and no refunds were ordered, the school districts and municipalities that relied on the 1985 reassessments were not prejudiced by the ordering of a countywide reassessment. Further, the appellate court pointed out that the county had led people to believe that the 1985 reassessment would result in greater uniformity and assessment equalization, but it was not immediately apparent to the taxpayers that just the opposite was true. The court found that the taxpayers did not have to exhaust their administrative remedies before suing in equity in the court of common pleas. The court held: In the present case, however, Taxpayers have raised a substantial constitutional question: whether the 1985 county-wide reassessment and the 1987-1988 remodeling reassessments violate the uniformity of taxation requirement set forth in Pa. Const. Art. 8, § 1. Furthermore, in City of Lancaster v. County of Lancaster, 143 Pa. Commw. 476, 599 A.2d 289 (Pa. Cmwlth. 1991), appeal denied, 530 Pa. 634, 606 A.2d 903 (1992), a case involving facts similar to the present case, this Court accepted the plaintiff-taxpayers’ assertion of no adequate statutory remedy where the inequality resulting from a recent partial reassessment program pervaded the entire taxing scheme. Croasdale II, 677 A.2d at 354. 389

Spot Assessment and Selective Reassessment

The court found that the 1987–1988 remodeling reassessments were an illegal de facto reassessment condemned by both Croasdale I and City of Lancaster, 599 A.2d 289. The court held further: The County next contends that the trial court erred in directing a county-wide reassessment, where the testimony adduced at trial reflected only alleged inequities in assessment practices within the City of Harrisburg. It is well settled that where real estate is used as a basis for taxation, the values used for such real estate shall be arrived at and applied in a uniform and equal fashion. In Re Summit House Real Property Assessment Appeals, 22 Pa. Commw. 462, 349 A.2d 505 (Pa. Cmwlth. 1975). Here, the trial court concluded that both the 1985 reassessment and the 1987-1988 remodeling reassessments violated both the uniformity of taxation requirement in the Pa. Const., Art. 8, § 1 and the equalization objective of Section 7(d) of the Third Class County Assessment Law. The evidence of record supports the trial court’s numerous findings that these two reassessment programs have aggravated the lack of uniformity throughout Dauphin County. Croasdale II, 677 A.2d at 354. The expert evidence produced at trial indicated that the county’s coefficient of dispersion (COD) was outside the acceptable limits of uniformity. A COD is a statistical measure used to express the average percentage deviation between the property’s ratio of assessment to market value and the county’s common-level ratio. The court found that a COD of 20 (20 percent deviation) was the acceptable limit for uniformity. The evidence showed that Dauphin County had a COD of 26.8, and Harrisburg’s was 49.2. The evidence demonstrated that the 1985 reassessment only inflated the property values statistically and did not consider the elemental principle that not all categories of realty appreciate or depreciate at the same rate. The court found that commercial and industrial properties do not appreciate as fast as residential properties and that more expensive residential properties increase in value faster than less expensive properties. In 1985, the county merely doubled the assessments of all property without any consideration of the above factors. The court held: The lack of uniformity throughout the County was aggravated, and some property owners pay more than their fair share of taxes while others pay less. Accordingly, the trial court did not err in determining that the 1985 reassessment violated the uniformity requirement of Pa. Const. Art. 8, § 1, as well as the equalization objective of Section 7(d) of the Third Class County Assessment Law. Id. at 355. 390

10-13

The court found that the 1987–1988 remodeling reassessment program in Harrisburg was equally flawed. The county, while using a 1973 base-year system, inserted 1987 remodeling sales figure comparisons as a factor in the reassessment. By using 1987 rather than 1973 base-year numbers, valuations of these properties cannot be equalized with the existing 1973 base-year assessed properties. The court found that this further aggravated the 1985 statistical reassessment. The Commonwealth Court supported its decision to order reassessment of the county with the following statement: This Court notes that the trial court made additional findings that the 1987-1988 reassessments were done in such an arbitrary and careless manner so as to be rendered invalid on this basis alone. Id. The significance of this case is that it held for the first time that a statistical reassessment—a reassessment that merely changes the predetermined ratio and/or mathematically inflates the existing assessment base— does not establish in itself the constitutionally mandated uniformity of taxation. Mathematical gamesmanship will not be tolerated as a substitute for a valid and fair reassessment based on current market values. 10-13

Can a Municipality Appeal Valuations of Multiple Real Estate Parcels to the Assessment Appeals Board?

Is it appropriate for a municipal subdivision to appeal the assessments of a majority of the real property in its districts to the assessment appeals board on the basis that the assessments are incorrect? The General County Assessment Law provides at 72 P.S. § 5020-520: The corporate authorities of any county, city, borough, town, township, school district or poor district, which may feel aggrieved by any assessment of any property or other subject of taxation for its corporate purposes, shall have the right to appeal therefrom in the same manner, subject to the same procedure, and with like effect, as if such appeal were taken by a taxable with respect to his property. The Consolidated County Assessment Law contains a similar provision at 53 Pa.C.S. § 8855, which states: A taxing district shall have the right to appeal any assessment within its jurisdiction in the same manner, subject to the same procedure and with like effect as if the appeal were taken by a taxable person with respect to the assessment, and, in addition, may take an appeal from any decision of the board or 391

Spot Assessment and Selective Reassessment

court of common pleas as though it had been a party to the proceedings before the board or court even though it was not a party in fact. A taxing district authority may intervene in any appeal by a taxable person under section 8854 (relating to appeals to court) as a matter of right. Did the General Assembly grant a municipality the right to appeal the yearly assessment roll to the board, and, if so, is this consistent with other parts of the assessment statutes and the federal and state constitutions? Does a municipality have the right under the Consolidated County Assessment Law to appeal to the board all the properties within its geographical boundaries? What happens if the municipality appeals only some of the real estate? The assessment law would mandate that the governmental entity appealing to the board carry the burden of proof. This would require the municipality to present credible appraisal evidence as to the valuations of the appealed properties. Theoretically, the municipality could hire experts to testify before the board as to the value of all real estate parcels within the political subdivision. At any point, does the municipality overstep other statutory or constitutional limitations by appealing numerous properties to the board? The following scenarios can be envisioned in this regard: • • • • •

The district appeals all realty within the jurisdiction to the board. The district appeals all real estate that is underassessed but does not appeal the overassessed realty. The district appeals by class stratification, e.g., all commercial properties that are underassessed, but no residential properties similarly assessed. The district appeals only those properties that have sold within the last few years. The taxing district bringing the appeals to the board of is the county itself.

The General Assembly prohibited spot assessments in the Consolidated County Assessment Law, 53 Pa.C.S. § 8802, which notes that the term “does not include board action ruling on an appeal.” The operative provision of this legislation is codified at 53 Pa.C.S. § 8843 and specifically barred the subordinate assessors from changing the value of the assessments. These statutes, in conjunction with each other, prohibit both the board and the assessors from engaging in spot assessment. This is significant in certain counties where, because of home rule charters or local custom, the assessors are separated from board control. When the taxing district appeals a significant number of properties in the district and the assessments are changed, there is no action by the assessors and therefore section 8843 is not violated.

392

10-13

When these assessments are changed because of municipal appeal, the board must take official action after a hearing on the valuation issue. Does the board engage in spot assessing when it takes this action in a quasi-judicial proceeding? Further, can these quasi-judicial actions cause reassessments that create, sustain, or increase disproportionally properties’ assessed values? Is this statute aimed at administrative actions of the board rather than quasi-judicial ones? There are no reported appellate court decisions interpreting this statute in this situation. In the scenario where only one taxing district appeals all economically incorrect assessments within its boundaries, it creates a situation where only the taxpayers who have appealed are paying their proper amount of county taxes. Taxpayers in the remainder of the county have not had their property adjusted by quasi-judicial board action, and this causes the assessments of the taxpayers who have appealed to be increased disproportionally for county tax purposes. The same theory would hold where a township or borough challenges the assessments in relation to school tax liability. For example, taxpayers in the target district would have their assessments raised or lowered to their present economic value multiplied by either the predetermined ratio or, if applicable, the common-level ratio prevailing within the county. It is assumed that no other taxing district in the county is doing the same exercise before the assessment appeals board. Those taxpayers who were underassessed and have their assessments increased will be paying more proportionally than other underassessed taxpayers in the county or school district who have not been subject to municipal appeal. Assuming that bringing only the district’s taxables into line economically does increase, sustain, or create disproportionality between the district taxables and those of the greater county area, is this spot assessing by the board? Obviously, each time the board reduces an assessment for a taxable at a hearing, it sustains, creates, or increases disproportionally between the appealed subject and the rest of the county taxables. There are no appellate court cases directly on point. It is certain that the first taxing district to attempt multiple tax appeals in a district will bring about case law on the subject. Existing case law seems to be aimed at preventing selective reassessment by assessors working for county assessment appeals boards. See O’Merle, 504 A.2d 975; Croasdale I, 492 A.2d 793; City of Lancaster, 599 A.2d 289. If the evidence shows that the municipality’s intent was to substantially correct economic valuation problems in the district’s assessments by a series of appeals to the board, then this action could be constitutionally infirm under the Pennsylvania Constitution’s uniformity clause. Specifically, residents of the district are being singled out to pay their taxes on a current economic base while those of other districts are not. If the courts consider this action to violate the Pennsylvania Constitution, it also vio-

393

Spot Assessment and Selective Reassessment

lates the Fifth and Fourteenth Amendments to the U.S. Constitution. See Allegheny Pittsburgh Coal Co., 488 U.S. 336. Another rationale that could be used to attack the process would be to argue that if one municipality could use the appeal process, why not 30 to 40 percent of the districts each year? Thus, it would create rolling de facto reassessments each year under the guise of the district’s right to appeal. In Millcreek Township School District v. Erie County Board of Assessment Appeals, 737 A.2d 335 (Pa.Cmwlth. 1999), the Commonwealth Court addressed the legality of assessment appeals filed by municipalities. In this case, the taxpayer’s property, a vacant lot, had last been assessed by the county in 1972. In 1997, the taxing school district unsuccessfully appealed the assessment to the board and the common pleas court. On appeal to the Commonwealth Court, the taxpayer raised two issues: whether the school district had the authority to appeal and, if so, whether its actions constituted a spot reassessment request. On the first issue, the appellate court cited the old statute, 72 P.S. § 5350(i), which stated: The corporate authorities of any borough, town, township, school, institution and poor district, and county, who may feel aggrieved by any assessment of property or subjects of taxation for its corporate purposes, shall have the right to appeal therefrom in entirety or by individual assessments in the same manner, subject to the same procedure, and with like effect as if such appeal were taken by a taxable with respect to his assessment, and in addition may take an appeal from any decision of the board or court of common pleas as though it had been a party to the proceedings before such board or court even though it was not such a party in fact. Based on this language, the court found that the school district had an absolute right to file an appeal to an assessment appeals board on the same basis as a taxpayer appealing his or her assessment. The court stated: The District maintains that the statutory language, by its very terms, permits school districts to appeal assessments. We agree with the District that the plain words of a statute cannot be disregarded where the language is free and clear from doubt, Commonwealth v. Hagan, 539 Pa. 609, 615, 654 A.2d 541, 544 (1995), and that in accordance with the above language, the District has the right to appeal a property owner’s assessment. “The Act itself provides that Appellants [School District and Township] are entitled to the same appeal rights, and are subject to the same procedures, as a citizen taxpayer who feels that his assessment was incorrect.” Richland School District v. County of Cambria Board of Assessment Appeals, 394

10-13

724 A.2d 988, 989 (Pa. Cmwlth. 1999). In Richland, we held that the language of Section 706 of the Fourth to Eighth Class County Assessment Law, Act of May 21, 1943, P.L. 571, as amended, 72 P.S. §5453.706, which is similar to the language of 72 P.S. §5350i affords townships and school districts the same appeal and procedural due process rights as are given to individual taxpayers. In accordance with the plain language of the statutes, the District has the right to appeal the assessment of any property. Millcreek Township, 737 A.2d at 337. The taxpayer then argued that the school district’s actions would violate 72 P.S. § 5448.1 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), which prohibited an assessment appeals board from engaging in the practice of spot assessment. The taxpayer alleged that no triggering event as defined in 72 P.S. § 5347.1 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) occurred on which to change the assessment. Therefore, the taxpayer argued, the school district’s appeal would cause a change in the assessment based solely on economic factors relating only to the taxpayer’s property while not affecting other alleged underassessed properties throughout Erie County. The Commonwealth Court initially discussed in its opinion that the term “board” relating to the board of assessment appeals did not pertain to the school board or school district. The court stated: By its very words, 72 P.S. §5348.1 applies to the Board of Assessment Appeals and not to school districts because the “board” referred to is clearly not the school board. Section 1.1 of the Law, 72 P.S. §5342.1 defines certain terms used thereafter for third class counties and contains the following definition: “Board. The board of assessment appeals in counties of the . . . third class.” Also, there is no authority for the word “board” to be used to represent the legal entity designated specifically in the Public School Code of 1929 (School Code) as a “school district.” Only the school district, not the board of school directors, is empowered to take or defend legal action. Section 213 of the School Code. The “board of school directors” is consistently used in the School Code to identify internal action within the school district. Thereafter, once a “majority,” as defined separately for various actions, votes in favor of some legislation, the school district is the only legal entity which can take official action. It would, therefore, be inconsistent for the Legislature to be presumed to contradict the clear definitions of responsibilities set forth in the School Code by prohibiting in the Assessment Laws the board of school directors from making spot assessments rather than prohibiting the school dis395

Spot Assessment and Selective Reassessment

trict, particularly when the Legislature is aware that it has never given any school entity the power to assess, reassess or spot assess any property. The Legislature carefully separated the words “board” and “school district” in the School Code not only in Section 102 where each is given a different definition but also throughout the School Code where it is plain that the school district is the only legal school entity in existence, e.g., after separately referring to the “school district” adopting a seal “after” a majority vote of the board of school directors in Section 212, Section 213 explicitly states that: “Each school district shall have the right to sue and be sued . . . .” (Emphasis added.) Thus, 72 P.S. §5348.1 is inapplicable to the District. Millcreek Township, 737 A.2d at 337–38. The court held that a triggering event is not required in order for a taxing authority to file an assessment appeal. It stated: Initially, we note that Section 6.1 of the Law, 72 P.S. §5347.1 states that “assessors” may change the assessment on a property when a triggering event occurs. The District is not an assessor and as such 72 P.S. §5347.1 is inapplicable. Moreover, Section 8 of the Law, 72 P.S. 5349(c), provides that “any person aggrieved by any assessment, whether or not the value shall have been changed since the preceding annual assessment, or any taxing district having an interest therein, may appeal to the board for relief.” (Emphasis added.) As such, neither a taxpayer nor a taxing district is prohibited from appealing an assessment even though no triggering event has occurred. Id. at 338. 10-14

Premature Appeal Review in Spot Assessment Case

The constitutionality of municipal assessment appeals was addressed in Allentown Power Center, L.P. v. Township of Whitehall, 735 A.2d 741 (Pa.Cmwlth. 1999). Here, the taxpayer’s property was last reassessed in 1990 as part of a countywide reassessment. In 1996, Whitehall Township filed an appeal of the assessment with the Lehigh County Board of Assessment Appeals for tax year 1998. The board denied the appeal, and the township appealed to the court of common pleas. The taxpayer intervened in the matter and filed a motion to dismiss, arguing that an assessment appeal on a single property constitutes a spot assessment and violates the uniformity clause of the Pennsylvania Constitution. The trial court denied the motion but allowed an appeal to the Commonwealth Court as a controlling issue of law even though the order was interlocutory and not normally appealed at this stage of the proceedings. 396

10-14

The Commonwealth Court affirmed the lower court’s “well-considered opinion” and held that the appeal was premature, stating: On appeal, [the taxpayer] does not dispute the fact that relevant statutory provisions clearly provide that the Township has the same right to appeal an assessment as does a taxpayer, nor does it challenge the constitutionality of the statute itself. Indeed, [the taxpayer] admits that under some circumstances such appeals are constitutionally permissible, but argues that this particular appeal will inevitably run afoul of the uniformity clause. Whatever the merits of [the taxpayer]’s arguments, they are at this point premature. Upon review of this matter, we agree with common pleas that the constitutional issues which taxpayers urge upon this court relate to the substantive limitations which will ultimately control the resolution of the merits, and not to the procedural right of appeal itself. Id. at 742. When issues of spot assessment are raised, it will be necessary to litigate the full case before an appeal to the Commonwealth Court will be appropriate. A school district’s right to file appeals that might result in assessment disproportionality was discussed in Wilkinsburg School District, 797 A.2d 1034, a fact-specific case unique to Allegheny County. This case involved the Beacon Hill Apartments, which were originally assessed at $565,000 for tax year 1995. In December 1995, the county assessor raised the assessment to $960,000 for tax year 1996. This increase, which was not based on the addition of any new buildings, construction, or improvements, would have been considered a classic case of spot assessment anywhere else but Allegheny County, where spot assessing had been the rule for many years. The taxpayer appealed to the assessment appeals board, which reduced the assessment to the 1995 amount, stating that the board had an unwritten policy that any reassessments made in 1995 for 1996 would be rolled back unless the increased assessment was based on new buildings, construction, or improvements. This policy appeared to be an accurate interpretation of the then-existing law pertaining to spot assessments made by county assessors. When Allegheny County property was assessed in 1995 at 25 percent of its market value, the county commissioners ordered an assessment freeze for tax years 1996 and 1997. It was this assessment freeze that actually put an end to the spot assessment practices that had been going on there for many years. In the future, no assessment could be increased without a triggering event, such as a new building, new construction, improvements, or subdivision. The tax freeze was simply an attempt to put the county in line with the existing case law prohibiting spot assessments. The local school district, which had become addicted to spot assessments, appealed the board’s decision to reduce the assessment. The tax397

Spot Assessment and Selective Reassessment

payer filed a motion for summary judgment seeking a dismissal of the school district’s appeal, and the trial court granted the motion for tax years 1996 and 1997, but allowed the case to proceed for tax years 1998 and beyond. The tax freeze ended in 1997 and therefore was not in force for 1998, according to the court. The school district appealed to the Commonwealth Court on the grounds that there was no purposeful discrimination by the county assessor in raising the assessment for tax year 1996. The appellate court rejected the school district’s argument and stated: A governmental body must apply the same methodology for valuing real property to all property within its jurisdiction. City of Lancaster v. Lancaster County, 143 Pa. Commw. 476, 599 A.2d 289 (Pa. Cmwlth. 1991). In City of Lancaster this Court concluded that Lancaster County’s use of different assessment methods in certain areas, as well as making unsubstantiated wholesale adjustments to grade and depreciation factors violated the uniformity requirement of Article VII, Section 1 of the Pennsylvania Constitution. We ordered a countywide reassessment pursuant to a court-ordered time frame. Here, the Board stipulated that the event that would trigger a new assessment was a new building, construction, improvements, or subdivisions. There had been no such event that would cause an increase in the property’s value. Any successful appeal by the school district (or any other taxing body) during the 1996, 1997 tax years for any reason except the three triggering events would result in a de facto spot assessment. The school district’s remedy was to attack the legality of the [assessment] freeze, not to take an action that would create a different methodology for one property owner. A tax assessment freeze was in place, the legality of which was not litigated. Property tax appeals could commence if the triggering events occurred. Here, none did. The reassessment is presumptively valid. Id. at 1036. This case has had a significant impact on the direction of how to define the scope of a taxing district’s right to appeal to assessment appeals boards. The court’s decision in Millcreek Township, 737 A.2d 335, initially gave taxing districts unfettered discretion in picking the targets of their appeals and left any constitutional issues for future litigation, while Allentown Power Center, 735 A.2d 741, pushed off this determination until after a case has been tried on the merits and arrives in the Commonwealth Court. Wilkinsburg School District has shed some light on the future limitation of taxing authorities’ right to appeal. First, all appeals by the districts will be scrutinized under the uniformity clause of the Pennsylvania Con398

10-15

stitution. Second, the appeals cannot cause a taxpayer to be reevaluated using a different method than that used for the rest of the properties on the assessment roll. Finally, the emanations from this opinion foretell a close review by the court on whether a taxing authority’s appeal, while statutorily permitted, can cause a de facto spot assessment. The new term in pleadings in taxing authority appeal cases will be allegations of “de facto spot assessment.” The taxing districts will be well advised before selecting their appeal targets to seriously consider regarding whether their actions can run afoul of this new concept in assessment law. 10-15

Taxing District Appeals and Spot Assessments

In a long-awaited decision, the Commonwealth Court found in Vees v. Carbon County Board of Assessment Appeals, 867 A.2d 742 (Pa.Cmwlth. 2005), that taxing districts had an inherent right to appeal property assessments, even if any change in assessment, if made by an assessment board, would constitute an illegal spot assessment. In this case, the property at issue was assessed at a fair market value of $92,250 in a 2001 countywide reassessment. When it sold the next year for $170,000, the taxing school district appealed, contending that the property should be reassessed up to the purchase price. After a hearing, the assessment appeals board increased the fair market value to $161,900. The property owners appealed to common pleas court, offering to prove that the school district filed tax assessment appeals where the purchase price exceeded the assessment by $15,000. They further offered to prove that the school district’s intent in making these assessment appeals was to correct perceived economic valuation problems in the district. The trial court sustained the school district’s objection and found that the proffered testimony was irrelevant. The district presented appraisal evidence that the property was worth $180,000, and the trial court adopted the board’s valuation of $161,900. On appeal, the Commonwealth Court repeatedly mentioned that the property owners had never challenged the constitutionality of the statute that allowed the school to appeal or presented any evidence of comparable properties. The court stated: As to the evidentiary issue, we conclude the trial court did not abuse its discretion in declining to receive evidence on the School District’s general appeals strategy or on the School District’s intent in taking other appeals. Here, the appeal was limited to valuation of the Property. Importantly, Taxpayers did not challenge the constitutionality of any statute and did not attempt to offer comparables evidence, which may have invited consideration of process beyond that pertaining to their Property. 399

Spot Assessment and Selective Reassessment

A taxpayer alleging that the administration of a tax violates its rights to be taxed uniformly with others of its class must demonstrate deliberate, purposeful discrimination in the application of the tax before constitutional safeguards are violated. Appeal of Armco, Inc., 100 Pa. Commw. 452, 515 A.2d 326 (Pa. Cmwlth. 1986). Assuming for the current discussion only that an appeal constitutes administration of a tax, Taxpayers here needed to prove the School District deliberately and purposefully discriminated against them in taking the appeal, or the Board deliberately and purposefully discriminated against them in handling the appeal. The School District’s practice and intent in other cases does not clearly establish deliberate discrimination in this appeal, and the information tends to confuse the issues. Therefore, the trial court could properly conclude the danger of confusion outweighed the probative value of the proffered evidence. Pa.R.E. 403. Id. at 746. This holding is clearly extreme, since there are no juries in tax assessment cases, and the trial judge is a trained professional who can see through the confusion. It is unclear how a taxpayer can prove that the taxing authority has systematically selected certain types of properties for special treatment, and ignored other properties, when the evidence of this action is ruled inadmissible. Without being able to demonstrate the practices of illegal selection that foster unconstitutional nonuniformity, a taxpayer can never challenge these governmental actions. Unless the court permits evidence of the nonuniformity, the constitutional protections of the uniformity clause are a fiction. The Commonwealth Court, in denying the appeal, found that school districts cannot engage in spot assessments because they do not have any power to prepare or revise assessments and that 72 P.S. § 5453.706 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) allowed taxing authorities to appeal. The court then cited Millcreek Township, 737 A.2d 335, for the proposition that taxing districts had an absolute right under the statute to appeal any property to the assessment board, without the necessity of a “triggering event.” The court held that the property owners did not challenge the constitutionality of the statute and therefore essentially waived the issue. It is clear that the statute itself was not inherently unconstitutional, as there are many situations where taxing district s’appeals are lawful and proper, but rather, it is the selection process that causes the violation of the uniformity clause. All taxing district appeals should be scrutinized under Valley Forge Towers Apartments N, LP v. Upper Merion Area School District, 163 A.3d 962 (Pa. 2017) (discussed in section 7-2.4, chapter 7).

400

11 Exemption Law and Procedure

11-1 11-1.1

General Exemption Law Constitutional and Statutory Authorization

Exemptions from real property taxation are authorized by Article VIII, section 2(a) of the Pennsylvania Constitution. The exemptions are listed in the General County Assessment Law at 72 P.S. § 5020-204 and in the Consolidated County Assessment Law at 53 Pa.C.S. § 8812. The following properties are exempt: • • •

• • • • • • • • •

All churches or actual places of regularly stated religious worship. All burial grounds not used or held for private or corporate profit. All hospitals, institutions of learning or charity, including fire and rescue stations founded, endowed, and maintained by public or private charity, provided that the entire revenue derived be applied to the support of the institution. All schoolhouses belonging to any county, borough, or school district. All courthouses, jails, and poorhouses. All public parks operated for the benefit of the public and used for amusements, recreation, sports, and other public purposes without profit. All other public property used for public purposes. All property owned, occupied, and used by any branch, post, or camp of honorably discharged military veterans actually and regularly used for benevolent, charitable, or patriotic purposes. All property owned by institutions of purely public charity and actually and regularly used for the purposes of the institution. All playgrounds founded and maintained by public or private charity. All property maintained by public or private charity and used exclusively for public libraries, museums, art galleries, or concert halls. All fire and rescue stations maintained by public or private charity along with their social halls.

401

Exemption Law and Procedure

11-1.2

Burden of Proof

Any organization seeking exemption has the affirmative burden to prove it is entitled to exemption. Four Freedoms House of Philadelphia, Inc. v. Philadelphia, 279 A.2d 155 (Pa. 1971). Statutory provisions exempting persons or property from taxation must be strictly construed. Young Men’s Christian Ass’n v. City of Reading, 167 A.2d 469 (Pa. 1961). The Commonwealth Court held in School District of City of Erie v. Hamot Medical Center, 602 A.2d 407 (Pa.Cmwlth. 1992), that in an exemption hearing before an assessment appeals board, the burden of proof always remains on the taxpayer to prove his or her entitlement to an exemption under the statute. This principle is not overruled even if the taxing authority is seeking to remove the exemption from the exempt realty. Whether an entity is entitled to an exemption is a mixed question of law and fact, and the entity bears the heavy burden of bringing itself within the ambit of the exemption. Hill School Tax Exemption Case, 87 A.2d 259 (Pa. 1952); Presbyterian Univ. of Pa. Med. Ctr. v. Board of Revision of Taxes of City of Philadelphia, 357 A.2d 696 (Pa.Cmwlth. 1976). A trial court’s decision as to the entitlement to an exemption will be affirmed unless the appellate court finds an abuse of discretion or lack of supporting evidence. In re Appeal of Planned Parenthood Ass’n of Bucks County, 423 A.2d 760 (Pa.Cmwlth. 1980). To claim a real estate tax exemption, an entity must affirmatively prove that it: (1) is one of purely public charity; (2) was founded by public or private charity; (3) is maintained by public or private charity. See Woods Sch. Tax Exemption Case, 178 A.2d 600 (Pa. 1962). As noted in section 11-2 of this chapter, the Institutions of Purely Public Charity Act changed the burden of proof in some tax assessment cases where the taxpayer has met statutory prerequisites. 11-1.3

Purely Public Charity—Overview

Liability to taxation is the rule, and exemption from taxation is the exception to the rule. Dougherty v. City of Philadelphia, 172 A. 177 (Pa.Super. 1934). All tax exemptions must be traceable to a statutory origin. Appeal of Young Men’s Christian Ass’n of Pittsburgh, 117 A.2d 743 (Pa. 1955). A court does not have power to create an exemption from local taxation of realty. Longvue Disposal Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 99 A.2d 464 (Pa. 1953). Generally speaking, all land is subject to taxation, and an exemption must be clearly established. Convent of Sisters, Servants of Immaculate Heart of Mary v. Berks County, 37 Berks 231 (1945). 402

11-1.3

All property not specially exempt must bear its fair share of taxation. Commonwealth v. Provident Trust Co. of Philadelphia, 180 A. 16 (Pa. 1935). One who claims exemption from taxation must show affirmative legislation in support of the claim, and the case must be clearly within it. Wagner Free Inst. of Science’s Appeal, 11 A. 402 (Pa. 1887); Mercersburg Coll. v. Poffenberger, 36 Pa. Super. 100 (1908). In evaluating a claim for exemption from taxation, the court must strictly construe the statute creating the exempt class against the claimant, and, if there is any doubt about the right conferred, the court must find in favor of the taxing municipality. Harrisburg v. Cemetery Ass’n, 9 Pa.D.&C. 773 (C.P. Dauphin 1927). Statutes that exempt real estate may not be extended by implication. Bower Hill Civic League v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 215 A.2d 305 (Pa.Super. 1965). The strict construction and the burden of the taxpayer to prove that his or her circumstance falls clearly within the statutory wording without extension by implication must be kept in mind when reading the statutes in this case. Article VIII, section 2(a), of the Pennsylvania Constitution provides: (a) The General Assembly may by law exempt from taxation: * (v)

*

*

Institutions of purely public charity, but in the case of any real property tax exemptions only that portion of real property of such institution which is actually and regularly used for the purposes of the institution.

In furtherance of the basic principles espoused in the Constitution, the legislature enacted the General County Assessment Law, 72 P.S. § 5020-204, which states that the following properties are exempt from all taxes: (3) All hospitals, universities, colleges, seminaries, academies, associations and institutions of learning, benevolence, or charity, including fire and rescue stations, with the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed, and maintained by public or private charity: Provided, That the entire revenue derived by the same be applied to the support and to increase the efficiency and facilities thereof, the repair and the necessary increase of grounds and buildings thereof, and for no other purpose: . . . *

*

*

403

Exemption Law and Procedure

(9) All real property owned by one or more institutions of purely public charity, used and occupied partly by such owner or owners and partly by other institutions of purely public charity, and necessary for the occupancy and enjoyment of such institutions so using it. While several tests may be applied, the determination of whether a nonprofit organization’s property is tax exempt as property of a public charity, regardless of whether the organization has a prescribed profit motive, depends on whether it is engaged in a commercial venture in competition with others engaged in similar businesses. Bower Hill, 215 A.2d 305. Bower Hill further concluded that an institution’s mission to benefit the community—a common goal of all charitable purposes—does not render the institution a “purely public charity” entitled to tax-exempt status. Institutions cannot claim they are nonprofit organizations with the expectation that the term will be construed as synonymous with charitable. As further support for that proposition, the fact of federal tax exemption is pointed out. In Richland Civic Club v. Board of Property Assessment, Appeals & Review of Allegheny County, 215 A.2d 310 (Pa.Super. 1965), the court concluded that civic organizations may secure federal tax exemptions, but that does not affect whether the organization’s real property is entitled to tax-exempt status under Pennsylvania law. Decisions by the U.S. internal revenue commissioner as to a charitable corporation’s tax status are not relevant to the possible exemption of the corporation’s real property from local property taxes levied according to state law and the state constitution. Pennsylvania Bar Ass’n Endowment v. Robins, 69 Dauph. 181 (1957). The General Assembly enacted the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq., effective January 1, 2011, which provides that all tax exemptions for second class A through eighth class counties are governed by the provisions of 53 Pa.C.S. § 8812. Exemptions appealed for first and second class counties are still governed by the General County Assessment Law, 72 P.S. § 5020-204. 11-1.4

Purely Public Charity—Constitutional Test

In Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985), the Pennsylvania Supreme Court took judicial notice under the Tax Reform Code of 1971, 45 Pa.C.S. § 506, of the definition of “charitable organization” in 61 Pa.Code § 32.1, which at the time stated: A charitable organization is a group or body of persons which is created and which exists for the purpose of performing a humane service; promoting the good and welfare of the aged, poor, infirm, or distressed; combating juvenile delinquency or advancing the spiritual, mental, social, and physical improve404

11-1.4

ment of young men and women. A foundation or fund organized to provide for the advancement of education or science is also included in the term charitable organization. The persons entitled to benefit from services performed by such an organization shall be chosen from a class of persons substantial and not predetermined in number. The funds of such an organization shall be primarily derived from public or private contributions, and the organization shall be operated without pecuniary benefit to any officer, member, or shareholder, except as reasonable compensation for actual services rendered to the organization. The legislature is constitutionally limited to exempt only those charitable organizations that are institutions of purely public charity, and a court cannot constitutionally interpret statutory language to exempt an organization that is not a purely public charity. It is a law of statutory construction that the legislature does not intend to violate the Constitution. 1 Pa.C.S. § 1928(b)(5). Even if a charitable group meets the definition in 61 Pa.Code § 32.1, it must first qualify under the Constitution as a purely public charity. The Pennsylvania Supreme Court explained this term in Episcopal Academy v. Philadelphia, 25 A. 55, 56–57 (Pa. 1892): [I]t may be safely said that whatever is gratuitously done or given in relief of the public burdens or for the advancement of the public good is a public charity. In every such case as the public is the beneficiary, the charity is a public charity. As no private or pecuniary return is reserved to the giver or any particular person, but all the benefit resulting from the gift or act goes to the public, it is a “purely public charity,” the word “purely” being equivalent to the word “wholly.” . . . *

*

*

[A]n institution that is in its nature and purposes a purely public charity does not lose its character as such under the tax laws if it receives a revenue from the recipients of its bounty sufficient to keep it in operation. It must not go beyond selfsupport. When a charity embarks in business for profit it is liable to taxation like any other business establishment; but so long as the trustees of the school manage it as a charity, giving the benefit of what might otherwise be profit to the reduction of tuition fees or the increase of the number of free scholars in furtherance of the “education of youth,” the corpus of the trust, the schoolhouse, is entitled to exemption.

405

Exemption Law and Procedure

11-1.5

Purely Public Charity—Case Law Definition

Under 72 P.S. § 5020-204(a)(9), the legislature is constitutionally limited to exempt only those charitable organizations that are institutions of “purely public charity,” and the courts will not exempt an entity that is not a “pure” public charity. The Pennsylvania Supreme Court held in Hospital Utilization Project (HUP), 487 A.2d 1306, that for an entity to qualify as a purely public charity, it must: • • •

advance a charitable purpose; donate or render gratuitously a substantial portion of its services; benefit a substantial and indefinite class of persons who are legitimate subjects of charity; relieve the government of some of its burden; and operate entirely free from private profit motive.

• •

These criteria make up what is known as the HUP test. 11-1.6

Stare Decisis in Tax Exemption Cases

The Pennsylvania Supreme Court has adopted a flexible and floating interpretation of the stare decisis doctrine in tax exemption cases. Prior precedent appears to count for little in this area, and the case law is continually evolving on a case-to-case basis. The Supreme Court held in G.D.L. Plaza Corp. v. Council Rock School District, 526 A.2d 1173, 1175 (Pa. 1987): Commonwealth Court recognized that the question of whether an institution is one of “purely public charity” is a mixed question of law and fact on which the trial court’s decision is binding absent abuse of discretion or lack of supporting evidence. Hill School Tax Exemption Case, 370 Pa. 21, 87 A.2d 259 (1952). Such is also true as to the questions whether an institution is founded, endowed and maintained by public or private charity. We have also noted that in such circumstances “prior cases have limited value as precedent.” Presbyterian Homes Tax Exemption Case, 428 Pa. 145, 149, 236 A.2d 776, 778 (1968), because of the continually changing nature of the concept of charity and the many variable circumstances of time, place, and purpose. Nevertheless, review of other decisions is helpful in identifying some of the criteria and characteristics which are necessary, though not necessarily exclusive or sufficient, to determining the issue.

406

11-2

11-2

Institutions of Purely Public Charity Act

The Institutions of Purely Public Charity Act, 10 P.S. §§ 371–385, also called Act 55, was enacted in 1997 to legislatively amend the five-point HUP test for tax exemption. This judicial codification of the exemption law caused more problems than it solved. A strict reading of the five criteria for exemption caused many institutions of charity to lose their exempt status. Years of litigation in the appellate courts of Pennsylvania have still not clearly resolved who can qualify for exemption. There have been periods of strict application of these standards and some of liberal construction. The courts even issued both liberal and strict interpretations over the same time periods. These court opinions would swing back and forth in such a manner that it was difficult for a practitioner to advise clients as to a probable outcome. During the years since HUP, the courts have filled with litigation on the exact meaning of each of the five points. Many municipalities reaching the limit of tax increases the public could tolerate looked to tax hospitals, colleges, and other large institutions to cover their never-ending need for revenue. This ever-increasing need for funds led many municipalities to exercise a form of legal extortion over these large charitable institutions by creating “payment in lieu of taxes” programs. The charities were offered a choice: make a payment of a certain percentage of their imputed tax liability to the governmental entity, or the governmental entity would challenge their tax exemption initially with the local assessment appeals board and in court if necessary. This practice was challenged as a violation of an institution’s rights but was rejected by the Commonwealth Court in Lee Hospital v. Cambria County Board of Assessment Appeals, 638 A.2d 344 (Pa.Cmwlth. 1994). For all of the above reasons, there had been a massive lobbying effort by the institutions of public charity in Pennsylvania to have the General Assembly rewrite and redefine the standards for exemption in Pennsylvania. This effort culminated in the passage of the public charity bill and its approval by the governor on November 26, 1997. There was serious concern over whether the legislature has the final say over the definition of the term “purely public charity,” since that term is found in the Pennsylvania Constitution at Article VIII, Section 2(a). The Supreme Court has long considered itself, not the General Assembly, the final arbiter of the provisions of the state constitution. The high court in Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals, 44 A.3d 3 (Pa. 2012), held that a property owner seeking an exemption from real property taxation as a “purely public charity” must first meet the HUP test. In this case, the Commonwealth Court had held that the appellant, a not-for-profit religious summer camp, did not relieve the government of some of its burden and therefore failed one of the prongs of the HUP test. The camp argued on appeal that it only had to comply with the expanded interpretation of “burden relieving” in 407

Exemption Law and Procedure

the Institutions of Purely Public Charity Act, 10 P.S. § 371(f)(1)–(5), The Supreme Court only looked at whether it must defer to Act 55 when analyzing whether an institution is one of purely public charity, not to the facts of the case or how those facts fit into the HUP test or the statutory test. The Supreme Court held that before even getting to the statute’s test, an institution must pass constitutional muster by clearing the HUP test. While the General Assembly is free to place more restrictive requirements on an institution seeking an exemption, it may not legislate away constitutional minimums, as established by the HUP test. Therefore, the Supreme Court affirmed the Commonwealth Court’s denial of the exemption. Importantly, the Supreme Court did not review the Commonwealth Court’s application of the Mesivtah facts to the law. Nothing in the Supreme Court’s decision in Mesivtah changed prior case law interpretation or application of the prongs of either test. The Commonwealth Court’s decision in Mesivtah, like all exemption cases, turned on the facts of that case. The Supreme Court, by making clear that the HUP test must be met before undertaking analysis under Act 55, did not alter what “relieving the government of some of its burden” has meant under case law. 11-2.1

Legislative Findings of Fact

The legislature clearly intended to liberalize the exemption criteria through the passage of the Institutions of Purely Public Charity Act, as shown by the legislative findings of fact in section 2(a), 10 P.S. § 372(a): (1) It is in the best interest of this Commonwealth and its citizens that the recognition of tax-exempt status be accomplished in an orderly, uniform and economical manner. (2) For more than 100 years, it has been the policy of this Commonwealth to foster the organization and operation of institutions of purely public charity by exempting them from taxation. (3) Because institutions of purely public charity contribute to the common good or lessen the burden of government, the historic policy of exempting these institutions from taxation should be continued. (4) Lack of specific legislative standards defining the term “institutions of purely public charity” has led to increasing confusion and confrontation among traditionally taxexempt institutions and political subdivisions to the detriment of the public. (5) There is increasing concern that the eligibility standards for charitable tax exemptions are being applied inconsis408

11-2.2

tently, which may violate the uniformity provision of the Constitution of Pennsylvania. (6) Recognizing the interest of the taxpayers in a fair and equitable system of property tax assessment and the attendant statutory requirements for the political subdivision responsible for maintaining real property assessment rolls to administer the system of property assessment, this act shall not in any way limit the responsibilities, prerogatives or abilities of political subdivisions with respect to the determination of, or challenges to, the taxable status of a parcel of property based on the use of the parcel or part of the parcel of property. (7) Institutions of purely public charity benefit substantially from local government services. These institutions have significant value to the Commonwealth and its citizens, and the need exists for revenues to maintain local government services provided for the benefit of all citizens, including institutions of purely public charity. It is the intent of this act to encourage financially secure institutions of purely public charity to enter into voluntary agreements or maintain existing or continuing agreements for the purpose of defraying some of the cost of various local government services. Payments made under such agreements shall be deemed to be in compliance with any fiduciary obligation pertaining to such institutions of purely public charity, its officers or directors. 11-2.2

Legislative Intent

The act states the legislative intent at 10 P.S. § 372(b): It is the intent of the General Assembly to eliminate inconsistent application of eligibility standards for charitable tax exemptions, reduce confusion and confrontation among traditionally tax-exempt institutions and political subdivisions and ensure that charitable and public funds are not unnecessarily diverted from the public good to litigate eligibility for tax-exempt status by providing standards to be applied uniformly in all proceedings throughout this Commonwealth for determining eligibility for exemption from state and local taxation which are consistent with traditional legislative and judicial applications of the constitutional term “institutions of purely public charity.”

409

Exemption Law and Procedure

In section 5, 10 P.S. § 375, the General Assembly set out the criteria for institutions of purely public charity. The act specifically overrules and supersedes the HUP test with a new legislatively created test. The act superficially maintains the same five-point test, but drastically redefines the meaning of each of the five terms of the test. Section 5(a) provides that an institution of purely public charity that meets a five-point test shall be considered to be founded, endowed, and maintained by public or private charity. These five criteria, set forth at 10 P.S. § 375(b)–(f), are: (1) The institution must advance a charitable purpose. (2) The institution must operate entirely free from the private profit motive. (3) The institution must donate or render gratuitously a substantial portion of its services. (4) The institution must benefit a substantial and indefinite class of persons who are the legitimate subjects of charity. (5) The institution must relieve the government of some of its burden. The Consolidated County Assessment Law at 53 Pa.C.S. § 8812(c) states: Each provision of this chapter is to be read in para materia with the act of November 26, 1997 (P.L. 508, No. 55), known as the Institutions of Purely Public Charity Act, and to the extent that a provision of this chapter is inconsistent with the Institutions of Purely Public Charity Act, the provision is superseded by that act. 11-2.3

The New Five-Point Test

11-2.3.1

Advances a Charitable Purpose

Under 10 P.S. § 375(b), an institution meets the charitable purpose test if it is organized and operated primarily for: (1) Relief of poverty. (2) Advancement and provision of education. This paragraph included postsecondary education. (3) Advancement of religion. (4) Prevention and treatment of disease or injury, including mental retardation and mental disorders. (5) Government or municipal purposes.

410

11-2.3.2

(6) Accomplishment of a purpose which is recognized as important and beneficial to the public and which advances social, moral or physical objectives. This provision is self-explanatory and not much of a departure from the previous law. What is important here is that the legislature specifically stated that if the aim of the institution is to advance a social, moral, or physical objective, the institution is advancing a charitable purpose. This is a very broad definition and encompasses many activities that have been challenged in the past, such as sports activities, open space preservation, youth summer camps, missionary housing, Bible publishing associations, and historic associations. 11-2.3.2

Free of Private Profit Motive

Under 10 P.S. § 375(c), an institution is deemed free from private profit motive if it meets all of the following criteria: (1) Neither the institution’s net earnings nor donations which it receives inures to the benefit of private shareholders or other individuals, as the private inurement standard is interpreted under section 501(c)(3) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 501(c)(3)). (2) The institution applies or reserves all revenue, including contributions, in excess of expenses in furtherance of its charitable purpose or to funding of other institutions which meet the provisions of this subsection and subsection (b). (3) Compensation, including benefits, of any director, officer or employee is not based primarily upon the financial performance of the institution. (4) The governing body of the institution of purely public charity has adopted as part of its articles of incorporation or, if unincorporated, other governing legal documents a provision that expressly prohibits the use of any surplus funds for private inurement to any person in the event of a sale or dissolution of the institution of purely public charity. This codification is important because a charity must now comply with many drafting prerequisites to meet this test. It appears that all charities wishing to comply must apply for and receive charitable status from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code. While proof of 501(c)(3) compliance was previously evidence of a

411

Exemption Law and Procedure

nonprofit status, it was not mandated. Now it is recommended that an institution secure this status in order to comply with the state statute. The provision in subsection (2) allowing an institution to expend revenue and resources in the funding of other statutorily qualified public charities was a change of the existing case law. This is especially significant in the area of leasing of a property to another charity. Under the doctrine established in In re Appeal of Archdiocese of Philadelphia, 617 A.2d 821 (Pa.Cmwlth. 1992), a property leased to another charity loses its exempt status unless that institution is a legitimate object of charity in the mission of the lessor charity. If a charity leases a building to any other qualifying charity and rent is substantially below the market rate, a reasonable argument can be made to retain that building’s exempt status. Subsection (3) prevents a charitable institution from compensating any officer, director, or employee “based primarily upon” on the organization’s financial performance. This provision primarily affects charitable medical facilities, which, in an attempt to compete with private hospitals and medical centers, have tried to give employees performance bonuses and incentives. This practice will result in a great deal of litigation over the term “based primarily upon” and lead to an inquiry into any performance bonus given to employees or officers. Any compensation similar to the provisions provided by the Hamot Medical Center in Hamot, 602 A.2d 407, will still be suspect. This portion of the act will be the subject of court interpretation. Finally, subsection (4) requires public charities’ governing documents to provide that, upon dissolution and/or sale of the organization, any funds received will not be used for the benefit of any private person. The articles of incorporation or bylaws must provide that in the event of sale or dissolution, the funds be directed to a charitable purpose consistent with the provisions of the act. 11-2.3.3

Community Service

An institution can meet the community service requirement of 10 P.S. § 375(d) by providing any one of the following: (i)

Goods or services to all who seek them without regard to their ability to pay for what they receive if all of the following apply: (A) The institution has a written policy to this effect. (B) The institution has published this policy in a reasonable manner. (C) The institution provides uncompensated goods or services at least equal to 75% of the institution’s

412

11-2.3.3

net operating income but not less than 3% of the institution’s total operating expenses. (ii) Goods or services for fees that are based upon the recipient’s ability to pay for them if all of the following apply: (A) The institution can demonstrate that it has implemented a written policy and a written schedule of fees based on individual or family income. An institution will meet the requirement of this clause if the institution consistently applies a formula to all individuals requesting consideration of reduced fees which is in part based on individual or family income. (B) At least 20% of the individuals receiving goods or services from the institution pay no fee or a fee which is lower than the cost of the goods or services provided by the institution. (C) At least 10% of the individuals receiving goods or services from the institution receive a reduction in fees of at least 10% of the cost of the goods or services provided to them. (D) No individuals receiving goods or services from the institution pay a fee which is equal to or greater than the cost of the goods or services provided to them, or the goods or services provided to the individuals described in clause (B) are comparable in quality and quantity to the goods or services provided to those individuals who pay a fee which is equal to or greater than the cost of the goods or services provided to them. (iii) Wholly gratuitous goods or services to at least 5% of those receiving similar goods or services from the institution. (iv) Financial assistance or uncompensated goods or services to at least 20% of those receiving similar goods or services from the institution if at least 10% of the individuals receiving goods or services from the institution either paid no fees or fees which were 90% or less of the cost of the goods or services provided to them, after consideration of any financial assistance provided to them by the institution.

413

Exemption Law and Procedure

(v) Uncompensated goods or services which in the aggregate are equal to at least 5% of the institution’s costs of providing goods or services. (vi) Goods or services at no fee or reduced fees to government agencies or goods or services to individuals eligible for government programs if any one of the following applies: (A) The institution receives 75% or more of its gross operating revenue from grants or fee-for-service payments by government agencies and if the aggregate amount of fee-for-service payments from government agencies does not exceed 95% of the institution’s costs of providing goods or services to the individuals for whom the fee-for-services payments are made. (B) The institution provides goods or services to individuals with mental retardation, to individuals who need mental health services, to members of an individual’s family or guardian in support of such goods or services or to individuals who are dependent, neglected or delinquent children, as long as the institution performs duties that would otherwise be the responsibility of government and the institution is restricted in its ability to retain revenue over expenses or voluntary contributions. (vii) Fundraising on behalf of or grants to an institution of purely public charity, an entity similarly recognized by another state or foreign jurisdiction, a qualifying religious organization or a government agency and actual contribution of a substantial portion of the funds raised or contributions received to an institution of purely public charity, an entity similarly recognized by another state or foreign jurisdiction, a qualifying religious organization or a government agency. The act provides that an institution may elect to average the applicable data for the five most recently completed fiscal years in determining eligibility under this prong of the test. It is interesting to note that the statute provides that in determining the value of donated goods and services, the value of volunteer assistance or labor can be computed on an hourly basis not exceeding the statewide average weekly wage defined in the Workers’ Compensation Act, divided by 40. This will greatly assist many charitable institutions that rely on volunteers to carry out their missions. 414

11-2.3.4

Another provision allows any institution licensed by the Department of Human Services that provides goods or services to individuals who are unable to pay to use that in lieu of the donation of goods and services under the act. The institution must first make a reasonable and customary collection effort before these amounts can be considered. Frequently, during litigation, hospitals argued that part of the charity they provided was measured by the amount of bad debts and uncollectible bills from patients they had treated. Because they would write off these amounts, they considered it charitable donation. The legislature adopted this stance in the statute. 11-2.3.4

Charity to Persons

The act requires at 10 P.S. § 375(e) that the institution benefit a substantial and indefinite class of persons who are “legitimate subjects of charity,” defined as individuals who are unable to provide themselves with what the institution provides for them. A “substantial and indefinite class of persons” is defined as individuals “not predetermined in number, provided that, where the goods or services are received primarily by members of the institution, membership cannot be predetermined in number and cannot be arbitrarily denied by a vote of the existing members.” The legislature stated that this provision is not violated by an educational institution that uses admissions criteria and enrollment limitations or by an institution that reasonably denies membership based on the types of services that it provides as long as these actions comply with federal and state antidiscrimination laws. An institution meets the requirements for this subsection if it is primarily engaged in fund-raising on behalf of institutions of purely public charity in Pennsylvania or similarly recognized public charities in other states or foreign countries. This is interesting in that there is no way to obtain a clear definition of what constitutes a “similarly recognized” entity in other states or foreign countries. An institution that operates exclusively on a voluntary basis to provide emergency health and safety services to the community or an institution that provides funds and support exclusively to these volunteer organizations is to be deemed to benefit this substantial and indefinite class of persons. The following institutions will not be considered to benefit an indefinite class of persons who are legitimate subjects of charity, under 10 P.S. § 375(e)(5): (i)

The institution is not qualified under section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. § 501(c)(3)); and

415

Exemption Law and Procedure

(ii) The institution is qualified under section 501(c)(4), (5), (6), (7), (8) or (9) of the Internal Revenue Code of 1986 (26 U.S.C. § 501(c)(4), (5), (6), (7), (8) or (9)) as any of the following: (A) An association of employees, the membership of which is limited to the employees of a designated person or persons. (B) A labor organization. (C) An agricultural or horticultural organization. (D) A business league, chamber of commerce, real estate board, board of trade or professional sports league. (E) A club organized for pleasure or recreation. (F)

11-2.3.5

A fraternal beneficiary society, order or association. Relieves Government of Its Burdens

The act provides at 10 P.S. § 375(f) that an institution relieves the government of some of its burden if it meets any of the following criteria: (1) Provides a service to the public that the government would otherwise be obliged to fund or to provide directly or indirectly or to assure that a similar institution exists to provide the service. (2) Provides services in furtherance of its charitable purpose which are either the responsibility of the government by law or which historically have been assumed or offered or funded by the government. (3) Receives on a regular basis payments for services rendered under a government program if the payments are less than the full costs incurred by the institution, as determined by generally accepted accounting principles. (4) Provides a service to the public which directly or indirectly reduces dependence on government programs or relieves or lessens the burden borne by government for the advancement of social, moral, educational or physical objectives. (5) Advances or promotes religion and is owned and operated by a corporation or other entity as a religious ministry and otherwise satisfies the criteria set forth in section 5. 416

11-2.5

(6) Has a voluntary agreement under section 7. 11-2.4

What Constitutes a Nonprofit Entity

In an effort to reverse the Commonwealth Court decisions in Appeal of Northwestern Corp., 665 A.2d 856 (Pa.Cmwlth. 1995), and Sacred Heart Healthcare System v. Commonwealth, 673 A.2d 1021 (Pa.Cmwlth. 1996), the statute allows the subsidiaries of a charitable institution to be treated as one single entity for exemption eligibility purposes. The earlier case law mandated that each entity claiming exemption must meet the fivepoint test on its own and could not piggyback on the related companies. The act provides at 10 P.S. § 375(g) that a nonprofit parent corporation together with all its subsidiary nonprofit corporations may elect to be treated as a single institution subject to the following criteria: (1) Each subsidiary: (i)

is a nonstock corporation of which the nonprofit parent corporation is the only member; and

(ii)

meets the requirements of this section.

(2) The parent: (i)

is a nonstock corporation;

(ii)

is qualified by the Internal Revenue Service as meeting the requirements of section 501(c)(3) of the Internal Revenue Code of 1986 ((26 U.S.C. § 501(c)(3));

(iii) meets the requirements of subsection (b) and (c); and (iv) except for services that meet the requirements of this section, does not render services for a fee to an individual or entity that does not meet the requirements of paragraph (1). 11-2.5

Exemption Presumptions

The act provides for the establishment of a rebuttable presumption of exemption status in 10 P.S. § 376. The legislature has provided that two classes of charities can assert a rebuttable presumption that they meet the five-point test for exemption: institutions with annual program revenue less than $10 million and institutions with revenue above $10 million. A rebuttable presumption is an evidence-switching device pertaining to the burden of proof that an institution with a rebuttable presumption of compliance with the HUP test does not have to produce any evidence of the five-point test once it shows it is entitled to the presumption of exemp417

Exemption Law and Procedure

tion. Therefore, a taxing district would have the burden of producing evidence that the institution does not meet the five-point test. Once this occurs, the institution may present rebuttal testimony establishing its right to the exemption. The act states at 10 P.S. § 376(a)(1): (1) An institution of purely public charity that has annual program service revenue less than $10,000,000 shall be entitled to assert the presumption if the institution possesses a valid exemption under section 204(10) of the Tax Reform Code of 1971. (2) An institution of purely public charity that has annual program service revenue equal to or exceeding $10,000,000 shall be entitled to assert the presumption if all of the following apply: (i)

the institution possesses a valid exemption under section 204(10) of the Tax Reform Code of 1971; and

(ii)

the institution has a voluntary agreement as provided under section 7 with a political subdivision in which that institution conducts substantial business operations.

An institution may elect to average annual program revenue for its two most recently completed fiscal years. Since July 1, 1999, the $10 million threshold has been increased by 1 percent per year. Under 10 P.S. § 376(c), the Pennsylvania State Department’s Bureau of Corporations and Charitable Organizations must provide a written decision to any institution applying for a sales tax exemption. Any order denying the exemption must state which elements of the five-point test the institution did not meet. This decision is not binding on an assessment appeals board or common pleas court but determines whether an institution is eligible to assert a presumption of exemption at the board or the trial court. The Bureau of Corporations and Charitable Organizations is not required to defend its determination or participate in any dispute between an institution and a taxing district in regard to property exemption litigation. The bureau is merely directed to provide a copy of the order pertaining to sales tax exemption and any other documents submitted to it by the requesting party. 11-2.6

Assessment Administration and Appeals

The act does not affect the basic functions of an assessment office. The assessor retains the responsibility to determine whether a parcel is being used to advance an institution’s charitable purpose. In the event of a 418

11-2.8

mixed-use situation on a parcel, the assessor retains the duty to determine the division of the assessment into taxable and exempt components. The existing law providing for the determination of exemption remains within the purview of the local assessment appeals board. The board must apply the new exemption standards and tests to the act. It is reasonable to assume that an appeal of a board determination should be made to the county common pleas court. What has been changed is the burden of proof based on the criteria stated above. The act states at 10 P.S. § 376(b): If an institution of purely public charity asserts a presumption under subsection (a), a political subdivision challenging that institution before a government agency or court shall bear the burden, by a preponderance of the evidence, of proving that the institution of purely public charity does not comply with the requirements of section 5. The act specifically states that a political subdivision retains the right to challenge a determination of exemption by a board of assessment appeals. 11-2.7

Discovery Proceedings

Under 10 P.S. § 376(d), any institution asserting a presumption of exempt status under the act is deemed to have waived its right to confidentiality of any documents it has submitted to the Bureau of Corporations and Charitable Organizations to obtain the sales tax exemption. These materials become public records and are subject to public inspection. A taxing district that challenges a presumption may request from the institution all relevant financial statements, records, and documents used to obtain the sales tax exemption. Failure to supply this information within 30 days shall void the presumption of exemption with respect to the taxing district’s challenge. 11-2.8

Voluntary Agreements

Section 7 of the act, 10 P.S. § 377, provides that an institution and a political subdivision may enter into a voluntary agreement to pay money in lieu of taxes. A voluntary agreement is defined as an agreement, contract, or other arrangement for the purpose of receiving contributions pursuant to section 7 between a political subdivision and an institution seeking or possessing an exemption as an institution of purely public charity. These contributions are used to defray some of the costs of various local government services. The money can be paid directly or through a public service foundation. All money received by the political subdivision must be used to help ensure that essential government, public, or community services will continue to 419

Exemption Law and Procedure

be provided in a manner that will permit an institution to fulfill its charitable mission. This terminology is so vague as to defy clear interpretation and thus will lead to litigation. The act provides that one political subdivision may share the proceeds with another political subdivision upon the mutual agreement of all parties. The act provides for one or more charities to set up public service foundations to make grants to participating political subdivisions. A political subdivision that accepts grants or distributions for a public service foundation shall not seek or assess a separate contribution from any of the public charities participating in the foundation. This section appears to be a nightmare to administer and will cause many problems dealing with its interpretation. Under 10 P.S. § 377(c), an institution that takes part in a voluntary agreement will be given additional credit toward meeting the community service requirement of the five-point test: (1) If the reasonable value of the institution’s contribution is equal to or less than 0.15% of its program service revenue, the institution may credit the entire contribution at 150% of its value. (2) If the reasonable value of the institution’s contribution is greater than 0.15% but less than 0.25% of its program service revenue, the institution may credit the entire contribution at 250% of its value. (3) If the reasonable value of the institution’s contribution is equal to or greater than 0.25% percent of its program service revenue, the institution may credit the entire contribution at 350% of its value. Nothing in the act terminates any preexisting agreements to pay money in lieu of taxes. 11-2.9

Unfair Competition with Small Business

The act, at 10 P.S. § 378, seeks to prevent charitable institutions from using their tax-exempt status to compete unfairly with small businesses. A “small business” is defined as any self-employed individual, sole proprietorship, firm, corporation, partnership, association, or other entity that has fewer than 101 full-time employees and is subject to state income tax. It should be noted that the act specifically grandfathered in all existing charitable business and enterprises, and the unfair-competition section only applies after the effective date of the act. A purely public charity may not fund, capitalize, guarantee the indebtedness of, lease obligation of, or subsidize a commercial business that is 420

11-2.10

unrelated to the institution’s charitable purpose as stated in its governing documents or charter. The following exceptions apply: (1) The commercial business is intended only for the use of its employees, staff, alumni, faculty, members, students, clients, volunteers, patients or residents. For purposes of this paragraph, a person shall not be considered an employee, staff, member, alumnus, faculty, student, client, volunteer, patient or resident if the person’s only relationship with the institution of purely public charity is to receive products or services resulting from the commercial business. (2) The commercial business results in sales to the general public that are incidental or periodic rather than permanent and ongoing. The act allows an institution to engage in new commercial business that would otherwise be in violation where it is formally requested by the Commonwealth or a political subdivision. An institution’s use of its facilities to host groups for educational purposes does not violate the act, nor do normal investment activities and vehicles such as stocks and bonds. As stated previously, this act is prospective only in this area and will not be violated unless the existing nonconforming use is substantially expanded. It can be surmised that this section of the act will cause more litigation than any other provision. This is an invitation to any small business owner to challenge any new action of a charitable institution, whether large or small. The definitions are so nebulous as to invite litigation. Many small business owners will initiate proceedings in the hope that they can reach a favorable settlement in order to “just go away.” The section is an invitation for vexatious litigation, and the mandatory arbitration process will merely slow down the litigation rather than restrain a small business that feels aggrieved by the actions of the charity. The legislature has essentially created a new tort of charitable competition and interference with small business enterprises. 11-2.10

Mandatory Arbitration

The act at 10 P.S. § 378(i) required the Bureau of Corporations and Charitable Organizations to establish a system of mandatory arbitration of claims that a charitable institution has opened a commercial enterprise that is in direct competition with a small business. All complaints of unfair competition must be filed with the bureau in writing in the form of a sworn statement setting forth the allegations and the relief requested. Within 10 days after the filing of the complaint, the aggrieved small business must serve a copy of the complaint on the institu421

Exemption Law and Procedure

tion. The institution must respond to the complaint within 30 days after receipt. Within 30 days after that period of time, the Department of State will select an unbiased and qualified arbitrator with knowledge of institutions of charity to adjudicate the matter. If the institution fails to participate in the arbitration, the arbitrator may issue an order compelling the institution to participate. The order is enforceable by the court of common pleas in the jurisdiction within which the arbitration takes place. The arbitration will take place in the judicial district in which the aggrieved small business is located. This is interesting in that the charity may be located in a distant county from the business. For example, if a charity in Erie sold goods by mail throughout the Commonwealth, a merchant in Philadelphia could file a complaint, and the arbitration would take place 335 miles away in Philadelphia County. The Department of State will provide the arbitrator with all relevant material regarding the complaint, the response, and copies of any relevant documents the department possess. The act requires that the arbitration process be completed within one year of the date on which the arbitrator was assigned. Within 30 days after the arbitrator’s assignment, the arbitrator must preliminarily determine if the complaint sets forth a prima facie case that a violation of the act has occurred. If the arbitrator determines that the complaint fails to do so, then the arbitrator will issue a written report detailing this finding and terminate the arbitration. The arbitrator’s decision is appealable to the court of common pleas of the county in which the arbitration took place within 30 days of the decision. It is unclear if the appeal is solely of the finding that there is no prima facie case on the pleadings or is de novo under 10 P.S. § 378(i)(9). Assuming the pleadings are not defective, the arbitrator then determines if the charity violated the act. The arbitrator must review all relevant information, including all previous arbitrators’ decisions, regulations, and evidence. The arbitrator’s decision must be set forth in writing, be served on all parties and on the Department of State, and contain findings of fact and conclusions of law. If a violation is found, the arbitrator may include an order or injunction as part of the decision. The arbitrator may enjoin the charity from engaging in the activity complained of by the small business. The act provides that the arbitrator has the power to award damages to any aggrieved party. The parties may agree that the arbitrator’s decision will be final and binding on all parties as to all conclusions of law and fact and will be entered as a final judgment in common pleas court. If the parties do not agree, they retain their right to appeal to the court for a de novo hearing on the complaint.

422

11-2.11

Within 30 days after the arbitrator’s decision, the small business may file an appeal to the court of common pleas in the judicial district where the arbitration was held. The proceeding before the court of common pleas is to be de novo. The cost of the arbitration, including the arbitrator’s fee, is placed on the complainant, unless the arbitrator directs otherwise. The act provides that each party shall pay its own counsel fees and other costs. 11-2.11

Supreme Court Decisions Since the Institutions of Purely Public Charity Act

Since the passage of the Institutions of Purely Public Charity Act, the Pennsylvania Supreme Court handed down two significant decisions that continued the liberalization of the HUP test that began with City of Washington v. Board of Assessment Appeals of Washington County, 704 A.2d 120 (Pa. 1997). It appears from these decisions that strict interpretation of the HUP test is no longer in vogue and that in the future the courts will allow a broader, more expansive definition of a purely public charity. In Unionville-Chadds Ford School District v. Chester County Board of Assessment Appeals, 714 A.2d 397 (Pa. 1998), the Supreme Court explored the exempt status of Longwood Gardens, a 1,000-acre private horticultural facility originally developed by Pierre DuPont at the beginning of the twentieth century. The gardens are open to the public and operate under a nonprofit foundation. Longwood Gardens consists of a large arboretum, flower gardens, collections of rare plants, a conservatory and greenhouse complex, an open-air theater for the performing arts, managed meadows, forestland, wetlands, wildlife habitats, walking trails, picnic areas, and educational and research facilities. These educational and research facilities include an auditorium, classrooms, exhibit areas, and scientific facilities. A restaurant and gift shop are available to the visitors. The court took note that Longwood Gardens serves as a site for hundreds of cultural events each year and maintains educational services. A local school district appealed the exempt status of the property, but the assessment appeals board denied the appeal, and the school district proceeded to the common pleas court. The trial court upheld the exemption, and the school district appealed to the Commonwealth Court, which affirmed the lower court. The Supreme Court granted allowance of appeal in the matter to determine if the gardens met elements three and four of the HUP test: whether it benefited a substantial and indefinite class of persons who are the legitimate subjects of charity and whether it relieved the government of some of its burden. As to element three, the school district contended that legitimate subjects of charity are only the poor, the infirm, and the needy and that the general public cannot be the subject of charity because such a class of beneficiaries would not be limited to those who are incapacitated, handi423

Exemption Law and Procedure

capped, or financially distressed. The Supreme Court disagreed and found that the benefits of charity need not go only to those who are financially needy. A purely public charity can provide members of the general public with resources that would not otherwise be available. The court found that Longwood Gardens provided subsidized public park grounds and educational facilities that would otherwise not be affordable to many people at comparable facilities. The school district argued that Longwood Gardens did not meet element four of the HUP test because the government has no duty to provide the public with a facility like Longwood Gardens. The Supreme Court disagreed once more and found that the fact that there are no statutory or constitutional mandates for the government to provide this type of facility is in itself not controlling. Because the government has assumed a responsibility for providing open space for public recreation and conservation and cultural institutions, the public park and cultural facilities of Longwood Gardens fall within the scope of burdens that are routinely shouldered by government, and therefore Longwood Gardens has relieved the government of some of its burden. Justice Russell M. Nigro dissented, stating, “Today the majority continues down a slippery slope ending in enabling most, if not all, of the nonprofit corporations of this Commonwealth to obtain an exemption from real estate taxes.” Id. at 401–02. In Mars Area School District v. United Presbyterian Women’s Ass’n of North America, 721 A.2d 360 (Pa. 1998), the sole issue before the Supreme Court was whether a charity-run residential treatment facility for delinquent and dependent children met requirement four of the HUP test by relieving the government of some of its burden. The United Presbyterian Women’s Association of North America, a federally exempt nonprofit charitable organization, owns and operates the Mars Home for Youth in Butler County. The facility housed approximately 50 children ranging in age from 9 to 17. The campus included an administrative building, housing units, dining hall, library, recreation center, outdoor play areas, and support buildings. The facility provided 24-hour supervised living arrangements and educational, vocational, therapeutic, psychological, and psychiatric services for the children and their families. Only children who are adjudicated delinquent were accepted in the Mars Home, and they came from 10 counties in western Pennsylvania. The home received a per diem payment for each of the children from the referring county. The services provided were not gratuitous but were paid for by the various counties. The home also received funds from donations, endowment income, and the federal school lunch program. The home had operated at a deficit since 1985, even though the land and buildings were provided rent-free by the United Presbyterian Women’s Association. The Pennsylvania Supreme Court, in looking at these facts, distinguished earlier cases and found that the home relieved the government of 424

11-2.11

some of its burden. The court found that this was not the situation of an independent contractor providing services for a fee to the counties, but rather a different type of operation. The court stated: In short, the situation is not one where county payments cover the full cost of the services provided, as would normally be the case if the county had simply hired an independent contractor to provide the services in question. See Community Service Foundation v. Bucks County Bd. of Assessment and Revision of Taxes, 672 A.2d 373, 376 (Pa. Cmwlth. 1996) (entities that perform governmental services as independent contractors without absorbing a substantial portion of the cost of the services do not qualify as purely public charities since they do not relieve the government of its burden), appeal denied, 546 Pa. 696, 687 A.2d 379 (1996). Here, the costs incurred by government would be much greater were it necessary for counties to provide the grounds and facilities, and incur the operating deficits and depreciation expenses, rather than simply pay the existing per diem fees per child. Id. at 362. The court added that the full burden of providing facilities and care for the children would fall on the government unless institutions like the Mars Home existed. In two other cases, Community Options, Inc. v. Board of Property Assessment, Appeals & Review of Allegheny County, 813 A.2d 680 (Pa. 2002), and Alliance Home of Carlisle v. Board of Assessment Appeals of Cumberland County, 919 A.2d 206 (Pa. 2007), the Supreme Court failed to make a definite ruling on the constitutionality of the Institutions of Purely Public Charity Act and its relationship to the HUP test. The downside of the court’s reluctance to tackle the hard issues is that lower courts, attorneys, and assessors are confused and in the dark over what law to use in any given circumstance. On the taxpayer’s side, it is extremely difficult to advise a client on the probability of gaining an exemption because, while it might qualify under the less restrictive act, it might fail the HUP test. The Institutions of Purely Public Charity Act was passed in 1997, but there is still no clear-cut answer to this dilemma. Certainty in the law would help avoid the lengthy and costly litigation that all parties are forced to undergo because of the confusion between the statute and the HUP test. Hopefully, the court will write an opinion that provides guidance to all litigants in this field. In Alliance Home, the appellant, Chapel Pointe, was a nonprofit corporation formed in 1944 to provide care for the elderly. It operated a continuing care retirement community (CCRC) that included a skilled nursing facility, an assisted living facility, and an independent living apartment facility. The skilled nursing facility and assisted living facility were already exempt, and this case revolved around an exemption application for 425

Exemption Law and Procedure

the apartment facility. The minimum age for apartment residents was 62, and applicants were required to pay for an entry fee of between $37,000 and $73,000. All applicants must have been financially qualified to pay the monthly fees before they were admitted. Once accepted, the residents were given priority for admission to the skilled nursing home and assisted living facility. Chapel Pointe provided financial assistance for the payment of monthly maintenance fees, but sought reimbursement. The residents were also required to seek financial assistance from their families, churches, and public welfare agencies. Fifty-five percent of the residents received uncompensated services, such as help with taking medication, participation in social activities, and advice regarding family and financial difficulties. These services exceeded 10 percent of the aggregate cost of care. The assessment appeals board and the court of common pleas denied the exemption. The Commonwealth Court affirmed. The issue before the Pennsylvania Supreme Court was whether the independent living units in a CCRC should be evaluated separately from the skilled nursing home and assisted living portions of the community for exemption purposes. The court framed the salient issue as follows: Both the trial court and the Commonwealth Court majority determined, in essence, that a parcel of land that is owned by an institution of purely public charity is eligible for exemption only if the parcel, in and of itself, independently satisfies the HUP/Act 55 test for determining which entities are purely public charities. This analysis cannot be squared with the constitutional language or the parcel review language in Act 55, which tracks the constitutional standard. Article VIII, Section 2(a)(v) invites and, indeed, requires parcel review. That provision makes clear that the General Assembly may exempt institutions of purely public charity from taxes, but in the case of real property taxes, the institution’s exemption only extends to “that portion of real property of such institution which is actually and regularly used for the purposes of the institution.” The constitutional test respecting parcel review, then, is not the HUP/Act 55 test, which is designed to identify qualifying institutions, but a test focusing on the actual and regular use that the qualifying institution makes of its property and the relationship of that use to the institution’s purposes. Alliance Home, 919 A.2d at 224 (emphasis in original). The court found that the independent living apartments, considering the overall institution, were actually and regularly used for the purposes of the charitable institution. Chapel Pointe’s corporate and charitable pur-

426

11-2.11

pose was to provide a home and care for the aged and infirm. The court pointed out: Although the independent living facility, if it were viewed in isolation or as a separate institution, might not on its own qualify as a purely public charity, its role in the comprehensive care scheme provided by appellant is consistent with, is tied to, and advances appellant’s charitable purpose. The independent living facility is not a public restaurant, movie theater, golf course or some other unrelated business entity existing solely as a revenue stream to finance a different and charitable endeavor. Instead, as Judge Leavitt emphasized in dissent below, the independent living units offer entry into a community which promises to provide for the future needs of the elderly and infirm, needs that may change over time to include assisted living and skilled nursing care. . . . Appellant’s CCRC offers a measure of protection to its residents against the uncertainties and challenges that attend the process of aging. One of the great fears facing citizens as they age is how to care for themselves, if age or circumstance threatens their physical, mental, and financial independence. In return for the capital investment required to enter the facility and the maintenance fees thereafter, residents of the independent living facility receive both a measure of current service and, more importantly, a promise of priority consideration for placement in appellant’s assisted living and skilled nursing facilities, if the need should arise. That need for greater and possibly subsidized care could arise in a day, a year, or never. But the promise of such security is significant; it offers, as Judge Leavitt cogently observed, some measure of “lifetime protection.” Id. at 226. The court clearly established that in continuing care communities, the independent living units cannot be evaluated for exemption in a vacuum but must be considered in relation to the overall community as merely one cog in the institution’s goal of providing care to the elderly. It should be pointed out that the Commonwealth Court decision in Menno Haven, Inc. v. Franklin County Board of Assessment & Revision of Taxes, 919 A.2d 333 (Pa.Cmwlth. 2007), was handed down on March 7, 2007, and the Alliance Home decision was issued on April 17, 2007. The decision in Menno Haven appears to contradict Alliance Home.

427

Exemption Law and Procedure

11-2.12

Commonwealth Court Interpretations of the Institutions of Purely Public Charity Act

The Commonwealth Court, in interpreting the Institutions of Purely Public Charity Act, does not appear to be speaking with one coherent voice, but rather meandering in many different directions. In numerous cases, the court interpreted the act and applied it to the facts of the case, but in one case, Community Options, Inc. v. Board of Property Assessment, Appeals & Review of Allegheny County, 764 A.2d 645 (Pa.Cmwlth. 2000), the court ignored the act on the basis that portions of it are unconstitutional. In other cases, the court did just the opposite and used the act in making its determinations of taxability. In re RHA Pennsylvania Nursing Homes Health & Rehabilitation Residence, 747 A.2d 1257 (Pa.Cmwlth. 2000), was the first appellate court case to discuss the Institutions of Purely Public Charity Act. The court held that the taxpayer must meet the constitutional test outlined in HUP, as codified by the legislature in Act 55. The court used the tests set up by the General Assembly in determining the exempt status of the taxpayer. While the court could have raised the constitutional issue sua sponte, it chose not to and interpreted the applied act. In Dynamic Sports Fitness Corp. of America v. Community YMCA of Eastern Delaware County, 768 A.2d 375 (Pa.Cmwlth. 2001), the court examined the unfair-competition clause in 10 P.S. § 375(b). In this case, a sports and fitness club filed a complaint alleging that the YMCA was directly competing with it. In analyzing the issues, the court stated that it was unaware of any previous appellate court decision involving a suit brought under the act by a private entity. In this case, the court interpreted a specific provision of the act that deals with competition between private enterprise and purely public charities. In Spirit of the Avenger Ministries v. Commonwealth, 767 A.2d 1130 (Pa.Cmwlth. 2001), the court sua sponte found that it lacked jurisdiction to hear the appeal of a church that had sought tax-exempt status. In Appeal of Sewickley Valley YMCA, 774 A.2d 1 (Pa.Cmwlth. 2001), the court cleared up many of the exemption questions concerning the status of YMCAs under the old exemption statutes as well as Act 55. In Hahn Home v. York County Board of Assessment Appeals, 778 A.2d 755 (Pa.Cmwlth. 2001), the court discussed the application of the act in the context of a residential home for elderly women that requested exemption from taxation. The court pointed out that both the HUP test and the act were controlling. The court specifically followed the holding of RHA Pennsylvania, 747 A.2d 1257, which dealt with whether the statutory requirements of the act had been complied with in regard to the existing corporate documents detailing what occurs in the event of corporate dissolution. In Community Options, 764 A.2d 645, the Commonwealth Court ignored Act 55 because it believed the act was inconsistent with the HUP 428

11-2.12

test. The appellant, Community Options, was a nonprofit corporation that provided housing and related services to people with intellectual disabilities, and it owned and operated group homes in furtherance of this purpose. In 1996 and 1997, Community Options filed exemption applications with the Allegheny County assessment appeals board, arguing that it met the exemption requirements of both the Pennsylvania Constitution and Act 55. The board denied the appeal for 1996 and 1997 because Community Options did not comply with the HUP test. It granted an exemption for 1998 and future years because the organization had met the requirements of the act. The court of common pleas affirmed. The Commonwealth Court found that Community Options met four of the five prongs of the HUP test. The organization had failed to prove that it relieved the government of some of its burden and therefore was ineligible to receive an exemption under the HUP test. In this situation, the appellate court followed the holding in Community Service Foundation v. Bucks County Board of Assessment & Revision of Taxes, 672 A.2d 373 (Pa.Cmwlth. 1997), which had denied exemption to a nonprofit on the basis that it merely was a conduit for governmental money and did not relieve the government of any of its burden. In Community Options, Allegheny County provided the bulk of the organization’s funds for the costs of the services it provided. The lower court found that Community Options failed to pass the HUP test but had met this prong of the statutory test under section 5 of the act and therefore was exempt for the years controlled by the act. The Commonwealth Court disagreed and reversed the lower court on this issue, ignored the act, and applied the HUP test to all the years in question. The court held: [T]he question of whether an entity seeking or defending a tax exemption is a “purely public charity”, within the meaning of Article 8, Section 2(a)(v) of the Pennsylvania Constitution, is a preliminary question which must be addressed before the question of whether that entity meets the qualifications of a statutory exemption can be reached. G.D.L. Plaza Corporation [v. Council Rock School District, 526 A.2d 1173 (Pa. 1987)]; Hospital Utilization Project [v. Commonwealth, 487 A.2d 1306 (Pa. 1985)]; School District of the City of Erie v. Hamot Medical Center, 144 Pa.Commw. 668, 602 A.2d 407 (Pa.Cmwlth. 1992). *

*

*

. . . See also Donohugh’s Appeal, 86 Pa. 306, 309–310 (1878) (“It is conceded that the legislature cannot go outside the class of cases in which the constitution permits exemption from taxation, but it is to be remembered that the provision of the con429

Exemption Law and Procedure

stitution is not a grant of power to the legislature, which belongs elsewhere, and is therefore to be strictly construed as in derogation of the people’s right. On the contrary, it is a restriction upon a legislative power which would otherwise be unlimited and unquestionable. It is a tying up of the legislative hand . . .”). Thus, once the trial court determined that Community Options did not meet the constitutional definition of a “purely public charity”, it was unnecessary to then consider whether or not it met the statutory definition of a “purely public charity” as outlined in Section 5 of the Act. Id.; Hospital Utilization Project; School District of the City of Erie. Rather, because Community Options did not meet the minimum constitutional qualifications for being an appropriate subject of tax exemption, it could not qualify for the statutory exemption outlined in Section 5 of the Act. Hospital Utilization Project; School District of the City of Erie. As a result, the trial court erred in determining that Community Options’ properties were entitled to tax-exempt status for the year 1998 and future years pursuant to Section 5 of the Act. Community Options, 764 A.2d at 652–53 (emphasis in original). In a footnote to its opinion, the court explained why it ignored the statute and found it a nullity: In this regard, it is also important to note the provisions of Article 8, Section 5 of the Pennsylvania Constitution which states that, “all laws exempting property from taxation, other than the property above enumerated shall be void.” PA. CONST. art. VIII, § 5. It has long been recognized that this provision absolutely prohibits the General Assembly from providing a statutory exemption beyond those enumerated in Article 8, Section 2 of our Constitution. See, e.g., Board of Christian Education of Presbyterian Church in United States v. School District of City of Philadelphia, 171 Pa. Super. 610, 91 A.2d 372, 374 (Pa.Super. 1952). (“The two sections, read together, impose limitations upon the power of the legislature to exempt property from taxation. It is beyond legislative competence to exempt more than the property used as a place of public worship or for purely charitable activities. Moreover, an exemption exists, not by virtue of the provisions of the Constitution, but only by the force of a valid statute enacted under it”). As a result, qualifying for an exemption as a “purely public charity” must be first measured by the constitutional language, and not the statutory language. . . . 430

11-2.13

Thus, the Act is a nullity as to those parts which attempt to define “purely public charity” as a constitutional provision. The General Assembly is empowered to only legislate the category of the constitutional “purely public charities” which are exempt from taxation. Id. at 652, n.11. Despite the somewhat confusing directions that exemption cases can take, the important lesson is that each case turns on its facts, and litigants should take great care in preparing and presenting their evidence with respect to the act’s prongs. In Fayette Resources, Inc. v. Fayette County Board of Assessment Appeals, 107 A.3d 839 (Pa.Cmwlth. 2014), the court rejected the exemption request of a nonprofit group home for intellectually disabled individuals because the home did not prove that it donated or rendered services gratuitously. Obviously, this is an evidentiary issue, and the court noted that the record was devoid of any evidence that the home provided any of its services for payments lower than the full cost of those services or even that it provided those services at cost. It is settled case law in Pennsylvania that group homes for the disabled can qualify for tax exemption. See Community Options, 813 A.2d 680. However, the fact that no evidence of the “render gratuitously” prong of the act was in the record was fatal to the exemption claim in Fayette Resources. Similarly, in ARC Human Services v. Clearfield County Assessment Office & Tax Bureau, 120 A.3d 465 (Pa.Cmwlth. 2015), the court rejected an exemption claim by a group home, concluding that the home did not offer concrete evidence or testimony to establish that it made any bona fide effort to offer its services to those who are unable to pay. The court also said that under the “totality of the circumstances” standard, the home did not provide evidence to show that the services it donated were substantial. 11-2.13

Scope of Statutory Requirements to Amend Purely Public Charity Articles of Incorporation

The first appellate court case to discuss the Institutions of Purely Public Charity Act was RHA Pennsylvania, 747 A.2d 1257. The salient issue was whether the charity’s articles of incorporation contained the exact language required by section 375(c)(4), which states: The governing body of the institution of purely public charity has adopted as part of its articles of incorporation or, if unincorporated, other governing legal documents a provision that expressly prohibits the use of any surplus funds for private inurement to any person in the event of a sale or dissolution of the institution of purely public charity. The charity, RHA/Pennsylvania Nursing Homes, Inc., argued that while its corporate documents did not meet the requirement word for 431

Exemption Law and Procedure

word, they were sufficient to encompass the intent of the statute and meet this prong of the exemption. Article IV of RHA’s corporate charter stated that “[n]o part of the net earnings of the corporation shall inure to the benefit of, or be distributable to, any member, director, officer, or trustee of the corporation, or any private person.” Id. at 1261. Article VIII stated: Upon dissolution of the corporation, the Board of Directors shall, after paying or making provision for payment of all of the liabilities of the corporation, dispose of all of the assets of the corporation by distributing those assets to RHA/Home Office, Inc., provided that that corporation is at that time an organization described in [Section 501(c)(3).] Any such assets not so disposed of shall be disposed of by a court of competent jurisdiction for the county in which the principal office of the corporation is located, exclusively for such purposes or to such organization or organizations as said court shall determine, which are organized and operated exclusively for such purposes. Id. The taxing school district contended that RHA’s failure to use the exact language of the statute was fatal to the exemption request. The common pleas court disagreed, and the Commonwealth Court affirmed. It accepted the charity’s argument the corporate language in question was broad enough to satisfy the legislative intent and the statutory language requirement. The court stated: The Court concludes that Articles IV and VIII together prevent the use of any surplus funds for the private inurement to any person. Nevertheless, [the school district] argues that RHA fails to meet the requirements of Section 5(c)(4) of the Act because RHA’s articles of incorporation do not contain the exact language used in the Act. However, the Court cannot conclude that the General Assembly intended Section 5(c)(4) to require institutions of purely public charity to add the specific words of the Act to the institution’s articles of incorporation. Rather, it is sufficient if the institution’s articles of incorporation contain provisions that have the effect of the prohibition described in Section 5(c)(4). The trial court did not abuse its discretion in concluding that RHA meets this requirement. Id. 11-2.14

Allegations of Unfair Competition

The Commonwealth Court examined the unfair-competition clause provision of section 375(b) in Dynamic Sports, 768 A.2d 375. In this case, Dynamic Sports Club was a small business located within three miles of 432

11-2.14

the local YMCA, a qualified charity under the act. Dynamic filed a complaint alleging that the YMCA was expanding its facilities to create a state-of-the-art health club in direct competition with Dynamic. The complaint claimed that the YMCA was violating the act by substantially expanding a preexisting commercial business and using its tax-exempt status to compete unfairly with a small business. The common pleas court dismissed the case. In analyzing the issues on appeal, the Commonwealth Court stated that it was unaware of any previous appellate court decision involving a suit brought under the act by a private entity. The court stated that the act was intended to establish guidelines for taxing authorities in determining a charity’s exempt status, not to address the concerns of private business. Virtually all the sections of the act deal with the relationship between charities and political subdivisions. Only section 378 deals with the relationship between charities and private small businesses, with the intention that charities will not use their tax-exempt status to compete unfairly with small business. Section 378(b) provides as a general rule that a charity “may not fund, capitalize, guarantee the indebtedness of, lease obligations of or subsidize a commercial business that is unrelated to the institution’s charitable purpose.” Section 378(h) provides grandfather provisions allowing charities to continue their existing competing operations not allowed under section 378(b) as long as they do not substantially expand the existing competing operation. To establish a violation of the statute, the aggrieved small business must prove it has been adversely affected by a charity that funds, capitalizes, guarantees the indebtedness of, leases obligations of, or subsidizes a commercial business that is unrelated to the institution’s charitable purpose. The appellate court examined the YMCA’s articles of incorporation and stated: It is quite clear that the YMCA’s alleged health club, though a commercial business as defined by the Act, is related to the charitable purposes set forth in its Amended Articles of Incorporation. Those purposes involve the development of an individual’s healthy spirit, mind, and body through a variety of programs and activities, including the attainment of physical health. Contrary to the Sports Club’s arguments, these purposes are charitable in nature. Section 5(b)(6) of the Act provides that charitable purposes include those unspecific purposes that are “recognized as important and beneficial to the public” and that advance “social, moral or physical objectives.” It cannot be gainsaid that the purposes of the YMCA as set forth in its Amended Articles of Incorporation meet the criteria of this section. In this regard, we note that our courts have consistently recognized the charitable nature of the Common433

Exemption Law and Procedure

wealth’s YMCAs. See Young Men’s Christian Ass’n of Germantown v. City of Philadelphia, 323 Pa. 401, 187 A. 204 (1936); City of Pittsburgh v. Board of Property Assessment, Appeals and Review, 129 Pa. Commw. 69, 564 A.2d 1026 (Pa. Cmwlth. 1989), petition for allowance of appeal denied, 525 Pa. 587, 575 A.2d 117 (1990). *

*

*

We also note that Section 5(b) does not preclude the consideration of “promotion of health” as a charitable purpose. Although the General Assembly did modify its definition of “charitable purpose” in the Act from its prior definition in the Nonprofit Corporation Law to not specifically include “promotion of health,” it nevertheless did not specifically exclude the promotion of health as a possible charitable purpose. Section 5(b)(6) of the Act provides a general category to include purposes that are recognized as important and beneficial to the public that advance social, moral, or physical objectives. Certainly, the promotion of health may fall under this category if the circumstances warrant, as they do here. Id. at 382–83 (emphasis in original). The Commonwealth Court specifically found that the YMCA was engaged in the promotion of health, a charitable purpose under the act. Because the YMCA was engaging in a charitable purpose, it was not engaged in unfair competition with private enterprise and therefore not in violation of the act. 11-3 11-3.1

Exemption Procedures Exemption Hearing Procedures before an Assessment Appeals Board

The Commonwealth Court in Hamot, 602 A.2d 407, revolutionized the procedures used by assessment appeals boards in handling exemption cases. It was previously assumed that an exemption proceeding would follow the same administrative process as assessment valuation hearing: a nonrecord proceeding before the board followed by a de novo appeal to the court of common pleas. The court in Hamot established procedures that deviate from those set forth in the General County Assessment Law, 72 P.S. § 5020-201 et seq., and the related specific county assessment laws. Specifically, the exemption statute, 72 P.S. § 5020-204, is treated differently than valuation cases in the same chapter of the law. The court found that the appeal in Hamot was taken to the trial court under the provisions of the Local Agency Law, 2 Pa.C.S. § 754. This decision bypasses the appeal procedures in section

434

11-3.1

5020-518.1 of the General County Assessment Law that provide for a de novo proceeding before the trial court. The Hamot decision procedurally deals with the right to a de novo hearing under the Local Agency Law. Section 754 provides that where a complete record of the administrative proceeding before the board of assessment appeals was made, the court will hear the case without a jury on the record certified by the board. Further, the court will then affirm the board’s decision unless it finds by a preponderance of the evidence that (1) the adjudication violates the appellant’s constitutional rights, (2) the adjudication is not in accordance with the law, (3) procedures before the board violated subchapter B of chapter 5 of the Local Agency Law, or (4) the board’s findings of fact that were necessary to support the adjudication were not supported by substantial evidence in the record. If there is an incomplete record, the Hamot decision mandates that the court may hear the appeal de novo or remand the case to the board to make a full and complete record. The court in Hamot stated: It is clear from the language in Section 754 that the trial court is empowered to hear the case de novo only if it determines that the record before the local agency was incomplete. Hamot, 602 A.2d at 408. In Wellsboro Area School District v. Tioga County Board for Assessment & Revision of Taxes, 651 A.2d 592 (Pa.Cmwlth. 1994), the Commonwealth Court substantially distinguished its own holding in Hamot. In this case, the school district appealed the removal of exempt status of two district-owned properties to the assessment appeals board, where a complete evidentiary record was made of the hearing. The board agreed to exempt only a portion of one of the properties. The school district appealed, and the common pleas court held a de novo hearing and ruled in favor of the district. The county appealed to the Commonwealth Court on the basis that the lower court was prohibited from holding a de novo hearing under the Hamot mandate. The school district contended that this case was distinguishable from Hamot in that it appealed to the court under the provisions of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.101 et seq. (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), rather than under the Local Agency Law, 2 Pa.C.S. § 754. The Commonwealth Court agreed and affirmed the lower court procedure. The court stated: We agree with the School District that the appeal in this case is governed by The Fourth to Eighth Class County Assessment Law and not the Local Agency Law. First, the appeal to the trial court from the Board’s decision referred only to The Fourth to Eighth Class County Assessment Law and The General County Assessment Law, Act of May 22, 1933, P.L. 853, 435

Exemption Law and Procedure

as amended, 72 P.S. §§ 5020-1–5020-602. Second, section 754 of The Local Agency Law and section 704(a) of The Fourth to Eighth Class County Assessment Law are indeed inconsistent. Therefore, as the School District contends, Hamot Medical Center is distinguishable from the case at bar. Section 704(a) provides: Any person who shall have appealed to the board for relief from any assessment, who may feel aggrieved by the order of the board in relation to such assessment, may appeal from the order of the board to the court of common pleas of the county within which such property is situated, and for that purpose may present to said court, or file in the prothonotary’s office within sixty days after the board entered its order on the said assessment, a petition signed by him, his agent or attorney, setting forth the facts of the case, and thereupon the court shall proceed at the earliest convenient time to be by them appointed, of which notice shall be given to the board to hear the said appeal and the proofs in the case, and to make such orders and decrees determining from the evidence submitted at the hearing. The foregoing section clearly provides that the appeal from the order of the Board is by way of a petition which is to set forth the facts of the case and, thereafter, the court is to hear the appeal and the proofs in the case and to make such orders from the evidence submitted at the hearing. The foregoing language can have no meaning other than that a trial court is to hold a de novo hearing. Thus, the trial court did not err in conducting such a hearing. Wellsboro, 651 A.2d at 594 (emphasis in original). The court repudiated a prior holding through the guise of distinguishing the previous case law. The decision in Hamot was a departure from the existing case law and largely inconsistent with the scheme of tax assessment procedure, bifurcating the procedure of exemption hearings from that of assessment valuation litigation. This two-track assessment procedure was clearly at odds with the legislative intent of the various assessment hearings. It still remains to be seen if the court will apply the holding in Wellsboro to other class county codes.

436

11-3.3

11-3.2

Filing Deadlines under the Consolidated County Assessment Law

The Consolidated County Assessment Law provides a statutory filing deadline for exemption appeals that mirrors the filing date for valuation under the statute. Section 8844(c) states: (1) Any person aggrieved by any assessment, whether or not the value thereof shall have been changed since the preceding annual assessment, or any taxing district having an interest in the assessment, may appeal to the board for relief. Any person or taxing district desiring to make an appeal shall, on or before September 1 or the date designated by the county commissioners if the option under paragraph (3) is exercised, file with the board an appeal in writing, identifying the following: (i)

Appellant.

(ii)

Property location.

(iii) Owner. (iv) Assessment or assessments by which the person is aggrieved. (v)

Address to which notice of the time and place for a hearing shall be mailed.

(2) The same procedures and deadlines shall apply to a request for real estate tax exemption under section 8812 (relating to exemptions from taxation). (3) The county commissioners may designate a date no earlier than August 1 as the date on or before which any person desiring to appeal from any assessment shall file with the board an appeal as long as the notice by publication required under section 8841(d)(1) is given at least two weeks prior to the date designated in accordance with this paragraph. 11-3.3

Burden of Proof in Exemption Appeals

The burden of proof in exemption cases was articulated in Hamot, 602 A.2d 407. The Commonwealth Court cited HUP, 487 A.2d 1306, which held that where there is review of a charitable exemption in light of a change in circumstances, the entity seeking to retain its tax-exempt status bears the burden of proof. Therefore, whether the appeal is initiated by the exempt entity or by the taxing district, the burden of proof remains upon the party seeking the exemption or attempting to retain the tax-exempt status. 437

Exemption Law and Procedure

As noted previously, the Institutions of Purely Public Charity Act changes the burden of proof in some tax assessment cases where taxpayer meets the statutory prerequisites. 11-3.4

Effective Date of Exemption

The basic law in Pennsylvania is well established that, if property is taxable on the date of assessment, the tax for the entire year must be paid even if the property becomes tax exempt during the year. W.G. Halkett Co. v. City of Philadelphia, 175 A. 299 (Pa.Super. 1934). Conversely, where a tax-exempt entity sells real estate to a nonexempt individual after the annual assessment date for real estate taxes, does the nonexempt individual have to pay a pro rata share of taxes for the year of the sale, or does the exempt status continue throughout the taxable year? The Pennsylvania Supreme Court addressed this issue in Appeal of Title Services, Inc., 252 A.2d 585 (Pa. 1969). In this case, the taxpayers argued that if property was taxable on the date of assessment, it would remain taxable for the entire year, and therefore it must follow that property that is exempt on the date of assessment must remain exempt for the entire year. The Allegheny County assessment appeals board disputed this reasoning because tax exemptions must be strictly construed. The Supreme Court ruled in favor of the taxpayers, explaining: The well-nigh universal rule in this country is that the tax status and value of property is set for the entire fiscal year on the assessment date. “The taxable status of property ordinarily becomes fixed as of the date designated by law as assessment day, and, unless expressly provided to the contrary, no taxes can legally be assessed for a particular year unless the conditions requisite to liability exist on that day.” (Emphasis added) (16 McQuillin, Municipal Corporations, § 44.105, at 333–334) The law is clear in this Commonwealth that, if property is taxable on the assessment date, it remains taxable for the entire year and that the value of property is fixed for the entire year on the assessment date regardless of whether the property appreciates or depreciates in value after that date. Hendel Appeal, 403 Pa. 635, 170 A.2d 109 (1961). We think that if the orderly and uniform system of assessment contemplated by the legislature is to prevail, then it must follow that if property is tax exempt on the day of assessment, it remains exempt for the entire year. Id. at 587. Therefore, Title Services holds that once a property is determined to be tax exempt for a tax year, it cannot be altered for the remainder of that year even if its tax-exempt use is altered. Conversely, if a prop-

438

11-3.4

erty becomes exempt during the year, there is no rebate of taxes for that taxable year. The Commonwealth Court in In re Appeal of Sports & Exhibition Authority of Allegheny County, 789 A.2d 316 (Pa.Cmwlth. 2001), reviewed the timing of an exemption for tax purposes. In Allegheny County, real property is assessed before December 31 of each year for the following year, with January 1 being the official date of assessment. The county sports authority bought properties in 1999 after the date of assessment and applied for exemption of taxation. The assessment appeals board found that they were taxable for tax year 1999 and exempt for tax year 2000 and thereafter, and the common pleas court affirmed. The authority appealed on the basis that the Public Auditorium Authorities Law, 53 P.S. § 23856, gave it immunity from taxation. The appellate court found, however, that the authority was immune from taxation only from the year 2000 onward. The Commonwealth Court followed the decision in Title Services, which held that where a tax-exempt organization purchases nonexempt realty, it must remain taxable for the remainder of the calendar year. The court stated: There is good reason to have the date of assessment establish the date property becomes tax exempt. Local units of government rely upon the total assessed value of the real properties within their jurisdiction when setting the millage and levying their real property taxes to balance their budget. If they were unable to depend upon the stability of the assessed values of real estate because of exemptions taking effect during the taxable year after the date of assessment, fiscal uncertainty would result thereby placing an onerous burden on the local officials who have enough difficulty balancing their budgets under the present system. Sports & Exhibition Authority, 789 A.2d at 319. The issue in In re Appeal of Jubilee Ministries International, 2 A.3d 706 (Pa.Cmwlth. 2010), was the effective date of a tax exemption. Here, a church organization bought properties in Lawrence County on March 19, 2008, and filed for an exemption. The assessment appeals board granted the exemption on October 3, 2008, effective as of that date. The church group appealed, and the trial court found the effective date of the exemption was the date that the organization acquired the properties and began using them for church-related purposes. On appeal, the board argued that the trial court erred when interpreting section 701 of the Fourth to Eighth Class County Assessment Law (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) to require an effective date for tax-exempt status to be earlier than the date of the board’s decision. The board argued that section 701 gave it the authority to set the effective date. 439

Exemption Law and Procedure

The Commonwealth Court held that the Tax Assessment Day Rule, which had required that an exemption become effective the first day of the next tax year from when the decision was made, was abrogated by passage of section 701(a.1) of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.701(a.1) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), which allowed the board to grant an exemption “at any time in the year.” The appellate court ruled that the board should revise its rules accordingly. Further, the court held that the board’s duty to grant tax-exempt status in a nondiscretionary and nonarbitrary way was mandatory. The court emphasized certain language in section 701(a.1): “[a]ll additions and revisions shall be a supplement to the assessment roll for levy and collection of taxes for the tax year for which the assessment roll was originally prepared, in addition to being added to the assessment roll for the following calendar or fiscal tax years.” The court further stated that a property either qualifies as exempt or does not, and the board does not have discretion to arbitrarily set the effective date; rather, the effective date should be the date on which the property first qualified for the exemption. On January 1, 2011, the Consolidated County Assessment Law (CCAL), 53 Pa.C.S. § 8801 et seq., became effective. At section 8847, the CCAL provides that any changes in assessments made by the board become effective for the taxing jurisdiction in the fiscal year after the fiscal year in which the board made its decision. This statute, while arguably cutting into the Jubilee Industries court’s rationale, does not wholly close the subject. Arguments can still be made using the underlying reasoning used in Jubilee, especially that related to the uniformity clause. The Commonwealth Court held in Global Links v. Keystone Oaks School District, 115 A.3d 418 (Pa.Cmwlth. 2015), that the Tax Assessment Day Rule was governing law in Allegheny County because it was not abrogated by the General County Assessment Law, specifically 72 P.S. § 5020505(b), which was inconsistent with the Second Class County Assessment Law. In this case, a public charity purchased a property from a taxable entity on July 3, 2012, and sought a tax exemption effective as of that date because the property was immediately used for a charitable purpose. The county property assessment office approved the request for tax year 2013 and forward but denied the request for the latter half of tax year 2012 because the charity was not the property owner on January 1, 2012. The assessment appeals board, the common pleas court, and the Commonwealth Court all affirmed the office’s decision.

440

11-3.5

11-3.5

Equity Proceeding Is Inappropriate to Obtain Tax Exemption

The courts have held that property owners can be granted tax exemptions only by filing an affirmative application for exemption with the board of assessment appeals and that equity proceedings are unavailable to obtain tax exemption. A case in point is Catholic Institute of Pittsburgh v. Board of Property Assessment, Appeals & Review of Allegheny County, 423 A.2d 1114 (Pa.Cmwlth. 1980), where a charity owned and used the property since 1975 but did not file an application for exemption until September 1977. The assessment appeals board granted the exemption effective January 1, 1978, but denied it for 1976 and 1977. The organization brought an action in equity to enjoin the collection of taxes for the two prior years. The court held that, in this factual scenario, equity has no power to retroactively grant tax exemptions where the organization failed to file a timely application with the appropriate administrative body. In accord is the decision in In re Petition of Mausoleum Construction Co., 423 A.2d 809 (Pa.Cmwlth. 1980). Here, a nonprofit corporation that had been doing business since 1946 filed a petition in March 1976 to strike tax liens filed against it. The trial court found that the company’s property was entitled to exemption from real estate taxes over the liened years as a burial place not used or held for profit pursuant to 72 P.S. § 5020204(a)(2), and it struck the liens. The taxing school district appealed to the Commonwealth Court. The issue before the appellate court was whether the corporation was foreclosed from a collateral attack on the assessments underlying the liens because of its failure to pursue the statutory appeal process provided by the General County Assessment Law. The court reversed the lower court on this issue, finding that the corporation’s failure to follow the statutory appeal process divested the courts of any retroactive jurisdiction over the assessment. The court held: According to City of Philadelphia v. Dougherty, supra, [153 Pa.] at 559, 34 A.2d at 920 [(1943)], “[i]f no appeal is taken from the assessment of taxes within the time allowed by law it becomes binding and conclusive . . . neither the common pleas nor an appellate court can afford any relief.” This holding constitutes a limitation of subject matter jurisdiction. “[T]he timeliness of an appeal goes to the jurisdiction of the body appealed to and its competency to act.” Coshey v. Beal, 27 Pa. Commonwealth Ct. 440, 443, 366 A.2d 1295, 1297 (1976). See also Department of Transportation, Bureau of Traffic Safety v. Bower, 48 Pa. Commonwealth Ct. 379, 410 A.2d 91, 92 (1980). Unlike the procedural point considered and waived above, when exemptions have not been timely sought through statu441

Exemption Law and Procedure

tory appeals, the courts have no jurisdiction to reach back over a period of years, as here, to resurrect the question. That consequence is salutary because the revenue base of taxing bodies should not be left open indefinitely to a retrospective exemption claim made in a lien proceeding filed, as here, decades later than some of the tax years involved. Thus the merits of the exemption could not be reached here, the liens were stricken improperly, and that action must be reversed. Mausoleum Construction, 423 A.2d at 811–12. In City of Pittsburgh v. Board of Property Assessment, Appeals & Review of County of Allegheny, 412 A.2d 655 (Pa.Cmwlth. 1980), the court explored the above issue in relation to public purpose exemptions under 72 P.S. § 5020-204(a)(5) and (a)(7). In this case, the property consisted of two square blocks of real estate in downtown Pittsburgh that the county purchased from the city parking authority in April 1970. At that time, the county intended to construct government buildings on the site. Ultimately, these plans never materialized, and the property was used for parking lots open to the public. In 1971, the assessment appeals board placed the property in the taxable category, and the county did not challenge this taxable status until filing an exemption request in 1975. The board granted the request, exempted the property, and exonerated all previously assessed taxes. The trial court reversed, holding that the property was taxable and reinstating all back taxes. The Commonwealth Court found that the property was exempt under the statute but refused to apply this finding retroactively. The court stated: [W]e will sustain the decision of the court below insofar as it reversed the exoneration of all taxes due from the time the property was first placed in the taxable category. The law is clear that exempt status must be affirmatively requested by the property owner, and is equally clear that the board is without power to grant exemption from assessments not timely appealed. Appeal of Grandview Cemetery Assoc., 209 Pa. Superior Ct. 109, 224 A.2d 780 (1966). City of Pittsburgh, 412 A.2d at 658. Therefore, the law in Pennsylvania precludes equitable and collateral attacks on the validity of taxes assessed on properties where the taxpayer has failed to make a timely affirmative application for an exemption.

442

11-3.6

11-3.6

Institution Seeking Tax Exemption Must Exhaust Administrative Remedies

In Aquarian Church of Universal Service v. County of York, 494 A.2d 891 (Pa.Cmwlth. 1985), a church failed to pay the local taxes on its properties, and the county scheduled a tax sale for December 3, 1981. The organization then filed a complaint in equity alleging that, as a church and as a public charity, its property was exempt by statutory law pursuant to the General County Assessment Law, 72 P.S. § 5020-204. The court of common pleas initially enjoined the sale, but the county then filed exceptions on the basis that the court lacked subject matter jurisdiction. The court reversed itself, vacated the injunction, dismissed the complaint, and allowed the tax sale to proceed. Prior to the tax sale, the church appealed to the Commonwealth Court. The salient issue on appeal was whether a common pleas court has subject matter jurisdiction to enjoin a property sale when the taxpayer has bypassed the statutorily mandated appellate process. The church claimed that the assessment law provisions providing exemptions for places of worship and the real property of public charities are self-executing; that is, these provisions exempt the property from assessment without the necessity of the taxpayer’s applying for an exemption. The Commonwealth Court rejected this argument and stated: The case law is contrary to the church’s thesis. Where the legislature has provided a statutory remedy which is mandatory and exclusive, equity is without power to act in relief of the party who has failed to pursue that remedy. The statutory remedy of appeal to assessment boards is the mandatory and exclusive remedy of persons claiming that their real estate is exempt from local taxes. Concerned Taxpayers of Beaver County v. Beaver County Board of Assessment Appeals, 75 Pa. Commonwealth Ct. 443, 462 A.2d 347 (1983); Appeal of Cedarbrook Realty, Inc., 39 Pa. Commonwealth Ct. 150, 395 A.2d 613 (1978). See also Lashe v. Northern York County School District, 52 Pa. Commonwealth Ct. 541, 417 A.2d 260 (1980). These cases and others to the same effect derive from Young Men’s Christian Association v. Reading, 402 Pa. 592, 167 A.2d 469 (1961), where the Supreme Court wrote, at 598, 167 A.2d at 472: Considering the ample protection of the statutory procedure now afforded a taxpayer and the greater skill of local assessing officers in reviewing these matters prior to court proceedings, it seems unjustifiable to continue upholding equitable jurisdiction where a taxpayer claims its charitable status entitles it to a 100% exemption from taxation 443

Exemption Law and Procedure

while relegating to the statutory proceeding a taxpayer one percent of whose property is admitted or found to be taxable, the other 99% being exempt. We conclude, therefore, that, absent a challenge to the constitutionality of a statute or of official action thereunder, equity has no jurisdiction to restrain the collection of taxes. Aquarian Church, 494 A.2d at 892–93. As an alternative theory, the church raised a constitutional issue, but the court rebutted this argument as well, stating: The appellant church additionally contends that the actions of the York County taxing authority of assessing its properties and that its default in payment of the taxes, which exposed its properties to sale, raise “serious and sensitive” (but otherwise undescribed) constitutional issues. The issue sought to be raised may be that of interference with the free exercise of the members’ religious beliefs. The church seems to contend that the court had jurisdiction because it raises a constitutional challenge. But the law is that the constitutional challenge in such case must be substantial and that a mere allegation of unconstitutionality will not confer jurisdiction. Rochester & Pittsburgh Coal Company v. Indiana County Board of Assessment and Revision of Taxes, 438 Pa. 506, 266 A.2d 78 (1970). We are not persuaded that the appellant has raised a substantial constitutional issue. The recent case of Tony and Susan Alamo Foundation v. Secretary of Labor, [471] U.S. [290], 53 U.S.L.W. 4489 (1985), is instructive. The United States Supreme Court there held that the Free Exercise and Establishment Clauses are not violated by governmental activities which preserve the public tranquility, peace or economic order such as labor, zoning, or building regulations. This case involves only the law’s insistence that persons claiming exemption of their real estate from local taxes establish their entitlement by the inoppressive means of appeal, in the first instance, to boards of assessment. This seems to us to be a governmental activity calculated to preserve a number of important public interests. Id. at 893. In summing up its holding, the court stated that a taxpayer must exhaust its administrative remedies to use the statutory appellate process. Specifically, the Commonwealth Court negated the use of the injunctive process and inherent equity power of the court of common pleas to bypass the statutory assessment appeal process. The court stated: Finally, in Borough of Green Tree v. Board of Property Assessments, 459 Pa. 268, 328 A.2d 819 (1974), the Pennsylvania Su444

11-3.7

preme Court held that the taxpayer seeking to invoke equity in this class of case must convince the courts that the statutory remedy of administrative appeal is inadequate. Nothing in this record suggests that an appeal of its assessment first to the York County assessment board would not have fully suited the church’s purpose. Id. Therefore, the law is clear that exemptions are not self-executing, and an institution that qualifies for exemption on the facts but fails to exhaust administrative remedies by applying for exempt status as provided by law will be liable for taxation. 11-3.7

Uniformity of Tax Exemptions

In Wyoming Valley Montessori Association v. Board of Assessment Appeals of Luzerne County, 532 A.2d 931 (Pa.Cmwlth. 1987), the Commonwealth Court discussed the uniformity of tax exemptions within the taxing district. Does a taxpayer have the right to challenge alleged discrimination in the exemption application process? Here, the assessment appeals board denied a Montessori school’s request for exemption. The school claimed that two other similar institutions in the county had been given exemptions, but it did not provide any evidence showing the similarities between it and the two other institutions that would support a claim of discrimination. The court rejected the school’s claims on an evidentiary basis and held: We think, however, that Appellant misperceives the burden of proof on this issue. It is not the Board’s burden to demonstrate the non-discriminatory nature of exemptions granted to other properties. The constitutional validity of decisions made by the taxing authority is presumed. The heavy burden of challenging such actions lies with the complaining party. Fisher Controls Co. v. Commonwealth, 476 Pa. 119, 381 A.2d 1253 (1977). . . . We have determined here that the Board, as a matter of law, reached the correct decision regarding Appellant based on the facts presented. Thus, even if Appellant could prove that the Board incorrectly granted a tax exemption in another case, such evidence would not warrant the grant of tax-exempt status to Appellant in the instant matter. See Stilman v. Tax Review Board, 402 Pa. 492, 166 A.2d 661 (1961) (prior error in interpreting a valid tax statute is insufficient to establish a denial of constitutional rights). Id. at 935 (emphasis in original). It is likely that a different result might occur if a taxpayer produced evidence showing that an assessment appeals 445

Exemption Law and Procedure

board selectively revoked the exempt status of some but not all violating properties. This action would violate the uniformity mandate of the Pennsylvania Constitution. As pointed out above, the taxpayer would have the burden of presenting credible evidence to support this claim and overcome the presumption of legality of the assessment. 11-3.8

Quashing of Pro Se Exemption Appeal by the Commonwealth Court

In Spirit of the Avenger, 767 A.2d 1130, the Commonwealth Court sua sponte quashed the appeal of a nonprofit religious association that had sought tax-exempt status, finding that the person who filed the appeal, a church pastor, was not an attorney and was therefore barred from representing the organization before the appellate court. The pastor was allowed to apply for tax-exempt status for the church with the Pennsylvania Department of Revenue’s finance board as a pro se litigant. He was permitted to appeal pro se the board’s decision to the department’s board of appeals. He was allowed to file an appeal pro se to the Commonwealth Court, and a pro se brief was also filed. The Commonwealth Court entered an order requiring the case be submitted on briefs, and the need for the church to be represented by counsel was never raised before the appeal was quashed by the court sua sponte. There was never an opportunity for the church to obtain legal representation within a reasonable period of time. The Commonwealth Court held that proceedings commenced by persons unauthorized to practice law are a nullity, stating: It is well settled that, with a few exceptions not applicable here, non-attorneys may not represent parties before the Pennsylvania courts and most administrative agencies. Shortz v. Farrell, 327 Pa. 81, 193 A. 20 (1937); Nolan v. Department of Public Welfare, 673 A.2d 414 (Pa. Cmwlth. 1995), petition for allowance of appeal denied, 546 Pa. 650, 683 A.2d 887 (1996); McCain v. Curione, 106 Pa. Commw. 552, 527 A.2d 591 (Pa. Cmwlth. 1987). As the instant matter is the Ministries’ appeal of the denial of its application, it may not be represented by its pastor, a non-attorney, in this appeal in this Court. See Smaha v. Landy, 162 Pa. Commw. 136, 638 A.2d 392 (Pa. Cmwlth.), petition for allowance of appeal denied, 539 Pa. 660, 651 A.2d 546 (1994) (A non-profit medical corporation must have counsel in order to proceed in a court action as a corporation cannot represent itself); Walacavage v. Excell 2000, Inc., 331 Pa. Super. 137, 480 A.2d 281 (Pa. Super. 1984) (A corporation may not appear in court and be represented by a corporate officer and shareholder who is not an attorney.). Id. at 1130–31. 446

11-3.9

This case should be closely watched to see if it creates any trends in the assessment area. At the present time most assessment boards in Pennsylvania permit underassessment appeals to be initiated with the board by non-attorneys even when they involve partnerships and corporations. The majority of the county rules provide for a partner or corporate officer to sign the assessment appeal and to appear before the board for their partnership or attorney. With the recent increase in unauthorized practice of law cases being initiated, it would not be surprising to see one brought at the board of assessment appeals level. Taken to extremes, this could lead to the absurd result of elderly and feeble residential property owners not being allowed to send their son or daughter to an assessment hearing when they are incapable of attending themselves, because the son or daughter would be representing them and engaged in the unauthorized practice of law, by the standard outlined in Spirit of the Avenger. 11-3.9

Chief County Assessor’s Lack of Authority to Remove an Exemption

In Pinnacle Health Hospitals v. Dauphin County Board of Assessment Appeals, 708 A.2d 1284 (Pa.Cmwlth. 1998), a county’s chief assessor removed a property from the tax rolls without first obtaining approval from the assessment appeals board. In 1992, Dauphin County decided to reevaluate the tax status of various exempt institutions, specifically hospitals, nursing homes, and other health-care agencies. The director of the county’s office of tax assessment then notified Pinnacle Health Hospitals that it would be removed from the exempt roll and placed on the taxable list effective January 1, 1993. Enclosed with the letter was an assessment change notice removing the tax exemption from the hospital’s real estate. Pinnacle, a nonprofit corporation, is a tax-exempt charity for federal tax purposes. It was founded in 1878 through a combination of public contributions and private charity and evolved into a multi-building acute care teaching hospital. Historically, the hospital had always been tax exempt in Dauphin County. The hospital appealed the status to the assessment appeals board on both procedural and substantive grounds. The board affirmed the assessment change, and the hospital appealed to the court of common pleas. After the parties completed discovery, the hospital filed a petition to remove the property from the assessment roll and to strike tax assessment on the basis that the county’s chief assessor, who had been following instructions from a county commissioner, lacked authority to revoke its tax-exempt status. The court ruled that the chief assessor improperly revoked the hospital’s tax exemption because he did not first consult the members of the assessment appeals board. The court found that only the board had the power to grant or eliminate tax exemptions. The court also concluded that the chief assessor 447

Exemption Law and Procedure

lacked the power under the Second Class A and Third Class County Assessment Law to grant or revoke tax assessments. The Dauphin County commissioners had no statutory authority to remove an exemption or to delegate to the chief assessor. Therefore, the court struck down the chief assessor’s ultra vires actions for tax year 1993 and restored the exemption for that year. As for tax years 1994 and thereafter, the court allowed the exemptions to be removed because the assessment appeals board held a hearing on the matter and ratified the chief assessor’s actions, which could be construed as adequate notice of the board’s prospective approval for January 1, 1994. The Commonwealth Court reviewed this procedural issue and held: We agree with the Common Pleas Court’s conclusion that [the chief assessor] could not, acting on his own authority, revoke the Hospital’s tax exempt status. Only the Board is given the authority under the [Third Class County Assessment Law] to make and supervise assessments; nothing in the statute indicates that such authority is shared with the director of a county’s tax assessment office, nor is he a “subordinate assessor.” But, even if we agreed that [the chief assessor] could be deemed a “subordinate assessor” under the [Third Class County Assessment Law], the statute does not give “subordinate assessors” the authority to either exclude property from taxation or nullify an existing exemption. Id. at 1292 (emphasis in original). This case reinforces the view that assessment personnel must conform to the assessment statutes and not attempt to go beyond their statutory authority. It is clear from the assessment scheme that the ultimate power to determine a county’s assessment scheme in a second class A or third class county resides with the assessment appeals board, not with the county commissioners or their designees. The legislature’s intent was for county government officials to keep their hands off the operation of the assessment office and for the power to be vested in the board. 11-4 11-4.1

Exemption Implementation Partial Exemptions

Article VIII, Section 2, of the Pennsylvania Constitution provides: (a) The General Assembly may by law exempt from taxation: *

*

*

(iii) That portion of public property which is actually and regularly used for public purposes; * 448

*

*

11-4.1

(v)

Institutions of purely public charity, but in the case of any real property tax exemptions only that portion of real property of such institution which is actually and regularly used for the purposes of the institution.

The appropriate statutory reference is 72 P.S. § 5020-204(b), which states: Except as otherwise provided in clauses (11) and (13) of this section, all property real or personal, other than that which is actually and regularly used and occupied for the purposes specified in this section, and all such property from which any income or revenue is derived, other than from recipients of the bounty of the institution or charity, shall be subject to taxation, except where exempted by law for State purposes, and nothing herein contained shall exempt same therefrom. The Consolidated County Assessment Law has a similar provision at 53 Pa.C.S. § 8812(b): (1) Except as otherwise provided in subsection (a)(13) and (15), all property, real or personal, other than that which is actually and regularly used and occupied for the purposes specified in this section, and all property from which any income or revenue is derived, other than from recipients of the bounty of the institution or charity, shall be subject to taxation, except where exempted by law for State purposes. (2) Except as otherwise provided in subsection (a)(12), all property, real and personal, actually and regularly used and occupied for the purposes specified in this section shall be subject to taxation unless the person or persons, associations or corporation so using and occupying the property shall be seized of the legal or equitable title in the realty and possessor of the personal property absolutely. The courts have interpreted these constitutional and statutory provisions to prohibit a charity from leasing a portion of tax-exempt property to a third party. The Pennsylvania Supreme Court explained the rationale for this interpretation in West View Borough Municipal Authority Appeal, 113 A.2d 307, 309 (Pa. 1955): The controlling test is, not merely whether the property or part of it has been rented out, but whether the use of the part so leased is for a public or a private purpose. It is the use of the 449

Exemption Law and Procedure

property, and not the use of the proceeds from the property, which determines whether tax exemption may constitutionally be granted. In Upper Dauphin National Bank v. Dauphin County Board of Assessment Appeals, 561 A.2d 378 (Pa.Cmwlth. 1989), the court held that a health center, a purely public charity, could be taxed on the portion of its property leased to medical service providers who used the property for their own entrepreneurial purposes. The Commonwealth Court found that there is no doubt that property, even though owned by an ordinarily tax-exempt organization, is taxable if used for commercial purposes or if rented to a lessee for a purely business enterprise. This is true even if the rentals or other proceeds from the property are devoted to the lessor’s tax-exempt activities. In summary, where a nominally tax-exempt entity leases a portion of its property to a third party for valuable consideration, that portion of the property is subject to assessment and taxation. 11-4.2

Governmental Demands for Money in Lieu of Taxes in Exchange for Retention of Tax-Exempt Status

In Lee Hospital, 638 A.2d 344, the Commonwealth Court explored the propriety of a county government’s attempt to secure payments in lieu of taxes (PILOTs) from an exempt entity in exchange for dropping an exemption challenge. In this case, the Cambria County commissioners, who also served as the members of the assessment appeals board, established a committee to explore review the exempt status of four hospitals in light of the Commonwealth Court decision in Hamot, 602 A.2d 407. After unsuccessfully attempting to negotiate PILOT agreements with the hospitals, the committee recommended to the commissioners that the four hospitals be placed on the tax rolls as a result of the Hamot case, and the commissioners passed a resolution to that effect. Several weeks later, two of the hospitals entered into PILOT agreements with the county and kept their exemptions. Immediately thereafter, the commissioners notified the other two hospitals that they were being placed on the tax rolls. One facility, Lee Hospital, appealed to the assessment appeals board. Lee also filed for injunctive and declaratory relief with the court of common pleas, alleging violations of due process and equal protection under the Fourteenth Amendment to the U.S. Constitution. It also alleged a violation of the Pennsylvania Constitution’s tax uniformity clause because the county classified its property as taxable but retained exemptions for the two hospitals that entered into PILOT agreements. The trial court sustained the county’s preliminary objections and dismissed the suit.

450

11-4.2

On appeal the Commonwealth Court attempted to determine if the classification was reasonable. The court stated: Under the Uniformity Clause, a tax must be applied with uniformity upon similar kinds of businesses or property and with substantial equality of the tax burden upon all members of the same class. Bensalem Township School District v. Bucks County Commissioners, 8 Pa. Commonwealth Ct. 411, 303 A.2d 258 (1973). A taxpayer who alleges a violation of the Uniformity Clause must show either that there is deliberate discrimination in the application of the tax or that the tax has a discriminatory effect. City of Lancaster v. Lancaster County, 143 Pa. Commonwealth Ct. 476, 599 A.2d 289 (1991), petition for allowance of appeal denied, 530 Pa. 634, 606 A.2d 903 (1992). Under the Uniformity Clause and the Equal Protection Clause, absolute equality and perfect uniformity in taxation are not required. Kalodner v. Commonwealth, 150 Pa. Commonwealth Ct. 248, 615 A.2d 900 (1992). The Uniformity Clause and the Equal Protection Clause do not impose an ironclad rule of equality so as to inhibit flexible and reasonable schemes of taxation; only substantial uniformity and approximate equality are required. Commonwealth v. Rohm and Haas Co., 28 Pa. Commonwealth Ct. 430, 368 A.2d 909 (1977), affirmed 478 Pa. 164, 386 A.2d 491, appeal dismissed, 439 U.S. 805, 99 S. Ct. 61, 58 L. Ed. 2d 97. Lee Hospital, 638 A.2d at 351. The court held that there was no violation of equal protection and uniformity because all the hospitals were treated in a similar manner. Each hospital was given the opportunity to enter into an agreement and avoid litigation. The court pointed out that all four hospitals participated in the negotiations, and two chose not to enter into any agreement. The court stated: Lee was treated identically and fairly vis-a-vis the other similarly situated institutions. The result of the treatment is that all four hospitals are now taxed, either by lump-sum settlement, or through the normal taxing channels. We find an insufficiency of the record that Lee was added to the tax rolls as the result of a deliberate, purposeful discrimination. Presently, there is no inequity in the tax assessment upon Lee in relation to the assessment or payment of other hospitals. Lee cannot support an argument that its equal protection right and its right to uniform tax treatment was vio-

451

Exemption Law and Procedure

lated when it had every opportunity afforded the other members of its class. Id. In substance, the Commonwealth Court upheld a county’s right to demand money in lieu of taxes from an exempt entity upon pain of losing its tax-exempt status. The exempt entity then faces the dilemma of paying money that the taxing authority may not be entitled to or entering into protracted litigation with an uncertain outcome. Furthermore, the exempt entity confronts the prospect of a full assessment, which may result in the payment of money in excess of the amount negotiated in lieu of taxes. The possibility exists that two similar entities may end up paying substantially disproportionate amounts of taxes. This process approved by the court is intellectually dishonest in that an entity is either tax exempt or not under the Pennsylvania Constitution and statutes, and tax-exempt status should not be a subject of negotiation or coercion but rather one of applying the facts to the law. Brinksmanship must not be a substitute for the sound application of intelligible statutory and case law. 11-4.3

Exempt Status of Leasehold Property Owned by One Charity Leased to Second Charity

What is the tax status of property owned by a nominally exempt entity that is leased to another nominally exempt entity? The resolution of this question hinges on the interpretation of 72 P.S. §§ 5020-204(b) and (c), which state:

452

(b)

Except as otherwise provided in clauses (11) and (13) of this section, all property real or personal, other than that which is actually and regularly used and occupied for the purposes specified in this section, and all such property from which any income or revenue is derived, other than from recipients of the bounty of the institution or charity, shall be subject to taxation, except where exempted by law for State purposes, and nothing herein contained shall exempt same therefrom.

(c)

Except as otherwise provided in clause (10) of this section, all property, real and personal, actually and regularly used and occupied for the purposes specified in this section shall be subject to taxation, unless the person or persons, associations or corporation, so using and occupying the same, shall be seized of the legal or equitable title in the realty and possessor of the personal property absolutely.

11-4.3

The Commonwealth Court addressed this issue in Archdiocese of Philadelphia, 617 A.2d 821, where the archdiocese leased its former convent building to the Delaware County Pro-Life Coalition. The lease provided that after a rent-free renovation period, the lessee was to pay the archdiocese $12,000 in rent per year. The county assessment appeals board then added the property to the tax rolls and denied the archdiocese’s subsequent appeal. The common pleas court reversed. On appeal, the archdiocese contended that the property was exempt under 72 P.S. § 5020204(a)(9) as “real property owned by one or more institutions of purely public charity, used and occupied partly by such owner or owners and partly by other institutions of purely public charity, and necessary for the occupancy and enjoyment of such institutions so using it.” There was no dispute that both lessor and lessee were institutions of purely public charity. The Commonwealth Court held that that archdiocese, in order to clear the financial hurdles of receiving rent for the property, had to prove that (1) it did not derive any income from the property, (2) any rent paid was merely nominal, and (3) the lessee was itself the recipient of the archdiocese’s charity. The court found that the archdiocese failed to meet these statutory conditions. The court stated: The record here, particularly the lease itself, establishes that Lessee is not the “recipient of the bounty” of Lessor; rather, this lease was an arm’s-length transaction between landlord and tenant for fair rental value. It is a three-page standard form, typically favoring the lessor, to which Lessor appended three pages of provisions detailing costs to be paid by Lessee. . . . *

*

*

The exclusions of both 204(b) and 204(c) are absolute and their language is clear. In order to satisfy section 204(b), no income or revenue can be derived from the property except for that received directly from the recipients of the property owner’s charity. Under section 204(c), the property must be owner occupied, and the owner must “absolutely” possess the building(s) thereon. If property does not clear both of these exclusionary hurdles, any exemption otherwise available under section 204(a) fails. Therefore, if Taxpayer’s claim for exemption fails under either 204(b) or 204(c), the trial court’s findings that Lessor and Lessee are “pure public charities”, qualifying them for exemption under section 204(a)(9) are irrelevant as a matter of law. Archdiocese of Philadelphia, 617 A.2d at 824, 826.

453

Exemption Law and Procedure

This provision was legislatively amended by the Institutions of Purely Public Charity Act. If this statute meets constitutional muster, the holding in the case may no longer be controlling in Pennsylvania. In Borough of Homestead v. St. Mary Magdalen Church, 798 A.2d 823 (Pa.Cmwlth. 2002), the Commonwealth Court carved out an exception to its decision in Archdiocese of Philadelphia. In this case, the property in question was a former Catholic high school building owned and operated by St. Mary Magdalen Church and the Archdiocese of Pittsburgh. After the closure of a local steel mill in and the subsequent loss of 12,000 jobs, enrollment in the high school dropped, and it was closed by the archdiocese. The archdiocese converted the building into the Bishop Boyle Center, which operated a job center for displaced workers. The job center occupied 5 percent of the building, while the remaining space was leased to both for-profit and nonprofit entities (referred to as licensees) seeking to help the unemployed. The for-profits, including McDonald’s and Lowe’s, used the space to interview prospective workers. The nonprofits included a food bank and a welfare reform advocacy group. The borough appealed the exempt status of the property to the Allegheny County assessment appeals board, which denied the appeal. The court of common pleas sustained the tax exemption, and the borough appealed to the Commonwealth Court, arguing that the licensees’ payments were not nominal but approached the commercial rate for similar realty. The appellate court, using the HUP test, found that the Boyle Center was an institution of purely public charity. The remaining issue was whether the rental of the building ran afoul of the holding in Archdiocese of Philadelphia and 72 P.S. § 5020-204(b). The Commonwealth Court sustained the lower court in finding that the licensees were the recipients of the diocese’s bounty and that revenue generated by the Boyle Center did not preclude a tax exemption. The court stated the following in distinguishing Archdiocese of Philadelphia: In Archdiocese of Philadelphia, the charitable owner leased its property to another charitable organization under a lease that was “an arm’s-length transaction between landlord and tenant for market value.” . . . In addition to annual rent of $12,000, the tenant paid all utilities, maintained the interior and exterior of the property and made a “substantial investment” in improvements which reverted to the Archdiocese. We noted that “under these lease terms, it is difficult to envision a cost to Lessor that is not either to be paid directly by Lessee or reimbursed as additional rent.” . . . Declining to examine the overall profitability of the arrangement, we held that the tenant was not the recipient of the bounty of the Archdiocese. Thus, the rental income prevented the tax exemption pursuant to Section 204(b). 454

11-4.4

In contrast, the trial court here found that Licensees are recipients of the bounty of the Diocese. It noted that the fees charged Licensees are below market value. This determination reflects the Diocese’s significant responsibilities to the Licensees, including interior and exterior maintenance and payment of all utilities. Also, the trial court found that improvements by Licensees are mainly cosmetic and relatively insubstantial. Importantly, the trial court found that the Diocese never derived net income or surplus revenue from the Bishop Boyle Center. Rather, the Diocese continues to subsidize the operation. These findings are supported by substantial evidence and are binding on us. . . . Moreover, these findings distinguish this case from Archdiocese of Philadelphia. Borough of Homestead, 798 A.2d at 827–28. Therefore, the court ameliorated the strict and absolute prohibition of the receipt of rental income from a nonprofit institution and the retention of the exempt status of that property. There are now circumstances under which a nonprofit can rent out property and still retain that property’s exempt status. 11-4.4

Examination of Purely Public Charities

In Scripture Union v. Deitch, 531 A.2d 64 (Pa.Cmwlth. 1987), the court examined a nonprofit institution’s claim for tax exemption. The nonprofit corporation, Scripture Union, distributed bimonthly publications that included a daily guided program and commentary on the Scriptures. The organization also counseled interested Christian churches in the operation of their youth programs and supported other Scripture Union ministries in foreign countries. Its main publications were distributed to about 10,000 to 12,000 individuals and 700 churches throughout the United States. Scripture Union was not associated with any organized religion and did not regard itself as a religious organization. The issue in the case was whether Scripture Union qualified as a “purely public charity.” The Commonwealth Court found that the organization was unable to meet the five-point HUP exemption test. Specifically, it found that the institution must donate or render gratuitously a substantial portion of its services. Scripture Union required a $15 contribution from all adult members to cover the costs of its publications. Youth publications required an $8-per-year contribution. Members were also asked to offer additional contributions throughout the year, and the institution sold gift memberships at these rates. The court, in rejecting the institution’s exemption, held: We think this evidence fails to establish that Scripture Union donates or renders gratuitously a substantial portion of its services. As our Supreme Court stated in the leading case of 455

Exemption Law and Procedure

Y.M.C.A. of Germantown v. Philadelphia, 323 Pa. 401, 409, 187 A. 204, 208 (1936), “[w]hat is ‘given’ must be more nearly gratuitous than for a price which impresses one as being proportionate to the services rendered.” Here, however, the annual contributions apparently cover the costs of the publications and there is no evidence that the contribution fee has been waived for any substantial number of recipients. Though the goals of Scripture Union may be regarded as generally charitable in nature, see Methodist Episcopal Church v. Philadelphia, 266 Pa. 405, 109 A. 664 (1920), we believe that its membership structure functions much like a magazine subscription and does not evidence “a bona fide effort to service primarily those who cannot afford the usual fee.” Hospital Utilization Project, 507 Pa. at 19 n. 9, 487 A.2d at 1315 n.9. Id. at 67. This provision was legislatively amended by the Institutions of Purely Public Charity Act cited previously in this chapter. If this statute meets constitutional muster, the holding in the case may no longer be controlling in Pennsylvania. 11-4.5

Exemption of Subsidiaries of Charitable Entities

Charitable corporations often place their real property holdings in the title of subsidiary corporations. While the parent corporations may meet the five-point HUP test, their progeny corporations do not. Can real property owned by the subsidiary be granted tax exemption due to the charitable status of the parent? The Commonwealth Court answered that question in the negative in in Appeal of Northwestern Corp., 665 A.2d 856 (Pa.Cmwlth. 1995). In this case, Northwestern Corp., a nonprofit corporate entity, was the parent corporation of 20 subsidiary corporations that delivered various mental health, intellectual disability, drug and alcohol abuse, and other health services. One of its subsidiaries was the Edgewater Psychiatric Center in Harrisburg. Edgewater did not apply for an exemption because it leased the property and was not eligible under the exemption law. In 1990, Northwestern purchased another property in Harrisburg. This facility was known as Riverview and was not incorporated as a separate entity but was managed by Edgewater. Northwestern applied to the Dauphin County assessment appeals board for an exemption for the Riverview property. The board denied the exemption, and the trial court sustained the denial on the basis that Riverview had not proved it was a charitable entity. Northwestern argued that both Riverview and Edgewater must be viewed as one charitable entity and together could meet the HUP test. 456

11-4.5

The Commonwealth Court rejected this argument and held: Northwestern argues that Edgewater and Riverview should be viewed as a single entity which conducts unified functions at separate, non-contiguous properties; viewed in this manner they clearly function as an institution of purely public charity. We disagree. In order to qualify for a real estate tax exemption, the charitable activity of the entity must occur on the specific property for which the exemption is sought, and the entity must be the owner and occupier of the property. The courts of this Commonwealth have stated repeatedly that provisions exempting property from taxation must be strictly construed. HUP; Appeal of Archdiocese of Philadelphia, 151 Pa. Commw. 480, 617 A.2d 821 (Pa. Cmwlth. 1992). Northwestern’s approach, by advocating an analysis of the activities of its independent subsidiary, Edgewater Psychiatric Center, which is wholly owned by Northwestern, in conjunction with the activities at Riverview, and considering them as a single entity for the purpose of exempting the Riverview property from tax, fails to abide by this directive and expands the concept of the property tax exemption in an unprecedented manner. Although there may be other types of taxes where it might be appropriate to view Edgewater as a single entity which includes Riverview and which operates at two different sites, such an approach is not logical for the purpose of levying real property taxes. The tax at issue here is not on the activity of the entity wherever its many branches and functions are located, but is a tax based on the value of the parcel of real estate upon which the activity of that entity is located. Thus, it is the charitable activity which occurs on that parcel, and only that parcel, which is relevant. Id. at 858 (emphasis in original). The court stated that any charitable activity done at Riverview by Edgewater was irrelevant to the exemption determination. Since Edgewater merely operated the Riverview facility and did not own it, the activities at Edgewater were not relevant to the taxable status of the Riverview property. “There is no authority, for the purposes of real property taxation, for reviewing any information concerning the activity of Edgewater, which is on a totally separate parcel of real estate, and is a totally separate corporate entity from Riverview.” Id. The court then found that the activity of Riverview itself on the subject property was insufficient to meet the five-part HUP test and denied the exemption request. The court found that Northwestern, as the corporate owner of the property, was not eligible for exemption on the property.

457

Exemption Law and Procedure

The court held: Clearly, the Riverview building is not regularly used and occupied for Northwestern’s broadly described mission which is to primarily raise funds and otherwise enable the establishment of organizations to treat the mentally ill. Rather, it is regularly used and occupied for the more narrow purpose of Edgewater, that is, the provision of hospitalization care for the mentally ill. See Greater Erie Economic Development Corporation Appeal, 61 Pa. Commw. 144, 433 A.2d 568 (Pa. Cmwlth. 1981) (even though the owner/lessor charitable organization used premises for meetings of its board of directors, it failed to provide any evidence that it “occupied” the property, as required by Section 204(c) of the Law, or that the property was “necessary for the occupancy and enjoyment” of the owner/lessor under Section 204(a)(3) of the Law, 72 P.S. § 5020204(a)(3)). In fact, Edgewater is responsible for the operation of Riverview, not Northwestern. However, as stated before, Edgewater does not own the property and it has no standing to seek exemption. Thus, Northwestern failed in its heavy burden of proving that it was entitled to a real property tax exemption for the Riverview parcel. Id. at 859. Based on this holding, it is incumbent upon assessment boards and trial courts to closely examine the ownership of any entity seeking tax-exempt status. This case appears to prohibit the tacking on of the exempt attributes of the parent corporation to its progeny corporations and clearly disallows it for sister charitable corporations. This provision was legislatively amended by the Institutions of Purely Public Charity Act cited previously in this chapter. If this statute meets constitutional muster, the holding in the case may no longer be controlling in Pennsylvania. 11-4.6

Independent Examination of Charitable Corporations in Determining Tax-Exempt Status

In Sacred Heart Healthcare System v. Commonwealth, 673 A.2d 1021 (Pa.Cmwlth. 1996), the Commonwealth Court further elucidated the interrelationship of parent and subsidiary corporations in the context of exemption qualification. The case dealt with the determination of exemptions from state sales tax and use tax. The court must apply the HUP test to determine liability for these taxes. Therefore, since Sacred Heart interprets the same case law that is evaluated in real property assessment cases, it is extremely relevant to this study. Sacred Heart Healthcare System (SHHS), a nonprofit corporation, was created in 1984 when the Sacred Heart Hospital of Allentown trans458

11-4.6

ferred some of its operations to other corporations. Also created were Sacred Heart Health Foundation and Sacred Heart Ancillary Services. SHHS was formed to serve as the parent corporation of Sacred Heart Hospital. The hospital was to provide medical care, and Sacred Heart Foundation was to conduct fund-raising. Sacred Heart Ancillary Services was to own and operate the buildings and facilities. All of the corporations were exempt from federal income taxes. SHHS is controlled by Sacred Heart Hospital. After 1984, four family health-care clinics were merged into SHHS. In 1985, SH Realty Corp., a real estate holding company, was formed to hold title to the hospital’s real estate. SHHS formed a for-profit subsidiary in 1987, SH Pharmacy Corp., to operate a pharmacy. Between 1987 and 1990, Sacred Health Ancillary Services formed four profit-making subsidiaries, which were merged into SH Pharmacy. SHHS operated the nonprofit health-care clinics and provided accounting services, human resources management and employment-related services, administrative management services, data processing, and community relations services to its affiliated corporations. SHHS collected management fees from its affiliated corporations for these services. SHHS contended that it was entitled to an exemption from state sales and use taxes because it was a purely public charity and met the HUP test. SHHS argued that its operations must be valued for exemption purposes as an integral part of Sacred Heart Hospital and its other affiliated corporations rather than examining SHHS as a separate entity. The Commonwealth Court disagreed with this contention and stated that SHHS is an independent entity: Where a taxpayer divides itself into separate corporate entities, the taxpayer cannot insist that the Commonwealth ignore those distinct legal entities so as to find that it is something that it is not. Commonwealth v. Weldon Pajamas, Inc., 432 Pa. 481, 248 A.2d 204 (1968). Thus, including the functions of SHHS’s sister corporations in our analysis would require us to disregard the fact that SHHS is an independent entity. Moreover, the Hospital created SHHS and the other affiliated corporations because that organizational structure operates to its advantage by improving the Hospital’s efficiency, increasing its [M]edicare/[M]edicaid reimbursement, and its potential for bond financing. We will not disregard the fact that SHHS is an independent entity merely because, in this situation, that organizational form works to the disadvantage of SHHS. Sams v. Redevelopment Authority, 431 Pa. 240, 244 A.2d 779 (1968). Id. at 1025. The court cited Northwestern Corp., 665 A.2d 856, for the proposition that a taxpayer’s exemption from taxation can only be considered 459

Exemption Law and Procedure

on the basis of the activity on its parcel of land, not in combination with other charitable activities or other tracts of land. Therefore, the court held that it was illogical to consider the operations of multiple corporations when determining a single corporation’s right to tax exemption. In applying the HUP test to SHHS, the court noted that the corporation provided administrative and management services to a small group of affiliated profit and nonprofit corporations and not the general public. The court found that these services cannot be classified as educational, religious, moral, physical, or social and were therefore not charitable. The court also determined that SHHS charged its affiliated corporations for its services and therefore did not donate a substantial portion of its services. The court added that the affiliated corporations were not a substantial or indefinite class of persons who were legitimate subjects of charity. The fact that some of these corporations provided services to the needy was irrelevant because the right to an exemption from taxation must be based on the benefits SHHS provides, not what other corporations give. The court opined that SHHS did not relieve the government of any of its burden and that it operated for profit. Because SHHS independently did not meet any portion of the HUP test, the court refused to grant it tax-exempt status. The court’s holding put significant limits on charities that seek to retain tax-exempt status. The clear thrust of the opinion is that corporate entities will be judged solely on their independent attributes and not as an overall part of an affiliated corporate group. It is incumbent upon attorneys representing charitable entities to weigh the advantages of multiple corporate entities against the potential loss of tax exemption when formulating charitable business strategy. This provision was legislatively amended by the Institutions of Purely Public Charity Act cited previously in this chapter. If this statute meets constitutional muster, the holding in the case may no longer be controlling in Pennsylvania. In Chartiers Valley School District v. Board of Property Assessment, Appeals, Review & Registry of Allegheny County, 794 A.2d 981 (Pa.Cmwlth. 2002), the court interpreted this issue under Act 55 in light of the then-existing case law and tried to merge the prior case law with the statute. The court held that a charitable entity must be reviewed under Act 55 in light of the totality of the charitable enterprise rather than its separate component parts. The property in question was the Jewish Community Center of Pittsburgh branch in South Hills; the organization’s other facility located in Squirrel Hill was previously exempted from real estate taxes. There was no dispute that the Jewish Community Center of Pittsburgh was an institution of purely public charity under Act 55. The issue was whether a parcel of land owned by this exempt corporation must be analyzed separately under Act 55 or must be reviewed in light of the totality of the charitable enterprise entity. Specifically, “institution” is defined under 10 P.S. § 373 460

11-4.7

as “domestic or foreign nonprofit corporation, association or trust or other similar entity.” The Commonwealth Court stated: That definition compelled the trial court to look to the corporation, not to any of that corporation’s unincorporated divisions or branches. See Lewistown Hospital v. Mifflin County Board of Assessment Appeals, 706 A.2d 1269 (Pa.Cmwlth. 1998), petition for allowance of appeal denied, 563 Pa. 679, 759 A.2d 925 (2000), citing Sacred Heart Healthcare System v. Commonwealth, 673 A.2d 1021 (Pa.Cmwlth. 1996). Sacred Heart, decided before Act 55 became law in 1997, held that activities of related organizations, or multiple corporations, may not be considered when considering a single corporation’s right to an institution of public charity tax exemption. Id. at 1025 (emphasis added). The Sacred Heart Court based its analysis on the premise that property taxes are based upon the activities of the taxpayer on the single parcel of land in question. Under such analysis, each corporation is a separate and distinct entity and must be considered in a separate and distinct manner for tax purposes. Id. (emphasis added). Act 55 defines the basic unit of evaluation as a corporation, association or trust or other similar entity. The basic unit of evaluation may not be aggregated. Sacred Heart. Similarly, the basic unit may not be divided. Our evaluation focuses on a corporation, not on multiple corporations and not on parts of a corporation. Here, the trial court accurately concluded that, because the [South Hills] Branch was not incorporated separately, it could not be evaluated as a separate institution. Chartiers Valley, 794 A.2d at 983–84. 11-4.7

Exemption of Government-Funded Charities

The Commonwealth Court examined the tax-exempt status of a nonprofit charitable institution that received the overwhelming source of its funding from governmental sources in Community Service Foundation, 672 A.2d 373. Here, Community Service Foundation (CSF) was a nonprofit corporation that provided residential, educational, and counseling services to troubled youths. The organization owned a school and treatment center, a residential property housing married couples who served as surrogate parents, and a group home for the children who attend the school.

461

Exemption Law and Procedure

Funding for the organization’s programs came from the state government and Bucks County, some of the students’ parents, and charitable grants and donations. The trial court found that CSF did not meet the standards for real estate tax exemption because it did not relieve the government of some of its burden; it was paid to do the county’s work and was funded almost entirely by the county. On appeal, CSF alleged that it was entitled to exemption because it relieved the government of some of its burden by providing residential services to troubled youths at a lower cost than similar programs provided by the Commonwealth. The organization relied on St. Margaret Seneca, 640 A.2d 380, to support its position. The Commonwealth Court disagreed with this comparison and stated: The evidence presented in St. Margaret Seneca Place clearly demonstrated that the nursing home paid a significant portion of the residents’ costs. Such evidence is lacking in the present controversy. At trial, CSF did not establish that it pays a substantial portion of the costs of its programs. In pondering the issue of CSF’s tax exempt status the trial court noted that “we do not know the total amount of charitable donations that CSF has received.” . . . The trial court “considered this information critical to . . . determining whether CSF relieves the government of some of its burden and whether CSF is maintained by public or private charity.” . . . After considering the evidence presented, the trial court found that CSF failed to meet its burden because it did not prove that it substantially relieved the government of any burden. The trial court ultimately held that CSF “failed to present a sufficiently detailed and clear case to satisfy a finding consistent with St. Margaret Seneca Place” . . . Although there is no requirement that an institution carry the cost of programs which would otherwise be the government’s responsibility, whether or not the institution “pays a substantial portion of the cost” of a governmental service is a significant factor in determining eligibility for the charitable tax exemption. St. Margaret Seneca Place, 536 Pa. at 487, 640 A.2d 380 at 385. The amount of charitable contributions received by CSF is crucial because whether CSF relieves some of the County’s burden depends, at least in part, on absorbing the cost of programs which the County is obligated to provide. If CSF programs are not substantially funded by private contributions rather than government grants CSF is not bearing a substantial burden that would otherwise fall to the government, but is essentially contracted by the County to provide those services for less cost. Tax exempt status is properly re462

11-4.8

served for organizations which abate government costs, not for those who perform governmental responsibilities as independent contractors. Community Service Foundation, 672 A.2d at 376. The significance of this holding is that it establishes the principle that merely being a conduit for government funds does not provide exempt status. An institution that receives government funding to provide services that the governmental entity wishes to be provided does not relieve the government of its burden. To be a purely public charity, the organization needs more than independent contractor status and lack of a profit motive. The organization must provide a significant amount of its own funding beyond that of the government in order to relieve that entity of its burden. In the future, much of the litigation in this area will center upon the determination of the amount of independent funding necessary to meet the standard of “significant funding.” If significant funding is found, then that organization can meet the test of relieving the government of some its burden. This provision was legislatively amended by the Institutions of Purely Public Charity Act cited previously in this chapter. If this statute meets constitutional muster, the holding in the case may no longer be controlling in Pennsylvania. 11-4.8

Charitable Exemption During Construction

Senior Citizen Health Care Council of Erie County, Pennsylvania, Inc. v. Board of Tax Assessment Appeals of Erie County, 678 A.2d 430 (Pa.Cmwlth. 1996), dealt with timing of charitable exemptions. In this case, the Senior Citizen Health Care Council, a nonprofit corporation, bought a physician’s office that required substantial renovations and immediately retained an architect to prepare plans and contract specifications for the work. Bids for the work were advertised by December 16, 1994. A third party challenged the bid specifications, and, under court order, the council revised the specifications and readvertised the bids in February 1995. On December 22, 1996, the council filed an application for exemption for tax year 1995. The assessment appeals board denied the request on the basis that the property was not being used for charitable purposes as of the date of filing. The relevant statute, 72 P.S. § 5020-204(a)(9), exempts “[a]ll real property owned by one or more institutions of purely public charity, used and occupied partly by such owner or owners and partly by other institutions of purely public charity, and necessary for the occupancy and enjoyment of such institutions so using it.” As of the valuation date, the property was not being used and enjoyed by the council but rather was unoccupied and in need of renovations. The trial court reversed the board, citing Overmont Corp. v. Board of Tax Revision of City of Philadelphia, 388 A.2d 311 (Pa. 463

Exemption Law and Procedure

1978), for the proposition that when a charity is constructing facilities, the charity is “using” its property for charitable purposes within the meaning of section 5020-204(a)(9), and to hold otherwise would impede the purposes for which the tax exemption was created. The Commonwealth Court expanded the Overmont decision to factual situations where no construction has commenced but where the charity has merely retained an architect and solicited bids for renovation. These actions are tantamount to construction, and therefore an exemption would be appropriate, according to the court. The court held: We believe that in Overmont the Supreme Court was not setting forth so narrow an interpretation of 72 P.S. § 5020-204(a)(9) as is contended by the Board. The trial court’s application of the law as stated in Overmont to the facts here is reasonable and the Board’s policy argument does not convince us otherwise. We question whether in the Board’s view the delivery of a piece of construction equipment or of a load of bricks or of lumber to the site would equate with the Overmont court’s use of the term “construction.” By hiring an architect and soliciting bids Council has expended sufficient funds to overcome any question as to the speculative nature of the project. We, therefore, conclude that Council has met the requirements espoused in Overmont to entitle it to the tax exemption allowed under 72 P.S. § 5020-204(a)(9). Senior Citizen Health Care Council, 678 A.2d at 432. It is interesting to note that the exemption application was filed after September 1, 1994, for tax year 1995 and beyond the statutory filing provisions of 72 P.S. § 5349 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). It does not appear that anyone raised the issue in this case, but if they did, could the court have found that this statutory filing requirement does not apply to exemption cases governed by a different statute, 72 P.S. § 5020-204? Under Title Services, 252 A.2d 585, exemptions must be decided on a calendar basis, so it can be argued that, by implication, as long as an exemption request is filed before the start of the calendar year, it will be considered timely. This interpretation would indicate that the September 1 filing deadline imposed by 72 P.S. § 5349 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) applies only to assessment valuation challenges, not to exemption applications. In Title Services, the taxpayer could not have made a timely filing because it did not take title to the property until October 3, 1994, more than a month after the statutory deadline. Although Title Services did not address this issue, the implication does arise that the assessment valuation statute and assessment exemption statute must be interpreted independently of each other.

464

11-4.10

It should be noted that this holding may be altered by 53 Pa.C.S. § 8844(c), which states that for second class A counties through eighth class counties there is a statutory filing deadline that is concurrent with the valuation filing deadline. 11-4.9

Places of Regularly Stated Worship

72 P.S. § 5020-204(a)(1) exempts the following property from taxation: All churches, meeting-houses, or other actual places of regularly stated religious worship, with the ground thereto annexed necessary for the occupancy and enjoyment of the same. A recurring issue in tax exemption litigation is the scope of the term “actual places of regularly scheduled worship.” Numerous cases have dealt with the amount of ground necessary for the occupancy and enjoyment of the property. Most of these cases center on the amount of land needed to support the church. Generally, the courts grant exemptions to facilities where the primary purpose is worship, and other activities are merely incidental. Mount Zion New Life Center v. Board of Assessment & Revision of Taxes & Appeals of Tioga County, 503 A.2d 1065 (Pa.Cmwlth. 1986). See also Four Quarters Interfaith Sanctuary of Earth Religion v. Bedford County Bd. of Assessment & Revision of Taxes, 99 A.3d 603 (Pa.Cmwlth. 2014) (holding that only property necessary for occupancy and enjoyment of property used for regularly stated worship is exempt from tax). 11-4.10

Services to the Elderly

The appellate courts have held that an institution that provides services to the elderly is not per se tax exempt in Pennsylvania. Legitimate subjects of charity are those who are unable to provide for themselves what the institution provides for them. Y.M.C.A. of Germantown v. Philadelphia, 187 A. 204 (Pa. 1936). The Commonwealth Court addressed this issue in St. Margaret Seneca Place v. Board of Property Assessment, Appeals & Review of Allegheny County, 604 A.2d 1119 (Pa.Cmwlth. 1992), and held: We agree that the elderly are a legitimate subject of charity, and caring for the elderly may be considered charitable when speaking in generalities. However, when residents of a nursing home are required to pay the facility for their right to live there, the nursing home is not advancing a charitable purpose, but merely conducting business. In this case, all the residents of the nursing home are either self-paying or third-party paying customers whose patient population is expected to make the nursing home a profit. Although the nursing home con465

Exemption Law and Procedure

tends that it admits patients without regard to their ability to pay, when the executive vice-president of the hospital was asked whether a non-paying resident would be admitted over a paying resident he responded, “We would be really forced I would think to take—we don’t have a hard and fast rule to answer that question, but we would be prudent to take the person who could afford to pay us for the care.” Id. at 1123 (emphasis in original). To obtain a real estate exemption, an institution must prove not only that it provides services to a deserving group such as the elderly, but that it donates or renders a substantial portion of its services gratuitously. To meet this burden, an institution must prove that it makes a bona fide effort to service primarily those who cannot pay the usual fee. In re Appeal of Capital Extended Care, 609 A.2d 896 (Pa.Cmwlth. 1992). An institution must submit evidence that it does in fact provide services to persons who cannot afford to pay. 11-4.11

Requirement of Charitable Use in Order to Obtain Tax Exemption

The requirement that a property be used for charitable purposes in order to qualify for a tax exemption was explored in Appeal of City of Pittsburgh, 977 A.2d 71 (Pa.Cmwlth. 2009). In this case, the Pittsburgh Trust for Cultural Resources was a nonprofit corporation founded to promote economic and cultural growth in a formerly blighted area of the city known as the Cultural District. The trust was a 501(c)(3) corporation and exempt from Pennsylvania sales tax. The trust bought a vacant five-story building at 110 Ninth Street to prevent it from being used for any purposes not consistent with the trust’s vision for the area. The trust intended to have the building demolished within a year or two, in anticipation of development by a private developer, but all plans had fallen through, and the project was put on hold. The trust also bought a five-story building at 820 Liberty Avenue. The ground floor of the property was used as an art gallery for about six months a year by Carnegie Mellon students and was the location of “gallery crawls” four times per year. The remaining portion of the building was vacant, with no intent to use it in furtherance of the arts. The Allegheny County asessment appeals board exempted both properties from taxation, and the trial court affirmed. The Commonwealth Court stated that the Pennsylvania Constitution allows exemption for institutions of purely public charity only for the portion of the real property that is actually and regularly used for charitable purposes. The issue here was how the trust used the properties and whether that use was sufficient to entitle it to exemption from taxation. The court totally rejected the trust’s claims , reversed the lower court, and found that both properties were taxable. 466

11-4.12

The Commonwealth Court stated: Recently, this Court held that Section 204(b) and (c) of the Assessment Law “require a purely public charity to occupy the real estate it owns in order to qualify for an exemption.” Veterans of Foreign Wars Post 1989, 954 A.2d at 104. That is clearly not the case with the 820 Liberty Avenue property. While it is used occasionally, the Trust admittedly does not occupy it, and it has no plans to do so. The Trust’s purposes, as detailed in its bylaws . . . are admirable; but they are not served by the Trust purchasing and holding buildings vacant in that district. *

*

*

As to the 110 Ninth Street property, only a portion of it is proposed to be used by the Trust at some point in the future, with the vast majority of it to be developed and used by an unrelated business entity for profit. In cases in which public charities have been granted tax exempt status for vacant properties under construction, it appears to have been with the idea that the construction was, at the very least, in the beginning stages, and that the public charity itself would occupy and use the properties constructed. . . . Moreover, in terms of a charity leasing or otherwise allowing another entity to operate on its property, this Court has stated that “land used by unrelated business entit[ies] existing solely as a revenue stream to finance a different and [even] charitable endeavor is not entitled to an exemption.” Id. at 76–77. A clear reading of the previous case law is clear and unambiguous on these points, and it appears that the board and trial court in this case did not follow the previous Pennsylvania appellate court decisions in this area. Good and noble intentions are not sufficient to overcome constitutional and statutory mandates. 11-4.12

Relieving Government of Some of Its Burden

In American Association for Lost Children, Inc. v. Westmoreland County Board of Assessment Appeals, 977 A.2d 595 (Pa.Cmwlth. 2009), the Commonwealth Court explored what constitutes relieving the government of some of its burden under the Pennsylvania exemption laws. This case involved the American Association for Lost Children, a nonprofit entity that focuses on criminal abductions related to child custody disputes, working in the United States and internationally to reunite abducted children with their custodial parents. The majority of the group’s work is performed out-

467

Exemption Law and Procedure

side Pennsylvania. The association does not charge for its services, but relies on public donations. The assessment board denied the association’s request for an exemption on its headquarters in Latrobe under section 5204(a)(3) of the General County Assessment Law. The common pleas court ruled that the organization had not met the requirements of the HUP test, specifically because the group did not relieve the government of some of its burden. On appeal to the Commonwealth Court, the association claimed that it relieved the government of some of its burden to find missing children and their abductors, particularly outside the United States. Without the association’s services, the government would have to spend money to investigate these matters and recover the abducted children, according to the group. Further, the group does not charge parents or government officials any fees. The Commonwealth Court affirmed the lower court, stating: On appeal, the Association challenges the trial court’s conclusion that the government has no clear duty to find any specific missing or abducted child. . . . [T]he Association maintains that the government has a burden to provide law enforcement officers to find missing or abducted children and that its activities relieve some of that burden. However, the trial court did not conclude that the government had no burden to find missing and abducted children; instead, the trial court questioned whether this burden could be, or should be, relieved by private citizens. *

*

*

Because the [Association] did not establish that it relieved the government of some of its burden to investigate the whereabouts of missing children, the trial court properly concluded that the Association is not entitled to a real estate tax exemption as a purely public charity. Id. at 598–99. In Pocono Community Theater v. Monroe County Board of Assessment Appeals, 142 A.3d 110 (Pa.Cmwlth. 2016), the Commonwealth Court reversed the trial court’s ruling that a community theater failed to qualify as a purely public charity under the Pennsylvania Constitution because it did not relieve the government of a burden. The theater had contended that the trial court erred by narrowly interpreting what activities relieve the government of a burden. Specifically, the theater relied on Unionville-Chadds Ford, 714 A.2d 397, in which the Pennsylvania Supreme Court found that Longwood Gardens, a world-renowned public garden and arboretum that featured an open-air theater, walking trails, picnic areas, and a variety of educational and research facilities, relieved the government of some of its burden of providing parks, recreation areas, and cultural facilities. 468

11-4.13

The Commonwealth Court agreed with the theater that the trial court interpreted the fourth prong of the HUP test too narrowly. The appellate court found that the theater, even though it was not obligated to do so, supported and advanced causes that the government has chosen to support. For instance, the theater let performing arts groups and art exhibits use its facility for free, and these were activities for which the government has assumed responsibility. The court also noted that the theater’s efforts to provide a venue for musical and theatrical performances, as well as community events and art programs, furthered the government’s assumed responsibility to support the arts while advancing historic preservation. 11-4.13

Use and Occupancy Requirement

The Commonwealth Court in Veterans of Foreign Wars Post 1989 v. Indiana County Board of Assessment Appeals, 954 A.2d 100 (Pa.Cmwlth. 2008), discussed the requirement that a charity use and occupy a property in order to obtain an exemption. Here, VFW Post 1989, a nonprofit 501(c)(3) corporation, used all money it received or earned for charitable activity, including funding scholarships and paying death benefits to veterans’ families. Post 1989 had two parcels of land. One was used for the post building, and the other was leased to the VFW Country Club of Indiana County, a nonprofit corporation legally distinct from Post 1989. The golf course paid all its expenses out of its revenues, and all net profits from the golf course operation went to Post 1989. The assessment appeals board denied Post 1989’s application for an exemption on the property leased to the golf course, and the trial court affirmed. Post 1989 contended that it was entitled to exemption on the basis that the leased property advanced a charitable purpose because the revenue generated was used for charity. The Commonwealth Court turned down this proposition and stated: The Pennsylvania Supreme Court has specifically rejected the legal argument presented by VFW Post 1989. Although the Leased Property generates revenue for VFW Post 1989, it is operated as an “unrelated business entity existing solely as a revenue stream to finance a different and charitable endeavor” and, as such, is not entitled to an exemption. Alliance Home, 591 Pa. at 469, 919 A.2d at 226. Land used to generate profits for the charity is not entitled to an exemption. Indeed, in Alliance Home, the Supreme Court singled out a golf course as an example of a property that could not be tax exempt even if owned by a purely public charity because it is, by its very nature, not integral to a charity’s charitable purpose. Id. at 104.

469

Exemption Law and Procedure

Post 1989 also argued that it was entitled to the exemption because it occupied the leased property. The court rejected this argument as well, stating: VFW Post 1989 does not have a physical presence on the Leased Property. VFW Post 1989’s occupancy is “minimal” or “passive,” which this Court found inadequate to clear the exclusionary hurdle of Section 204(c). See Archdiocese of Philadelphia, 617 A.2d 821. Id. at 105. The court’s decision is consistent with the long line of Pennsylvania case law that land used by unrelated business entities solely as a revenue stream to finance a different charity is not exempt. To hold otherwise would encourage charities to expand their activities into the commercial sphere and to unfairly compete with private enterprises that must pay their real estate taxes. This is especially true where charities lease out property to third parties and use the revenue for legitimate charitable actions. 11-4.14

Equitable Ownership Can Qualify Charity for Tax Exemption

The Commonwealth Court held in Ceramic Art & Cultural Institute v. Berks County Board of Assessment Appeals, 227 A.3d 46 (Pa.Cmwlth. 2020), that a charitable organization, as equitable owner of a property, may qualify for a tax exemption under 53 Pa.C.S. § 8812(b)(2). The court also held that section 8812(b)(2) does not violate the uniformity clause or the tax exemption clause of the Pennsylvania Constitution. The appellate court upheld the trial court’s finding that the charitable organization obtained equitable ownership of the property by entering into an installment sales agreement. The court noted that when an agreement of sale is signed, the purchaser becomes the equitable owner through the doctrine of equitable conversion, and the seller retains legal title only as a security against the purchase price. Under the installment sales agreement, the charitable organization purchased the property for $360,000. However, the organization paid $1,000 at settlement and agreed to pay the principal balance, with 4 percent interest amortized for 20 years, in monthly installments of $2,175. The agreement further provided that a balloon payment of $216,326 must be remitted in year 20. The agreement also made the charitable organization responsible for payment of real estate taxes, water and sewer rentals, and all other municipal services charges for the property.

470

11-5.2

11-5 11-5.1

Exemption for Governmental Purpose Municipal Authorities’ Immunity from Taxation

Property owned by the Commonwealth and its agencies is beyond the taxing power of political subdivisions, absent an explicit statutory grant of authority. The courts will strictly construe any statutes purporting to tax Commonwealth property, and a grant of taxation may not be found by implication. Municipal authorities were originally created under the Municipality Authorities Act of 1945, 53 P.S. § 301 (now governed under 53 Pa.C.S. § 5601–5623). They are independent agencies of the Commonwealth. Property owned by a Commonwealth agency is generally immune from taxation. Southeastern Pa. Transp. Auth. v. Board for Assessment & Revision of Taxes of Delaware County, 319 A.2d 10 (Pa.Cmwlth. 1974). Property owned by a Commonwealth agency is not given blanket immunity. If an agency operates outside its authorized governmental purposes, then its immunity is not automatic. The Pennsylvania Supreme Court in Delaware County Solid Waste Authority v. Berks County Board of Assessment Appeals, 626 A.2d 528, 530 (Pa. 1993), distinguished the terms “immunity” and “exemption”: [W]e note that there is an important distinction between assertion of immunity as opposed to exemption. Property is immune from taxation if the taxing body has not been granted the authority to levy a tax. On the other hand, an exemption does not implicate the authority to tax, but rather excludes specified property from taxation. 11-5.2

Municipal Exemption Procedures

A significant change in the law occurred in Granville Township v. Board of Assessment Appeals of Mifflin County, 900 A.2d 1012 (Pa.Cmwlth. 2006). This change was in what was considered the appropriate way to handle the exemption of property owned by municipalities. In this case, Granville Township purchased property in Mifflin County in July 2003 for use as a sewage treatment plant. The assessment appeals board issued an assessment change notice granting an exemption effective January 1, 2005. The township appealed, arguing that the exemption should have been effective at the time of the purchase. The trial court ruled that the township was immune from taxation by a local subdivision unless the taxing authority met its burden of proving that the property was being put to a taxable use and that the tax status of the property was conditional on any appeals filed to the local board of assessment appeals. Specifically, property owned by a township is presumed to be immune, and only after there is proof or evidence that it is being used for a taxable purpose can it be put on the taxable list. The township 471

Exemption Law and Procedure

was not required to file an appeal with the board to prove its exemption from taxation, but rather, it was presumed to be immune. The Commonwealth Court, in review, found that the lower court was correct in using this approach, stating: The concept of the tax immunity of public property has survived constitutional and statutory revisions; what has changed is how it is applied and under what terms. Both concepts, tax immunity and tax exemption, apply only where the public property is put to a public use, and in the present case, the property in question is public property that has been put to a public use. Whether by exemption, exclusion, or immunity, the property in this case is not taxable. Turning to the issue of when the property’s tax-exempt or taximmune status began, the burden of proof of liability for taxes is on the taxing authority where the real estate in question is owned by a governmental body. Lehigh-Northampton Airport Authority [v. Lehigh County Bd. of Assessment Appeals, 889 A.2d 1168 (Pa. 2005)]; Commonwealth v. Dauphin County, 335 Pa. 177, 6 A.2d 870 (1939). It is undisputed that the Township recorded its deed in December 2003, and that the Board issued its assessment change notice because the property was separated from a larger parcel. Because the Board was clearly aware of the change from private to public ownership and the property’s proposed public use as of January 2004 when it issued new assessment notices for the larger parcel and the property at issue, the Board had no basis for listing the property as taxable real estate for the 2004 calendar year. Upper Tulpehocken Township v. Berks County Board of Assessment Appeals, 842 A.2d 1041 (Pa. Cmwlth. 2004). Id. at 1016. The holding in this case indicated that where a township or borough takes ownership of property, that property is presumed to be immune from taxation, unless there is evidence presented at a hearing before an assessment board that the property is not being used for governmental purposes. It would appear that there is no requirement for a township or borough to apply for a tax exemption and that an assessment board should automatically change its rolls when a municipality takes ownership of a property. In Norwegian Township v. Schuylkill County Board of Assessment Appeals, 74 A.3d 1124 (Pa.Cmwlth. 2013), the Commonwealth Court decided that vacant land owned by a township that intended to use it as a playground was exempt from taxation as government property held for public use. The appellate court agreed with the trial court’s determination that government-held property was presumed exempt unless the taxing author472

11-5.2

ity showed that the property was being used for a nonexempt purpose. Both courts rejected the taxing authority’s claim that the property was taxable because it was not being actively used for a public purpose. The record showed that the vacant property was accessible and available to the public for recreational activities. Further, the property was maintained, and the township was actively seeking to develop it as a park. In Reading Housing Authority v. Board of Assessment Appeals of Berks County, 103 A.3d 869 (Pa.Cmwlth. 2014), the court held that a municipal housing authority’s mixed-use project was immune from taxation even though 80 percent of the units were not allocated to low-income residents. The court used the “public use” test and concluded that the marketrate units and lower-rate units formed an integrated whole and that the former were critical to the success of the latter, which was consistent with, and tied to, the housing authority’s purposes. In Bay Harbor Marina L.P. v. Erie County Board of Assessment Appeals, 177 A.3d 406 (Pa.Cmwlth 2018), the Commonwealth Court held that property owned by a third class port authority did not qualify for immunity because the property was not used for authorized purposes. The appellate court, however, reversed the trial court’s holding that the entire property was subject to taxation. The port authority leased two of its properties to private entities that used the properties as private marinas. Although one lessee provided some form of public access by way of walkway, a courtesy dock for transient boaters, and a boat launch, and the other provided a public walkway and transient use of open slips for a fee, access to the marina, including slips, amenities, and parking, was restricted to paying members. The port authority did not use or occupy the parcels and was not involved in their daily operation, decision-making, policy administration, rule enforcement, or membership criteria/approval. Although the port authority had the statutory power to lease property, the purpose of the authority as provided under the Third Class City Port Authority Act, 55 P.S. § 573, was to plan, acquire, hold, construct, improve, maintain and operate, own, lease, either as lessor or lessee, “port facilities and equipment,” which include all real and personal property used in the operation of a port terminal, including any marine terminal used in connection with the transportation or transfer of freight, personnel, and equipment. Since the authority’s statutorily mandated purpose did not expressly authorize the operation of a recreational marina, the court found that the two parcels leased to private entities and used as private marinas were not immune from real property tax. The court then looked to Lehigh-Northampton Airport Authority v. Lehigh County Board of Assessment Appeals, 889 A.2d 1168 (Pa. 2005), in determining that leased Commonwealth property is subject to tax exemption, and thus any parts of the property that are used for a public purpose should be exempt from taxation. Accordingly, the appellate court re-

473

Exemption Law and Procedure

manded the case to the trial court to determine if any public portions of the property were exempt from taxation. 11-5.3

Exemption from Taxation—Public Purpose

In Pier 30 Associates v. School District of Philadelphia, 493 A.2d 126 (Pa.Cmwlth. 1985), the Commonwealth Court interpreted the term “public purpose” under the General County Assessment Law, 72 P.S. § 5020204(7), which exempts: [a]ll other public property used for public purposes, with the ground thereto annexed and necessary for the occupancy and enjoyment of the same, but this shall not be construed to include property otherwise taxable which is owned or held by an agency of the Government of the United States nor shall this act or any other act be construed to exempt from taxation any privilege, act or transaction conducted upon public property by persons or entities which would be taxable if conducted upon nonpublic property regardless of the purpose or purposes for which such activity occurs, even if conducted as agent for or lessee of any public authority. In this case, Pier 30 Associates operated a for-profit tennis club on a city-owned pier in Philadelphia. The city leased the pier to Philadelphia Port Corp., which subleased it to Pier 30 Associates. The club sold memberships and also allowed non-members to use the courts for an hourly fee. The taxpayer has the burden of establishing exemption from taxation. Lehigh Valley Coop. Farmers v. Bureau of Empl. Sec., Dep’t of Labor & Industry, 447 A.2d 948 (Pa. 1982). Statutory provisions exempting property from taxation are strictly construed. In re Tax Assessment of Real Estate of Greater Erie Economic Dev. Corp., 433 A.2d 568 (Pa.Cmwlth. 1981). Entitlement to tax exemption is a mixed question of law and fact, and unless there is abuse of discretion or lack of supporting evidence, the appellate court will not disturb the trial court’s decision. Planned Parenthood, 423 A.2d 760. Pier 30 Associates noted that the tennis courts were open to the public, were used for public recreation, and were located on public property; therefore, it argued that those facts alone exempted it from taxation. The trial court rejected this argument, as did the Commonwealth Court, which stated: The mere fact that the tennis courts provide recreational facilities to the public is not sufficient to establish a public purpose which would exempt them from the school district’s use and occupancy tax. Ample judicial authority supports [the trial judge’s] holding that the lessee must also establish that its use 474

11-5.4

of public property furthers the function of a governmental agency. Pier 30 Associates, 493 A.2d at 128. The court further stated: Conceivably, the City of Philadelphia, as owner of the property, could have selected a private contractor to effectuate the provision of recreational facilities or some other city purpose; in fact, the city did not do so. Pier 30’s lease is not with the city, but with the city’s lessee . . . [T]he sublessees here have presented no evidence that the tennis courts will promote or facilitate the purpose of the Philadelphia Port Corporation from whom Pier 30 leases the property, nor that the operation of the tennis courts is “reasonably necessary to the functioning of the [port corporation] as a public instrumentality.” Reading [Municipal Auth. v. Schuylkill Valley Sch. Dist.], 4 Pa. Commonwealth Ct. at 307, 286 A.2d at 9 [Pa.Cmwlth. 1972]. We find no merit in Pier 30’s further contention that, because the tennis courts are permanent improvements which will become the property of the city upon expiration of the lease, the property is tax exempt. Pier 30 cites Costar Marine Tax Assessment Appeal, 33 Pa. Commonwealth Ct. 447, 382 A.2d 156 (1978), where we held that improvements constructed by a lessee on government owned real property were taxable to the lessee because he intended to remove those improvements upon expiration of the lease. However, contrary to Pier 30’s contention, the situation presented by the facts of this case does not necessitate the converse rule of law. Although the permanency of improvements may be a factor for the court to consider in determining whether the use of those improvements is for a public purpose, it is not conclusive. As noted, the key to exemption is evidence establishing that the lessee’s use of the public property is furthering the purpose of the governmental agency from which the lessee rents the property. In the absence of such evidence, as here, we must conclude that the property is not serving a public purpose and is not tax exempt. Id. at 129–30. 11-5.4

Lease of Public Property for Public Use

In Wesleyville Borough v. Erie County Board of Assessment Appeals, 676 A.2d 298 (Pa.Cmwlth. 1996), the Commonwealth Court redefined the exemption law involving the public use of leased property. In this case, two boroughs leased separate real estate to Erie County, which used the properties as courtrooms and offices for local district justices. The trial 475

Exemption Law and Procedure

court held that the properties were exempt from real estate taxation pursuant to 72 P.S. § 5020-204(a)(7) because they were public property being used for public purposes, even though the municipalities were receiving rental payments. The appellate court found that the two properties were owned by municipalities and therefore met the first threshold for exemption. The second threshold question was whether the properties were being used for public purposes. The Commonwealth Court stated: Our Supreme Court has further stated that the fact that property of a public body is leased to another entity, even a private party deriving profit therefrom, will not defeat the tax exemption if the property is being used for the specifically authorized public purpose for which it was acquired. Pittsburgh Public Parking Authority v. Board of Property Assessment, 377 Pa. 274, 105 A.2d 165 (1954). The controlling test for tax exemption is not whether the property or part of it has been leased out, but whether the use of the property so leased is for a public purpose. West View Borough Municipal Authority Appeal, 381 Pa. 416, 113 A.2d 307 (1955). This court has also stated that the crucial point is not whether the public body is benefitted by the use of the leased property, but whether the use is, in fact, public. Reading Municipal Airport Authority v. Schuylkill Valley School District, 4 Pa.Commw. 300, 286 A.2d 5 (Pa. Cmwlth. 1972). Where the primary and principal use to which property is put is public, the mere fact that income is incidentally derived from the use of the property does not affect its character as property devoted to a public use. Moon Township Appeal, 425 Pa. 578, 229 A.2d 890 (1967). On the other hand, property that is owned by a tax-exempt entity is taxable if the property is used for commercial purposes or is rented to a lessee for a purely business enterprise and not a public use. Id. Wesleyville Borough, 676 A.2d at 302. 11-5.5

Equitable Estoppel in Exemption Cases

In Reform Congregation Oheb Sholom v. Berks County Board of Assessment Appeals, 839 A.2d 1217 (Pa.Cmwlth. 2004), the Commonwealth Court addressed the enforcement of the doctrine of equitable estoppel against an assessment appeals board in an exemption appeal. Here, a religious organization relocated and bought a property on Vista Road in Wyomissing to house its maintenance employee. At its prior location, on Perkiomen Avenue in Reading, the property where the employee lived had been granted an exemption. The organization argued that since the previ476

11-5.6

ous property had been exempted, the new replacement property should be entitled to exemption as well. The assessment appeals board denied the exemption, and the trial court reversed. On appeal, the organization argued that the board was equitably estopped from contesting the exemptions because the organization had relied on the fact that the new property, which had the same use as the old property, would be granted the same tax treatment. The Commonwealth Court rejected this argument and held: The Board in this case is not attempting to collect taxes previously due and is not suddenly challenging the exempt status of a parcel that has long been exempt. To establish equitable estoppel against the government, a party must prove 1) intentional or negligent misrepresentation of some material fact, 2) made with knowledge or reason to know that the other party would rely upon it, and 3) inducement of the other party to act to its detriment because of justifiable reliance on the misrepresentation. Hallgren v. Department of Public Welfare, 712 A.2d 776 (Pa. Cmwlth. 1997). The [organization] has established none of these essential elements. The Board’s forbearance in taxing the Perkiomen Avenue property is not relevant to the exempt status of the Vista Road parcel. Id. at 1221. It should be noted that each property and tax situation is unique, and the tax status of one property is not controlling when that property is sold and replaced by another for similar use. 11-5.6

Community College Property

In Bucks County Community College v. Bucks County Board of Assessment Appeals, 608 A.2d 622 (Pa.Cmwlth. 1992), the Commonwealth Court whether a community college was immune from local taxation. The college in this case acquired land to build a satellite campus and sought immunity from taxation based on the institution’s alleged status as an instrumentality or agency of the Commonwealth. The assessment appeals board found no immunity, and the college filed a complaint in equity seeking to restrain the board from assessing the property. The trial court, upon a stipulation of the facts, denied injunctive relief to the college. The Commonwealth Court found that the Community College Act of 1963, 24 P.S. §§ 19-1901-A–19-1913-A, does not make a community college an instrumentality of the state; rather, the institution is the creature and representative of the sponsor that created it. The court then determined that a community college is more properly classified a local agency. A local agency is entitled to an exemption only when the property is actually used for a public purpose—it cannot claim a blanket immunity for all property it holds. Therefore, since the land was not being used for college activity, 477

Exemption Law and Procedure

i.e., a public purpose, it was deemed taxable. In other words, property belonging to local governments is exempt from taxation only to the extent that the property is used for public purposes. 72 P.S. § 5020-204(a)(7). 11-5.7

Apartment Building Owned by Volunteer Fire Company

In Appeal of Winchester Group, 687 A.2d 52 (Pa.Cmwlth. 1996), the Commonwealth Court addressed a nonprofit volunteer fire company’s claim to an exemption for a 15-unit apartment building it owned. All net receipts from rent were used solely for the fire company’s necessary charitable purposes, and two of the units were rented to firefighters. The organization used the basement to store some equipment, but no other part of the building was used for fire or rescue purposes. The trial court denied an exemption. On appeal, the organization argued that the building was necessary for the use and enjoyment of the fire company and was used for activities that financially supported the fire company. In analyzing this contention, the Commonwealth Court initially pointed to a procedural defect in the ownership of the realty by the Winchester Group, a fictitious name registered by the fire company. The court stated: The right to a tax exemption must be clearly established. Commonwealth v. 2101 Cooperative, Inc., 408 Pa. 24, 183 A.2d 325 (1962). Moreover, property may only be declared exempt from taxation if the title thereto is held by a tax exempt body and the property is employed in a use for which the exemption may legally be granted. Appeal of H.K. Porter Co., 421 Pa. 438, 219 A.2d 653 (1966). There exists no evidence of record that the Winchester Group, the title holder of the subject property, is a tax-exempt body. This, in itself, results in a denial of the fire company’s request for tax exempt status on this particular piece of property. However, even if we determine that the Winchester Group is the same tax-exempt body as the fire company, the fire company still does not prevail. Id. at 55. The court then rejected the fire company’s arguments on the merits of its case and held: “There is a limit to the amount of land that may be said to be adapted to the accomplishment of the purposes of the charity and be exempt from taxation, and in such cases a pure question of fact may arise which must be determined by the fact-finding body. . . .” Shadyside Hospital, 207 Pa. Super. at 264, 218 A.2d at 357. “The courts will not, however, give unlimited deference to the charitable body’s characterization.” Presbyterian University [of Pennsylvania Medical Center v. Board of Revision of Taxes, 24 Pa. Commw. 461,] 465, 357 A.2d at 698. Although the 478

11-5.8

right to determine what is a reasonable necessity for the occupancy and enjoyment of a charity is primarily for the charity’s governing body, “ultimately the courts may reject the determination of ‘reasonable necessity’ made by the governing body of the charity where the limit of its discretion has been clearly exceeded. . . .” Shadyside Hospital, 207 Pa. Super. at 264, 218 A.2d at 357. In proving that the property is necessary to the use of the charity, the charity doesn’t have to prove absolute necessity. “The institution must show a ‘reasonable necessity’ embracing the idea of convenience and usefulness for the purposes intended.” Wayne County [Board of Assessment v. Federation of Jewish Philanthropies, 403 A.2d 613,] 616–617. The subject property cannot be said to be of reasonable necessity for the fire company. The use of the subject property does not constitute a fire and rescue station, nor does it constitute occupancy and enjoyment of the subject property as contemplated by the Law. As such, the fire company fails to fall within the statutory tax exemption. Id. at 56. The court’s decision lays out the standard for when a charitable entity expands its activity into the commercial realm. Clearly, the fire company’s operation of the apartment building to secure funds was creative, but it did not automatically cloak the income-producing realty with tax-exempt status. If it did, tax-paying owners of rental properties would be at a competitive disadvantage because they would need to charge higher rent in order to pay their property taxes. Therefore, the standard that the charity show a “reasonable necessity” for the use of the realty for the enjoyment of the organization is appropriate. 11-5.8

Ownership and Commencement of Municipal Exemption Appeal

In Upper Tulpehocken Township v. Berks County Board of Assessment Appeals, 842 A.2d 1041 (Pa.Cmwlth. 2004), the Commonwealth Court examined property ownership and the right to commence a tax exemption appeal. Here, a township bought land on October 22, 2002, but the deed of conveyance of the property was not recorded with the county until December 18, 2002. At some point before September 1, 2002, the township filed an exemption appeal for the property. The assessment board held a hearing on December 5, 2002, and granted the exemption effective January 1, 2004. The township appealed on the basis that the exemption should have been made effective January 1, 2003. The trial court agreed, reversed the board, and ordered that the exemption was to be effective January 1, 2003. The issue before the Commonwealth Court was whether a municipal taxpayer can be granted the right to be heard by an assessment board be479

Exemption Law and Procedure

fore its ownership deed has been recorded. The board alleged that the township filed the exemption application before September 1, 2002, when it did not own the property. Further, it contended that the assessment hearing was held before the deed transferring the property had been recorded with the county. The facts reveal that the deed was signed on October 22, 2002, before the hearing. The board had decided that the exemption application would be treated as a 2004 appeal rather than a 2003 appeal because the deed had not been recorded before the assessment hearing. The Commonwealth Court disagreed with the board and stated: In Pennsylvania, delivery of the deed makes it legally operative. Atiyeh v. Bear, 456 Pa. Super. 548, 690 A.2d 1245 (Pa. Super. 1997). “Recording of a deed is not essential to establish its validity; title to real estate may be passed by delivery of the deed without recording it.” Sovereign Bank v. Harper, 449 Pa. Super. 578, 674 A.2d 1085, 1092 (Pa. Super. 1996); Graham v. Lyons, 377 Pa. Super. 4, 546 A.2d 1129 (Pa. Super. 1988). Consequently, as of October 22, 2002, the Township became legally responsible for payment of the taxes associated with the property for the remainder of 2002 and thereafter. The actual recording date of the deed bears no relevance to ownership of the property. Therefore, the trial court did not err in determining that the Assessment Board should have considered that the Township was the legal owner of the property in October of 2002 when contemplating its decision to grant the property tax exempt status. Id. at 1044–45. The court’s decision failed to address the fundamental issue of whether an owner can appeal to the assessment board before taking ownership by conveyance of deed. Clearly, the property was not conveyed to the township until October 22, 2002, well past the date the township filed its appeal with the board. The salient undiscussed issue is that of standing by the township to file the appeal well before it actually owned the property. 11-5.9

Exemption of U.S. Property

An attempt by Pennsylvania authorities to tax real estate owned by the United States, as well as an attempt to enforce a tax lien allegedly created by that imposition, would be void as a violation of the supremacy clause of the U.S. Constitution. The imposition of taxes against land and buildings owned by the U.S. Postal Service is prohibited by the immunity from state and local taxation of the federal government and its agencies and instrumentalities under the U.S. Constitution. Paris v. Metropolitan Life Ins. Co., 167 F.2d 834 (2d Cir. 1948), cert. denied, 335 U.S. 827 (1948); Mayo v. United States, 319 480

11-5.10

U.S. 441 (1943); McCulloch v. Maryland, 17 U.S. 316 (1819); Arizona v. California, 283 U.S. 423, 451 (1931). Taxes cannot be imposed directly on the United States or on any interest it may have in the subject property. United States v. County of Fresno, 429 U.S. 452, 463 (1977); United States v. Colorado, 460 F.Supp. 1184, 1189 (D. Colo. 1978); United States v. Harford County, 572 F.Supp. 239 (D. Md. 1983). Nor may any lien that might otherwise be valid be exercised or enforced in any way as long as title to the property remains in the United States or its agency. United States v. Alabama, 313 U.S. 274, 280 (1941); United States v. Michigan, 346 F.Supp. 1277, 1280 (E.D. Mich. 1972). A state-imposed or locally imposed lien must be in effect before the taking of title by the United States. A statement of the legal history of the federal government’s immunity from state and local taxation can be found in United States v. Delaware, 958 F.2d 555 (3d Cir. 1992). It can be effective and, because any lien that might result from a tax imposed as a result of this appeal could not have been in effect prior to the Postal Service taking title because no tax was imposed prior to that time, such a lien would probably be unenforceable. United States v. Alabama, 313 U.S. 274; Armstrong v. United States, 364 U.S. 40, 45, 46 (1960). 11-5.10

Immunity of Governmental Agencies

In Dauphin County General Authority v. Dauphin County Board of Assessment Appeals, 768 A.2d 895 (Pa.Cmwlth. 2000), the court took up the issue of governmental immunity from local real estate taxation. In this case, the Dauphin County General Authority (DCGA) bought two properties that were occupied by various state and federal agencies and sought their removal from the tax rolls as immune or exempt property. The assessment appeals board denied the application on the basis that the DCGA had forfeited its right to claim immunity because the acquisition of the properties was in competition with existing enterprises that served the same purpose, i.e., the rental of commercial real estate. The trial court affirmed the board, but the Commonwealth Court reversed. The appellate court found that the DCGA was properly incorporated under the Municipality Authorities Act of 1945, 53 P.S. §§ 301–322 (now governed under 53 Pa.C.S. § 5601–5623). and was permitted to acquire and hold land. Further, it was an independent agency of the Commonwealth and was entitled to complete immunity from taxation as long as it acted within the scope of the powers accorded to it. Delaware County Solid Waste Authority, 626 A.2d 528. The court cited 53 P.S. § 318, which stated: The effectuation of the authorized purposes of Authorities created under this act shall and will be in all respects for the benefit of the people of the Commonwealth of Pennsylvania, for 481

Exemption Law and Procedure

the increase of their commerce and prosperity, and for the improvement of their health and living conditions, and since such Authorities will be performing essential government functions in effectuating such purposes, such Authorities shall not be required to pay any taxes or assessments upon any property acquired or used by them for such purposes. The court commented that the longstanding rule is that a property owned by a municipal authority should not be taxed: [I]n Wellsboro Area School District v Tioga County Board for the Assessment and Revision of Taxes, 651 A.2d 592 (Pa.Cmwlth. 1994), we indicated that property owned by an authority is presumptively immune from taxation and the burden is on the taxing authority to establish that such immunity does not exist. This lack of immunity can be established by showing that the authority is not properly incorporated or that the authority has somehow acted outside the scope of its authority in acquiring and holding properties. Dauphin County General Authority, 768 A.2d at 897. The issue before the court was whether the DCGA in acquiring property that was commercially leased was acting within the scope of its authority and legislative mission. To resolve this issue, the court examined the noncompete clause in the Municipality Authorities Act, which stated: The purpose and intent of this act being to benefit the people of the Commonwealth by, among other things, increasing their commerce, health, safety and prosperity, and not to unnecessarily burden or interfere with existing business by the establishment of competitive enterprises, none of the powers granted by this act shall be exercised in the construction, financing, improvement, maintenance, extension or operation of any project or projects which in whole or in part shall duplicate or compete with existing enterprises serving substantially the same purposes. The court opined that the noncompete clause was inapplicable to the DCGA’s actions, stating: Notably absent from the express language of this Section are the words “acquisition” or “leasing.” Our Supreme Court addressed this absence in In re Thompson Appeal, 427 Pa. 1, 233 A.2d 237 (1967). In Thompson Appeal, the Court held that “the deliberate omission of the power to acquire and hold property” from the non-compete clause, when the same is provided in the statement of general purpose within the same Section of the Act, i.e. Section 4A, 53 P.S. § 306A, “shows a clear legisla482

11-5.11

tive design that the proviso was not to be a restriction upon the authority’s right to condemn.” Thompson Appeal, 427 Pa. at 3, 233 A.2d at 239. Id. at 898. Finally, the court found that the DCGA’s acquisition of the rental properties was not beyond the scope of its powers and duties. Specifically, it found that the properties were being used to further a public purpose. The general principle is that even where a property of a public body is leased to another entity—even if it is a private party deriving income from it—it will not defeat the tax immunity if the property is being used for the public purpose for which it was acquired. In this case, both properties were being used exclusively for public purposes: to house federal and state agencies. The Commonwealth Court found the DCGA exempt from taxation on these properties. 11-5.11

Taxation of Municipal Airports

In Lehigh-Northampton Airport Authority v. Lehigh County Board of Assessment of Appeals, 843 A.2d 443 (Pa.Cmwlth. 2004), the issue of the exemption from taxation of a municipal airport was discussed. The Lehigh-Northampton Airport Authority is a municipal authority formed under the provisions of the Municipality Authorities Act, 53 Pa.C.S. §§ 5601–5623. The airport authority owns and operates the Lehigh Valley Airport. The authority filed appeals on the airport property, on the basis that it was exempt from real estate taxation. The assessment appealsboard denied the requests, and the case proceeded to court of common pleas. The case was bifurcated into two parts to address whether (1) the airport authority had blanket immunity from taxation and (2) each parcel of property was exempt from taxation. The court denied blanket immunity and ruled on each of the tax parcels on their exemption merits. The Pennsylvania Supreme Court, in Lehigh-Northampton Airport Authority v. Lehigh County Board of Assessment Appeals, 889 A.2d 1168 (Pa. 2005), reversed the Commonwealth Court and found that its reliance on Pennsylvania State University v. Derry Township School District, 731 A.2d 1272 (Pa. 1999), was incorrect. In Lehigh-Northampton Airport Authority, the authority contended that municipal authorities formed under the Municipality Authorities Act, 53 Pa.C.S. §§ 5601–5623, are instrumentalities of the Commonwealth and are immune from local taxation. The court pointed out that unlike tax-exempt property owned by a Commonwealth governmental agency, this airport is presumed immune, and the taxing body bears the burden of proving any limitation of the scope of the agency’s immunity relevant to an individual parcel of property it wishes to tax. This case cleared up a contentious issue and provided some practical guidelines to all parties to assessment issues.

483

Exemption Law and Procedure

11-5.12

Governmental Trustees and Exemptions

In City of Philadelphia v. Cumberland County Board of Assessment Appeals, 18 A.3d 421 (Pa.Cmwlth. 2011), the issue was whether property in Cumberland County owned by the city of Philadelphia, as trustee for the Girard Trust, was exempt from real estate taxation as an instrumentality of the Commonwealth and, alternatively, because the real property is leased for a public purpose to the Commonwealth. The Commonwealth Court concluded that the trust was not a Commonwealth agency even though the selection of its board members was provided for by the General Assembly. The court stated that the board members had a fiduciary duty to the trust and had no duty to the Commonwealth. Further, other than an annual report that must be filed with the General Assembly, the Commonwealth had nothing to do with the trust. Therefore, nothing suggested that the trust was a Commonwealth agency entitled to tax exemption. The court then went on find that the trust was not even a local agency of the city of Philadelphia and that it was, in fact, a private trust. Although the parties did not brief the issue of whether the trust was exempt as a public charity under 10 P.S. § 371 et seq., the court found that it appeared to qualify. The court held, however, that the property was not actually and regularly used for a charitable purpose. Rather, it was leased to the attorney general’s office. For property that is owned by a charity but leased to another entity to be tax exempt, the charity must prove that (1) the charity does not derive any income or revenue from the property, (2) any rent paid was merely nominal, and (3) the lessee was itself the recipient of the lessor’s charity. The court held that the trust did not meet any of those criteria. First, the trust derived substantial rental income. Second, the rental amount was not nominal. Finally, the attorney general was not the recipient of the trust’s charity. Therefore, the court found that the property did not qualify for an exemption. The Pennsylvania Supreme Court reversed. The court found that the General Assembly’s intent in establishing the board to manage the trust was to establish an instrumentality of the Commonwealth that would oversee charitable assets on behalf of the Commonwealth. Therefore, the property would be immune from tax. City of Philadelphia v. Cumberland County Bd. of Assessment Appeals, 81 A.3d 24 (Pa. 2013). 11-6

Immunity of State-Owned Universities

In Indiana University of Pennsylvania v. Jefferson County Board of Assessment Appeals, 243 A.3d 745 (Pa.Cmwlth. 2020), a state-owned university appealed a trial court’s decision that the portions of school buildings leased to commercial tenants are subject to local real estate taxes. The court concluded, however, that the university was immune from taxa484

11-7

tion on the land underlying the buildings and the vacant space in each building. On appeal, the Commonwealth Court first found that the university is part of the Pennsylvania State System of Higher Education, a state agency immune from local taxation. The court also found that the university purchased the buildings for the purpose of turning them into school facilities. Also, the university inherited the commercial leases but had no intention to continue them, instead allowing tenants to stay until new space was found. Additionally, the court found that because the university must receive authorization from the General Assembly to sell, transfer, or dispose of real property it acquires, the university’s properties are “so thoroughly under the control of the Commonwealth that effectively, the institution’s property functions as Commonwealth property.” Id. at 751 (quoting Pennsylvania State University v. Derry Township School District, 731 A.2d 1272, 1274 (Pa. 1999)). Thus, the court reversed the lower court and held that the university’s properties are immune from taxation. The Commonwealth Court affirmed the trial court’s ruling that the university is immune from paying tax on the land and vacant building space. 11-7

Exemption of Hospitals

Pennsylvania courts have been repeatedly asked to determine whether a hospital that charges for its services is a purely public charity eligible for tax exemption under the General County Assessment Law and the state Constitution. The case law on this issue establishes that the corporate relationship with other hospitals, health-care providers, or related services, and the status of each unit of such structures are relevant to its entitlement to exemption. That means, of course, that an assessment board must look at each hospital as an entity, in this matter, as an applicant for exemption. The board must examine the hospital’s policies, services, and performance and decide whether the hospital is, in fact, a purely public charity entitled to exemption. The General County Assessment Law at 72 P.S. § 5020-204(a)(3) exempts: [a]ll hospitals, universities, colleges, seminaries, academies, associations and institutions of learning, benevolence, or charity, . . . with the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed, and maintained by public or private charity: Provided, That the entire revenue derived by the same be applied to the support and to increase the efficiency and facilities thereof, the repair

485

Exemption Law and Procedure

and the necessary increase of grounds and buildings thereof, and for no other purpose. The Pennsylvania Supreme Court’s HUP test, 487 A.2d 1306, applies to hospitals seeking tax-exempt status. The other controlling case is West Allegheny Hospital v. Board of Property Assessment, Appeals & Review of Allegheny County, 455 A.2d 1170 (Pa. 1982). In this case the Supreme Court determined the proper interpretation of the phrase “purely public charity” as it is used in section 204(a)(3) of the General County Assessment Law pursuant to the Pennsylvania Constitution, Article VIII, Section 2. The court held that to be a purely public charity, “there must be no admixture of any qualification for admission, heterogeneous, and not solely relating to the public.” Id. at 1170 (quoting City of Philadelphia v. Masonic Home of Pennsylvania, 28 A. 954, 955 (Pa. 1894)). It is recognized that the legislature determined that hospitals are specifically eligible for exemption, but the exemption is not automatic. In West Allegheny, the court determined that a hospital seeking an exemption must prove that it: (1)

is one of purely public charity;

(2)

was founded by public or private charity;

(3)

is maintained by public or private charity.

The fact that a hospital bills its patients for services and does not rely solely upon the generosity and benevolence of others is insufficient to remove its tax exemption. Section 204(a)(3) of the General County Assessment Law specifically provides that a charitable institution must use its revenues solely for the benefit of the charitable purpose. The court said: This legislative definition of the scope of permissible applications of revenues—here, funds derived from patient billings— recognizes that the support and repair of the institution need not be funded solely by charity, and that necessary capital acquisitions need not be financed completely through charitable endowments. West Allegheny, 455 A.2d at 1172. To determine entitlement to an exemption, the assessment board will have to consider the hospital’s mission and operation and then apply the law of the Commonwealth as it has been interpreted by the courts. Challenges to tax exemption for various charitable institutions have been tried in court for decades; the courts treat each case and each institution on the facts as presented. In Hamot, 602 A.2d 407, the Commonwealth Court dealt with a scenario where a hospital earned substantial profits, which it then used to fund both nonprofit and for-profit corporations that it had an interest in. This use of revenue for purposes other than to support the hospital’s char486

11-7.1

itable purpose rendered the hospital ineligible for tax exemption under the HUP and West Allegheny tests. 11-7.1

‘Purely Public Charity’ Test

The Commonwealth Court in Allentown Hospital v. Board of Assessment Appeals of Lehigh County, 611 A.2d 793 (Pa.Cmwlth. 1993), dealt with the tax exemption of hospital properties after the decision in Hamot, 602 A.2d 407. In this case, the assessment appeals board revoked the taxexempt status of certain properties owned by Allentown Hospital. The hospital appealed and filed a motion in limine asking the court to apply the West Allegheny test rather than the more stringent HUP test. The West Allegheny test evaluates whether a hospital with a recognized charitable function to promote health is open to all and provides no private inurement under 72 P.S. § 5020-204(a)(3). Only other unspecified charities that are not listed by specific charitable purposes must prove that they are purely public charities. The Commonwealth Court held that even before the statutory exemption is considered, an institution must meet the constitutional test for a purely public charity. The court stated: The Hospital here, as in Hamot, seeks to persuade us that West Allegheny, not HUP applies to it because it is a public hospital. We disagree. First, as previously recognized, the starting point is the Constitutional provision. While the HUP case did not involve a hospital as the entity seeking an exemption, what HUP, Hamot and this case all have in common is the same constitutional basis in Article VIII, Section 2(a)(v), recognizing the right of the legislature to provide for tax exemptions. The legislature, however, is constrained by the constitutional provision; an exemption may be granted under the authority of Article VIII, Section 2(a)(v), only to an institution of a “purely public charity.” Nothing in that provision differentiates between different types of institutions, although an argument could be made that the statute may do so. But, any distinction which the statute may make cannot even be considered until the constitutional requirement that the institution be a purely public charity is met. The statute is subordinate to the constitution; not the other way around. Allentown Hospital, 611 A.2d at 796 (emphasis in original). The appellate court found that HUP was controlling as a court interpretation of Article VIII, Section 2(a)(v), and therefore the five-point test must be met. The court held: Ergo we conclude that HUP has merely amplified West Allegheny by setting forth the criteria to be applied in order to deter487

Exemption Law and Procedure

mine whether the institution seeking favored tax status is a purely public charity under the constitutional provision. Whether West Allegheny would be entitled to its favored status under HUP is not the issue here as the caselaw had not evolved to that point when West Allegheny was decided. Now, however, we are bound by HUP as the definitive pronouncement on how a court must analyze whether an entity, any entity, seeking tax exempt status is a purely public charity within the intention of Article VIII, Section 2(a)(v) of the Pennsylvania Constitution. Accordingly, we conclude that the trial court correctly ruled that the evidence cannot be limited only to the statutory criteria in Section 204(a)(3). Id. The HUP test has been amended by the Institutions of Purely Public Charity Act (see section 11-2, above). 11-7.2

Mathematical Test for Hospital Exemption

In St. Luke’s Hospital v. Board of Tax Assessment Appeals of Lehigh County, No. 88-C-2691 (C.P. Lehigh April 19, 1990), the court, relying on both West Allegheny and HUP, found that because all of the money received by St. Luke’s from patient billings and charitable donations was used to maintain and refurbish the facility and provide health-care services to the community, it was entitled to maintain its tax-exempt status. St. Luke’s had used its profits (income in excess of operating expenses) to undertake new projects to benefit the community. The court found that this met the charitable purpose of a hospital and that profits alone would not alter its exempt status. The court developed a formula to be applied to the evaluation of hospital exemption requests: A community hospital will be deemed to have contributed a substantial amount of uncompensated care if in any budget year it: (a) operated at a loss in its preceding budget year, considering all sources of income, or (b) donated uncompensated care in an amount at least equal to: (i) 75% of its profits from all sources realized in its preceding budget year; or, (ii) 51% of its profits from all sources realized in its preceding budget year if the Board of Trustees has approved a new construction or major renovation plan to its hospital buildings, either of which plan is in progress or where work will begin within 4 years. This percentage becomes inapplicable when the new or renovated space becomes operational, and is inapplicable when the hospital holds funds equal to 51% of the anticipated cost of the project. The Commonwealth Court in Allentown Hospital, 611 A.2d 793, held that this formula might be proper as applied to the facts in St. Luke’s, but 488

11-7.3

could not be used as an evidentiary test in other cases. The court, interpreting HUP, 487 A.2d 1306, held that any attempt to establish an acrossthe-board quantification for the second prong of the HUP test (donates or renders gratuitously a substantial portion of its services) would be error. Therefore, what constitutes a “substantial portion of services” must be decided by the totality of circumstances surrounding the organization rather than any fixed mathematical percentages. 11-7.3

Employees’ Compensation Based on Productivity and Exemption Eligibility

In Guthrie Clinic, Ltd. v. Sullivan County Board of Assessment Appeals, 898 A.2d 1194 (Pa.Cmwlth. 2006), the court held that the hospital seeking exemption must have first met the HUP requirements, then the Act 55 requirements, and, finally, the statutory exemption requirements in the Fourth to Eighth Class County Assessment Law. In this case, Guthrie Clinic, Ltd., employed 220 doctors in clinics in Pennsylvania and New York. The company had 501(c)(3) corporate status under the Internal Revenue Code and was exempt from sales tax in Pennsylvania. Guthrie compensated its physicians by initially determining each doctor’s productivity. Using national surveys, Guthrie then determined how other doctors with the same level of productivity were being compensated, and it paid its doctors 85 percent of that amount. If the doctors produced an outstanding amount, they received a higher salary. Also, Guthrie had a profit-sharing plan and a bonus program. The assessment appeals board denied Guthrie’s request for an exemption for its local clinic. The trial court affirmed, finding that the clinic did not demonstrate that it operated entirely free from a private profit motive as required by the HUP test. The Commonwealth Court affirmed, stating: Guthrie first maintains that the trial court improperly concluded that an entity’s entitlement to the tax exemption depends upon whether that entity operates at a profit or loss. However, contrary to Guthrie’s assertion, the trial court did not base its decision on the fact that Guthrie realized a profit. Rather, the trial court reasoned that Guthrie was not a “purely public charity” because there is evidence that the compensation of the physician employees of Guthrie is based on the financial performance of the institution. . . . Next, Guthrie contends that the trial court erred by addressing only section 375(c)(3) (compensation, including benefits, is based primarily on the institution’s financial performance) and ignoring the remaining three criteria set forth in section 375(c) of Act 55 to determine whether Guthrie operates entirely free from private profit motive. However, in order to 489

Exemption Law and Procedure

qualify as an institution operating entirely free from private profit motive under section 375(c) of Act 55, the institution must meet all four of the criteria set forth in that section. Therefore, once the trial court concluded that Guthrie failed to satisfy one of the requirements, specifically section 375(c)(3), the trial court chose not to address the remaining criteria. It did not err in doing so. Id. at 1199 (emphasis in original). In summary, the court found that the doctors’ compensation was based upon productivity; that is, if a doctor produced an outstanding amount, then that doctor received a higher salary. Also, part of the doctor’s profit-sharing plan was based on productivity, and Guthrie gave bonuses to its employees at its discretion. Finally, the court found that a doctor’s compensation was based on the revenue that he or she produced for the clinic. This is significant in that any medical institution that pays its employees based on the revenue they produce for the institution can have its exemption questioned. Obviously, where the compensation is a straight salary and other considerations are used for bonus determinations, then there appears to be no effect on the exemption. 11-8

Exemption of Nursing and Retirement Homes

A nursing home is not a “purely public charity” for purposes of the charitable institution tax exemption unless its beneficiaries are the proper subject of charity and the property in question is put to a charitable use. Although an institution may receive some reimbursement for its services and yet constitute a charity, to qualify for tax exemption the institution must donate or render gratuitously a substantial portion of its services. West Allegheny Hosp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 439 A.2d 1293 (Pa.Cmwlth. 1981), rev’d on other grounds, 455 A.2d 1170 (Pa. 1982). A nonprofit corporate status does not confer upon the entity an entitlement to exemption from taxes as charity. The characteristics of an organized charity that is entitled to property tax exemption have been clearly stated as (1) whatever it does for others is done free of charge, or at least so nearly free of charge as to make charges nominal or negligible, and (2) those to whom it renders help or services are unable to provide themselves with what the institution provides for them. Young Men’s Christian Ass’n of Pittsburgh, 117 A.2d 743. As a prerequisite to the taxation exemption, there must be an eleemosynary characteristic, and what is given must be more nearly gratuitous than for a price that impresses one as being proportionate to the services rendered. Salvation Army v. Allegheny County, 80 A.2d 758 (Pa. 1951).

490

11-8

The Commonwealth Court held in Appeal of Lutheran Home at Topton, 515 A.2d 59 (Pa.Cmwlth. 1986), that mere operation free from a private profit motive does not equate to public charitable use. In this case, the Luther Crest retirement facility consisted of 310 residential apartment units, a common dining room, an auditorium, a gift shop, an activity room, a library, administrative offices, and a 60-bed nursing facility. To be eligible for admission, the applicant must be 62 years old and capable of independent living. Each applicant upon admission was charged a one-time fee ranging from $43,990 for a studio apartment to $85,900 for a two-bedroom apartment. Residents paid a monthly maintenance fee ranging from $830 to $1,838. No admission or entrance fee had ever been waived for any of the residents, and two of the residents were paying less than the required monthly maintenance fees. The skilled nursing facility patients all paid through private pay, insurance, or federal and state programs. The Commonwealth Court found that Luther Crest did not qualify for an exemption. The court stated: Although Luther Crest has not realized a profit, and operates free from private profit motive, Hospital Utilization Project, these factors alone do not warrant the conclusion that Luther Crest is being put to a public charitable use. See Pittsburgh Institute of Aeronautics Tax Exemption Case, 435 Pa. 618, 258 A.2d 850 (1969). Luther Crest does not donate or render gratuitously any of its services: all of its residents pay fees approximating actual costs. Luther Crest is not relieving the government of some of its “burden” of taking care of the elderly: there is no “burden” in providing services to paying customers, so to speak. See West Allegheny Hospital. Referring once again to the characteristics our Supreme Court requires an entity to have in order to qualify as a purely public charity, we conclude that the record in the instant case is insufficient to show that Luther Crest advances a charitable purpose, donates or renders gratuitously a substantial portion of its services, benefits a substantial and indefinite class of persons who are legitimate subjects of charity or relieves the government of some of its burden. Luther Crest, therefore, is not entitled to an exemption from taxation. Id. at 68 (emphasis in original). The Commonwealth Court used the HUP test to determine a nursing home’s eligibility for tax exemption in St. Margaret Seneca Place v. Board of Property Assessment, Appeals & Review of Allegheny County, 604 A.2d 1119 (Pa.Cmwlth. 1992), St. Margaret Seneca Place was a 156-bed nursing home in Allegheny County. A majority of its residents were first patients at St. Margaret Hospital. About 30 percent of the residents paid for their care 491

Exemption Law and Procedure

privately, 48.5 percent were covered by Medicaid, and the remainder paid via some other form of insurance. St. Margaret Seneca was a subsidiary of a tax-exempt charitable health system and was established with an initial donation of $1.5 million from the parent charity. The nursing home secured additional funding from a tax-exempt bond issue of $6 million guaranteed by the parent organization. Also, St. Margaret Hospital provided it an $850,000 interest-free loan for startup costs. The Commonwealth Court found that St. Margaret Seneca did not advance a charitable purpose, stating: We agree that the elderly are a legitimate subject of charity, and caring for the elderly may be considered charitable when speaking in generalities. However, when residents of a nursing home are required to pay the facility for their right to live there, the nursing home is not advancing a charitable purpose, but merely conducting business. In this case, all the residents of the nursing home are either self-paying or third-party paying customers whose patient population is expected to make the nursing home a profit. Id. at at 1123 (emphasis in original). The court further found that the nursing home did not render gratuitously a substantial portion of its services. The facility did not make any attempt to serve those who could not afford the usual fee, but rather accepted those who could afford the fees it set. The mere fact that 48.5 percent of payments were from Medicaid, which allegedly did not cover the full cost of the resident’s fees, was not in itself enough to establish that the nursing home was gratuitously rendering a substantial portion of its service. The court held: The nursing home is confusing business with charity. It is the nursing home that has determined that it will accept whatever amount Medicaid pays out for services rendered to those residents paying through Medicaid. The nursing home also expects payment from Medicaid for those services. If payment is not received, the nursing home has incurred a bad debt as any other business would and has not provided charity. The nursing home’s situation is analogous to the airline industry which charges passengers various rates for the same flight. No one would contend that an airline is a charity because individual passengers receive different rates while the airline loses money. The airline’s goal is to fill the plane to capacity whichever way it can, and many times that means allowing some passengers to fly at lower rates than others. Similarly, the nursing home intends to fill all 156 beds by admitting residents who are able to pay for its services at varying rates. 492

11-8

While this is not an unusual business practice, it certainly is not charity. Id. at at 1124–25 (emphasis in original). The court also found that St. Margaret Seneca did not relieve the government of any burden because it provided services to a large percentage of its residents who paid via government programs. The court also said that the nursing home was not founded by a public or private charity and held: Although [the parent organization] did contribute $1.5 million to establish and capitalize the nursing home, the advancement by St. Margaret Hospital of approximately $850,000 in the form of a loan, non-interest bearing or otherwise, is still a loan which the nursing home is expected to repay. Additionally, even though the hospital has guaranteed the payment of the $6 million tax-exempt bonds, the nursing home is expected to pay back the principal on those bonds. Because the repayment of both the loan and the principal on the bonds cannot be considered charity, we find that the nursing home was not founded by either public or private charity. Id. at 1126. The Pennsylvania Supreme Court reversed the Commonwealth Court in a scathing opinion. St. Margaret Seneca, 640 A.2d 380. The high court found that the appellate court’s decision represented a serious departure from the Supreme Court’s previous rulings and had broad implications for other health-care providers and nursing homes. The Supreme Court analyzed the case under its five-point HUP test. The court adopted the trial court findings that the nursing home advanced a charitable purpose in providing shelter and care for the elderly. The facts indicated that over 48 percent of the residents received Medicaid payments that covered two-thirds of their costs, and the nursing home made up the difference. The court found: The care of elderly residents who cannot pay their full costs serves a charitable purpose. In re Tax Appeals of the United Presbyterian Homes, 428 Pa. 145, 236 A.2d 776 (1968). Id. at 382. The Supreme Court took exception to the Commonwealth Court’s finding that the nursing home did not advance a charitable purpose on two grounds: (1) all the residents were either self-paying or Medicare or Medicaid recipients and (2) the home, which had run at a loss, intended to eventually make a profit. The Supreme Court, in a significant policy statement with implications for nursing facilities throughout the Commonwealth, held: [T]he absence of indigent residents who receive no government support is not surprising, and is certainly not, standing alone, 493

Exemption Law and Procedure

enough to disqualify a nursing home from an exemption as a purely public charity. In modern America it is hard to find any person in need of nursing home care who is uninsured, unable to pay, and wholly ineligible for government support in the form of Medicare or Medicaid coverage. Our prior decisions do not equate the acceptance of Medicaid payments as the equivalent of conducting a business for profit. The decision to accept Medicaid payments to help defray the cost of care for residents is perfectly consistent with a finding that the nursing home advances a charitable purpose. Id. at 382–83. The high court found that the Commonwealth Court erred when it determined that St. Margaret Seneca intended to operate at profit in the future. “In fact, the ‘budget’ on which the court relied was not a budget but a pro forma study of the consequence of designated operating changes which the home considered but did not adopt. Moreover, the study did not include debt service which would have eaten up the hypothetical “profit.’ ” Id. at 383. The Supreme Court found that the home met the second element of the HUP test by rendering gratuitously a substantial portion of its services; that is, by providing for the 48 percent of the patients who were only partially paid for by Medicaid, the nursing home met the requirement. The Supreme Court, in overruling the Commonwealth Court on this issue, specifically criticized the appellate court’s hypothetical airplane scenario: This reasoning is specious. If a potential airline passenger cannot afford a full-fare ticket and the airline does not offer a reduced fare, the passenger will merely forgo the flight, whereas if the nursing home does not accept an aged Medicaid patient whose allotment does not fully cover his costs, the public will fund the patient’s care at a public institution because such care is not viewed as a privilege like an airplane flight but is deemed to be a public responsibility. The aged in need of medical care are legitimate objects of charity, whereas airline passengers are not. The partial subsidy of the costs of caring for an elderly patient is unquestionably a charitable act. Id. at 383–84. The court found that the requirement that an institution donate or render gratuitously a substantial portion of its services does not mandate that the institution forgo available government payments covering part of its costs or that it provide wholly free services to some of its residents. The court held that the showing that St. Margaret Seneca paid onethird of the cost of care for half its residents satisfied the home’s burden of proof for this requirement. The Supreme Court, on the third requirement of the HUP test, again reversed the appellate court and found that St. Margaret Seneca benefited 494

11-8

a substantial and indefinite class of persons who are legitimate subjects of charity. The court found that “people whose costs are only partially covered by Medicaid payments are manifestly legitimate objects of charity and people who ‘cannot afford to pay.’ ” Id. at 384. The Supreme Court, on the fourth requirement of the HUP test, reversed the Commonwealth Court and determined that St. Margaret Seneca relieved the government of some of its burden. The court held that the evidence revealed that nursing homes that operate for profit either refuse to accept Medicare-covered patients or restrict the number of admissions. Thus there is a shortage of nursing home beds for patients funded through Medicare, and but for an institution such as St. Margaret Seneca, the Medicare recipients would be cared for in governmental facilities. Finally, the Supreme Court held that the nursing home met the fifth part of the HUP test and operated free of a private profit motive. The court noted that its decision in West Allegheny, 455 A.2d 1170, distinguished a surplus from private profit. The court stated: In West Allegheny, we implied that payment of excessive salaries and fringe benefits to corporate officers might evidence a private profit motive, but held that a surplus reapplied to the maintenance and operation of the facility was not a private profit. Indeed, the statute forming the basis for appellant’s claim of exemption, section 204(a)(3) of the General County Assessment Law, Act of May 22, 1933, P.L. 853, as amended, 72 P.S. § 5020-204(a)(3), contains the following proviso: “Provided, That the entire revenue derived by the [institution] be applied to the support and to increase the efficiency and facilities thereof, the repair and the necessary increase of grounds and buildings thereof, and for no other purpose,” making it explicit that tax-exempt charitable institutions will have “revenue” including surplus revenue which may be utilized not only to cover operating expenses but to increase efficiency, facilities, grounds, and buildings. Thus surplus revenue is not synonymous with private profit, provided it is used as required by the statute. St. Margaret Seneca, 640 A.2d at 385. In closing, the Supreme Court clarified the requirement that a charitable institution be founded and maintained by charity. The court held that the $1.5 million contribution from the parent health system, the $850,000 interest-free loan, and the $6.5 million bond issue were all relevant to establish that St. Margaret Seneca was founded by charity. “Given the health system’s goal of providing a place for the care of all persons in need of nursing home care, regardless of means, there was a clear eleemosynary motive and a charitable gift in founding the home.” Id.

495

Exemption Law and Procedure

Significantly, the court also held: Moreover, it is not indispensable that the institution be maintained by charity. As we noted in West Allegheny Hospital, supra, “one would have to be removed from modern-day realities to believe that such costs are easily subsidized [by charitable donations], even in part.” Id. at 385–86. The Pennsylvania Supreme Court redefined the HUP test, greatly easing the burden on charitable institutions seeking tax-exempt status. This case signaled a major change in the direction of the court’s direction since the landmark HUP decision in 1985, and it may be the harbinger of liberalized court interpretation in other areas of exemption law beyond nursing care and health facilities. It is interesting to note that the Commonwealth Court in Couriers-Susquehanna, Inc. v. County of Dauphin, 645 A.2d 290 (Pa.Cmwlth. 1994), reversed the lower court, which had followed the Commonwealth Court’s decision in St. Margaret Seneca, 604 A.2d 1119, and directed the court to redetermine the case in light of the Supreme Court’s ruling. 11-9

Post–Act 55—Exemption of Homes for the Elderly

In the post-Act 55 environment, the courts have interpreted the statute and the HUP test in a more expansive way, opening the door for many more nonprofit organizations that provide help and assistance to senior citizens to qualify for tax exemption regardless of the financial status of the parties they serve. In Lutheran Home v. Schuylkill County Board of Assessment Appeals, 782 A.2d 1 (Pa.Cmwlth. 2001), the Commonwealth Court found that a personal care boarding home operator that charged rent to tenants was tax exempt, meeting both the HUP test and the conditions of the Institutions of Purely Public Charity Act. The home, Luther Ridge, conducted a means test and would not admit anyone who did not appear to have the ability to pay the monthly fees. The majority of the residents paid for their services until their money ran out; after that time, the institution would attempt to keep the residents at Luther Ridge or move them to a skilled nursing facility, if necessary. The appellate court stated that a “charitable purpose does not require the resident to be destitute.” Id. at 5. The Commonwealth Court held: The cost of caring for the residents of Luther Ridge is a charitable act. “The public will fund the patient’s care at a public institution . . . [which] is deemed to be a public responsibility. The aged in need of medical care are legitimate objects of charity. . . . The partial subsidy of the costs of caring for an elderly patient is 496

11-9

unquestionably a charitable act.” St. Margaret, 536 Pa. at 485, 640 A.2d at 383-84. A finding that the institution has fully funded the care of some people who would otherwise be fully funded by the government is not required in determining whether an institution has relieved the government of some of its burden. The test is whether the institution bears a substantial burden that would otherwise fall to the government. Id. at 6. In Hahn Home, 778 A.2d 755, the Commonwealth Court examined the taxability of a nonprofit residential home for elderly women. The home was founded in the 1920s pursuant to a testamentary gift; its declared mission was to provide a residential home for unmarried elderly women. After a resident is accepted, she must pay a $1,000 entrance fee and turn over all her current and future assets to the home. In exchange, the home provides housing, meals, cleaning and laundry service, 24-hour security, transportation, medical care, hospitalization, skilled nursing, and where required, a nursing facility. Some of the home’s employees are paid by the hour, while others receive an annual salary. No employee receives any compensation based on the facility’s financial performance. The court found that the home delivers a substantial portion of its services free of charge under the HUP test because it spends more money to operate the facility than it receives from residents’ assets and entrance fees. Also, the facility met the HUP test by benefiting a substantial and indefinite class of persons who are the legitimate objects of charity. In this regard, the court stated: Thus, a purely public charity can provide members of the general public with resources that would not otherwise be within their financial reach. See City of Washington, 704 A.2d at 124 (persons who are financially secure may nevertheless be “poor” in relation to the outlays needed to obtain certain services in the absence of charity). Id. at 762 (quoting Unionville-Chadds Ford, 714 A.2d at 400). In Grace Center Community Living Corp. v. County of Indiana, 796 A.2d 1008 (Pa.Cmwlth. 2002), the Commonwealth Court examined whether a senior community living home that provided apartments at cost or less was exempt from real estate tax. The nonprofit facility, called Grace Manor, consisted of 16 one- and two-bedroom housing units, a guest room, and a great room for meetings, social events, and leisure activities. The mission of Grace Manor was to provide low-cost housing to the elderly without governmental assistance or subsidy. All applicants had to be over 60 and be able to take care of themselves. The facility had no permanent salaried employees; volunteers performed all maintenance, repair, plumb497

Exemption Law and Procedure

ing, landscaping, office, and managerial work. Grace Manor had no shareholders and did not pay any dividends from any net earnings or donations. The assessment appeals board denied the facility an exemption, but the trial court reversed. On appeal to the Commonwealth Court, the taxing authorities argued that Grace Manor did not meet two of the five prongs of the HUP test because it did not donate or render gratuitously a substantial portion of its services and did not benefit a substantial and indefinite class of persons who are legitimate subjects of charity. The taxing authorities contended that in order to qualify for exemption, Grace Manor had to show that it made a bona fide effort to serve primarily those who cannot afford the usual fee. The Commonwealth Court rejected this argument and found that charging fees for services does not prohibit qualification for an exemption. The court stated: The courts have long recognized and declared that charity is not limited to giving alms, is not confined to relief of the poor, may extend to the rich in areas where they are not able to care for themselves, and extends to those social objectives which promote the general welfare and would be served by the government in the absence of philanthropic enterprises such as homes for the aged. Historically, and well-nigh unanimously, the courts have found homes for the aged to be charitable institutions where conducted at cost or less. They have also recognized that man, especially the old, does not live by bread alone; that though he be able to pay for all material wants he nevertheless may be dependent upon his fellow man or the government to protect him from the haunting fear of loss of all his property with resultant poverty, fear of illness or other physical disability overtaking him with no one near to help, fear of the loneliness arising from absence of social contacts, fear of any of the tragedies of old age where there is no one standing by to help. Id. at 1012 (quoting In re Presbyterian Homes Tax Exemption Case, 236 A.2d 776, 779–80 (Pa. 1968) (emphasis in original)). The appellate court further found that Grace Manor satisfied section 375(d)(1) of Act 55 by providing goods or services, including uncompensated goods or services that in the aggregate were equal to at least 5 percent of the institution’s costs of providing goods or services. The court said that the value of the facility’s volunteer services exceeded this threshold. Finally, the Commonwealth Court found that the elderly are legitimate objects of charity, stating: [W]e recognize that our senior citizens are appropriate objects of charity not solely on the basis of financial need but also on 498

11-10.2

the basis of emotional, social and physical challenges which increase with age. Stated differently, senior citizens are the proper objects of charity as a result of all the special needs associated with their age. By providing a community living environment for senior citizens at or below cost, Grace Manor seeks to benefit a substantial and indefinite class of persons who are legitimate subjects of charity. In an attempt to address the social concerns of loneliness and isolation, Grace Manor offers community living. Also, in an attempt to address concerns arising from physical challenges, Grace Manor offers support in case of sudden disability. That these benefits are offered at or below cost, without any attempt to generate a profit, satisfies the constitutional and statutory tests. Grace Center, 796 A.2d at 1013–14. 11-10 11-10.1

Exemption of Educational Facilities Exemption of Private Schools

In its landmark decision in Wyoming Valley Montessori Association, 532 A.2d 931, the Commonwealth Court ruled that a nonprofit private school is not automatically entitled to an exemption, but rather must satisfy the HUP test. In this case, no children attended the school free of charge, and scholarships were limited to children of the faculty members. At the time, less than 10 percent of the students were receiving financial assistance. The school received an annual income of about $1,200 per student and did not offer free education to the public. The Commonwealth Court found that the school did not qualify as a purely public charity. The court stated that it was not questioning the school’s laudable educational goals, but was constrained to strictly interpret the exemption statutes. The court held that the school’s students were not legitimate subjects of charity and that the school did not donate or render gratuitously a substantial portion of its services. 11-10.2

Exemption of Liberal Arts Colleges

Since the Pennsylvania Supreme Court created the five-point HUP test in 1985, the Commonwealth Court had been applying the analysis in a harsh and rigorous fashion, to the detriment of many charitable entities. In 1994, the Supreme Court eased the test for nursing homes and medical facilities in St. Margaret Seneca, 640 A.2d 380. Taking that decision as a cue on the direction the high court seemed to be going, the Commonwealth Court embarked on a similar journey with its watershed ruling in City of Washington v. Board of Assessment Appeals of Washington County, 666 499

Exemption Law and Procedure

A.2d 352 (Pa.Cmwlth. 1995). With this 4–3 opinion, the appellate court liberalized its previous interpretations of the exemption laws and revolutionized the application of the General County Assessment Law, 72 P.S. § 5020-204, to charitable institutions. This case involved Washington & Jefferson College (W&J), a Pennsylvania nonprofit corporation with a charitable exemption from the Internal Revenue Service. The private four-year college had a nondiscriminatory enrollment policy and admitted students based on academic qualifications. The school also accepted a small number of academically underperforming students. At the time of the case, 79 percent of the students received some form of financial aid. No student was enrolled who could not pay the tuition or receive sufficient financial aid from any source to cover the cost. Students who ran out of tuition money or financial resources were not allowed to complete their education. W&J’s endowment at the time of the case was $50 million. It used about 25.4 percent of its educational and general expenditures on scholarships and aid. The college received money from various fund-raising sources, a bookstore, a cafeteria, dormitories, and a residential center, and from the Commonwealth. The school also received money from the rental of its facilities to various local schools and community groups, as well as fees paid by people for cultural events held at college facilities. In the 1993 fiscal year, the college operated at a loss. The trial court determined that W&J essentially flunked the HUP test, but the Commonwealth Court reexamined each element of the test and reversed the lower court, giving W&J a passing grade on all five prongs. The appellate court found that W&J’s educational goals advanced a charitable purpose and that the beneficiaries of the college were the general public. The court stated: Historically, the courts have held that education of youth is for the advancement of the public good. For example, in Price v. Maxwell, 28 Pa. 23, 34 (1857), our Supreme Court stated: “Nor has it ever been supposed in this country, that an institution established for the purposes of education is not a charity within the meaning of the law, because it sheds its blessings, like the dews of Heaven, upon the rich as well as the poor.” In Episcopal Academy v. Philadelphia, 150 Pa. 565, 573, 25 A. 55, 56 (1892), the court stated that “the education of youth and the support of schools are for the advancement of public good. . . .” In Haverford College v. Rhoads, 6 Pa. Super. 71, 78–79 (1897), the court stated “that a college, an institution of learning, is a charity, has long been decided, if it is conducted in a way beneficial to the public at large.” *

500

*

*

11-10.2

As pointed out by the Supreme Court in Hill School Tax Exemption Case, 370 Pa. at 23, 87 A.2d at 261, “charity or benevolence is not limited in scope to feeding, clothing and housing the indigent. To assist one in helping himself may be of even greater importance. Our universities, institutes of technology and research laboratories present fields of inestimable benefit to man.” In today’s society, where education beyond the high school level is almost mandatory in order for one to advance in life, the benefit of an institution of higher learning becomes even more immeasurable. Therefore, we hold that W & J’s education of youth advances a charitable purpose; accordingly, the trial court erred in determining otherwise. City of Washington, 666 A.2d at 359. In determining that W&J rendered gratuitously a substantial portion of its services, the Commonwealth Court reversed the trial court’s finding that higher education was a privilege and not a public responsibility. The appellate court found that under the totality of the circumstances, W&J subsidized every student attending the college through the use of its endowment and further subsidized a majority of its students through both need- and merit-based scholarships. The court stated: The fact that W&J does not make up the deficit for students who cannot secure funds or financial aid does not prohibit W&J from qualifying as a purely public charity. The HUP court did not state that an institution must render all of its services gratuitously in order to qualify as a purely public charity, only a substantial portion. The Supreme Court in St. Margaret Seneca clarified this point when it opined that the requirement that an institution donate or render gratuitously a substantial portion of its services does not imply a requirement that it provide wholly gratuitous services to some of its residents. St. Margaret Seneca, 536 Pa. at 486, 640 A.2d at 384. Moreover, the fact that W&J forbids students who cannot pay the required tuition from continuing with their studies is diminished when one realizes that a student would also be forbidden from matriculating at an entirely public institution of higher learning, such as The Pennsylvania State University, if the student was unable to pay the full tuition. Id. at 360. The appellate court also reversed the trial court’s finding that W&J did not benefit a substantial and indefinite class of persons who were legitimate subjects of charity. The lower court had found that the students who attended the college were not in need of charity but rather could pay 501

Exemption Law and Procedure

all or a good portion of the tuition, fees, and room and board costs. The Commonwealth Court analogized the situation to that of a public library, which would qualify as a purely public charity benefiting an indefinite class of people who were legitimate subjects of its benefits. The court further held that W&J’s merit-based open admissions policy benefited a substantial and indefinite class of persons. The court added: The fact that students who are unable to pay are not permitted to return does not destroy W&J’s public character nor destroy the fact that W&J serves the indefinite public. As pointed out by the Supreme Court in Donohugh’s Appeal, [86 Pa. 306 (1878),] some reasonable restrictions are necessary in all large bodies and, in the present case, not permitting nonpaying students to return is a valid restriction, does not affect the character of W&J as an institution of higher learning and is certainly not repugnant to the general purpose of W&J which is to educate youth. The record shows that all students who meet the academic requirements are admitted regardless of whether they will require financial aid in order to meet the tuition costs. While it is true that due to the restriction, some students must forego higher education at W&J, it is also true that in today’s society, it is hard to find any student not requiring some form of aid or loan assistance. It is also true in our society that most, but not all students, will be able to secure such aid. This is reflected in the de minimis number of students who were not permitted to return to W&J based on an inability to pay. Our Supreme Court in St. Margaret Seneca recognized this same concept when it opined that “in modern America, it is hard to find any person in need of nursing home care who is uninsured, unable to pay, and wholly ineligible for government support in the form of Medicare or Medicaid coverage.” St. Margaret Seneca, 536 Pa. at 483, 640 A.2d at 382. Id. at 362. The Commonwealth Court found that W&J relieved the government of some of its burden. The trial court had determined that there was no constitutional or statutory requirement for the state or federal government to educate its citizens beyond the high school level. The appellate court stated: The test is whether the institution bears a substantial burden that would otherwise fall to the government. St. Margaret Seneca. Without W&J and other similarly private educational institutions, the Commonwealth would have to vastly expand the state university system. The state university system would be burdened with at least 1,100 more students if W&J 502

11-10.2

were unavailable to serve as an institution of higher learning. Moreover, if W&J were subject to taxation, tuition costs would surely rise thereby making the institution more costly and less accessible to the public. As a result, more students would be forced to enroll in an institution supported by the state university system thereby increasing the burden on the state government to educate our youth. Contrary to the trial court’s view, this court believes that the Commonwealth recognizes this reality because the Commonwealth provides W&J with direct state funds which W&J uses to assist with administrative expenses and utilities. Further, this court has previously recognized that institutions of higher learning relieve the government of part of its burden to provide for higher education. See Robert Morris College v. Board of Property Assessment, Appeals and Review, 5 Pa. Commw. 648, 291 A.2d 567 (1972). Id. at 363. Finally, the court affirmed the lower court’s finding that W&J operated free from a private profit motive. The Pennsylvania Supreme Court affirmed. City of Washington v. Board of Assessment Appeals of Washington County, 704 A.2d 120 (Pa. 1997). The significant part of this holding is that the Pennsylvania Supreme Court liberalized the strict interpretation of the five-point HUP test. The Supreme Court’s examination of the test for W&J resulted in a clarification of the test itself. Rather than following the literal words of the HUP decision, the court loosened the test by implication. The court pointed out in a footnote to its opinion that the HUP test was not new law but rather a codification of the existing case law. The court stated: The [HUP] criteria are a synthesis of prior case law, not a departure from precedent. See [HUP], 507 Pa. at 23, 487 A.2d at 1318; G.D.L. Plaza Corp. v. Council Rock School District, 515 Pa. 54, 60, 526 A.2d 1173, 1176 (1987). Hence, cases decided prior to [HUP] remain relevant to our analysis. Id. at 122, n.2. Specifically in relation to W&J, the court found that the college advanced a charitable purpose in that it benefits the public from an educational, religious, moral, physical, or social standpoint. Institutions that provide education advance the public good and are charitable in nature. The college provides education for the youth of Pennsylvania and thus serves a charitable purpose. The court determined that W&J rendered a substantial portion of its services gratuitously by absorbing massive tuition charges that otherwise would be passed on to the students. The court found from the facts that this resulted in a disbursement of substantial amounts of essentially free 503

Exemption Law and Procedure

or partially free education for approximately 1,100 students that composed the student body. The court further found that the college contributed large sums from its endowment to sustain the educational program. In the operative time frame, W&J was covering 23 percent of the operating budget from the endowment fund. The court found that the use of the endowment funds to cover the annual deficits was indirectly subsidizing each and every student at the college. The court found that W&J benefited a substantial and indefinite class of persons who were legitimate subjects of charity, stating: Given our earlier conclusion that W&J advances a charitable purpose by providing youths with college education, it follows that youths seeking education can qualify as legitimate subjects of charity. In this era when the cost of attending college poses a major obstacle for youths seeking to further their education, even students who are financially secure in other phases of life are often “poor” in relation to the financial outlays that college requires. . . . The cost of education would climb precipitously if colleges did not use endowment funds and other forms of aid to keep their fees within bounds. For many youths, perhaps even most, the price of education would simply be beyond reach. Institutions such as W&J plainly serve those who would not be able to afford the fees that would prevail in the absence of their benevolence. Id. at 124. The court found that W&J relieved the government of some of its burdens. Because the Commonwealth has taken on the responsibility of providing higher education for its residents, the existence of private colleges and universities such as W&J lessened the demands on the state institutions. Without these private institutions, the state system of higher education would have to be greatly expanded. Finally, the court found that W&J operated entirely free from a private profit motive. W&J was incorporated as a nonprofit corporation, its trustees served without pay, and no dividends or profits were distributed to any individuals. If the college generated a surplus, it was reinvested in the school. The court’s interpretation of the HUP test in this case substantially eased the burden on institutions trying to meet its requirements. 11-10.3

Exemption of Educational Faculty and Staff Residences

There are numerous appellate court interpretations of whether the residences of school administration, faculty, and workers are exempt. Before these residences are even considered for exemption, the educational institution itself must be deemed exempt under 72 P.S. § 5020-204(a)(3).

504

11-10.3

The Superior Court examined faculty and staff residences’ entitlement to exemption in Appeal of Lancaster Theological Seminary, 214 A.2d 285 (Pa.Super. 1965). The educational institution in this case is a seminary that was founded, maintained, and endowed by public charity and meets the requirements of section 5020-204(a)(3). Professors lived in the homes for free and often met with students in the houses. The homes were also used to hold classes and seminars and to entertain students, alumni, and guests. The issue before the court was whether the homes were necessary for the occupancy and enjoyment of the exempt institution. The lower court found that the houses were necessary because they were a component part of the overall plan and practice of instruction of the seminary’s students. The Superior Court defined the term “necessary” as “reasonable necessity . . . embracing the idea of convenience and usefulness for the purposes intended.” Lancaster Theological Seminary, 214 A.2d at 286. The court then turned to how the residences were used. The court held: Institutionally-owned residences for administrators and faculty have been similarly declared tax exempt in earlier cases. In County of Northampton v. Lafayette College, 128 Pa. 132, 18 A. 516 (1889), the Supreme Court held that professors’ homes on campus which were owned by the educational institution were tax exempt. Our own Court stated: “Universities, colleges, academies, schools and institutions of learning which come within the statutory classification, are held exempt from taxation . . . ; and this exemption extends not only to quarters used for employees and for dormitories and dining halls used for the students but also to buildings owned by the institution and used by it to house the president and faculty [citing cases].” Parmentier Trustees’ Appeal, 139 Pa. Superior Ct. 27, 33, 11 A.2d 690, 693 (1940). Finally, in White v. Smith, 189 Pa. 222, 42 A. 125 (1899), a convent used as a residence for teachers in a parochial school was held to be tax exempt. We conclude, therefore, that institutionally-owned professors’ homes are exempt from local taxation if the use of the properties is an integral part of the educational functions and objectives of the institution. Id. at 287. It is important to note that the homes were not located on campus. The court held that location is unimportant as long as the properties were “united in their common usefulness and purpose into one plant, the operation of which is devoted to the ends contemplated by the [exemption] statute.” Id. at 287, n.1 The Pennsylvania Supreme Court examined the tax-exempt status of a university chancellor’s off-campus residence in Appeal of University of 505

Exemption Law and Procedure

Pittsburgh, 180 A.2d 760 (Pa. 1962). The university-owned property also was used to entertain student organizations, faculty, staff, alumni, donors, trustees, and government officials, among others. The trial court found that the residence fell within the exemption statute and was exempt from local taxation. The Supreme Court affirmed, stating: We have carefully examined the instant record and are satisfied that there is sufficient competent proof of record to support the findings of the trial judge. Bearing in mind the enlarged functions of the modern university [or] college and its president or chancellor, we are satisfied that the majority of the events for which the residence was utilized during 1957, 1958 and 1959 bore a direct relationship to the proper functioning of the University of Pittsburgh and served its aims and objectives. In our view, the residence of the chancellor fully meets the standard required under both the Constitution and the Act of 1933 . . . to qualify for a tax exempt status. Id. at 763–64. In In re Albright College, 249 A.2d 833 (Pa.Super. 1968), the Superior Court declined to grant an exemption for the residence of a former college president. The school had granted the president emeritus the right to live in the college-owned residence basically in recognition of his past service to the institution. The court found that this reward was not a present use of the property that was in furtherance of the college’s general educational purpose, and therefore the property was taxable. In In re Appeal of Shipley School, 464 A.2d 692 (Pa.Cmwlth. 1983), the Commonwealth Court affirmed a lower court decision denying exempt status for four residential properties being used by faculty and administrators. The appellate court merely affirmed the lower court opinion without any discussion of the facts particular to the case; because the Commonwealth Court failed to fully discuss the issues, this case has little value in determining the law in this area. The Commonwealth Court held that college-owned houses rented to essential service staff were exempt in In re Swarthmore College, 645 A.2d 470 (Pa.Cmwlth. 1994). Staff members who lived in these homes, such as maintenance workers and security personnel, were required to be on call for emergencies 24 hours a day. The college charged tenants a discounted rent in recognition of the needed services they were providing. In affirming the exemption of the homes, the Commonwealth Court held: The record in the present case when viewed in its entirety supports the trial court’s findings that the dominant use of the property, which is the subject of this appeal, constitutes the 506

11-10.3

necessary level of actual and regular use. The testimony reveals that the college functions as its own little community and, as such, it is essential to the welfare of the college that there be personnel on campus at all times to handle emergency needs of the college. No one can predict as to when or how often an emergency may arise. Id. at 474. In Lock Haven University Foundation v. Clinton County Board of Assessment Appeals & Revision of Taxes, 920 A.2d 207 (Pa.Cmwlth. 2007), the court addressed the exemption of student housing. In this case, the local assessment board removed the exemption for Evergreen Commons, a student housing complex owned by the Lock Haven University Foundation. The foundation appealed on the basis that it was a tax-exempt charitable institution under the Pennsylvania Constitution and the Institutions of Purely Public Charity Act. The lower court affirmed the board’s decision, finding that the foundation was a purely public charity but that Evergreen Commons was not. The Commonwealth Court disagreed and ruled that the foundation and Evergreen Commons must be viewed together as one institution in determining eligibility for exemption. According to the appellate court, Evergreen Commons provided student housing and set the rents so that the foundation could pay the facility’s expenses and also repay the bond issued to finance construction of the complex. The foundation did not make a profit from Evergreen Commons, and when the bond issue was paid off, any net income would go back to the foundation to benefit its programs and charitable purposes. The court stated that these facts satisfied the foundation’s burden of proving that the housing complex was necessary, was actually used for the foundation’s principal purposes, and was not used in a manner that competed with private enterprise. The court stated: [T]o be exempt from taxation, Section 202(b) of the Assessment Law requires that the revenue derived from the subject property come from the recipients of the bounty of the institution or charity, 72 P.S. § 5453.202(b), and Section 202(c) requires the institution to prove that it has legal or equitable title in the property at issue. 72 P.S. § 5453.202(c). There is no question that the revenue derived from Evergreen Commons comes from the Lock Haven University students who reside there and that the Foundation is the owner of Evergreen Commons. Lock Haven, 920 A.2d at 215. This case appears to be consistent with the Pennsylvania Supreme Court’s holding in Alliance Home, 919 A.2d 206. In summary, exemptions have been granted where the use of the residences is directly related to the overall operation and goals of the educa507

Exemption Law and Procedure

tional institution. Where faculty and administrators use the homes in a manner that promotes the school’s purposes, such as holding meetings and classes, the houses will be exempt. The residences need not be physically on the campus, and rent can be charged as long as a profit is not being made. 11-10.4

Exemption of Charter Schools

In In re Appeal of Collegium Foundation, 991 A.2d 990 (Pa.Cmwlth. 2010), the Collegium Foundation and the Collegium Charter School (collectively, the appellant) a public charter school leased its property from a for-profit landlord. After receiving a tax bill, the landlord and the school sought tax-exempt status. Both the assessment board and the trial court denied the request. At issue on appeal was whether the property should be exempt under section 204(a)(4) of the General County Assessment Law, which exempts “[a]ll schoolhouses belonging to any county, borough or school district.” The charter school argued that it automatically qualified for exemption because all public schools were exempt from real estate taxation. Alternatively, the charter school argued that since the district exercised control over the school, it actually “belonged” to the district and should receive a tax exemption. Finally, the school argued that the key point of the analysis should be the use of the property, rather than the ownership. The board countered that the General County Assessment Law does not provide that land owned by a for-profit entity can be exempt simply because the land is leased to a public charter school. Further, the board argued that section 204(b) of the General County Assessment Law provides that a property will be subject to taxation if a landlord derives revenue from the property, which was the case here. Finally, the board argued that section 204(c) requires that the person using or occupying the property be either the legal or equitable title holder of the property, which was not the case with the charter school. The Commonwealth Court agreed with the board and affirmed the trial court’s determination that the property was not entitled to exemption. The court noted that the for-profit landlord had legal title to the property and derived rent from its use, which disqualified the property from receiving exemption. Further, the court noted that there was no support in law for the determination to hinge on use rather than ownership of the property. 11-11 11-11.1

Exemption of Sports and Recreational Facilities Exemption of Religious Summer Camp

In Associated YM-YWHA of Greater New York/Camp Poyntelle v. County of Wayne, 613 A.2d 125 (Pa.Cmwlth. 1992), the court explored whether religious summer camps qualified as purely public charities under 508

11-11.1

72 P.S. § 5453.202(a)(3) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). In this case, the local assessment board notified three Jewish summer camps that they would be taxed for their land, but not the buildings and five supporting acres per structure. The trial court affirmed. The Commonwealth Court preliminarily stated: We note that the Camps bear the heavy burden of proving that they are a purely public charity entitled to a tax exemption. Hospital Utilization Project v. Commonwealth (HUP), 507 Pa. 1, 487 A.2d 1306 (1985), Appeal of Lutheran Home at Topton, 100 Pa.Commonwealth Ct. 244, 515 A.2d 59 (1986). Whether the Camps are entitled to an exemption is a mixed question of law and fact on which the trial court’s decision is binding absent abuse of discretion or lack of supporting evidence. G.D.L. Plaza [Corp. v. Council Rock School District, 515 Pa. 54, 59, 526 A.2d 1173, 1175 (1987)]; Appeal of Lutheran Social Services, East Region, 114 Pa.Commonwealth Ct. 628, 539 A.2d 895 (1988). Associated YM-YWHA, 613 A.2d at 127. The court held that the camps must meet all five points of the HUP test to qualify for exemption. The camps argued that they directly and indirectly relieved the government of some of its burden by providing social, educational, and recreational activities to children during the summer. Further, they argued that they provided food and medical care that would otherwise come from some type of governmental assistance program. The evidence demonstrated that the camps provided, in addition to religious education, drug awareness programs and social and recreational activities with a religious theme. The court rejected the camps’ arguments, stating that the government has no obligation to provide social, recreational, or educational activities for children during the summer. The court held: Furthermore, the Camps argue that they indirectly relieve the government of some of its future burdens by making the camp participants morally responsible citizens. However, neither an indirect benefit, nor a laudable motive, is a sufficient basis for the granting of an exemption from taxation. Scripture Union [v. Deitch, 132 Pa.Commonwealth Ct. 134, 572 A.2d 51 (1990)]; see also Biosciences Information Service v. Commonwealth, 122 Pa.Commonwealth Ct. 294, 551 A.2d 672 (1988), aff’d per curiam, 524 Pa. 132, 569 A.2d 927 (1990). Id. at 129. In Camp Hachshara Moshava of New York v. Wayne County Board for the Assessment & Revision of Taxes, 47 A.3d 1271 (Pa.Cmwlth. 2012), the Commonwealth Court held that a summer camp did not qualify as exempt 509

Exemption Law and Procedure

because it did not relieve the government of some of its burden. The camp in this case offered religious education and recreational activities to children, served children with special needs, and provided assistance to other local nonprofits, including firefighting and ambulance services. The camp argued that it relieved the government of part of its burden by providing social, educational, and recreational services to children and by providing of food and medical care, as well as firefighting and ambulance assistance. The court, however, noted that there was no evidence to show that the government was obligated to provide educational or recreational activities to campers. Similarly, the court reasoned that the services provided to the local volunteer fire and ambulance company could not be used as basis for exemption because the law specifically exempts only that portion of real property that is regularly used for the purposes of the institution, which, in this case, was a children’s summer camp. 11-11.2

Exemption of YMCA Facilities

In City of Pittsburgh v. Board of Property Assessment, Appeals & Review of Allegheny County, 564 A.2d 1026 (Pa.Cmwlth. 1989), the trial court had found that the “Downtown YMCA” in Pittsburgh did not provide a substantial portion of its services to the general public but rather existed primarily to provide facilities and services to dues-paying members. The lower court also determined that since the primary beneficiaries of the Downtown Y’s assets were businesspeople and professionals who were not the legitimate subjects of charity, the YMCA did not relieve the government of any of its burden. Most of the controversy stemmed from the fact that the YMCA had sold either “gold” or “silver” memberships to 72 percent of its members, had very few subsidized memberships, and lacked many programs aimed at the general population. The Commonwealth Court, in analyzing the case, stated: The troublesome feature of the YMCA’s operation of its downtown facility is not that it charges fees to some members that may approximate or exceed costs or that it provides a modern, sophisticated facility similar to if not more elaborate than commercial fitness centers. The YMCA cannot continue to provide fitness facilities that consist solely of the medicine balls and wrestling mats of bygone days. In order to attract a revenue generating membership, it must maintain a viable public presence which reflects current fitness trends. Nor can the YMCA remain entirely dependent on contribution and nominal fees and expect to survive economically. This is the accommodation of “evolving institutional needs” and “limits of public and private generosity” of which our Supreme Court spoke in West Allegheny Hospital.

510

11-11.2

The perplexity with which this Court must contend is that the percentage of “gold” or “silver” members is great and may not justify a total tax exemption for this new facility. The common pleas court has not, however, quantified the percentages of subsidized and non-subsidized membership or determined whether other income-producing measures, such as the numerous miscellaneous program fees, cover the costs of those programs. Id. at 1030. The court found that in order to determine if the YMCA was a purely public charity, it was necessary to determine to what extent, if any, the dues-paying members subsidized other members and public benefit programs at the facility. See Vanguard Sch. Tax Exemption Case, 243 A.2d 323 (Pa. 1968). The Commonwealth Court reversed the trial court’s finding that the YMCA was taxable and remanded the case to the lower court to make new findings of fact as to the use of each of the facility’s eight floors. The appellate court also ordered the lower court to determine whether the various program fees charged to outside organizations were sufficient to meet the programs’ maintenance and operating costs. Further, the Commonwealth Court directed the trial court to determine to what extent full dues-paying members pay fees greater than the costs associated with their use and whether any excess is invested in the YMCA’s general funds. The Commonwealth Court, in conclusion, held: We recognize the difficulty of the task before the court and the burden on counsel to provide competent evidence on the facility’s use and the financial subsidy of public programs. However, we cannot countenance a total denial of the YMCA’s previous tax exemption based entirely on the fact that the YMCA now operates modern and competitive fitness oriented and day-care facilities where substantial, uncontroverted evidence exists to indicate that the Downtown Y has not abandoned its traditional role as a provider of humanitarian services and recreational facilities to the general public. City of Pittsburgh, 564 A.2d at 1031. In Sewickley Valley YMCA, 774 A.2d 1, the Commonwealth Court cleared up many of the exemption questions concerning the tax status of YMCAs under the old exemption statutes as well as as the Institutions of Purely Public Charity Act (Act 55). The issue before the court was whether the YMCA was exempt under the HUP test and the community service requirement of Act 55, 10 P.S. § 375(d). The taxing district in this case contended that the YMCA did not advance a charitable purpose as defined by the HUP test.

511

Exemption Law and Procedure

The court stated: While the Borough focuses on the percentage of YMCA members who are given reduced or free memberships, it wholly ignores the non-YMCA members of the community who are served. [The YMCA’s associate director] testified at length regarding community services and programs that are sponsored by the YMCA and that are not part of the traditional membership. The YMCA allows several school districts to use its swimming pools and activity fields for both practices and tournament games. The YMCA sponsors health fairs for adults and children, free of charge to anyone in the community. It sponsors and subsidizes food drives that benefit local shelters and school districts. The YMCA offers Learn-to-Swim and water safety programs for children at no cost to the participant. Without belaboring the point, the YMCA offers its facilities and staff to non-YMCA members of the community in a variety of ways, at either no cost or minimal cost to the participant. Sewickley Valley YMCA, 774 A.2d at 6–7. The court determined that the YMCA met the charitable purpose requirement under Act 55 because it advanced education and religion and accomplished a purpose that is recognized as an important and beneficial one to the public and that advances social, moral, and physical objectives. The court cited its decision in Dynamic Sports, 768 A.2d 375, which held that a commercial gym in a different YMCA was “related to its charitable purposes of promoting good health, strengthening of family ties and values, citizenship, leadership, individual awareness, good character, volunteerism and national and international understanding).” Sewickley Valley YMCA, 774 A.2d at 7. The court found that the YMCA rendered gratuitously a substantial portion of its services. The fact that an entity accepts payment for its services does not negate its charitable status. The YMCA’s financial aid and the value of its volunteer services were sufficient to meet this test. The facility also met at least one of the seven tests under Act 55. The court defined “net operating income” under the act as follows: [N]et operating income is determined by comparing the amount of funds remaining after all operating expenses related to providing goods and services to the payments received for providing the goods and services. The Act specifically states that program revenue is to be deducted from the total of all operating expenses related to providing the goods and services. It is not limited to program operating expenses. Id. at 10 (emphasis in original).

512

11-12

The court held that time donated by the YMCA’s directors should be considered in calculating volunteer hours and found that the YMCA’s actions benefited a substantial and indefinite class of persons: [T]he beneficiaries of charity need not be limited to those in financial distress. A purely public charity may be one that provides members of the general public with services that would otherwise not be within their financial reach. . . . Persons who are financially secure may nevertheless be “poor” or “needy” in relation to the outlays needed to obtain certain services in the absence of charity. . . . Thus, the services offered to the community at large are evidence of the YMCA’s aid to persons who are legitimate objects of charity. Id. at 12. The court found that the YMCA relieved the government of some of its burden, stating: Presently, the YMCA allows local school districts to use its facilities, free of charge, for various school-related activities. To reiterate, several school districts use the YMCA’s swimming pools for practice and tournaments and the YMCA’s activity fields for lacrosse and soccer practice and tournaments. The YMCA also allows its tennis courts to be used by local schools. The school districts not only use the activity medium but also the YMCA’s locker areas and showers. Because the YMCA gratuitously allows the school districts to use its amenities, the school districts are relieved of their burden to provide the necessary facilities for their extra-curricular activities. Id. The court found the YMCA exempt under the HUP test and Act 55. 11-12

Exemption of Federally Subsidized Housing

Subsidized housing projects are eligible for exemption under the General County Assessment Law, 72 P.S. § 5020-204(a)(3). To establish an exemption under this statute, an institution must meet the following criteria: (1) it is a charitable organization; (2) it provides residential housing services; (3) 95 percent or more of the residential housing units receive subsidies from a low-income federal housing program;

513

Exemption Law and Procedure

(4) any potential surplus from the federal assistance or subsidy is monitored by the appropriate governmental agency; and (5) it is used solely to advance the common charitable purposes within the charitable organization. The legislature is constitutionally limited to exempt only those charitable organizations that are institutions of purely public charity, and a court cannot constitutionally interpret statutory language to exempt an organization that is not a purely public charity. It is a law of statutory construction that the legislature does not intend to violate the Constitution. 1 Pa.C.S. § 1928(b)(5). The General Assembly in considered judgment has legislated that institutions that meet the requisite criteria enumerated in the statute are to be considered “purely public charities.” Further, once these criteria have been met, then the purely public charity under the statute is tax exempt. In WRC North Fork Heights, Inc. v. Board of Assessment Appeals of Jefferson County, 917 A.2d 893 (Pa.Cmwlth. 2007), the Commonwealth Court affirmed the lower court’s denial of an exemption to a federally subsidized housing project on the basis that it was not a purely public charity under the HUP test. In this case, WRC North Fork Heights, Inc., operated a 56-unit, low-income housing facility for the elderly under the provisions of the U.S. Department of Housing and Urban Development’s (HUD) section 202 program. This program provides a capital advance to finance construction of a housing project and provides operating subsidies to fill the gap between the cost of housing and the rent that the low-income residents can afford. The capital advance works as an interest-free loan on which no payments are made for 40 years. Under the program, 100 percent of the units must be occupied by elderly or handicapped people who qualify for and receive federal subsidies. WRC’s articles of incorporation stated that no net earnings or benefits were to inure to the benefit of any of its members, officers, directors, or other individuals. WRC assisted the residents with accessing medical, social, emotional, and spiritual services necessary to meet their needs. WRC claimed it was an exempt public charity under section 204(a)(3) of the Assessment Law and did not have to meet the HUP test. The assessment appeals board contended that WRC failed to meet two prongs of the HUP test: it failed to render gratuitously a substantial portion of its services because all residents paid rent subsidized by the federal government; consequently, WRC was not relieving the government of any of its burden. The trial court and the Commonwealth Court agreed. The appellate court ruled in substance that the HUP test determination of “purely public charity” pursuant to the Pennsylvania Constitution trumps the General Assembly’s statutory definition of the term and that the constitutional hurdle must be met before the statutory law can even be addressed. 514

11-13

In National Church Residences of Mercer County v. Mercer County Board of Assessment Appeals, 925 A.2d 220 (Pa.Cmwlth. 2007), the Commonwealth Court reviewed a similar situation involving a 40-unit apartment building that provided housing to low-income, elderly residents. The property was constructed and financed under HUD’s section 202 program. The no-interest loan was provided by the federal government, and no repayment was required as long as the property was used for very low-income elderly residents. Housing assistance subsidies were provided under the HUD Section 8 housing program. HUD guidelines determined the amount paid by the residents. The difference between that amount and the actual costs of running the project are made up by the government. The lower court denied the exemption on the basis that the apartment building did not render gratuitously a substantial portion of its services because all residents pay rent that is subsidized by the federal government and that it was not relieving the government of any of its burden. The Commonwealth Court affirmed on the same basis as in WRC North Fork Heights and found that the apartment building was not a purely public charity under the HUP test; therefore, even if it met the statutory requirements, it could not be granted exemption. It is interesting to note that in 1985, the Supreme Court, in effect, created its own “legislative” guidelines under the Pennsylvania Constitution and created a five-prong test for a purely public charity that has, over the years, resulted in wave after wave of litigation. When the General Assembly has attempted to clear up this confusion and adopt workable rules for both charities and taxing authorities, the appellate courts have either overruled the legislature or refused to even rule on the constitutionality of the acts. In particular, the Institutions of Purely Public Charity Act is now more than 20 years old and there is no clear-cut ruling on its legality and applicability. 11-13

Exemption of All-Boys School as Public Charity

In Pottstown School District v. Hill School, 786 A.2d 312 (Pa.Cmwlth. 2001), the issue before the court was whether an institution of learning that otherwise qualified for an exemption from taxation should lose that exemption solely because it had a boys-only admission policy. In this case, the Hill School was an all-boys private school that provided college preparatory courses. The school district asserted that the school’s policy of excluding girls precluded it from claiming an exemption as a purely public charity because it did not benefit a substantial and indefinite class of persons. The parties agreed that the Hill School met all the other legal criteria necessary to qualify as a purely public charity. The Commonwealth Court found that single-gender institutions in Pennsylvania have long been considered purely public charities. Therefore, the court held that they can benefit a substantial and indefinite class of persons. The court pointed out that federal antidiscrimination laws do 515

Exemption Law and Procedure

not prohibit private single-sex secondary schools. Therefore, even though the Hill School admitted boys only, it did not jeopardize its rights to tax exemption as a purely public charity. 11-14

Exemption of Parish Houses

In St. Aloysius Roman Catholic Church v. Fayette County Board of Assessment Appeals, 849 A.2d 293 (Pa.Cmwlth. 2004), the Commonwealth Court examined the taxability of a Catholic church’s parish house. The lower level was used as the church’s office, where the routine business of the parish was conducted on a regular basis. The upper level was used primarily for housing for the priest and some support staff, although occasional prayer services, retreats, and training programs were also conducted there. The trial court held that the lower level was exempt and the upper level was taxable. On appeal, the church argued that the upper level was exempt because the church, an institution of purely public charity, “actually and regularly used” used it, citing Article VIII, section 2(a)(v) of the Pennsylvania Constitution. The church did not argue that the subject space was used as a place of regularly stated religious worship. The Commonwealth Court found that the space was more analogous to a parsonage and therefore taxable. The court stated: Were we to allow the Church to receive a tax exemption for what is essentially its “parsonage” under the more liberal purely public charity provision, where it is not operating an entity independent from the Church itself, we would essentially be giving greater effect to the more general constitutional provision allowing for a charitable tax exemption for institutions of purely public charity than to the more specific exemption for places of regularly stated religious worship. This is contrary to the established principle of constitutional construction that, where there is a conflict between a specific constitutional provision, which is applicable to a particular case, and certain general provisions which, but for such conflict, might apply, the specific provision will prevail. Walsh v. Tate, 444 Pa. 229, 234, 282 A.2d 284, 287 (1971). Further, this construction also would do violence to the presumption that every clause in a constitution is inserted for a useful purpose. See id. at 237, 282 A.2d at 288. Thus, we must avoid a construction that would render any portion of the constitution meaningless. Id. Allowing the Church to employ the purely public charity exemption in this case would do just that. Id. at 296–97.

516

11-15

11-15

Exemption of Spiritual Retreats

Benedictine Sisters of Pittsburgh v. Fayette County Board of Assessment Appeals, 844 A.2d 86 (Pa.Cmwlth. 2004), dealt with the taxability of a spiritual retreat operated by the Benedictine Sisters. The four-acre property had a three-bedroom house, swimming pool, and detached garage. The retreat was used primarily as a place of spiritual renewal where the women prayed, read, and watched videos of conferences. No masses were held on a scheduled basis, but occasionally the women would celebrate a mass, or someone would lead a prayer. Seventy-seven Benedictine Sisters were required to make an annual retreat that lasted from three to seven days. None of the women used the property as a permanent place of residence. Occasionally, the women would use the property solely for recreational purposes rather than for a retreat. The trial court granted an exemption on the basis that the retreat was a regularly stated place of worship. The county challenged this finding on appeal, arguing that the retreat was used as a vacation home for the women and thus not eligible for exemption. The Commonwealth Court found that the retreat did not meet the requirements established in Mount Zion, 503 A.2d 1065, which held that exemption was authorized by 72 P.S. § 5453.202(a)(1) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.) where the primary purpose of the property is worship and other activities are incidental. The court pointed out that Mount Zion interpreted the term “worship” broadly to include “prayer and teaching.” The court, in finding the property exempt, held: Here, the Benedictine Sisters use the Property for adoration, prayer and meditation; this constitutes “worship” as defined by Pennsylvania Conference [of the Pentecostal Holiness Church v. Mercer County Board of Assessment Review, 25 Pa.D.&C.3d 536 (1982)]. In any case, Pennsylvania Conference, which is not binding precedent, must be placed in the context of the binding precedent in Mount Zion and Evangel Baptist Church [v. Mifflin County Board of Assessment Appeals, 815 A.2d 1174 (Pa.Cmwlth. 2003)]. Under Mount Zion, the fact that some education may be taking place at the property does not mean that education is the primary use of the property. Under both Mount Zion and Evangel Baptist Church, the concept of “worship” is not limited to a formal service. The Benedictine Sisters engage in prayer, spiritual readings and discussions; these are the very activities found to be worship in Mount Zion and Evangel Baptist Church. As in Mount Zion, the identity of Sisters on retreat changes from

517

Exemption Law and Procedure

week to week, but the use of the Property as a spiritual retreat is constant. Benedictine Sisters, 844 A.2d at 90. This case seems to greatly expand the concept of the term “regularly stated place of worship” and appears to be a major shift in interpretation of these types of issues. It should be noted that this case was a 2–1 panel decision with a strong dissent, and therefore the Commonwealth Court could revisit this issue in future cases. 11-16

Taxation of a Multiuse Religious Building

Connellsville Street Church of Christ v. Fayette County Board of Assessment Appeals, 838 A.2d 848 (Pa.Cmwlth. 2003), analyzed the taxability of a multiuse religious building. In this case, the building had three functions. The main part of the building, a former parsonage, was used a place for a visiting preacher to stay between services and also as a “lock-in” site for children to take religious classes and stay for a Christian movie and sleep-over two or three times a year. The second part of the building was used as the fellowship hall, which hosted weekly bible studies and other church meetings and dinners. The third part of the building was a large, vacant area that could be used for some church purpose in the future. The trial court found that the building was exempt. The Commonwealth Court applied the holding in Mount Zion 503 A.2d 1065, and ruled that the lower court had erred in finding that the entire building was principally used as a place of worship. The court stated: The . . . former parsonage was used on Sundays for the visiting preacher as a “study.” Its principal use was to provide shelter to the visiting preacher and his family between the morning and evening services. In addition, it was used twice a year for the youth group lock-ins. These uses do not constitute regular worship, and no other evidence of a different use was offered by the Church. The parsonage can be equitably separated from the rest of the building. Since this space is not used primarily as a place of worship, it is taxable. Connellsville, 838 A.2d at 853. The court found that the fellowship hall was used primarily for regularly stated worship and was exempt. The unfinished addition of the building was found to be taxable because no regularly scheduled worship services took place there. In Church of the Overcomer v. Delaware County Board of Assessment Appeals, 18 A.3d 386 (Pa.Cmwlth. 2011), the Commonwealth Court dealt found that a church’s community center was not entitled to a tax exemption. The trial court had granted the exemption, finding that the church

518

11-17

had shown that the community center was an institution of purely public charity. The church’s pastor testified that the organization administered several programs from the community center that were open to the public: a program to help children of incarcerated individuals, a program to help incarcerated individuals maintain family contact, a summer camp program, and a food bank. None of the programs generated revenue or profit. The trial court ruled that the community center was entitled to a tax exemption as a purely public charity under HUP because it advanced a charitable program, provided benefits to a substantial and indefinite class of persons who were legitimate subjects of charity, relieved the government of some of its burden, and conducted programs entirely free of a private profit motive. The Commonwealth Court first rejected the taxing district’s arguments that the trial court erred when it failed to consider the church and its community center as a single entity. Rather, the appellate court noted that it was entirely appropriate to examine the community center as a standalone entity because it operated independently from the church. The court held that an institution seeking a real estate tax exemption bears a heavy burden of establishing its right to an exemption. The court noted that as a preliminary matter, a party must prove that it meets the minimum standards set forth in HUP and then meets the standards set forth in the Institutions of Purely Public Charity Act. The court found that the record lacked sufficient evidence for a conclusion of exemption. It noted that while the pastor testified generally as to the charitable acts of the programs, his testimony was not sufficient to meet the requirements in the act for community service, charity to persons, or government service. Therefore, the court reversed the trial court’s decision and denied the exemption request. The holding of this case makes clear the importance of addressing the requirements set forth in both HUP and the Institutions of Purely Public Charity Act. Importantly, the act’s tests contain many objective standards for which evidence must be presented. 11-17

Exemption of Church Parking Lots

In Wesley United Methodist Church v. Dauphin County Board of Assessment Appeals, 844 A.2d 57 (Pa.Cmwlth. 2004), the Commonwealth Court distinguished the general rule of exemptions that church parking lots are taxable. In this case, the church was located in a residential area and, originally, most of its members lived nearby and walked there. As the churchgoers aged, most of them lived farther away and had to drive there. There was very little off-street parking in the neighborhood, and most onstreet spaces were taken by residents. In 1989, the church purchased an adjacent parking lot, and attendance for services increased from 200 to 519

Exemption Law and Procedure

350 people. The church officials believed that the parking lot was an integral part of the church and that without it, membership and attendance would decline to the point that the church would have to close. The trial court granted an exemption for the parking lot. On appeal, the county assessment board relied on the Pennsylvania Supreme Court’s 1959 decision in Second Church of Christ Scientist of Philadelphia v. Philadelphia, 157 A.2d 54 (Pa. 1959), that parking lots are an adjunctive use of property but not regular stated places of worship and therefore not exempt. The Commonwealth Court seemed to agree with the lower court’s reasoning that much had changed in the reality of smalltown life in Pennsylvania since 1959. Decades ago, churches were built in the heart of the neighborhoods, and now their worshippers were coming from greater distances away. The lower court had found that the church parking in this case was a necessity for the occupation and enjoyment of the church. The Commonwealth Court agreed and distinguished Second Church of Christ Scientist from the facts of this case. The court held: A careful review of [72 P.S. § 204(a)(1)] of the Assessment Law shows that it does provide for consideration of what is reasonably necessary to permit actual worship in a particular place. The Board is correct that where parking spaces are required to be provided such spaces are reasonably necessary to the occupancy and enjoyment of the property. In the same manner, the Church has proved to the satisfaction of the trial court, as the finder of fact, that a set of circumstances renders the parking lot at issue here as reasonably necessary. Witnesses familiar with the Church’s history and its operations testified that membership shifted from a majority residing within one or two blocks to a majority residing at a distance, that virtually no on-street parking is available around the Church and that membership and attendance and revenues were in serious decline before the parking lot was established but turned around afterward. Based upon the Church’s history, the trial court in short credited the testimony that the Church could not exist without the parking lot. In that situation, the Church has established a basis for exemption under Section 204(a)(1) of the Assessment Law and under Article VIII, Section 2(a) of the Constitution. Wesley United, 844 A.2d at 61. The Commonwealth Court limited its ruling to the facts of the case and clearly stated that it was not exempting all church parking lots: As may readily be seen, although similar circumstances might be shown in some other cases, they would not exist in most. As a result, the Court’s holding is not to be construed as a general 520

11-18

tax exemption for church parking lots. In addition, the present case plainly is not similar to recent decisions of the Court denying claimed exemptions for a residence for a synagogue maintenance person, Reform Congregation Oheb Sholom v. Berks County Board of Assessment Appeals, 839 A.2d 1217 (Pa. Cmwlth. 2004), and for a former parsonage used principally by a visiting preacher, Connellsville Street Church of Christ v. Fayette County Board of Assessment Appeals, 838 A.2d 848 (Pa.Cmwlth. 2003). Id. at 61–62. The Pennsylvania Supreme Court affirmed in Wesley United Methodist Church v. Dauphin County Board of Assessment Appeals, 889 A.2d 1180, 1182 (Pa. 2005), and overruled Second Church of Christ Scientist, stating: Times have changed since Second Church was decided in 1959. In this day and age, parking lots may be a necessity for a church, rather than just a convenience. People and churches have both moved away from towns, and many people are no longer living within walking distance of their church. To attend, they are required to drive and park a vehicle. With no available parking, church-goers may be forced to seek religious expression elsewhere, causing a decrease in membership and impeding the ability of the church to exist. *

*

*

We hasten to point out that we do not hold all church parking lots are entitled to tax-exempt status. However, if a church proves its parking lots are a reasonable necessity to the existence of the church itself, those lots are entitled to such status. 11-18

Taxability of Noncontiguous Religious Property

In Reform Congregation Oheb Sholom, 839 A.2d 1217, the Commonwealth Court examined the exemption of a noncontiguous parcel of land owned and used by a religious organization. In this case, the Reform Congregation Oheb Sholom acquired a piece of land about half a block away from the synagogue and built a house on the property as a rent-free residence for its full-time maintenance employee and her husband. The employee was required to live at the house and to be available 24 hours a day, seven days a week, although her regular hours were from 9:30 a.m. to 4:30 p.m., Monday through Friday. The employee’s duties included cleaning and maintenance; she had to be available for meetings and services on evenings and weekends, special events, and emergencies.

521

Exemption Law and Procedure

The synagogue sought an exemption for the property under the General County Assessment Law, 72 P.S. § 5020-204, which exempts “[a]ll churches, meeting-houses, or other actual places of regularly stated religious worship, with the ground thereto annexed necessary for the occupancy and enjoyment of the same.” The Berks County assessment appeals board denied the request, but the court of common pleas reversed. On appeal to the Commonwealth Court, the board argued that no regularly scheduled religious services took place at the caretaker’s house, and therefore the property was not within the ambit of the statute. The court agreed, reversed the lower court, and found that the property was taxable. The court stated: The exemption in question in University of Pittsburgh Appeal[, 180 A.2d 760 (Pa. 1962),] and In re Swarthmore College[, 645 A.2d 470 (Pa.Cmwlth. 1994),] arose from Article 8, Section 2(a)(v) of the Pennsylvania Constitution, which authorizes the General Assembly to exempt institutions of purely public charity and “that portion of real property of such institution which is actually and regularly used for the purposes of the institution.” Pa. Const. art. 8, § 2(a)(v). The more liberal standard of reasonable necessity applied by the trial court “embraced the idea of convenience and usefulness for the [charitable] purposes intended,” In re Swarthmore College, 645 A.2d at 472, an interpretation the Supreme Court specifically rejected in Second Church of Christ Scientist[, 157 A.2d 54 (Pa. 1959),] when determining whether property is actually used for regularly stated religious worship. As quoted above, in Second Church of Christ Scientist, the Supreme Court explained that the exemption of property owned by an institution of purely public charity is not as constitutionally restricted as is church property, and the distinction between church and charitable property has been deliberately and clearly drawn. Cases involving universities and other charitable institutions cannot form the basis for exempting church property that does not fall within the restricted definition of place of actually stated religious worship. Reform Congregation Oheb Sholom, 839 A.2d at 1220. Assessment appeals boards throughout Pennsylvania have taken a liberal view of 72 P.S. § 5020-204 and extended the scope of regularly stated place of worship to great lengths. The recent case law has reversed this trend and strictly construed this concept, which may lead many boards to review their previous determinations.

522

11-19

11-19

Qualification of Illegally Zoned Church for a Tax Exemption

In First Korean Church of New York, Inc. v. Montgomery County Board of Assessment Appeals, 926 A.2d 543 (Pa.Cmwlth. 2006), a nonprofit entity sought an exemption for its property as its principal place of religious worship. The property was being used as a place of worship, seminary, and home for a pastor and a maintenance worker. The property was in a zoning district that did not permit the use of the land for a church or seminary. The church filed for exemption with the assessment appeals board on the basis that it was a purely public charity, a seminary, and a place of regularly scheduled worship. At the same time, the church sought a special zoning exception, but the zoning board denied the request, and the Commonwealth Court affirmed the zoning board’s decision. The assessment board then rejected the exemption request on the basis that the zoning board had denied the special exceptions for the church and seminary; therefore, the use of the property was illegal and no exemption could be granted. The trial court affirmed the assessment board. The issue on appeal was whether the denial of a zoning variance on the property was automatically grounds for a denial of an exemption. The Commonwealth Court answered this question in the negative and stated: In City of Pittsburgh [v. Board of Property Assessment, Appeals and Review of County of Allegheny, 412 A.2d 661 (Pa.Cmwlth. 1980)], this Court rejected the argument “that if the particular use of the property is not within the bounds of the applicable zoning regulations, it cannot be tax exempt.” . . . Instead, we concluded that “[t]he sole requirement for tax exemption of a charity’s property is that the actual, present use be in conformity with the purposes of the charitable institution.” . . . Under City of Pittsburgh, the taxing authority must look to the use itself, and not whether the use is in conformance with the zoning ordinance, in deciding whether the property is entitled to a tax exemption. Applying City of Pittsburgh to this case, as we must, we are compelled to find that the trial court erred in concluding that, because the use under the zoning ordinance was illegal, there could be no tax exemption. Because there were no fact-findings on whether the property is entitled to a tax exemption, we must remand this matter for further proceedings Id. at 547–48. It is interesting to note that, under the court’s holding, an institution in violation of a zoning ordinance can receive a tax exemption on its property until it is literally closed down by the local authorities and can no longer operate on the property. 523

Exemption Law and Procedure

11-20

Exemption of Professional or Occupational Organizations

In re Appeal of American Institute for Chartered Property & Casualty Underwriters, 928 A.2d 433 (Pa.Cmwlth. 2007), involved a professional organization that offered certification and classes in insurance and was exempt from federal taxes. It owned a property in Chester County but no students attended classes there. The organization published insurance textbooks and study guides and administered tests on its subjects. It did not offer any financial aid for books or study guides, and less than 1 percent of its students received scholarships. All students were required to pay tuition. Eighty percent of the students enrolled at the time of the case were insurance professionals. The organization sought exemption as a purely public charity. The trial court determined that the organization failed to donate or render gratuitously a substantial portion of its services, did not benefit a substantial and indefinite class of persons who were the legitimate subjects of charity, and did not relieve the government of some of its burden. The Commonwealth Court affirmed the lower court and held: [O]ur court has previously determined that institutions that are established for the benefit of a profession or occupation do not benefit an indefinite number of people. PICPA Foundation for Education & Research v. Board of Finance & Revenue, 535 Pa. 67, 634 A.2d 187 (1993) (benefits for persons with a professional or occupational interest in accounting does not benefit an indefinite number of people); Board of Revision of Taxes v. American Board of Internal Medicine, 154 Pa. Commw. 204, 623 A.2d 418 (Pa. Cmwlth. 1993) (doctors seeking professional advancement are not legitimate objects of charity). *

*

*

We have held that a foundation whose primary purpose was to educate members of the accounting profession in subjects in that profession, were for the benefit of only those individuals who had an occupational interest in accounting subjects and any education of the public was only incidental to that purpose. PICPA. Also, in Board of Revision of Taxes, we held that government does not require the certification of doctors who specialize in a certain area of medicine. Here, there was not substantial evidence that the government had a duty to educate or certify insurance professionals. Although the Institute may relieve the insurance industry of its burden, if any, to educate and certify in this regard, the trial court was correct in determining that the government has no duty to provide or require the certification of insurance professionals. Thus, in the 524

11-20

present controversy, the trial court was correct in finding that the Institute does not relieve the government of some of its burden. In any event, besides failing to relieve the government of some of its burden, the other HUP test requirements were definitely not satisfied. The Institute, in seeking status as a purely public charity, failed to show that it donated or gratuitously rendered a substantial portion of its services and, in addition, failed to show that it benefited a substantial and indefinite class of persons who are legitimate subjects of charity. Id. at 437–38.

525

12 Assessment Procedure

12-1

Real Property Taxation

In Pennsylvania, real estate is taxed on the basis of ad valorem taxation. This form of taxation is a flat percentage tax on the fair market value of the realty. Article VIII, section 1, of the Pennsylvania Constitution states that all property is deemed to be of one class; that is, the Pennsylvania Constitution prohibits the stratification of realty into classes for tax purposes. All real property within the Commonwealth must be taxed at the same rate. Taxing districts cannot levy a higher millage on commercial property than residential or vice versa. The General Assembly cannot change this prohibition without amending the Pennsylvania Constitution. In Pennsylvania, the fair market value multiplied by the ratio of assessment to fair market value equals the assessment. The ratio is the mathematical relationship between fair market values and assessments prevailing in the county of taxation. Assessment multiplied by millage equals the real property tax. Generally, there are three levels of real property taxation in Pennsylvania: (1) county or institutional district, (2) municipality, i.e., township, borough, or city, and (3) school district. Each of these taxing districts levies its own millages in order to generate the necessary real property revenue required for the operation of the governmental entity. Therefore, if local government is to function properly, it needs an equitable tax system. The citizens of the various taxing districts must have confidence that they are being taxed fairly and honestly. It is incumbent upon the assessors and assessment office that the public has complete trust that the assessment process is honest. The hint of scandal or impropriety can cast doubt on the total taxation system, and assessment procedures should be established so that any dishonest, unethical, or improperactions of any individual in an assessment office are ferreted out and stopped. Checks and safeguards must be established to prevent any inappropriate behavior by members of the assessing staff.

527

Assessment Procedure

12-2 12-2.1

Assessment Appeals Boards—General Powers and Functions Administrative and Quasi-judicial Functions

In Consol Pennsylvania Coal Co. v. Board of Assessment Appeals of Greene County, 617 A.2d 852, 857 (Pa.Cmwlth. 1992), the Commonwealth Court rejected the taxpayers’ claim that their due process rights were violated when the county commissioners who ordered the property assessed were also the members of the assessment appeals board reviewing their own decision, stating: Petitioners contend that by acting in both capacities the Commissioners relied unduly upon the advice of the county solicitor and failed to exercise any independent judgment. However, Petitioners have not made any convincing allegations of ultimate harm resulting to them as a consequence of the Board’s actions. As the Board notes in its brief, any improper action at the Board level was cured by the trial de novo in the common pleas court. The appellate court reiterated the position that any errors committed at the board level are cured by a trial de novo at the common pleas court level. This case leaves open the question of whether a board’s actions can be so egregious as to violate fundamental due process of law. Therefore, when the administrative functions of the board overlap with its quasi-judicial functions, the General Assembly has provided the remedy of a trial de novo in the court of common pleas. The appellate court has found that this remedy cures any inherent due process violations. The Commonwealth Court addressed the same due process argument in Lee Hospital v. Cambria County Board of Assessment Appeals, 638 A.2d 344 (Pa.Cmwlth. 1994), where the county commissioners were also the members of the assessment appeals board. The taxing authorities claimed that the panel was designated by the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.701(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), to hear the appeal and that the statutory scheme was constitutional. The taxpayer alleged that the dual function of the commissioners/board members was unconstitutional because it required an appeal before the same body that had made the challenged decision and also had financial interest in raising additional revenue for the county. The Commonwealth Court rejected the contention that the county commissioners had a financial interest in the outcome of the case, stating: The United States Supreme Court has held that a due process violation occurs where an individual governmental official carries out dual roles with respect to the administration of fiscal affairs. Specifically, due process violations occur when the offi528

12-2.1

cial carrying out an adjudicative function holds a direct, personal, substantial, pecuniary interest in the outcome of the proceeding. Aetna Life Insurance v. Lavoie, 475 U.S. 813, 106 S.Ct. 1580, 89 L.Ed.2d 823 (1986); Ward v. Village of Monroeville, 409 U.S. 57, 93 S.Ct. 80, 34 L.Ed.2d 267 (1972); Tumey v. Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927). [The Commissioners] in the present case, unlike the mayors in Ward and Tumey, possess no direct pecuniary interest in the revenues realized by the local tax assessments, nor are their salaries dependent on such income. While the Commissioners are responsible for management of the county’s finances, as well as the prospective financial policy, these elected members do so on behalf of the county citizenry. The interests of the Commissioners are the interests of the public; no direct, personal monetary benefit may result from the actions of the Commissioners or board in assessing [the taxpayer’s] property. Lee Hospital, 638 A.2d at 349. The appellate court distinguished this case from Lyness v. State Board of Medicine, 605 A.2d 1204 (Pa. 1992), which prohibited the commingling of governmental functions. In Lyness, the same administrative body brought a disciplinary proceeding and thereafter adjudicated the same proceedings. The court held: Here, there is not the same commingling of governmental functions as is contemplated in Lyness. To so analogize, we would be required to assign to the Commissioners a prosecutorial function it does not now enjoy, as well as consider the board the ultimate fact finder/adjudicator. In contrast, what the Law does provide is for the board to charge the chief assessor with determining what properties warrant assessment for each tax year. Later, if necessary, an interested property owner may appeal such assessment to the board for review. This scheme does not describe a commingling of prosecutorial and adjudicative functions which would sound the skeptical alarm of bias. Therefore, we find no appearance of bias in the case sub judice. The dual statutory function of the Commissioners and the board is fully contemplated by the Law and adequately executed by the members in their dual roles. Therefore, we find that the appellate remedy provided by the Law for review of tax status before the board is protective of [the taxpayer’s] due process rights when the members of the board are also the members of the County Board of Commissioners. Consequently, [the

529

Assessment Procedure

taxpayer’s] rights are not violated by requiring it to pursue the statutory remedy provided by the Law. Lee Hospital, 638 A.2d at 350 (emphasis in original). Lee Hospital and Lyness disposed of the argument that the dual status of county commissioners sitting as assessment appeals board members in fourth to eighth class counties inherently violates the litigants’ due process rights. Whether the Pennsylvania Supreme Court will eventually agree with the lower appellate court remains to be seen. 12-2.2

Handling Alleged Conflicts of Interest

In the context of judicial proceedings, the Pennsylvania Supreme Court has outlined the procedure by which alleged conflicts of interest are to be raised. The complaining party must allege facts tending to show bias, prejudice, or unfairness on the part of the judge that would necessitate recusal. A motion for recusal and the initial argument regarding a conflict of interest should be raised with the judge before whom the proceeding is currently pending. That judge must determine whether a conflict of interest exists. Once the judge makes a decision, it is final, and the action proceeds to its end in the same tribunal. If the action is eventually appealed to a higher court, the party who had raised the issue of a judge’s potential conflict of interest may raise the same issue as grounds for reversal or reconsideration of the lower court’s judgment. Reilly v. Southeastern Pa. Transp. Auth., 489 A.2d 1291, 1300 (Pa. 1985). See also Commonwealth v. O’Shea, 567 A.2d 1023, 1034 (Pa. 1989) (“The trial court may ordinarily dispose of the petition for recusal on its own without hearing where the court believes there is no merit to the petition, and the complaining party may assert the issue of recusal on appeal (if any appeal is taken)”), cert. denied, 498 U.S. 881 (1990). By analogy, the same procedure for raising a conflict of interest should apply to a board of assessment appeals. If the board decides that no conflicts of interest exist, the complaining party must proceed with appeals before the board, but may raise the same issue of conflicts of interest and whether such perceived conflicts tainted the proceeding before the board in any appeal to the court of common pleas. The denial of a recusal motion is an interlocutory matter under Pennsylvania law. See Reilly, 489 A.2d 1291. 12-2.3

Appointment of Solicitor

The Consolidated County Assessment Law states at 53 Pa.C.S. § 8833: The board may appoint an attorney as solicitor to the board and assessment office to advise on all legal matters and appear for and represent the board on all appeals taken from its decisions or orders to all courts of competent jurisdiction. The salary of the appointed solicitor shall be fixed by the salary 530

12-2.5

board of the county. If the board does not appoint a solicitor in accordance with this section, the county solicitor must serve as solicitor to the board and assessment office to the extent that there is not a conflict of interest. This statute has provided boards with the option of appointing their own solicitors or using the services of the county solicitor. The act does not define the term “conflict of interest,” and therefore, the interpretation of this phrase is left for the courts to determine. 12-2.4

Scope of Attorney/Client Privilege in Assessment Matters

The discoverability of written legal communications prepared by an attorney for a board of assessment appeals has been explored in several cases. (The cases discussed here are limited to jurisdictions where the Pennsylvania Rules of Civil Procedure have been adopted by local rule. See In re Appeal of Borough of Churchill, 575 A.2d 550 (Pa. 1990).) The attorney/client privilege and work-product doctrine extend to cover attorneys who are employed by an assessment appeals board and are acting in their professional capacities. Written legal analysis prepared by government attorneys prepared for the use of other lawyers is protected from disclosure by Pa.R.C.P. 4003.3, which states in pertinent part: The discovery shall not include disclosure of the mental impressions of a party’s attorney or his or her conclusions, opinions, memoranda, notes or summaries, legal research or legal theories. Rule 4003.3 does not require litigation as a condition precedent for the document to be protected as a legal work product. Sedat, Inc. v. Department of Envtl. Resources, 641 A.2d 1243 (Pa.Cmwlth. 1994). There is no exception to the attorney/client privilege for advice given by an attorney as part of an adjudicatory decision-making process. When an attorney acts as decision maker, the attorney/client privilege does not apply. However, when the attorney merely gives decision makers legal advice, which can be rejected so that it does not rise to the level of policy, it retains its privileged nature. Nittany Printing & Publ’g Co. v. Centre County Bd. of Comm’rs, 627 A.2d 301 (Pa.Cmwlth. 1993). 12-2.5

The Impropriety of Informal Assessment Hearings Held by Nonmembers of an Assessment Board

It is common practice for assessment appeals boards in Pennsylvania to delegate informal reviews or hearings to nonmembers of the board. Commonly, after a taxpayer appeals his or her assessment to the board, an informal meeting or hearing is arranged between the taxpayer and subordinate assessment personnel, typically a county assessor. At this meeting or hearing the taxpayer and the assessor attempt to resolve the heart of 531

Assessment Procedure

the taxpayer’s value case. In some circumstances, the assessor agrees to lower the assessment, compromise the difference, reject the appeal, and/or refer the case to the board. Another scenario arises when a county hires a mass evaluation company to perform a countywide reassessment, and that company’s employees hold informal hearings or meetings with taxpayers after the notices of reassessment are mailed and the taxpayers have appealed their new assessments. These practices clearly violate the applicable Pennsylvania assessment statutes. State law, except for one limited situation discussed below, makes no provision for these reviews or hearings. The applicable statutes provide for a direct appeal to the assessment appeals board and do not allow any board to delegate its adjudicatory responsibility. An illegal delegation of hearing power is clearly an ultra vires action and actionable at law. The Consolidated County Assessment Law provides at 53 Pa.C.S. § 8844 that any aggrieved taxpayer or taxing district may appeal an assessment on or before September 1 or earlier date not to precede August 1 of the tax year by writing to the board, setting forth the assessment for which the taxpayer feels aggrieved, and providing an address to which the board will mail notice of the time and place of the hearing. The board must meet to hear these appeals and act upon them no later than the last day of October. The board is given the power to compel the attendance of witnesses and the furnishing of documents. The board must give each taxpayer and taxing district 20 days’ notice of the time and place of the hearing. The “board” is defined in 53 Pa.C.S. § 8802 as “[t]he board of assessment appeals or the board of assessment revision established in accordance with section 8851 (relating to board of assessment appeals and board of assessment revision). The term, when used in conjunction with hearing and determining appeals from assessments, shall include an auxiliary appeal board.” The statutory scheme provides that taxpayers and taxing districts have the right to appeal to the board and does not provide for intermediaries. Any obstruction to this direct right to appeal to the board is a clear violation of procedural due process of law. The legislature did not mandate that a taxpayer first exhaust an informal appeal process with a nonmember of the board. This extra hearing or review process has a chilling effect on the rights of the parties to appeal to the only entity having jurisdiction over an assessment appeal: the board. The statute provides only for a two-step hearing procedure: first to the board and then to the court of common pleas for a trial de novo. To graft on to this procedure a mandatory informal review or hearing with nonmembers of the board, prior to receiving a formal hearing before a duly constituted board of assessment appeals, clearly violates legislative intent. This unauthorized practice adds a third step to the assessment appeal process, placing an additional hurdle in the path of the aggrieved tax532

12-2.5

payer. It is an expensive process to attend an informal hearing, a formal hearing, and a court trial in order to appeal an assessment. The legislature did not enact a three-stage process to exhaust remedies—a board of assessment appeals has absolutely no power to delegate its responsibility to hear appeals to anyone. Compounding the problem further is the illegal delegation of power to subordinate assessors to unilaterally change the established assessment roll. In situations where a board delegates informal review responsibilities to its employees, what power does an employee have to change an assessment pursuant to an appeal filed by a taxpayer or taxing district? The employee does not have sua sponte authority to change an assessment, but must have the board’s approval. How then is approval obtained? If the assessor holds an informal review and agrees to change an assessment, does the assessor then have an ex parte communication with a board member in order to secure approval, or does he or she not bother to obtain board consent and/or oversight? At the informal hearing, does the assessor inform the taxpayer that the assessor has the power to agree to a compromise assessment or to deny relief? Where does this power come from? The act provides that once the board prepares the assessment roll, any aggrieved taxpayer may appeal to the board, which will hold hearings and make any changes to the assessment roll resulting from the hearings. Assessors have no statutory power to change the assessment roll—that power is reserved to the board. An assessor who makes direct changes to the assessment roll based on these informal hearings is clearly violating the assessment laws. Assessors can make changes only pursuant to 53 Pa.C.S. § 8817(a), which provides that only the board can make changes in the assessment roll based on a formal hearing requested from an aggrieved taxpayer. If a board changes the assessment roll based on a recommendation stemming from an informal review—even if the parties agree to it—it is violating its statutory duty to hear the appeal as outlined in 53 Pa.C.S. § 8844(e). The board is mandated by this statute to hear the appeal. Another concern is that the law provides that the taxing districts have the right to be notified of any hearing. If they are not notified of informal review or hearing, there is an intentional violation of the assessment statute. Has the assessor in an ex parte manner communicated material facts to the board without the presence of the representatives of the taxing districts? If the law mandates that the taxing districts have the right to be notified of the hearing and be heard at an assessment hearing, an informal hearing without their presence is clear violation of due process of law. The only exception to the above statement is codified at 53 Pa.C.S. § 8848(b), which states: Informal review.—In conjunction with a countywide revision of

assessments, a designee of the county assessment office may 533

Assessment Procedure

meet with property owners to review all proposed assessments and correct errors prior to the completion of the final assessment roll. In no event shall the market value or assessed value of a property be adjusted as a result of an informal review except to reflect changes to tabular data or property characteristics inaccurately recorded during the revision. Informal reviews, if conducted, shall be completed no later than June 1. If an act of the legislature was required to allow this limited exception for meetings to correct errors during a countywide reassessment, then any informal hearing proceedings would require similar legislative authority. Section 8848(b) merely allows an informal meeting to correct errors during a countywide reassessment and is not authority for a mandatory informal hearing proceeding. 12-2.6

Power of a County Council to Dissolve a Board of Assessment Appeals in a Second Class County

In a case strictly limited to Allegheny County, the Commonwealth Court held that the county council had the right under the county’s home rule charter to dissolve the assessment appeals board and replace it with a new tribunal under the county administrative code. Board of Prop. Assessment, Appeals, Review & Registry of Allegheny County v. County of Allegheny, 773 A.2d 816 (Pa.Cmwlth. 2001), the actions of the county taking the above action were affirmed. On June 27, 2000, the council enacted ordinances to replace the existing assessment appeals board with three separate entities that would perform the functions assigned to an assessment board by the Second Class County Assessment Law, 72 P.S. §§ 5452.1–5452.20. A property oversight board was created with the following duties: making recommendations to the county council regarding assessment standards and practices, confirming or rejecting the county manager’s appointment of the chief assessment officer, and certifying that the assessments have been made in accordance with the Allegheny County Assessment Standards and Practices Ordinance. The members of this board were the president of the county council (or a designee), the chief executive (or a designee), and a person with at least 10 years’ experience as a real estate broker appointed by the county executive with the consent of the council. The county also created a new seven-member board of property assessment appeals and review. The powers of this board were to oversee assessment appeals, hold hearings, and certify the assessment appeals decisions. The members served staggered three-year terms and had to meet certain qualifications. County council appointed four of the members, and the chief executive appointed the other three, subject to the council’s consent. An office of property assessments was created within the executive branch of county government. The duties of this office included making all 534

12-2.6

assessments and valuation of real property, supervising the assessments, and making recommendations to the assessment appeals board review the tax-exempt status of real property. The county manager appointed a chief assessment officer, with consent of the oversight board. The chief assessment officer reported to the county manager. The chief assessment officer had to be an International Association of Assessing Officers (IAAO) Certified Assessment Evaluator (CAE) or hold the highest-ranking Commonwealth appraiser’s license and had to have at least 10 years of progressively responsible experience in the management of property valuation. The original assessment appeals board sued to halt the implementation of the ordinances. The common pleas court ruled in favor of the county, and the Commonwealth Court affirmed. The gist of the case was whether section 3107-C(h)(8) of the Second Class County Charter Law, 16 P.S. § 6107-C(h)(8), allowed the new county government the right to dissolve the board. This section stated that a home rule charter will not give any power of authority to a county that is contrary to, or in limitation or enlargement of, powers granted by acts of the General Assembly applicable to second class counties with respect to the “assessment of real or personal property and persons for taxation purposes.” The board argued that this language involved the whole “system” of making assessments, while the county argued it meant only the making of property valuations for ad valorem tax purposes. The appellate court found the language ambiguous and then decided to divine the alleged intent of the General Assembly. The court cited Lennox v. Clark, 93 A.2d 834 (Pa. 1953), in ascertaining the legislature’s intent and found that section 3107-C(h)(8) prohibited the home rule municipality from legislating “concerning the manner in which assessments and valuations of property shall be made (i.e., how property is valued) as opposed to who values the property or hears assessment appeals.” Board of Prop. Assessment, Appeals, Review & Registry of Allegheny County, 773 A.2d at 819. The Commonwealth Court then found that the creation of an assessment board by the county council did not conflict with the Second Class County Assessment Law. Finally, the court summarily disposed of the argument that the original board members could not be fired by the county because they were holding staggered six-year terms. Without examining the case law on this issue, the court opined that since the board itself was abolished, they were not fired and therefore had no right to their positions. This case is loaded with unclear logic and sweeping overreaching by the court in its interpretation of the General Assembly’s intent. The Second Class County Assessment Law cannot be overruled by a county council without the clear, express, stated intent of the legislature. Just about every important point of the Second Class County Assessment Law was overturned by county ordinances. There is nothing in the Second Class County Charter Law giving the county council this power to overturn the legislature’s settled assessment policy of Allegheny County. In something 535

Assessment Procedure

as important as the correct valuation and assessment scheme, the express intent of the elected legislators should be found before local government can abolish the whole assessment system. If the General Assembly intended that to be the case, it would have clearly given that power to the county in the Home Rule Enabling Act; because it did not do so, the appellate court should not have tried to substitute its judgment for that of the legislature. 12-2.7

Due Process and Assessment Board Hearings

In a complex case, the Pennsylvania Supreme Court was forced to examine whether the interrelationship between the Philadelphia Board of Revision of Taxes and the city government caused a litigant before the board to suffer a due process of law violation. Lincoln Philadelphia Realty Assocs. I v. Board of Revision of Taxes of City of Philadelphia, 758 A.2d 1178 (Pa. 2000). The board’s seven members were appointed by a majority of the common pleas judges, and their salaries were set by the city code. The board appointed assessors, divided the city into assessment districts, and assigned assessors to them. The board established and maintained records of assessments and annually directed its assessors to value each parcel of realty within the districts, examined the valuations returned by the assessors and revised them as necessary, prepared a statement of assessed values, and notified taxpayers of any changes in assessment on their properties. The city collections department billed taxpayers in accordance with the assessments certified by the board. In assessing property within Philadelphia, the board performed a function upon which the city fiscally depended. The board also worked closely with the city solicitor’s office in the litigation of assessment matters. The taxpayers argued that this close relationship between the city and the board deprived them of a fair hearing for their arguments on the merits of their case. They further argued, citing Lyness, 605 A.2d 1204, that their procedural rights to due process of law were violated because the board was not a fair and impartial tribunal. The taxpayers argued that the process was so fundamentally unfair as to be rigged. The Pennsylvania Supreme Court rejected these arguments and distinguished Lyness, finding that the right to a de novo hearing in the common pleas court basically frees the process from any due process violation. The court stated: If the Board were the factfinder of last resort, whose decision could be reversed only for an abuse of discretion, an error of law, or lack of substantial evidential support, Taxpayers’ arguments might warrant closer scrutiny. Such is not the case, however, as an appeal from the Board’s ruling is heard by the trial court de novo. Westinghouse Elec. Corp. v. Board of Prop536

12-3.1.1

erty Assessment, Appeals and Review of Allegheny County, 539 Pa. 453, 464, 652 A.2d 1306, 1312 (1995). Thus, the determination to be reviewed on appeal is not that of the allegedly compromised Board, but that of the independent and impartial trial court. Chartiers Valley Sch. Dist. v. Board of Property Assessment, Appeals and Review, 154 Pa. Commw. 81, 93, 622 A.2d 420, 427 (1993). In other contexts, this Court has recognized that de novo review serves an ameliorative function where the initial decisionmaker is not an independent body. . . . Taxpayers fail to consider the significance of the trial court’s de novo review to their due process argument, nor do they address the importance to such argument of the constitutional and legislative framework within which the Board functions. Lincoln Philadelphia Realty, 758 A.2d at 1187. This case stands for the proposition that the de novo review provisions of the Pennsylvania assessment scheme serve to cure any potential due process of law conflicts caused by the interrelationship between the local county government and the board of assessment appeals. This is even more relevant in the counties of the fourth to eighth class where the county commissioners may also serve as the members of the county assessment appeals board. Only extreme conduct of a board—not the mere appearance of taint inherent in the system—may run afoul of procedural due process of law. 12-3 12-3.1

Assessors and Appraisers Appointment of Assessors

12-3.1.1

General County Assessment Law

The General County Assessment Law, at 72 P.S. § 5020-102, provides that all assessors in the first class, second class, second class A, and third class counties are appointed by the board of assessment appeals: “Appointed assessors” shall mean the assessors appointed by the board of revision of taxes in counties of the first class, and the subordinate assessors appointed by the board for the assessment and revision of taxes in counties of the second, second A and third classes. The General Assembly has delegated total responsibility for the appointment of county assessors in these counties to the assessment appeals board and removed the appointing authority from the county commissioners. The only function the commissioners would have in this area is the ability through the county salary board to set the assessors’ salaries.

537

Assessment Procedure 12-3.1.2

Consolidated County Assessment Law

The Consolidated County Assessment Law states the following as to the appointment of assessors at 53 Pa.C.S. § 8832: (a)

Hiring and compensation.—The chief assessor, with the approval of the board, shall hire subordinate assessors subject to any applicable county personnel policy and regulations of the board, as necessary in carrying out the duties imposed by this chapter. A subordinate assessor shall receive compensation as determined by the salary board of the county.

(b)

Duties of subordinate assessors and other employees.—In

order to carry out the provisions of this chapter, subordinate assessors and other employees shall perform those duties as may be assigned to them by the chief assessor. (c)

Certification of assessors.—The act of April 16, 1992 (P.L.

155, No. 28) known as the Assessors Certification Act, shall apply to any person responsible for the valuation of real property for ad valorem taxation purposes in accordance with this chapter. (d)

Elected assessors abolished.—The office of local elected as-

sessor in all taxing districts subject to this chapter is hereby abolished. 12-3.2

Assessors Certification Act

All assessors in Pennsylvania must be certified and licensed under the Assessors Certification Act, 63 P.S. § 458.1 et seq. The act defines the “board” as the State Board of Certified Real Estate Appraisers. Section 458.4 lists the duties of the board: (a)

Certification. It shall be the duty of the board to certify any

person responsible for the valuation of real property for ad valorem taxation purposes and revaluation company personnel in this Commonwealth. (b)

Qualification of revaluation company personnel. [Repealed by

amendment]. (c)

Biennial renewal of certificates. Renewal of certification shall occur on a biennial basis commencing with the 1993 renewal cycle administered by the board for other professional certification renewals.

(d)

Continuing education. A Certified Pennsylvania Evaluator

applying for renewal of certification shall submit proof to 538

12-3.2

the board that, during the two years immediately preceding renewal, the individual has satisfactorily completed the required minimum hours of continuing education relating to assessment and appraisal practice. The board shall approve continuing education courses and providers and set the required minimum hours pursuant to regulations promulgated by the board. Section 458.6 states: (a)

Requirement. All persons responsible for the valuation of real proeprty for ad valorem taxation purposes in this Commonwealth and all revaluation company personnel shall be certified under this act.

(b)

Application. Application for certification shall be made to the board by completion of the board’s prescribed application form and shall be accompanied by the appropriate fee established by the board. An applicant shall:

(c)

(1)

(Reserved).

(2)

Have a high school diploma, or its equivalent, or two years of assessing experience.

(3)

Be at least 18 years of age.

(4)

Be a resident of this Commonwealth for at least six months. This paragraph does not apply to revaluation company personnel.

(5)

Have successfully completed a minimum of 90 hours of the basic course of study approved by the board covering the appraisal assessing profession or any other professional courses acceptable to the board. The basic course of study shall include instruction on judicial interpretation of the uniformity clause of the Constitution of Pennsylvania. At the discretion of the county commissioners of a county, the county may reimburse county assessors for the costs of completing the courses of study required by this subsection.

Examination. Applicants shall successfully complete a com-

prehensive examination covering all phases of the appraisal process and the assessment function established by the assessment statutes of this Commonwealth. Any such examination shall be prepared and administered by a qualified and approved professional testing organiza539

Assessment Procedure

tion in accordance with section 812.1 of the act of April 9, 1929 (P.L. 177, No. 175), known as The Administrative Code of 1929. (d)

Certification. Upon successful completion of the comprehensive examination, the board shall issue a Certified Pennsylvania Evaluator’s Certificate to the applicant. A certificate shall be valid for two years or until the next renewal cycle administered by the board for other professional certification renewals, whichever occurs earlier.

(e)

Licensure. Nothing in this act shall relieve any individual or company from any otherwise applicable legal obligation to be licensed as a real estate broker pursuant to the act of February 19, 1980 (P.L. 15, No. 9), known as the Real Estate Licensing and Registration Act, or to be certified as a certified State real estate appraiser under the act of July 10, 1990 (P.L. 404, No. 98), known as the Real Estate Appraisers Certification Act.

Note that the administration of the Assessors Certification Act was removed from the State Tax Equalization Board and transferred to the State Board of Certified Real Estate Appraisers. Applicants for certification must submit a form and filing fee to the State Board of Certified Real Estate Appraisers. The applicant must take a comprehensive examination covering all phases of the appraisal process and the assessment function established by Pennsylvania assessment law. This exam must be prepared and administered by a qualified and approved professional testing organization in accordance with Pennsylvania’s administrative code. If the applicant successfully completes the exam, he or she receives a Certified Pennsylvania Evaluator certificate. This certificate is valid for two years or until the next renewal cycle as mandated by the board, whichever occurs earlier. Section 458.7(a) specifically enlarges the board’s authority to implement disciplinary and corrective measures. The board now has the power to deny, suspend, or revoke certificates and to limit, restrict, or reprimand a certificate holder for any of the following causes: (1) Procuring or attempting to procure a certificate or renewal of certificate pursuant to the act by knowingly making a false statement, submitting false information or refusing to provide complete information in response to a question in an application for certification or renewal. (2) Failing to meet the minimum qualifications established by this act.

540

12-3.2

(3) Paying or offering to pay any valuable consideration other than provided for by this act to any member or employee of the board to procure a certificate or renewal of a certificate under this act. (4) Being convicted of or pleading guilty to a crime that directly relates to or has a direct bearing on the fitness or ability to perform one or more of the duties or responsibilities necessarily related to the development of real property assessments. (5) Performing an act or omitting an act when such performance or omission involves dishonesty, fraud or misrepresentation with intent to substantially benefit the certificate holder in his or her profession or with the intent to substantially injure another person. (6) Violating any of the standards of professional conduct for real property assessment as adopted by the board by regulation. (7) Failing or refusing, without good cause, to exercise reasonable diligence in developing an assessment or preparing an assessment report. (8) Negligently or incompetently developing an assessment or preparing an assessment. (9) Willfully disregarding or violating any of the provisions of the act or the regulations of the board for the administration and enforcement of the provisions of this act. (10) Violating the confidential nature of records to which the assessor gained access through employment or engagement as an assessor. (11) Having an assessor’s or evaluator’s license or certificate suspended, revoked or refused or receiving other disciplinary action by a licensing or certification authority of another state, territory or country. Section 458.7(b) provides that when the State Board of Certified Real Estate Appraisers finds that the certificate or application for certification or renewal of a person should be denied, revoked, restricted, or suspended under section 458.7(a), it may: (1) Deny the application for certification or renewal. (2) Administer a public reprimand.

541

Assessment Procedure

(3) Revoke, suspend, limit or otherwise restrict the certificate as determined by the board. (4) Suspend enforcement of its findings and place the certificate holder on probation with the right to vacate the probationary order for noncompliance. (5) Restore a suspended certification and impose any disciplinary or corrective measure it might originally have imposed. This act provides even stronger enforcement powers for what is labeled as unlawful practice. These penalties include criminal sanction. The act states in section 458.8: (a)

Prohibition on ad valorem tax valuations. A person may not

perform valuations of real property for ad valorem tax purposes unless the person is currently certified by the board as a Certified Pennsylvania Evaluator. (a.1) Revaluation company personnel. No revaluation company

personnel shall determine the value of real property in this Commonwealth or develop property valuation models for use in this Commonwealth unless currently certified by the board as a Certified Pennsylvania Evaluator. (b)

Penalty. A person who intentionally violates subsection (a)

commits a misdemeanor of the third degree and shall, upon conviction, be sentenced to pay a fine of $2,500 or to imprisonment for not more than one year, or both.

542

(c)

Injunction. A violation of subsection (a) may be enjoined by the courts upon petition of the commissioner or the board. In any proceeding under this section, it shall not be necessary to show that any person is individually injured by the actions complained of. If the court finds that the respondent has violated subsection (a), it shall enjoin him or her from so practicing or holding himself or herself out until he or she has been duly certified. Procedure in such cases shall be the same as in any other injunctive suit.

(d)

Remedy cumulative. The injunctive remedy provided in this section shall be in addition to any other civil or criminal prosecution and punishment.

(e)

Civil penalty. In addition to any other civil remedy or criminal penalty provided in this act, the board, by a vote of the majority of the maximum number of the authorized membership of the board as provided by law or by a vote

12-3.3

of the majority of the duly qualified and confirmed membership or a minimum of three members, whichever is greater, may, after affording an accused party the opportunity for a hearing as provided in 2 Pa.C.S. (relating to administrative law and procedure), levy a civil penalty of up to $1,000 on any of the following: (1)

A current certificate holder who violates a provision of this act.

(2)

A person who holds himself out as a Certified Pennsylvania Evaluator without being so certified under this act.

(3)

A person who violates the prohibitions in subsections (a) and (a.1).

The act provides that all actions previously taken by the State Tax Equalization Board relevant to the former Assessors Certification Act shall be ratified and validated by this act. It should be noted that this act does not contain a sunset provision that was contained in the previous act. 12-3.3

Appraisers Are Not Required to Be Real Estate Brokers

In Doverspike v. Black, 535 A.2d 1217 (Pa.Cmwlth. 1988), the Commonwealth Court held that the Real Estate Licensing and Registration Act (RELRA), 63 P.S. § 455.101, which requires licensing of real estate brokers, does not apply to county contracts for appraisal services for tax purposes and thus that tax assessment appraisers did not need to be licensed real estate brokers in Pennsylvania. In this case, Jefferson County hired an appraisal company to perform certain valuations for assessment purposes in the county. The plaintiffs argued that the people who were performing appraisals must be real estate brokers and comply with RELRA. The court pointed out that the scope of the act was directed exclusively at the commercial activities surrounding real estate transactions. The court stated it was clear that appraisals performed in conjunction with commercial real estate transactions must be performed by licensed real estate brokers. Appraisal services for tax assessment purposes, however, do not come within the purview of RELRA, and such appraisals need not be performed by licensed real estate brokers. The court stated: We find further support for our holding in the terms of the recently enacted Assessors Certification Act (Act), 72 P.S. §§ 5010.1–5010.10, which applies to persons who appraise real property for ad valorem taxation purposes. Under that Act, which became effective on March 17, 1987, persons employed by reevaluation companies, or mass appraisal companies, 543

Assessment Procedure

must meet certain minimum qualifications including instruction regarding “the appraisal assessing profession.” Section 5 of the Act, 72 P.S. § 5010.5. The qualifications do not specifically include licensure as a real estate broker, although Section 6 of the Act, 72 P.S. § 5010.6, does provide that its terms should not be viewed as relieving an individual from any existing obligation to be licensed as a real estate broker under RELRA. By failing to include licensure as a real estate broker as a definite prerequisite to certification as an assessor, we believe the Legislature has expressed its intent that tax assessors need not necessarily also be real estate brokers. Doverspike, 535 A.2d at 1220–21 (emphasis in original). This case clearly states that the requirements of the Assessors Certification Act and its progeny definitely relieve the assessors from the burden of being real estate brokers in order to carry out their work of ad valorem real property taxation. 12-4 12-4.1

Assessment Notices and Changes Interim Assessment Change

The assessment board must mail notice of new assessments or changes in the amount of old assessments to each property owner whose property value has either not previously been fixed or whose property assessment has been changed from that of the preceding assessment roll and to each taxing district having an interest in the property. The notice must be mailed within five days after the date that the board assessed the value of the property in question and should state that any person aggrieved by the assessment or change in assessment may file an appeal to the board within 40 days of the date of such notice. It is important to note that any change in assessment must be accompanied by an interim assessment change notice, which is the triggering document and the condition precedent to appealing an assessment change. An appeal from this notice relates back to the date of the assessment change. This is different from an annual assessment appeal, which relates prospectively to the next calendar year assessment. Under 53 Pa.C.S. § 8844(a), assessment change notices must provide the following information: (1) Mailing date. (2) Property location. (3) Parcel identifier. (4) Effective date. (5) Established predetermined ratio. 544

12-4.2.1

(6) Base-year value. (7) Old assessment. (8) New assessment, including the assessment of each parcel of land and the assessed value of any improvements. Under 53 Pa.C.S. § 8844(b), an appeal must be in writing and include the following information: (1) Appellant. (2) Property location. (3) Owner. (4) Assessment or assessments by which the person is aggrieved. (5) Address to which notice of the time and place for a hearing of the appeal shall be mailed. 12-4.2

Retroactivity of Assessments

Counties in Pennsylvania vary on whether real estate may be retroactively reassessed for tax purposes to allow for omitted land or improvements placed upon the land that were missed, overlooked, and/or omitted by the county assessor during previous tax years. In second class A through eighth class counties, there appears to be no provision for retroactivity. 12-4.2.1

Consolidated County Assessment Law

53 Pa.C.S. § 8841(c) provides for additions to the assessment roll for properties or improvements mistakenly omitted from the assessment roll, provided that the necessary notice requirements are followed. There is no mention of retroactivity, and therefore it appears the statutory scheme calls for adding these properties or improvements to the existing roll for the year. If the General Assembly had wanted these properties to be added retroactively, it would have stated so in the legislation. Section 8841(c) provides: Interim revisions to assessment roll.—The county assessment of-

fice is authorized to make additions and revisions to the assessment roll at any time in the year to change the assessments of existing properties pursuant to section 8817 (relating to changes in assessed valuation) or add properties and improvements to property mistakenly omitted from the assessment roll as long as notice is provided in accordance with section 8844 (relating to notices, appeals and certification of

545

Assessment Procedure

values). All additions and revisions shall be a supplement to the assessment roll for levy and collection of taxes for the tax year for which the assessment roll was originally prepared. 12-4.2.2

Second Class Counties

The Second Class County Assessment Law provides for retroactive treatment of omitted property and states: The proper assessors shall, between the triennial assessments, revise any assessment or valuation according to right and equity by correcting errors and by adding thereto any property, improvements or subjects of taxation which may have been omitted or any new property, improvements or subjects of taxation which may have come into being since the last triennial assessment. Any property, improvements or subjects of taxation which may have been omitted shall be assessed and made subject to taxation for the period during which said property, improvements or subjects of taxation shall have been omitted but in no event to exceed the period of five calendar years preceding the year in which the property, improvements or subjects of taxation omitted is first added to the assessment roll. 72 P.S. § 5452.13 (emphasis added). 12-4.3

Service of Notice

53 Pa.C.S. § 8844 states that notices required under the Consolidated County Assessment Law may be served in the following manner: (a)

Notices.—The county assessment office shall mail to each record property owner, at the last known address of the record property owner, and to the affected taxing districts notice of any change in assessment or new assessment made pursuant to section 8841(c) . . . .

(b)

Mailing and notice of appeal.—The notice shall be mailed

within five days from the date the county assessment office makes the change or addition to its official records. The notice shall state that any persons aggrieved by the assessment and the affected taxing districts may file an appeal to the board within 40 days of the date of the notice. Under 53 Pa.C.S. § 8845, no defect in the service of any assessment notice will be sufficient ground for setting aside any assessment, but, upon proof of a defect in service being made, the taxable person or taxing district will have a right to a hearing before the board relative to the assess-

546

12-4.4

ment, with the same right of appeal from its decision as provided in the assessment law. 12-4.4

Timely Mailing of Assessment Change Notices

The assessment appeals board must mail assessment change notices within five days after the date that the board assessed the value of the property in question. The notice must state that any person aggrieved by the assessment or change in assessment may file an appeal to the board within 40 days of the date of the notice. The Commonwealth Court addressed the timing of the removal of taxexempt status from a city-owned community center in City of Connellsville v. Fayette County Tax Claim Bureau, 632 A.2d 1065 (Pa.Cmwlth. 1993). In this case, on November 24, 1987, the assessment appeals board notified the city that the community center’s assessment status had been changed from exempt to taxable. The city failed to pay on the assessment, and subsequently the tax bureau scheduled the parcel was for sale. On September 27, 1991, the city filed a petition with the court of common pleas to strike the sale. The court struck the sale and removed the parcel from the tax rolls. The taxing authorities appealed to the Commonwealth Court. They challenged the trial court’s jurisdiction to hear the matter due to the city’s failure to use the statutory appeal process to the assessment appeals board. The city alleged that the board failed to comply with the notice requirements of 72 P.S. § 5453.701(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). At the time, the law stated that the board must prepare an assessment roll on or before July 15 of each year and must notify by mail or deliver notice to any individual whose assessment had been changed. The act required the following notification timing: “Said notice shall be mailed within five days from the date the board made such change or added said property to the roll.” The statute also stated that the board was authorized to make additions to the assessment roll during the course of the year if the notice requirements were met. The facts evidenced at trial demonstrated that the community center was not added to the assessment list on or before July 15, 1987, and that the board was unable to establish the date it approved the assessment change. The trial court found that the taxing authorities failed to produce any evidence establishing that the notice of change in the community center’s assessment status was mailed within five days of the date the change was made. This violation of the mandatory notice provisions of the act was a fatal defect that voided the purported change in the parcel’s tax status, causing subject matter jurisdiction to vest in the common pleas court. The court removed the parcel from the tax sale roll and also from the assessment roll.

547

Assessment Procedure

The appellate court upheld the lower court’s decision that the assessment change was void ab initio because the board failed to provide the city with proper and timely notification of the change. This case shows that assessment boards must keep detailed records of the dates that assessment changes are made and of the mailing date of the notices to the taxpayers. Failure to prove that these dates comply with statutory mandates will result in the assessment changes being stricken by the courts. 12-4.5

Assessment Notification Procedures— Incorrect Addresses

The Commonwealth Court explored assessment change notifications in Horn v. Board of Property Assessment of Allegheny County, 641 A.2d 15 (Pa.Cmwlth. 1994). In this case, Keith and Carla Horn bought a property in Allegheny County in October 1992. The deed for the property included a certificate of residence, signed by the Horns’ attorney, that listed the address of U.S. Mortgage Corp. as the Horns’ address. On January 22, 1993, the property assessment board mailed a tax assessment change notice to the Horns at the U.S. Mortgage Corp. address. This notice stated that the Horns had until March 1, 1993, to appeal the assessment increase. The mortgage company did not forward the notice to the Horns until March 10, 1993. The next day, the Horns sought permission from the board to appeal nunc pro tunc. The board denied the request, and the Horns appealed to the court of common pleas, which affirmed. The Commonwealth Court emphasized portions of the Second Class County Assessment Law, 72 P.S. § 5452.15: At least thirty (30) days written notice shall be given to any taxable person whose assessment shall be changed. . . . Any required notice shall be served by the board or any member thereof or by any assessor or by any other person authorized to do so by the board upon said taxable person or may be mailed to him or her at his or her last known address by firstclass mail. The Horns contended that their last known address was the address of the property, not the address on the certificate of residence. The court rejected this argument and held that the assessment law recognizes that many property owners do not reside at the premises. The board must determine the address of the taxable person pursuant to the Recorder of Deeds Act, 16 P.S. § 9781, which requires that when a deed is presented for recording, the precise address of the grantees must be certified on the deed, and that this address be delivered by the recorder of deeds to the board. The Commonwealth Court pointed out that this statute placed the

548

12-4.6

burden on the property owner to provide the local taxing authority with an accurate mailing address in the certificate of residence. The court held that the Horns frustrated the statutory scheme by certifying the mortgage company’s address as theirs in order to maintain their mortgage escrow account. “Because the placement of an intermediary between the Board and the Horns was of their own doing, their complaint is not with the Board but with their mortgage holder.” Horn, 641 A.2d at 16. The court found that a petition for a nunc pro tunc appeal would not lie because the delay in filing the appeal was not engendered by extraordinary conditions involving fraud or a breakdown in the operations of the board. Therefore, it is incumbent upon taxpayers who have changed their addresses or have used a different address on their deed certification to notify the board in writing of their current address. When the mailed notice of an assessment change has not been delivered because of an inaccurate address, however, the board must make a reasonable effort to ascertain the whereabouts of the owner. See Tracy v. County of Chester, 489 A.2d 1334 (Pa. 1985). 12-4.6

Assessment Notices and the Pennsylvania Mailbox Rule

The mailbox rule is a presumption that mail sent in the ordinary course of business is presumed to have been received unless returned by the post office. As the case law demonstrates, this presumption is not conclusive but rather rebuttable. In Department of Transportation, Bureau of Driver Licensing v. Grasse, 606 A.2d 544, 545 (Pa.Cmwlth. 1991), the Commonwealth Court stated as dictum the following: Under the mailbox rule, proof of mailing raises a rebuttable presumption that the mailed item was received and it is wellsettled that the presumption under the mailbox rule is not nullified solely by testimony denying receipt of the item mailed. Department of Transportation v. Brayman Construction Corp.— Bracken Construction Co., 99 Pa. Commonwealth Ct. 373, 513 A.2d 562 (1986). In Department of Transportation v. Brayman Construction Corp.— Bracken Construction Co., 513 A.2d 562 (Pa.Cmwlth. 1986), the appellate court found the rule was inapplicable, stating: The author of the letter never testified that it was written in the regular course of business; in fact, he did not testify at all. Additionally, no one attested to the fact that the letter was placed in the regular place of mailing. Instead, DOT sought to prove the mailing only by having an engineer testify that because the copy of the letter was found in DOT’s office files the 549

Assessment Procedure

letter must have been mailed since copies of letters are placed in the files only after being mailed. But proof of office filing procedures without proof that the letter was written in the regular course of business and was placed in the usual place of mailing does not meet the burden to establish mailing and bring the mailbox rule into play. Id. at 566 (emphasis in original). 12-4.7

Assessment Hearing Decision Notices

53 Pa.C.S. § 8844(e)(2.1) states in part: When the board has completed the appeal hearings, it shall make the appropriate changes in the assessment roll to conform to the decision of the board and, no later than November 15, provide written notice of its decision to the appellant, property owner and taxing districts. The written notice shall contain, in addition to any content required by the board, the following: (i)

A statement that the decision may be appealed to the court of common pleas within 30 days of the mailing date of the decision in accordance with law and local rules.

(ii)

A statement that an appellant must provide each taxing district within which the property lies a copy of the appeal in accordance with law and local rules, and that a list of the names and addresses of taxing districts in the county may be found on the county’s publicly accessible Internet website or may be requested in print.

(iii) A statement that the board cannot provide advice on filing an appeal to court and that a party may wish to consult with an attorney when considering an appeal. The old five-day mailing rule in the Fourth to Eighth Class County Assessment Law was not kept in the new legislation, and the decision notice requirements of the Second Class A and Third Class County Assessment Law were applied.

550

12-5.1

12-5 12-5.1

Special Assessment Issues Catastrophic Losses

Addressing catastrophic loss, 53 Pa.C.S. § 8815 provides: (a)

(b)

General rule.—Persons who have suffered catastrophic losses to their property shall have the right to appeal before the board within the remainder of the county fiscal year in which the catastrophic loss occurred or within six months of the date on which the catastrophic loss occurred, whichever period is longer. The duty of the board shall be to reassess the property to reflect the loss in value from the date of the loss to the end of the taxable year. Any property improvements made subsequent to the catastrophic loss in the same tax year shall not be added to the assessment roll for the remainder of that tax year but shall be added for the following year. Refund or credit.—Any adjustments in assessment under

this section:

(c)

(1)

shall be reflected by the appropriate taxing authorities in the form of a credit for the succeeding tax year; or

(2)

upon application by the property owner to the appropriate taxing authorities, shall result in a refund being paid to the property owner at the time of issuance of the tax notice for the next succeeding tax year by the respective taxing authorities; however, a reduction in assessed value for catastrophic loss due to inclusion or proposed inclusion as residential property on either the National Priority List under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (Public Law 96-510, 94 Stat. 2767) or the State priority list under the act of October 18, 1988 (P.L. 756, No. 108), known as the Hazardous Sites Cleanup Act, shall be in effect until remediation is completed.

Definition.—As used in this section, the term “catastrophic loss” means any loss due to mine subsidence, fire, flood or other natural disaster which affects the physical state of the real property and which exceeds 50% of the market value of the real property prior to the loss. The term “catastrophic loss” shall also mean any loss which exceeds 50% of the market value of the real property prior to the 551

Assessment Procedure

loss incurred by residential property owners who are not deemed responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 or the Hazardous Sites Cleanup Act and whose residential property is included or proposed to be included as residential property on:

12-5.2

(1)

the National Priority List by the Environmental Protection Agency under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980; or

(2)

the State priority list by the Department of Environmental Resources under the Hazardous Sites Cleanup Act. Assessment Error—Refunds and Increases

53 Pa.C.S. § 8816(a) covers clerical and mathematical errors in an assessments: If, through mathematical or clerical error, an assessment is higher than it should have been and taxes are paid on such incorrect assessment, the county assessment office, upon discovery of the error and correction of the assessment, shall so inform the appropriate taxing district or districts, which shall make a refund to the taxpayer or taxpayers for the period of the error or six years, whichever is less, from the date of application for refund or discovery of the error by the board. Reassessment, with or without application by the owner, as a decision of judgment based on the method of assessment, shall not constitute an error under this section. “Clerical,” by its very definition, pertains to a clerk or copyist. Historically, a clerk is an individual employed in an office to keep records or accounts, attend to correspondence, etc. Therefore, a “clerical mistake” is one made by a clerical employee in the copying or transcription of records or accounts. An example of a clerical mistake is a situation in which the assessor enters the assessment as $1,000, but a clerical employee enters it into the assessment roll as $10,000, resulting in a tenfold increase of the actual tax payment. “Mathematical,” by definition, pertains to the mathematical process and the science that treats the properties, and relations of quantities, including arithmetic, geometry, algebra, etc. It would be more accurate to refer to an “arithmetic mistake” rather than a “mathematical mistake” in the statute. An example of a “mathematical mistake” is where an assessor measures ay house at 20 feet by 100 feet and arrives at a total of 3,000 552

12-5.3

square feet rather than the mathematically correct number of 2,000 square feet and then bases the assessment on the 3,000 square feet. The taxpayer is entitled to a correction under the statute, bringing the assessment in line with a house measuring 2,000 square feet. Clerical and mathematical mistakes are clearly to be differentiated from judgment mistakes. A judgment mistake by an assessor is one in which he or she incorrectly makes a determination of market value of a property or some component that would affect his or her determination of market value. For example, an assessor could value a property too high or low by not currently adjusting sales of comparable property. The science of appraisal is inaccurate even for the most highly trained practitioners, and appraisers tend to disagree among themselves on the value of a similar property. The legislature has provided the normal appeal process for the correction of assessors’ judgment errors in the constantly changing real estate market rather than providing for special retroactive relief as it has for clerical and mathematical errors of assessment boards. To summarize, to allow a taxpayer to overpay for a clerical or mathematical error by a governmental employee is fundamentally unfair, in contrast to providing him or her an unbiased forum to contest alleged judgment errors on the highly subjective issue of real property valuation. 53 Pa.C.S. § 8816(b) provides that an assessment office can increase an assessment for the current year when there is a mathematical or clerical error that has caused the assessment to be lower than it should. That provision states: Increases.—Nothing in this section shall be construed as prohibiting an assessment office from increasing an assessment for the current taxable year upon the discovery of a clerical or mathematical error.

The Commonwealth Court clearly illustrated this concept in Blanda v. Somerset County Board of Assessment Appeals, 131 A.3d 560 (Pa.Cmwlth. 2016), where it confirmed that a county assessment office could adjust an assessment to correct mathematical or clerical errors but could not adjust any other part of the valuation, such as “grading” values. 12-5.3

Temporary Tax Exemption for Residential Construction

53 Pa.C.S. § 8813 states: New single and multiple dwellings constructed for residential purposes and improvements to existing unoccupied dwellings or improvements to existing structures for purposes of conversion to dwellings shall not be valued or assessed for purposes of real property taxes until occupied, conveyed to a bona fide purchaser or 30 months from the first day of the month after 553

Assessment Procedure

which the building permit was issued or, if no building permit or other notification of improvement was required, then from the date construction commenced. The assessment of any multiple dwelling because of occupancy shall be upon the proportion which the value of the occupied portion bears to the value of the entire multiple dwelling. As used in this section, the term “dwellings” means buildings or portions thereof intended for permanent use as homes or residences. 12-5.4

Temporary Sewer Ban

53 Pa.C.S. § 8814 deals with sewer bans: When a department or agency of the Commonwealth or a municipality has ordered a sewer connection ban because of a lack of adequate sewage treatment facilities, the real estate affected by the order shall be reassessed for the duration of the order. The assessment shall be based on the value of the best use of the land during the period of the reassessment. For the purposes of this section, the term “affected by the order” shall be defined as the application for a building permit and the denial to the applicant of permission to proceed with the building or construction because of a sewer ban order. 12-5.5

Assessment Treatment of Subdivisions and Improvements of Vacant Land

To facilitate the provisions of the assessment law in situations where vacant land is subdivided, Pennsylvania assessment law mandates that the following steps should be adopted: •

•

•

•

554

When land is subdivided and there is no physical change in the land, 53 Pa.C.S. § 8817(a) mandates that no assessment increase be made, but rather the assessment should be allocated where the sum of the parts equals the whole. Once the developer puts in or begins some physical change, the vacant land can be brought up to subdivision value; i.e., the act of subdivision plus some improvements in most cases increases value. When engineering development and land improvements are completed and improved building lots are created, then they should be brought up to fair market value for building lots in the general area. When residential construction is begun on the building lots, the final step up in assessment will be in conformity with 53 Pa.C.S. § 8813, which provides that new construction not be assessed until

12-5.5

(1) occupied, (2) conveyed to a bona fide purchaser, or (3) 30 months after the issuance of the building permit. In Kraushaar v. Wayne County Board of Assessment & Revision of Taxes, 603 A.2d 264 (Pa.Cmwlth. 1992), the developers subdivided 119 acres of real property into 27 lots for a proposed residential development. After the recording of the subdivision plan, one of the lots was sold. Six of the lots were located on a cul-de-sac, which was paved. After the subdivisions and the improvements, the assessment appeals board raised the assessment from $17,880 to $147,300, which was the aggregate of the separate assessments placed on each of the 26 lots. The developers appealed, contending that the board did not have the authority to reassess the property. They lost their argument in front of both the board and the court of common pleas. The developers took the position that only the lots that were sold from the property that was subdivided or specifically improved were subject to reassessment, but not the lots that remained. The Commonwealth Court disagreed and stated that the developers misinterpreted the language of section 602.1 of the Fourth to Eighth Class County Assessment Law, 72 P.S. § 5453.602a (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). The court held that the result the developers wanted would violate the Pennsylvania Constitution’s tax uniformity requirement. The court stated: In enacting Section 602.1, the General Assembly recognized that the assessed value of the subdivided property does not automatically increase merely because it is subdivided. By adding a requirement that prior to being reassessed that one of the lots is to be conveyed or improvements had to be made, the General Assembly recognized that the sale of a lot would establish the property’s market value and any improvement, even to only a portion of the parcel, would have an effect on the value of the remaining parcels, thereby warranting that each lot be reassessed up or down. The General Assembly expressed a similar sentiment in Section 513(b) of the Pennsylvania Municipalities Planning Code, 53 P.S. § 10513(b), by providing: The recording of the plat [subdivision] shall not constitute grounds for assessment until such time as lots are sold or improvements are installed on the land included within the subject plat. Both of these provisions indicate the intent of the General Assembly to forbear reassessing property merely because it has been subdivided, but once there has been a change in condi-

555

Assessment Procedure

tion of the property, i.e., such as a sale or improvement, to allow a reassessment of each new lot to occur. Kraushaar, 603 A.2d at 265. Therefore, this case holds that once an improvement is made, or a lot is sold from a larger subdivided property, all the remaining subdivided lots can be brought up to market value at that time. 12-5.6

Assessment of Mobile Homes

The assessment laws provide for the taxation of “house trailers and mobile homes permanently attached to land or connected with water, gas, electric or sewage facilities.” 53 Pa.C.S. § 8811(a)(1)(ii). The question of attachment is governed by both physical facts and the intention of the owner. Evidence such as removal of wheels, absence of a license for highway use, and presence of foundations and other accessory structures is taken into consideration. A mobile home court operator, defined as a person who leases land to two or more persons for the purpose of location of a mobile home or house trailer on it subject to real estate taxation, is required to maintain a record of all leases, open for inspection at all reasonable times by the tax assessor. The law also requires mobile home court operators to forward to the tax assessor each month the record of arrivals and departures of each mobile home or house trailer on their land. The assessment is required to be made in the name of the owner of the mobile home, that is, the person named in the title issued by either the Commonwealth of Pennsylvania or another state. 53 Pa.C.S. § 8821 enumerates these rules: (a)

Duty.—It shall be the duty of the county assessment office

to assess all mobile homes and manufactured homes within the county according to the actual value thereof. All mobile homes or manufactured homes which are subject to taxation as real estate as provided in this chapter shall be assessed and taxed in the name of the owner. The land upon which the mobile home or manufactured home is located at the time of assessment shall be assessed separately and shall not include the value of the house trailer or manufactured home located thereon. (a.1) Value.—In arriving at the actual value of a mobile home or

manufactured home, the assessor may consider: (1)

556

The value placed on the mobile home or manufactured home in the most recent national directory or valuation guide prepared by an association that

12-5.6

analyzes mobile home or manufactured home sales and other relevant data. (2)

Any depreciation in value of the unit.

(3)

The ability of the mobile home or manufactured home to be readily transported from one site to another.

(4)

The fair market value of the mobile home or manufactured home, using the approaches to value specified in section 8842(b)(1) (relating to valuation of property), provided, however, that such fair market value shall not include the value of the land upon which the mobile home or manufactured home is located.

(5)

Any improvement to the mobile home or manufactured home.

(b)

Records.—All manufactured housing community owners, which shall mean every person who leases land to three or more persons for the purpose of allowing the lessees to locate on the land a mobile home or manufactured home which is subject to real property taxation, shall maintain a record of the leases, which shall be open for inspection at reasonable times by the county assessment office. Each month, the manufactured housing community owner shall send a record to the county assessment office of the arrivals and departures of mobile homes or manufactured homes in the community during the prior month, including the make, model, manufacturer, year and serial number of the mobile home or manufactured home.

(c)

Notice.—Each person in whose name a mobile home or manufactured home is assessed, rated or valued as provided in this chapter shall be notified in writing by the assessor that it shall be unlawful for any person to remove the mobile home or manufactured home from the taxing district without first having obtained removal permits from the local tax collector.

(d)

Removal permits.—The local tax collector shall issue removal permits upon application and payment of a fee of $2 and of all taxes levied and assessed on the mobile home or manufactured home to be moved.

(e)

Penalty.—Any person who moves a mobile home or manu-

factured home from the territorial limits of the taxing dis557

Assessment Procedure

trict without first having obtained a removal permit issued under this chapter shall, upon summary conviction, be sentenced to pay a fine of $100 and costs of prosecution or to imprisonment for not more than 30 days, or both. (f)

Characterization of property.—Nothing in this section shall

be construed as prohibiting a mobile home or manufactured home upon which a real property tax is levied as provided by law from being deemed tangible personal property for other purposes. 12-5.7

Taxability of Mobile Homes as Real Estate

In Gelormino v. Board of Assessment Appeals of Armstrong County, 986 A.2d 222 (Pa.Cmwlth. 2009), the Commonwealth Court tackled the determination of when a mobile home ceases being personalty and becomes realty. Here, the taxpayer purchased a 400-square-foot mobile home and moved it to a campground in Armstrong County. He obtained a four-year lease on the lot in the campground. The mobile home rested on six wheels and was supported by concrete blocks. The taxpayer had a concrete pad poured next to the mobile home to create a porch, which he covered with a shingled roof sitting on four columns bolted to the porch and attached to the side of the mobile home. The taxpayer also built wooden steps from the porch to the front door of the mobile home, did landscaping around the porch, and installed outdoor lights. The mobile home received electricity from a plug located on the campsite and had its own electric meter. Sewage from the home flowed into a holding tank, and the mobile home was heated by a propane furnace. The taxpayer received television service from a satellite dish. He used the mobile home every other weekend in the summer and closed it in the fall. The home was not winterized, and no water was available in the winter. The assessment appeals board taxed the mobile home as real estate, and the taxpayer appealed unsuccessfully to both the board and the court of common pleas. The Commonwealth Court held: Section 201(a) of The Fourth to Eighth Class County Assessment Law (Law) permits the taxation of “All real estate, to wit . . . mobilehomes permanently attached to land or connected with water, gas, electric or sewage facilities. . . .” In the case of In re Real Estate of Sandycreek Township, 199 Pa. Super. 310, 184 A.2d 127 (Pa. Super. 1962) (Lantz Appeal) our superior court stated that whether a mobile home is attached to the land is governed by the physical facts, and whether a mobile home is permanently attached to land is primarily a matter of intent. However, the self-serving statements of the owners are

558

12-5.8

not controlling; the intention of the owners must be determined from all the circumstances. Id. Id. at 223 (emphasis in original). The court found that the mobile home was attached to the land by the concrete porch and shingled roof. The addition of vegetation, outdoor lights, utilities, and satellite television services indicated that the taxpayer intended to use the mobile home as a permanent and taxable seasonal residence, not as a travel trailer. In a companion case decided on the same day, Lazor v. Board of Assessment Appeals of Armstrong County, 986 A.2d 219 (Pa.Cmwlth. 2009), the court released a basically concurrent ruling on this issue. Douglass Village Residents Group v. Berks County Board of Assessment Appeals, 84 A.3d 407 (Pa.Cmwlth. 2014), dealt with the taxation of garages and decks in a mobile home community. In this case, the landowner sold mobile homes to the residents, who leased the land under the homes. The lease required the construction of a one-car garage on each lot. The garage was built by the landowner but paid for by the resident. The garage was constructed on a cement slab and attached to the mobile home. Residents were permitted to build a deck that would be permanently attached to the property by piers. The Commonwealth Court found that under 53 Pa.C.S. § 8821(a), pertaining to taxation of mobile homes, the garages and decks were not part of the mobile homes, but rather improvement to the property taxable to the landowner. The court also cited Tech One Associates v. Board of Property Assessment, Appeals & Review of Allegheny County, 53 A.3d 685 (Pa. 2012), for the proposition that the mere fact that the lessee paid for the improvements did not mean that the improvements were taxable to the lessee. 12-5.8

Reassessment of Property Sold from County Land Repository

After conducting and exposing a property to a judicial sale under the Tax Claims Act, any unsold property will be placed in a category called “repository for unsold properties.” 72 P.S. § 5860.626. A list of the properties in this category must be maintained by the county tax claim bureau and made available to the public during normal office hours. Under 72 P.S. § 5860.627(a), the tax claim bureau may accept an offer of any price for property in the repository without court approval and published notice of sale. The bureau will require, as a condition of sale, that the purchaser provide an affidavit that includes the information specified under section 502-A. Any taxing district may not unreasonably withhold its consent to the sale of the property and, if no consent is provided within sixty days after the date notice was received by the taxing district, it will be deemed that the taxing district consents to the sale of the property. As a condition 559

Assessment Procedure

of its consent, a taxing district may require that the purchaser appear in person before the governing body of the taxing district charged with reviewing repository bids and provide all the information required under section 502-A. The property must be conveyed to the purchaser upon payment of the agreed price, free and clear of all tax and municipal claims, mortgages, liens, and charges and estates of whatsoever kind, except ground rents separately taxed. 72 P.S. § 5860.627(b). The tax claim bureau is responsible for having the deed recorded at the expense of the purchaser. Special assessment rules at 72 P.S. § 5860.628 apply to property that is sold from the repository: Notwithstanding any other provisions of the various assessment laws of this Commonwealth, the price for which property is sold under this subarticle of the act only, shall be deemed to be the fair market value of the property for tax assessment purposes. The assessment and the consideration upon which it was made shall not be changed unless any of the following occurs: (1)

It is changed as part of a general county reassessment.

(2)

It is sold as an individual parcel or as part of a combined parcel.

(3)

It is improved as provided for in the several assessment laws of this Commonwealth.

Therefore, the assessment must be changed upon the appropriate appeal to the board of assessment appeals of the respective county. Evidence is to be presented to the board of the fair market value of the property. The statute provides that the properties after reduction to the tax claim sale price can be reassessed upwards when one of the triggering events listed above occurs. It is interesting to note that this section appears to override the spot assessment restrictions in the Consolidated County Assessment Law. It would seem the purpose of this is to give the purchaser temporary tax relief until the property is sold or conveyed to another individual. 12-5.9

Interim Assessments at School District Request

A provision of the School Code, 24 P.S. § 6-677.1, provides for interim assessments: Whenever in second, third and fourth class school districts there is any construction of a building or buildings not otherwise exempt as a dwelling and such building is not included in the tax duplicate of the school district, the authority responsible for assessments in the city, borough, township or county 560

12-5.10

shall, upon the request of the board of school directors, direct the assessor in the district to inspect and assess, subject to the right of appeal and adjustment provided by the act of Assembly under which assessments are made, all taxable property in the district to which major improvements have been made and to give notice of such change in the assessed valuation within ten days to the authority responsible for assessments, the school district and the property owner. Such property shall then be added to the duplicate, and shall be taxable for school purposes at the assessed valuation for that proportionate part of the fiscal year of the school district remaining after the property was improved. Any improvement made during the month shall be computed as having been made on the first of the next succeeding month. A certified copy of the additions or revisions to the duplicate shall be furnished monthly by the board of school directors to the tax collector for the district, and within ten days thereafter the tax collector shall notify the owner of the property of the taxes due the school district. This statute is an amendment of an earlier enactment that pertains only to improvements constructed after September 1 of the current tax year. It is important to note that it provides that the school board inform the county assessor in writing when there are untaxed improvements within the district to inspect and assess. The additional improvements are then to be added to the school district duplicate for the remainder of the school’s fiscal year. It is clear that the statute would allow a back billing to the start of the school’s fiscal year where there is notification to the assessor’s office and that the assessment of the improvement by the board of assessment appeals is triggered by that notification. This statute is not worded in such a way as to be broad-based authority for a school district to retroactively bill in all cases of improvements to property before the effective date of the county assessment where the district did not institute the assessment change by notification of the improvement to the assessor. 12-5.10

Assessment of Lands Divided by Boundary Lines

53 Pa.C.S. § 8818 states: (a)

Assessment of lands divided by county boundary lines.

(1)

If county boundary lines divide a tract of land, the land will be assessed in the county in which the mansion house is located.

(2)

If county boundary lines pass through the mansion house, the owner of the land may choose the 561

Assessment Procedure

county in which the property will be assessed. If the owner refuses or fails to choose the county in which the property will be assessed, the county in which the larger portion of the mansion house is located has the right of assessment. (3)

(b)

(c)

If vacant land is divided by the boundary lines of two counties, the land shall be assessed in each county in which it is located.

Assessment of lands divided by township boundary lines.

(1)

If land is divided by the boundary lines of a township and a city, a township and a borough or a township and a town, and the mansion house is located in the township, all of the land will be assessed in the township.

(2)

If land is divided by the boundary lines of a township and a city, a township and a borough, a township and a town or two townships, and the mansion house is located in the city, borough, town or one township, then the land shall be assessed in the municipality in which it actually lies.

(3)

If vacant land is divided by the boundary lines of two townships, the land shall be assessed in each township in which it is located.

Assessment where township boundary lines pass through mansion house.—If the boundary lines of any township

and a city, borough or township pass through the mansion house, the owner of the land may choose the municipality in which the land shall be assessed. If the owner refuses or neglects to choose, the mansion house shall be considered to be entirely located in the township for assessment purposes. (d)

562

Assessment where lands are divided by boundary lines between cities, boroughs or cities and boroughs.

(1)

If lands are divided by the boundary lines of two or more cities, two or more boroughs, or one or more cities and one or more boroughs, the lands shall be assessed in the city or borough in which the mansion house is located.

(2)

If the boundary lines pass through the mansion house, the lands shall be assessed in the city or

12-5.13

borough in which the larger portion of the mansion house is located. (3)

(e)

If vacant land is divided by the boundary lines of two or more cities, two or more boroughs, or one or more cities and one or more boroughs, the land shall be assessed in each municipality in which it is located.

Assessment of coal underlying lands divided by county, city, township or borough boundary lines.—Where coal is lying

underneath lands that are divided by county, city, township or borough lines, and the ownership of the coal has been severed from the ownership of the strata or surface, the county assessment office shall assess each division of coal in the municipality in which it actually lies. 12-5.11

Separate Assessment of Coal and Surface

53 Pa.C.S. § 8819 provides: The county assessment office shall assess coal and surface separately in cases where the owner or life tenant of land does not have the right to mine the coal underlying the surface. 12-5.12

Assessment of Real Estate Subject to Ground Rent or Mortgage

53 Pa.C.S. § 8820 states: All real estate subject to ground rent or mortgage shall be estimated at its full value and assessed and taxed accordingly. In the case of real estate subject to ground rent, where there is no provision made in the ground rent deed that the lessee shall pay the taxes on the ground rent, the ground rent shall be estimated and assessed for taxes to the owners thereof. 12-5.13

Taxing District Lying in More Than One County and Choice of Assessment Ratio

53 Pa.C.S. § 8822 states: (a)

General rule.—Except as provided in subsections (b) and

(c), if a taxing district lies in more than one county and the respective counties fix different predetermined ratios for the assessment of property, the following shall apply: (1)

The taxing district may levy its taxes on the ratio to actual value used by any one of the counties. 563

Assessment Procedure

(2)

A county, other than the county whose predetermined ratio has been selected in accordance with paragraph (1), shall certify to the taxing district a copy of the assessment roll which shows the actual valuations of properties within the county’s portion of the taxing district, so that taxes to be levied on the property may be calculated using the assessed valuation determined by applying the selected predetermined ratio to actual valuation of the property.

(b)

Multiple counties.—In the case of school districts lying in more than one county, section 672.1 of the act of March 10, 1949 (P.L. 30, No. 14), known as the Public School Code of 1949, shall apply.

(c)

Annexation.—If land in one county has been annexed to a

borough in another county, the following shall apply:

12-6 12-6.1

(1)

For county tax purposes, the lands and properties within the borough shall be assessed by the county assessment office of the county in which the lands and properties are located.

(2)

For borough and school tax purposes, all lands and properties within the borough, regardless of the county in which they are located, shall be assessed by the county assessment office of the county that assessed lands and properties within the borough prior to the annexation. Assessment Records Building and Demolition Permits

53 Pa.C.S. § 8861 states: (a)

564

Permit.—Every municipality, third-party agency or the Department of Labor and Industry responsible for the issuance of building permits shall forward a copy of each building permit to the county assessment office on or before the first day of every month. In addition to any charge otherwise permitted by law, a municipality, a third-party agency or the Department of Labor and Industry may charge an additional fee of $10 to each person to whom a permit is issued for administrative costs incurred in compliance with this section.

12-6.3 (b)

Substantial improvement.—If a person makes improve-

ments to any real property, other than painting of or normal regular repairs to a building, aggregating more than $2,500 in value and a building permit is not required for the improvements, the property owner shall furnish the following information to the board:

(c)

(1)

the name and address of the person owning the property;

(2)

a description of the improvements made or to be made to the property; and

(3)

the dollar value of the improvements.

Penalty.—Any person that intentionally fails to comply

with the provisions of subsection (b) or intentionally falsifies the information provided, shall, upon conviction in a summary proceeding, be sentenced to pay a fine of not more than $50. 12-6.2

Obligation of the Recorder of Deeds to Furnish Records to Board of Assessment Appeals

The recorder of deeds must keep a daily record, separate and apart from all other records of every deed or conveyance of property, that sets forth the following information: (1) the date of the deed or conveyance, (2) the names of the grantor and grantee, (3) the grantee’s address, (4) the consideration mentioned in the deed, (5) the municipality in which the property is located, (6) the acreage of the land conveyed if mentioned in the deed, and (7) if the land conveyed is a lot or lots on a recorded plan, the designation assigned to the land on the plan. 53 Pa.C.S. § 8862(a). The county recorder of deeds must file the daily record with the county assessment office On the first Monday of each month, along with a certification that the information is correct. 53 Pa.C.S. § 8862(b), 12-6.3

Grantees of Real Property to Register Deed With Chief Assessor

53 Pa.C.S. § 8862.1 states: It shall be the duty of every grantee of real property to register the deed of conveyance in the office of the chief assessor for the county in which the land or the greater portion of it in area is situated, within 30 days from the date of conveyance, unless the deed shall have been previously recorded in the office of the recorder of deeds. Any person who willfully fails to comply with the provisions of this section commits a summary offense 565

Assessment Procedure

and shall, upon conviction, be sentenced to pay a fine of not less than $50 and not more than $100. 12-6.4

Public Access to Board of Assessment Records

Does the public have a right to access internal assessment board records that pertain to the history and physical characteristics of each plot of real property within a county? These characteristics include construction specifications as well as commercial computations relating to the property. The General County Assessment Law, 72 P.S. § 5342 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), was silent on the matter of public access to such records. The only mention of public access appears in 53 Pa.C.S. § 8841(d), which allows public inspection of the assessment rolls. This statute states: (1) The assessment roll shall be open to public inspection at the county assessment office during ordinary business hours. Within 15 days after completion of the assessment roll, the county assessment office, by publication in one or more newspapers of general circulation in the county, shall give notice of the following: (i)

The fact that the assessment roll has been completed.

(ii)

The place where and time when the assessment roll will be open for inspection.

(iii) The right to file in writing an appeal from an assessment, on or before the first day of September, or an earlier date designated by the county commissioners, in accordance with section 8844. (2) This subsection shall be not be construed to limit the right of any resident of this Commonwealth to access public records in accordance with the act of February 14, 2008 (P.L. 6, No. 3), known as the Right-to-Know Law. This statute is not dispositive of the issue and, therefore, an examination of the Pennsylvania Right-to-Know Law (RTKL), 65 P.S. § 67.101 et seq., is warranted. The legislature enacted the RTKL in order to give all citizens, regardless of their interest, the right to examine and inspect public records. To determine the applicability of the RTKL to an assessment board’s records, it is necessary to examine the statute’s definitions, at 65 P.S. § 67.102. It could be construed that an assessment board s comes within the ambit of the statute’s definition of “agency”:

566

12-6.4 “AGENCY.” A Commonwealth agency, a local agency, a judicial agency or a legislative agency.

Therefore, the RTKL is applicable to an assessment appeals board. The next issue to be resolved is whether the information sought is a “public record,” which is defined in the RTKL as: “PUBLIC RECORD.” A record, including a financial record, of a Commonwealth or local agency that:

(1)

is not exempt under section 708;

(2)

is not exempt from being disclosed under any other Federal or State law or regulation or judicial order or decree; or

(3)

is not protected by a privilege.

The records in question seem to fall under this definition. The Commonwealth Court specifically ruled on this issue in Westmoreland County Board of Assessment Appeals v. Montgomery, 321 A.2d 660 (Pa.Cmwlth. 1974). In this case, several citizens attempted to view and copy certain records in the possession of the county tax assessment board, specifically property record cards. One side of these cards contains information about the history and physical characteristics of the land. The other side has a building record containing extensive information on construction specifications together with dwelling and commercial computations relating to the building of the property. The assessment appeals board denied access to these records, and the citizens appealed to the court of common pleas. Shortly before the hearing, the parties stipulated that the property record itself was a public record and that the only issue for the court to consider was whether the building record side of the property record cards was a public record under the Right-to-Know Law. The trial court sustained the citizens’ challenge, and the Commonwealth Court affirmed, stating: The right-to-know law defines a public record, in Section 1 of the Act, 65 P.S. § 66.1(2), as follows: “(2) ‘Public Record.’ Any account, voucher or contract dealing with the receipt or disbursement of funds by an agency or its acquisition, use or disposal of services or of supplies, materials, equipment or other property and any minute, order or decision by an agency fixing the personal or property rights, privileges, immunities, duties or obligations of any person or group of persons: Provided, That the term ‘public records’ shall not mean any report, communication or other paper, the publication of which would disclose the institution, progress or result of an investigation undertaken by an agency in the performance of its official duties, 567

Assessment Procedure

except those reports filed by agencies pertaining to safety and health in industrial plants; it shall not include any record, document, material, exhibit, pleading, report, memorandum or other paper, access to or the publication of which is prohibited, restricted or forbidden by statute law or order or decree of court, or which would operate to the prejudice or impairment of a person’s reputation or personal security, or which would result in the loss by the Commonwealth or any of its political subdivisions or commissions or State or municipal authorities of Federal funds, excepting therefrom however the record of any conviction for any criminal act.” (Emphasis added.) Our careful examination of that portion of the above definition which we have emphasized, coupled with the Board’s statutory duty, convinces us that the lower court was legally correct in deciding that the building record satisfies this definition and is, therefore, a public record under the right-to-know law. The information contained in this record reflects factual determinations by the Board which directly affect the valuation of the building for assessment purposes. As such, this information satisfies the above definition of a public record, in that it clearly represents decisions “by an agency fixing the personal or property rights, . . . duties or obligations of [a] person or group of persons.” *

*

*

We simply cannot conclude that the information contained in the building record, if made public, “would operate to the prejudice or impairment of a person’s reputation or a personal security,” as claimed by the Board. Id. at 661–62. Therefore, the Right-to-Know Law would mandate public access in second class A counties to the records of the assessment appeals board that contain information on construction specifications together with dwelling and commercial computations relating to the building on the property involved. The court reiterated this decision 20 years later in Dooley v. Luzerne County Board of Assessment Appeals, 649 A.2d 728 (Pa.Cmwlth. 1994), where a professional title searcher asked to inspect a client’s property record card at the board’s office. The board refused to let him see the original card and ordered him to fill out a request form to buy a copy of the card for one dollar. The title searcher appealed to the court of common pleas, which denied him relief. The Commonwealth Court reversed and found that he had an absolute unqualified right under the Right-to-Know Law to see the original document.

568

12-6.5

The board had justified its refusal to provide the original card on the basis that an earlier policy of allowing public inspection had resulted in 9,000 missing cards and that it was only following reasonable security measures to protect the records. The Commonwealth Court rejected this argument and held: The Act guarantees that “every public record of an agency shall, at reasonable times, be open for examination and inspection by any citizen of the Commonwealth of Pennsylvania.” 65 P.S. § 66.2. The Board is an agency subject to the Act, and the assessment cards it maintains are public records. See Westmoreland County Board of Assessment Appeals v. Montgomery, 14 Pa. Commw. 50, 321 A.2d 660 (1974). The language of the Act clearly mandates access to the Board’s assessment records by means of examination and inspection. Common Pleas erred in broadening the discretion the Act confers on the subject agency. Section 2 of the Act permits the agency to set reasonable times for inspection, and Section 3, which deals with extracting and copying public records, gives the custodian “the right to adopt and enforce reasonable rules governing the making of such extracts, copies, photographs or photostats.” 65 P.S. § 66.3. The mandated opening of records for inspection is unqualified except for the “reasonable times” provision. In this matter, it is uncontested that the original records were at no time open for inspection. Id. at 729. This case reinforces the position that the rules of open government apply to assessment appeals boards throughout the Commonwealth. For taxpayers to have confidence in their taxing system, an atmosphere of openness, not one of hostility between boards and citizens, should prevail. 12-6.5

Retention of Assessment Records

Historically, the retention of county records was regulated by common law. Subsequently, however, various records were subjected to legislative enactments dealing with their preservation and destruction. For example, a legislative scheme involving the disposition of court records was enacted by the legislature and was cited at Act of September 8, 1959, P.L. 846, § 1; 17 P.S. § 2036. This enactment and various other enactments were repealed by the Act of April 26, 1978, P.L. 202, No. 53, § 2(a)(1331), effective June 27, 1978. Subsequently, the General Assembly, rather than deal with the records of county government and the adjunct offices of the court of common pleas on a piecemeal basis, enacted a legislative scheme that established the County Records Committee. Act of August 14, 1963, P.L. 839, No. 407, § 1; as amended, Act of November 30, 1967, P.L. 650, § 1; Act

569

Assessment Procedure

of November 22, 1968, P.L. 1083, No. 335, § 1; Act of November 23, 1976, P.L. 1161, No. 258, § 1; 16 P.S. § 13001. This statute, 16 P.S. § 13001 et seq., created the County Records Committee, whose purpose was to meet at least once a year to make or revise schedules setting forth the conditions under which county records filed in any office can be disposed. To fully understand the act, it is necessary to refer to 16 P.S. § 13002, which defines county records as: [a]ny papers, dockets, books, maps, photographs or other documentary materials, regardless of physical form or characteristics, made or received in any office of county government in pursuance of law or in connection with transactions of public business in the exercise of its legitimate functions and the discharge of its responsibilities. The next relevant and applicable section of the statute, 16 P.S. § 13003, deals with the enabling power conferred upon the County Records Committee to enact regulations: It shall be the duty of the committee to meet at least once a year to make or revise schedules setting forth the conditions under which county records filed in any office of county government may be disposed of. Meetings of the committee shall be called by the Executive Director of the Pennsylvania Historical and Museum Commission; however, meetings may also be called by the chairman or by a majority of the members of the committee whenever the chairman or the majority of members deems it necessary. The statute specifically repealed all previous acts relating to the retention and disposal of county records that were inconsistent with the statute. This provision, 16 P.S. § 13006, clearly states: “All acts and parts of acts are repealed in so far as they are inconsistent herewith.” The committee has provided the following schedules for the retention of records:

570

1.

Acts 319 and 515 case files retained five years after settlement.

2.

Assessment appeal papers retained three years after settlement if appeal to court is retained five years after settlement.

3.

Change of address records retained two years.

4.

Change of assessment notices retained five years.

12-7.1

5.

Developer plans retained as long as of administrative value.

6.

Exemption files retained three years after expiration of exemption.

7.

Industrial/Commercial assessment retained until superseded or obsolete.

8.

Minutes of board of assessment appeals retained permanently for administrative, legal, and historical purposes.

9.

Mobile home and house trailer reports retained until superseded or obsolete.

10. Mobile home removal permits retained two years after expiration. 11. Property record cards retained permanently for administrative, legal, and historical purposes. 12. Real estate tax duplicates retained 21 years and then contact the Pennsylvania Historical and Museum Commission to arrange transfer of selected duplicates as state archives. Those records not selected may be destroyed. 13. 12-7 12-7.1

Tax maps retained until superseded or obsolete. Collateral Board Functions Deed Registration

The General Assembly has provided that counties have the right to register the ownership of all property prior to its being recorded. Under 16 P.S. § 3708: (a) All persons, corporations, municipal corporations, authorities, districts or political subdivisions, hereafter acquiring any interest in real estate, whether by purchase, gift, devise, inheritance, order of court, treasurer’s sale, sheriff’s sale, judicial sale, eminent domain or otherwise, shall register in the office of the county commissioners their deeds, resolutions, orders of court or other evidence of title, so that the same may be endorsed in accordance with the act of May 2, 1899 (P.L. 162). (b) No real estate so registered shall be subject to sale for taxes or other municipal claims, except in the name of the owner as registered in accordance with the provisions of this section.

571

Assessment Procedure

(c)

All persons, corporations, municipal corporations, authorities, districts or political subdivisions, heretofore acquiring any interest in real estate, may register their real estate in accordance with the provisions of this section.

This provision requires county commissioners and the assessing departments to have complete records of all owners’ real estate whether by purchase, gift, devise, inheritance, court order, treasurer’s sale, sheriff’s sale, judicial sale, eminent domain, or other transfer, in order to effectively assess and to bill. In counties in which there is a parcel registration, it is suggested that when registering documents the clerk should first check that a correct parcel number is placed on the document. The clerk should then check that the former deed book and page number are accurately placed on the deed. A further check should scan the instrument to determine if the description is accurate by looking for the street number and foot frontage or total acreage against the existing records of the assessment appeals board. If there is more than one description, the person should verify that all parcel numbers are included in the deed. If the description indicates a recent subdivision, then new parcel numbers should be secured or located. If the description indicates a subdivision and no plan has been filed previously, then the document should not be recorded until it is remanded to the county planning commission and the municipality in order to obtain approval for the subdivision. The grantor and the name of the owner of record should be checked to make sure they are consistent on the recorded document. And finally, the parcel number, description, and owner of record should agree in order to be registered. The purpose of the registry requirement is that the county has a complete record of all the owners of real property so that an accurate tax base and tax duplicate record can be created in compilation of the tax roll. 12-7.2

Tax Mapping

Tax maps reflect recorded subdivision plans, breaking down large parcels of land into smaller ones. Tax maps can be used to assign block and unit numbers or parcel numbers alphabetically by street names and then numerically for assessment records. The maps are a visual bookkeeping system that shows the size and shape of each parcel of land with metes and bounds as described upon recorded deeds. These maps are plotted from individual deeds of existing property. Tax maps are used by private property owners, abstract searchers, real estate agents, attorneys, utility companies, potential buyers, engineering firms, and surveyors as well as by the tax assessors. The purpose of keeping tax maps is to accurately plot, locate, and tax real estate within the county boundaries.

572

13 Preferential Land Assessments

13-1

Pennsylvania Farmland and Forest Land Assessment Act—Act 319

The Pennsylvania Farmland and Forest Land Assessment Act, 72 P.S. § 5490.1 et seq., commonly known as Act 319 or the Clean and Green Act, was first used during the 1976 tax year. Its purpose is to provide a real estate tax benefit to owners of agricultural or forestland by taxing that land on the basis of its “use value” rather than its “market value.” The act applies to all counties and is the administrative responsibility of the particular county board of assessment appeals. The statute provides preferential assessment to any individuals who agree to maintain their land solely for agricultural use, agricultural reserve, or forest reserve use. Agricultural use is defined as either the production of an agricultural commodity or the use of the land pursuant to a soil conservation program under an agreement with a federal government agency, when the land meets the requirements and qualification for payments or other compensation. Forest reserve is defined as 10 acres or more of land stocked by forest trees of any size and capable of producing timber or other wood products. Agricultural reserve is defined as noncommercial open space used for outdoor recreation or the enjoyment of scenic or natural beauty and open to the public for free on a nondiscriminatory basis. 72 P.S. § 5490.3 states: (a) For general property tax purposes, the value of land which is presently devoted to agricultural use, agricultural reserve, and/or forest reserve shall, on application of the owner and approval thereof as hereinafter provided, be that value which such land has for its particular land use category if it also meets the following conditions: (1)

Land presently devoted to agricultural use: Such land was devoted to agricultural use the preceding three years and is not less than ten contiguous 573

Preferential Land Assessments

acres in area, including the farmstead land, or has an anticipated yearly gross income of at least two thousand dollars ($2,000). (2)

Land presently devoted to agricultural reserve: Such land is not less than ten contiguous acres in area, including the farmstead land.

(3)

Land presently devoted to forest reserve: Such land is not less than ten contiguous acres in area, including the farmstead land.

(a.1) The following apply to enrollment: (1)

A landowner may enroll one tract or more than one contiguous tract for preferential assessment if the total area to be enrolled meets the minimum requirements for eligibility otherwise prescribed in this section. A landowner may not enroll less than the entire contiguous portion of land described in the deed applicable to a tract for which enrollment for preferential assessment is sought.

(2)

A tract of land which is used for agricultural use, agricultural reserve or forest reserve purposes may be enrolled for preferential assessment notwithstanding that the tract itself does not meet the minimum requirements for eligibility otherwise prescribed in this section if the tract is contiguous to a tract or tracts which have been previously enrolled by the landowner for preferential assessment.

(a.2) Land area that is burdened by a public or private road, right-of-way or easement shall be included in determining whether the condition for minimum contiguous area required under subsection (a) has been met. (b), (c) Deleted. (d) The county board of assessment appeals may not terminate preferential assessment of land previously determined by the board to qualify for preferential assessment without: (1)

574

written notice under section 4(c.1) from the landowner expressing that preferential assessment is to be terminated; or

13-1

(2)

written notice under section 5(a)(2) from the county assessor to the landowner that preferential assessment is to be terminated, stating the reason for such termination and the opportunity for a hearing under section 9.

(e) A county assessor may not impose any requirements or conditions of eligibility for preferential assessment other than those otherwise prescribed in this section. (f)

A tract of land enrolled in either the agricultural use or forest reserve land use category and otherwise eligible for preferential assessment under this section shall not be deemed ineligible because the owner of the tract of land permits or authorizes or has permitted or authorized a recreational activity on the tract pursuant to section 8(f).

(g) (1) The county commissioners may adopt an ordinance to include farmstead land in the total use value for land in agricultural reserve. Any ordinance adopted pursuant to this subsection shall be applied uniformly to all land in agricultural reserve in the county. (2) The county commissioners may adopt an ordinance to include farmstead land in the total use value for land in forest reserve. Any ordinance adopted pursuant to this subsection shall be applied uniformly to all land in forest reserve in the county. The Clean and Green Act provides that when the assessor values the land in agricultural use, agricultural reserve use, or forest use, the assessor must use available evidence of the soil condition or soil survey of that land from the Pennsylvania State University, Natural Cooperative Soil Survey, or U.S. Census of Agricultural Categories of Land Uses as the evidence of the capability of land devoted to such use. The purpose of this enactment is that land used for the preferential uses stated here will not be valued as developmental use, but will be valued based on the soil capabilities of the land for producing crops. County assessment appeals boards are responsible for processing applications for preferential assessments under the Clean and Green Act and administering the program. A landowner must file the application with the board for the county in which the land is located. The application must be submitted on or before June 1 of the year immediately preceding the tax year. The preferential assessment will continue under the initial application until land use changes take place. The board must record the approved applications in the office of the recorder of deeds for that county in a preferential assessment docket. The 575

Preferential Land Assessments

board will also record any breach of the preferential assessment with the recorder of deeds. The recorder of deeds will charge a fee for the recording and also for the breach. The fee for such a breach will be added on to the rollback taxes due and owing by the owner of the property. 72 P.S. § 5490.5 lists the responsibilities of the county assessor: (a) In addition to keeping such records as are now or hereafter required by law, it shall be the duty of the county assessor:

576

(1)

To indicate on property record cards, assessment rolls, and any other appropriate records, the fair market value, the normal assessed value, the land use category and the number of acres enrolled in each land use category, the use value under section 4.2 and the preferentially assessed value of each parcel granted preferential use assessments under this act; and annually, to record on such records all changes, if any, in the fair market value, the normal assessed value, the land use category and the number of acres enrolled in each land use category, the use value under section 4.2 and the preferentially assessed value of such properties.

(2)

To notify in writing the appropriate taxing bodies and landowner of any preferential assessments granted or terminated for each parcel, including the land use category and the number of acres enrolled in each land use category, within their taxing jurisdiction and of the reason for termination within five days of such change. There shall be a right of appeal as provided by section 9.

(3)

To notify in writing the owner of a property that is preferentially assessed under this act, and the taxing bodies of the district in which such property is situated, of any changes in the fair market value, the normal assessed value, the land use category and the number of acres enrolled in each land use category, the use value under section 4.2 or the preferentially assessed value within five days of such change. There shall be a right of appeal as provided for in section 9.

(4)

To maintain a permanent record of the tax rates, in mills, levied by each of the taxing authorities in the county for each tax year.

13-1

(5)

By January 31 of each year, to report to the department for the previous year the number of acres enrolled in each land use category, the number of acres terminated in each land use category, the dollar amount received as roll-back taxes and the dollar amount received as interest on roll-back taxes.

(b) It shall be the duty of the county assessor, as set forth under section 8(c), to calculate roll-back taxes, give notice of the amounts due to landowners and interested parties and to file liens for unpaid roll-back taxes. (b.1) With respect to the development of an alternative energy system which continues to meet the definition of agricultural use, agricultural reserve or forest reserve, the land devoted to that development and operation shall retain the same land use category for preferential assessment as was approved for the land before the devotion took place. (c)

The preferential use assessments granted under this act shall be considered by the State Tax Equalization Board in determining the market value of taxable real property for school subsidy purposes. The State Tax Equalization Board shall not reflect the individual school district market value decrease, as it relates to agricultural land, when certifying the Statewide market value to the Department of Education.

72 P.S. § 5490.6 lists special rules for split-offs, separations, or transfers of preferential assessment. A split-off is defined as a division by conveyance or other action of the owner of lands devoted to agricultural use, agricultural reserve, or forest reserve and preferentially assessed under the provisions of the act into two or more tracts of land, the use of which on one or more such tracts does not meet the requirements of section 3, 72 P.S. § 5490.3. Separation is defined as the division by conveyance or other action of the owner of lands devoted to agricultural use, agricultural reserve, or forest reserve and preferentially assessed under the provisions of the act into two or more tracts of land, the use of which continues to be agricultural, agricultural reserve, or forest reserve, and all tracts so formed meet the requirements of 72 P.S. § 5490.3. A split-off of a portion of land that is in the preferential land program will cause a rollback tax situation, except, when the split-off occurs through condemnation, the entire parcel from which the land was divided is subject to liability for rollback taxes. The only exception to this rollback 577

Preferential Land Assessments

liability is where the owner of the property splits off land that does not exceed two acres annually and that may be used only for residential, agricultural, or forest reserve use during such time as the land retained continues to receive preferential tax assessment, for the construction of a residential dwelling to be occupied by the person to whom the land is transferred. Furthermore, the total parcel or parcels of land split off will not exceed 10 percent or 10 acres, whichever is lesser of the entire tract subject to the preferential assessment. The split-off of a parcel of land that meets this requirement will not invalidate the preferential tax assessment, and the land retained by the landowner will continue to be eligible for the program. A separation may be done by a property owner where all tracts forming the parent parcel continue to receive preferential use assessment, unless there is a subsequent abandonment of preferential use that occurs within several years after the separation. Such an abandonment will subject the entire tract of land so separated to the liability for rollback taxes. 72 P.S. § 5490.8 provides that when there is a violation of Act 319, the land will be removed from the preferentially assessed list, and the entire tract from which it is a part will be subject to taxes in the amount equal to the difference, if any, between the taxes paid or payable on the basis of the evaluation and the assessment authorized under the act, and the taxes that would have been paid or payable had that land been valued, assessed, and taxed as other land in the taxing district in the current year, the year of change, and in six of the previous tax years or the number of years of preferential assessment up to seven plus interest on each year’s rollback tax at the annual rate of 6 percent. After the first seven years of preferential assessment, the rollback will apply to the seven most recent tax years. Unpaid rollback taxes will be a lien upon the property and subject to collection provided by the law for collection for delinquent property taxes. Rollback taxes will become due on the date of change of use or any other termination of preferential assessment and will be paid by the landowner to the county treasurer at the time of change of use or any other termination of preferential assessment. Under 72 P.S. § 5490.8(c), within five working days after receipt of the notice by the owner of property that is preferentially assessed of a proposed change in the use of the land to one not meeting the requirements of 72 P.S. § 5490.3 or split-off of the portion of land, the county assessor will: (1) Calculate by years the total of all roll-back taxes due at the time of change and shall notify the property owner of such amounts. In the case of a conveyance of all or part of said land, he shall notify the prospective buyer, if known, of such amounts. (2) With respect to the roll-back taxes for the current year, he shall notify the taxing bodies of the district in which the property is located of the additional amount of assess578

13-1.1.1

ment upon which taxes shall be levied and collected. In the case of county property taxes, he shall notify the tax collector of the appropriate district of additional county tax to be collected. (3) With respect to roll-back taxes for years prior to the current year which the assessor has determined to be due, he shall file a claim for such amounts with the tax claim bureau or the county treasurer, as the case may be, which upon said filing shall constitute a lien having the same force and effect as if filed by the taxing bodies. This statute at 72 P.S. § 5490.9 provides that the owner of a property upon which a preferential assessment is sought, and the political subdivision in which property is situated, will have the right to appeal under the existing assessment law. It further provides that when rollback taxes for prior years are to be collected, no person or political subdivision will be permitted to question any assessment of any prior year before the assessment appeals board, unless a timely appeal was made pursuant to the requirements of the law relating to assessment appeals during the time period for which appeals for that year would normally be taken. 13-1.1

1998 Amendents under Act 156

In 1998, the General Assembly enacted substantial revisions to the Farmland and Forest Land Assessment Act via Act 156. 13-1.1.1

Eligibility Requirements

A new section added by Act 156 provides that a county assessor may not impose any requirements or conditions of eligibility for preferential assessment other than those otherwise prescribed in the act. This cured the problem of individual county assessment appeals boards’ adding roadblocks to preferential status, as well as frivolous rules and local interpretations causing termination of preferential assessment and payment of rollback taxes. There had previously existed a clear nonuniformity in application of the Clean and Green Act from county to county, with the presence of both published and unpublished rules of interpretation in various counties, resulting in bizarre inconsistencies in the operation of the act from county to county. With the revision to demand conformity to the statute, the statute now eliminates arbitrary and capricious interpretations and ruling by local assessment offices. Another provision, section 4(a.1), provides that the assessment appeals board must accept a complete and accurate application for preferential assessment if the threshold provisions for qualification are met. Specifically, a county cannot add additional qualifications beyond those 579

Preferential Land Assessments

provided by the legislature in order for an applicant to be accepted into the “clean and green” program. 13-1.1.2

Agricultural Commodity Defined

“Agricultural commodity” was redefined at 72 P.S. § 5490.2 to include any of the following: (1) Agricultural, apicultural, aquacultural, horticultural, floricultural, silvicultural, viticultural and dairy products. (2) Pasture. (3) Livestock and the products thereof. (4) Ranch-raised furbearing animals and the products thereof. (5) Poultry and the products of poultry. (6) Products commonly raised or produced on farms which are: (i)

intended for human consumption; or

(ii)

transported or intended to be transported in commerce.

(7) Processed or manufactured products of products commonly raised or produced on farms which are: (i)

intended for human consumption; or

(ii)

transported or intended to be transported in commerce.

(8) Compost. Compost is defined as material resulting from the biological digestion of dead animals, animal waste, or other biodegradable materials, at least 50 percent by volume of which is comprised of products commonly produced on farms. 13-1.1.3

Woodlot Treatment

The 1998 amendments introduced a new term of art: “woodlot.” A woodlot is defined as an area less than 10 acres stocked by trees of any size and contiguous to or part of land in agricultural use or agricultural reserve. Under the statute’s definition of agricultural use, a woodlot can be considered for preferential assessment if it is less than 10 acres, provided it is contiguous to other land that has an agricultural use.

580

13-1.1.6 13-1.1.4

Contiguous Tract

The term “contiguous tract” was redefined as “[a]ll portions of one operational unit as described in the deed or deeds, whether or not the portions are divided by streams, public roads or bridges and whether or not the portions are described as multiple tax parcels, tracts, purparts or other property identifiers. The term includes supportive lands, such as unpaved field access roads, drainage areas, border strips, hedgerows, submerged lands, marshes, ponds and streams.” 13-1.1.5

Clean and Green Prerequisites

The prerequisites for the preferential assessment of agricultural use, agricultural reserve, and forest reserve are as follows: (1) Land presently devoted to agricultural use: the land must have been devoted to agricultural use the preceding three years and is not less than 10 contiguous acres in area, including the farmstead land, or has an anticipated yearly gross income of at least two thousand dollars. (2) Land presently devoted to agricultural reserve: the land is not less than ten contiguous acres in area, including the farmstead land. (3) Land presently devoted to forest reserve: the land is not less than 10 contiguous acres in area, including the farmstead land. (4) The contiguous tract of land for which application is made is not less than the entire contiguous area used by the owner for agricultural or forest reserve purposes. 13-1.1.6

Enrollment Scope

A landowner may enroll one tract or more than one contiguous tract for preferential assessment if the total area to be enrolled meets the minimum requirements of eligibility. A landowner may not enroll less than the entire contiguous portion of the land described in the deed applicable to a tract for which enrollment is sought. A tract of land that is used for agricultural use, agricultural reserve, or forest reserve may be enrolled for preferential assessment even though the tract itself does not meet the minimum requirements for eligibility where the tract is contiguous to another tract or tracts of land that may have been previously enrolled by the landowner into the clean and green program.

581

Preferential Land Assessments 13-1.1.7

Time for Application Submittal

The act at section 5490.4 retains the June 1 application deadline in the original act—that is, the application must be submitted on or before June 1 of the year preceding the tax year of implementation. Once approved, the preferential assessment will continue under the initial application or as amended until the land use changes. During a countywide reassessment year, the application must be submitted within 30 days of the final order of the county board of assessment appeals, or by October 15 of the same year, whichever is sooner. 13-1.1.8

Owner Domicile

The landowner may apply for preferential assessment for any eligible land in any county, regardless of where the landowner lives. Whether or not the residence of the landowner is situated on the land submitted for application is not a factor in determining eligibility. 13-1.1.9

Fees

The act provides that an assessment appeals board may charge a fee of up to $50 to the applicant for preferential treatment. It should be noted that this enactment buttresses the argument that if an assessment office wants to charge any fee, it must be authorized by the legislature. 13-1.1.10

Special Tax Treatment for Farmsteads and Farm Buildings

The amendments introduced a new concept called the “farmstead.” A farmstead is defined as “any curtilage and land situated under a residence, farm building or other building which supports a residence, including a residential garage or workshop.” The term “curtilage” is defined as the land surrounding a residential structure and farm building used for a yard, driveway, on-lot sewage system, or access to any building on the tract. 72 P.S. § 5490.2. The import of this is to lessen the taxation of the land under a farm residence. Traditionally, the land under the farmhouse was excluded from the preferential assessment of land under Act 319. This led to the land being assessed at its farm market value in the open market. The farm lobby succeeded under this amendment in allowing the land under the farmhouse, even though not under the clean and green covenant, to be given preferential treatment. When this exclusion is combined with the farmstead exclusionary provisions of the Homestead Act, the valuation of the residence can also be substantially reduced as well as the land under the residence. The amendments to Act 319 provided that the farmstead land be valued in a new manner. The act provided that the county assessor must de-

582

13-1.1.10

termine the “agricultural use value” of the farmstead land; 72 P.S. § 5490.4b reads in pertinent part as follows: [T]he county assessor shall establish a total use value for land in agricultural use, including farmstead land, and for land in agricultural reserve by considering available evidence of the capability of the land for its particular use utilizing the USDANRCS Agricultural Land Capability Classification system and other information available from USDA-ERS, The Pennsylvania State University and the Pennsylvania Agricultural Statistics Service. These agricultural use values must be applied to farmstead land, thus eliminating taxation based on the fair market value of the farmstead land and replacing it with a preferential clean and green value. At some point, a constitutional challenge to this enactment may arise on the grounds of nonuniformity. That is, residential owners are taxed at fair market value for the land under their houses, while people living in farm residences are given a preferential rate for the land under their residences. Obviously, the land under the residence is not producing any agricultural commodity, and therefore its agricultural productivity and use are not relevant to its farm market value. “Farm building” is defined under the act as “[a] structure utilized to store, maintain or house farm implements, agricultural commodities or crops, livestock and livestock products, as defined in the Act of June 30, 1981 (P.L. 128, No. 43), known as the ‘Agricultural Area Security Law.’ ” Under the original act, farm buildings were not given any preferential tax treatment and were assessed at their fair market value. Most assessment offices used the cost approach to determine the value of these structures, but the farm lobby complained that this resulted in too high a level of taxation. The lobbyists also complained that the land under these buildings was assessed at the regular rate, not the preferential rate. As stated above, the land under the farm building and its curtilage is to be taxed at the lower “agricultural use value” and not at its current fair market value. When determining the value of the farm buildings, the county assessor must value the buildings at their “contributory value.” The act defines contributory value of a farm building as “[t]he value of the farm building as an allocated portion of the total fair market value assigned to the tract, irrespective of replacement cost of the building.” This change in the law resulted in farm buildings being taxed at minimal rates in relation to their fair market value.

583

Preferential Land Assessments 13-1.1.11

Change-of-Use Notice

The landowner must submit to the county assessor 30 days’ notice of a proposed change in the use of the land, a change in ownership of any portion of the land, or any type of division or conveyance of the land. 13-1.1.12

Land Use Values

The Pennsylvania Department of Agriculture must establish and provide all county assessors with specific use values for land in agricultural use and reserve by May 1 of each year. The department must consult with the following organizations in arriving at its specific use values: Pennsylvania State University’s Department of Agricultural Economics, Sociology, and Education; Pennsylvania Agricultural Statistics Service; U.S. Department of Agriculture’s Economic Research Service; and USDA’s National Resources Conservation Service. The department also must use the income approach in its asset valuations. The Department of Agriculture also must establish and provide all county assessors with specific use values for land in forest reserve by May 1 of each year. Each county assessor must establish a total use value for all preferentially assessed land, including farmstead land. The assessor must consider available evidence of the land for its particular use, referencing the USDA’s National Resources Conservation Service agricultural land capability classification system and other information available from the USDA’s Economic Research Service, the Pennsylvania State University, and the Pennsylvania Agricultural Statistics Service. County assessors must use the contributory value of the farm buildings to the land in establishing these use values. The county assessors may use lesser values than those established by the Department of Agriculture, but these lesser values must be applied in a uniform manner. 13-1.1.13

Rollback Penalty

If a landowner changes the use of any tract having a preferential assessment to one that is inconsistent with provisions of section 3 of the act or for any other reason not specifically allowed by the act, the land will be removed and the entire tract will be subject to rollback taxes plus interest on each year’s rollback tax at the rate of 6 percent per annum. After the first seven years of preferential assessment, the rollback tax will be assessed to the seven most recent tax years. 13-1.1.14

Civil Penalties

The county assessment appeals board may assess a civil penalty not to exceed $100 for each violation of the act or any regulation promulgated 584

13-1.1.16

thereunder. The board must notify the alleged violator by certified mail of the nature of the violation and the amount of the penalty. The cited person has 10 calendar days from the receipt of the notification to request an appeal of the penalty to the board. A failure to appeal will result in the penalty’s becoming final. Where there is timely notice of appeal, a hearing pursuant to 2 Pa.C.S. chapter 5 (relating to practice and procedure of local agencies) and chapter 7 (relating to judicial review of local agency actions) will be conducted. 13-1.1.15

Split-off Liability

The act provides that the split-off of a part of land that is preferentially assessed will subject the split-off land and the entire parent tract to rollback taxes. The landowner changing the use of the land to one inconsistent with the act will be liable for the payment of rollback taxes. The owner of the land that continues to be eligible for preferential assessment will not be liable for any rollback taxes triggered as a result of the change to an ineligible use by the owner of the split-off tract. Rollback taxes are not required where the split-off does not exceed two acres annually, except that a maximum of the minimum residential lot size requirement annually may be split off if the property is situated in a local government unit that requires lot size of two to three acres, and the tract split off is used for preferential purposes and/or for the construction of a residential dwelling. The total tract or tracts split off may not exceed the lesser of 10 acres or 10 percent of the entire preferentially assessed tract. The tract that has been split off pursuant to the above paragraph is subject to rollback taxes to be paid by the landowner who changes the use. This split will not invalidate the preferential assessment of the parent tract as long as that tract still meets the requirements for participation in the clean and green program. 13-1.1.16

Separation Liability

All tracts of land that have been separated pursuant to the act will continue to receive preferential assessment unless, within seven years of the separation, there is a change in use that violates the act. Such a change in use will subject the entire tract to rollback taxes. The landowner changing the use will be subject to paying the rollback taxes. After seven years from the date of separation, only the portion of the land that has changed use will be liable for rollback taxes.

585

Preferential Land Assessments 13-1.1.17

Termination Procedures

An assessment appeals board cannot terminate a preferential assessment unless: (1) The landowner submits a written notice expressing that the preferential assessment is to be terminated; or (2) The county assessor submits written notice to the landowner informing the landowner that the preferential assessment is to be terminated, stating the reasons for such termination, and providing for an opportunity to contest the termination by a hearing before the board of assessment appeals. This a significant change in the law; under the previous statute the county assessor was not required to state why the preferential assessment was being removed. This led to situations where the taxpayer was losing a valuable right without being specifically informed of the nature of the violation. On occasion, an assessor would tell the taxpayer one reason for a violation and, when the taxpayer arrived at a hearing, the reasons and evidence for termination would dramatically change. The basic rights of procedural due process, i.e., the notice of the charges and the opportunity to be heard, were constantly being violated by the heavy-handed action of governmental bureaucrats. The scenario of a single county assessor holding the power to terminate a preferential property assessment without specifying why presented a Kafkaesque picture. The right of notice of the charges against you is fundamental to our democratic system and had been trampled with impunity under the old law. This statute clearly corrects a major flaw in the preexisting law. Taxpayers wishing to contest rollback taxes due to a termination of preferential status must take the matter to the assessment appeals board initially and then to the local court of common pleas. 13-1.1.18

Transfer of Ownership

The act provides that a transfer of ownership of preferential land will not terminate its preferential assessment. If a later land use change violates the act, rollback taxes are payable by the new landowner who has changed the use. 13-1.2

2004 Amendments

The General Assembly again amended the Clean and Green Act via House Bill 657 of 2003. The amendments set up a new classification of land called “agritainment,” which was defined as “farm-related tourism or farm-related entertainment activities, which are permitted or authorized by a landowner in return for a fee on agricultural land for recreational or 586

13-1.2

educational purposes. The term includes, but is not limited to, corn mazes, hay mazes, farm tours and hay rides. The term does not include activities authorized under section 8(d).” “Recreational activity” now includes the following: (1) Hunting. (2) Fishing. (3) Swimming. (4) Access for boating. (5) Animal riding. (6) Camping. (7) Picnicking. (8) Hiking. (9) Agritainment activities. (10) Operation of nonmotorized vehicles. (11) Viewing or exploring a site for aesthetic or historical benefit or for entertainment. (12) Operation of motorized vehicles if the operation is (i) over an existing lane and incidental to an activity described in paragraphs (1) through (10), or (ii) necessary to remove an animal that has been hunted under paragraph (1). The amendment provides that a tract of land in agricultural use or forest reserve will not become ineligible under the act because the owner permits recreational activity. Further, no breach of preferential assessment or rollback taxes may be allowed where the landowner permits any recreational activity, even for a fee, provided that the land is enrolled in agricultural use or forest reserve and that the land is capable of being immediately converted to agricultural use and does not render forest reserve land incapable of producing timber or wood products. The act also provides that county commissioners may adopt a resolution authorizing the inclusion of farmstead land in the total use value of land in agricultural reserve or forest reserve, provided that this enactment is uniformly applied to the whole county.

587

Preferential Land Assessments

13-1.3

Special Situations

13-1.3.1

Alternate Energy Use of Property

72 P.S. § 5490.2 has the following definitions: “Alternative energy.” Electricity, heat or other usable form of energy generated from a Tier I energy source. “Alternative energy system.” A facility or energy system that utilizes a Tier I energy source to generate alternative energy. The term includes a facility or system that generates alternative energy for utilization onsite or for delivery of the energy generated to an energy distribution company or to an energy transmission system operated by a regional transmission organization. “Tier I energy source.” A Tier I alternative energy source, as de-

fined in section 2 of the act of November 30, 2004 (P.L. 1672, No. 213), known as the “Alternative Energy Portfolio Standards Act.” 72 P.S. § 5490.5(b.1) states: With respect to the development of an alternative energy system which continues to meet the definition of agricultural use, agricultural reserve or forest reserve, the land devoted to that development and operation shall retain the same land use category for preferential assessment as was approved for the land before the devotion took place. 13-1.3.2

Cell Tower Usage

At 72 P.S. § 5490.6, the act provides the following rules for the use of a property for cellular or wireless communication purposes: (b.1) The owner of property subject to preferential assessment may lease land covered by the preferential assessment to be used for wireless or cellular telecommunication when the following conditions are satisfied:

588

(1)

The tract of land so leased does not exceed one-half of an acre.

(2)

The tract of land does not have more than one communication tower.

(3)

The tract of land is accessible.

(4)

The tract of land is not sold or subdivided. A lease of land shall not be considered a subdivision under this paragraph.

13-1.3.3

(b.2) Use of land under this section for wireless services other than wireless telecommunications may only qualify if such wireless services share a tower with a wireless telecommunications provider as provided for in subsection (b.1). Roll-back taxes shall be imposed upon the tract of land leased by the landowner for wireless or cellular telecommunications purposes and the fair market value of that tract of land shall be adjusted accordingly. The lease of such a tract of land shall not invalidate the preferential assessment of the land which is not so leased, and such land shall continue to be eligible for preferential assessment if it continues to meet the requirements of section 3. (b.3) The wireless or cellular communications provider shall be solely responsible for obtaining required permits in connection with any construction on a tract of land which it leases pursuant to the provisions of this section for telecommunications purposes. No permit requested pursuant to this section shall be denied by a municipality for any reason other than failure to strictly comply with permit application procedures. 13-1.3.3

Leases for Gas and Oil Exploration

Leases for oil and gas exploration are governed by 72 P.S. § 5490.6(c.1), which states: (1) Land subject to preferential assessment may be leased or otherwise devoted to the exploration for and removal of gas and oil, including the extraction of coal bed methane, and the development of appurtenant facilities, including new roads and bridges, pipelines and other buildings or structures, related to exploration for and removal of gas and oil and the extraction of coal bed methane. (2) Portions of land subject to preferential assessment may be used for exploration for and removal of gas and oil, including the extraction of coal bed methane, and the development of appurtenant facilities, including new roads and bridges, pipelines and other buildings or structures, related to those activities. (3) Roll-back taxes shall be imposed upon those portions of land actually devoted to activities set forth in paragraph (2), excluding land devoted to subsurface transmission or gathering lines, which shall not be subject to roll-back tax. The portion of land subject to roll-back tax shall be

589

Preferential Land Assessments

the well site and land which is incapable of being immediately used for the agricultural use, agricultural reserve or forest reserve activities required under section 3, as determined when a well production report is first due to the Department of Environmental Protection as required by section 212 of the act of December 19, 1984 (P.L. 1140, No. 223), known as the “Oil and Gas Act,” and 25 Pa. Code § 78.121 (relating to production reporting) or its subsequent version. A copy of this report shall be provided by the Department of Environmental Protection to the county assessor within ten days of its submission. The fair market value of the well site and land which is incapable of being immediately used for the agricultural use, agricultural reserve or forest reserve activities required under section 3 shall be adjusted retroactively to the date a permit was approved under section 201 of the “Oil and Gas Act.” The tax calculated based on the adjusted fair market value shall be due and payable in the tax year immediately following the year in which a well production report is provided to the county assessor. Roll-back taxes shall become due upon the receipt of a well production report by the county assessor. The utilization of a portion of land for activities set forth in paragraph (2) shall not invalidate the preferential assessment of the land which is not so utilized and the land shall continue to receive preferential assessment if it continues to meet the requirements of section 3. (4) Notwithstanding paragraph (3), no roll-back tax shall be imposed upon a landowner for activities related to the exploration for or removal of oil or gas, including the extraction of coal bed methane, conducted by parties other than the landowner that hold the rights to conduct such activities pursuant to an instrument, conveyance or other vesting of the rights if the transfer of the rights occurred:

590

(i)

before the land was enrolled for preferential assessment under this act; and

(ii)

before the effective date of this section.

13-1.3.5 13-1.3.4

Temporary Pipe Storage Yards

Property used for the temporary storage of pipe is treated at 72 P.S. § 5490.6(c.3), as follows: The owner of property subject to preferential assessment may temporarily lease a portion of the land for pipe storage yards, provided, however, that roll-back taxes shall be imposed upon those portions of land subject to preferential assessment that are temporarily leased or otherwise devoted for pipe storage yards and the fair market value of those portions of land shall be adjusted accordingly. The imposition of roll-back taxes on portions of land temporarily leased or devoted for pipe storage yards shall not invalidate the preferential assessment of land which is not so leased or devoted, and that land shall continue to be eligible for preferential assessment if it continues to meet the requirements of section 3. Only one lease under this subsection is permitted to a landowner, and a copy of the lease shall be provided to the county assessor within ten days of its signing by the landowner. The lease shall not exceed two years and shall not be extended or renewed. Following the expiration of the lease, the land shall be restored to the original use which qualified it for preferential assessment. 13-1.3.5

Noncoal Surface Mining

Surface mining for materials other than coal is addressed at 72 P.S. § 5490.6(c.4), which states: (1) The owner of property subject to preferential assessment may lease or otherwise devote land subject to preferential assessment to small noncoal surface mining, as provided for under the act of December 19, 1984 (P.L. 1093, No. 219), known as the “Noncoal Surface Mining Conservation and Reclamation Act.” (2) Roll-back taxes shall be imposed upon those portions of land leased or otherwise devoted to small noncoal surface mining and the fair market value of those portions of the land shall be adjusted accordingly. Roll-back taxes on those portions of the land shall not invalidate the preferential assessment of the land which is not leased or devoted to small noncoal surface mining and the land shall continue to be eligible for preferential assessment if it continues to meet the requirements of section 3.

591

Preferential Land Assessments

(3) Only one small noncoal surface mining permit may be active at any one time on land subject to a single application for preferential assessment. 13-1.3.6

Wind Power Generation Sites

72 P.S. § 5490.6(c.5) provides that the following criteria apply to wind power facilities: (1) Portions of land subject to preferential assessment may be leased or otherwise devoted to a wind power generation system. (2) Roll-back taxes shall be imposed upon those portions of the land actually devoted by the landowner for wind power generation system purposes, and the fair market value of those portions of the land shall be adjusted accordingly. The wind power generation system shall include the foundation of the wind turbine and the area of the surface covered by appurtenant structures, including, but not limited to, new roads and bridges, transmission lines, substations and other buildings or structures related to the wind power generation system. The utilization of a portion of the land for a wind power generation system shall not invalidate the preferential assessment of land which is not so utilized, and such land shall continue to receive preferential assessment if it continues to meet the requirements of section 3. An owner who is subject to roll-back taxes under this subsection shall submit a notice of installation of a wind power generation system to the county assessor no later than thirty days following the commencement of electricity generation at the wind power generation system. 13-1.4

Mixed Use of a Tract of Land

In McLoughlin v. Bradford County Board of Assessment, 568 A.2d 721 (Pa.Cmwlth. 1989), the Commonwealth Court clearly ruled that a single parcel of land may contain both preferentially assessed land and non-preferentially assessed land. Specifically, as long as a portion of a larger parcel can independently qualify for preferential assessment, the fact that the remainder of the tract is being used for purposes that conflict with Act 319 rules does not eliminate the qualifying portion of the tract for preferential treatment. In this case, the taxpayer owned 229 acres with an area of less than two acres housing a horse stable and arena building used as a riding academy; the rest of the tract was used for “agricultural use” as defined by the 592

13-1.4

act. In 1983, the assessment appeals board granted the taxpayer preferential assessment. The tract used for the stable and arena was assessed at its fair market value without any preferential treatment. In 1987, the board notified the taxpayer that his preferential assessment on the whole tract was being rolled back because of the use of the two-acre tract for a stable and riding academy. The taxpayer appealed the decision, and the case ultimately went to the Commonwealth Court. The board took the position that the preferential assessment had been erroneously granted in 1983 because the riding academy and stable disqualified the whole parcel from any Act 319 consideration. The appellate court disagreed and held: Our review of the entire Act and the regulations thereunder, 7 Pa.Code §§ 137.1–137.68, has discovered nothing which compels the conclusion that use of less than two acres for riding instruction disqualifies the remaining some 227 acres, all of which is inarguably used as an “agricultural use”, from the Act’s preferential assessment. Id. at 723. The appellate court pointed out that Department of Agriculture rules and regulations that pertain to the act specifically authorize this mixed use of the property between agricultural and non-agricultural uses. Pennsylvania Department of Agriculture Form AAO-82 specifically provides for the allocation of the property between qualifying and nonqualifying tracts. The court stated on this issue: 72 Pa.Code §137.26 states that “[y]ou must include all of your land as described in the deed in your application. All contiguous lands must be enrolled in the program.” When looking at [the] bottom of the worksheet portion of Form AAO-83, one notices that the total assessment can consist of two factors, the first being the preferential assessment, based upon each county’s assessment ratio for such use. The second part of that equation concerns land normally assessed at fair market value. Part of the land assessed at fair market value is “ineligible land”, defined in the instruction to the form as “[l]and which is not used for any of the three eligible uses and therefore cannot receive use-value assessment, but which is part of the contiguous tract, under the same ownership.” By drafting the application in this fashion, it seems obvious to us that the Department of Agriculture did not interpret the Act as intending that the entire contiguous tract must be devoted to one of the three qualifying uses. If that were the Department’s interpretation, the instructions would tell the landowner that the presence of ineligible land precludes pref593

Preferential Land Assessments

erential assessment for any portion of the tract. Suffice it to say that it does not. Id. at 725 (emphasis in original). Therefore, the court held that the existence of ineligible land on a tract that contains eligible land does not in itself preclude the granting of preferential status. As long as there is sufficient area on the tract to qualify for the clean and green program, the preferential assessment status should be granted to the qualifying area. 13-1.5

Termination of Preferential Tax Treatment

The determination of the conditions necessary for termination of preferential tax treatment under Act 319 needs to be clarified. The Clean and Green Act enumerates the conditions necessary for preferential tax treatment at 72 P.S. § 5490.3(a) (see page 573). The statutory scheme act provides that preferential tax treatment of a parcel that meets the stated requirements terminates when the use of the property is altered from agricultural, agricultural reserve, or forest reserve purposes. The statute, at 72 P.S. § 5490.8(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), stated: When any tract of land which is in agricultural use, or agricultural reserve use or forest reserve use and which is being valued, assessed and taxed under the provisions of this act, is applied to a use other than agricultural, agricultural reserve or forest reserve, or for any other reason, except condemnation thereof, is removed from the category of land preferentially assessed and taxed under this act, the land so removed and the entire tract of which it was a part shall be subject to taxes in an amount equal to the difference, hereinafter referred to as roll-back taxes, if any, between the taxes paid or payable on the basis of the valuation and the assessment authorized hereunder and the taxes that would have been paid or payable had that land been valued, assessed and taxed as other land in the taxing district in the current tax year, the year of change, and in six of the previous tax years or the number of years of preferential assessment up to seven plus interest on each year’s roll-back tax at the rate of six percent (6%) per annum. After the first seven years of preferential assessment, the roll-back shall apply to the seven most recent tax years. An examination of this provision shows that the legislature clearly contemplated some physical action, i.e., a change of use. Section 5490.8(a) did not define these terms. Therefore, a review of the applicable case law is necessary. In re Appeal of Phillips, 409 A.2d 481 (Pa.Cmwlth. 1979), involved a 104-acre farm in Bucks County that had received preferential tax 594

13-1.5

treatment under Act 319. The owner conveyed by deed to his three children a 21-acre portion and a 47-acre portion of his farm, retaining for himself a house and farm buildings and a remaining tract of 35.8 acres. The assessment appeals board subsequently notified the owner that he had breached the “319 covenant” and, consequently, owed the difference between the real property taxes paid and the taxes payable absent the covenant. The court of common pleas affirmed the decision, and the Commonwealth Court reversed and ordered that the property be reinstated under the Act 319 covenant. Although this case did not involve a change of use, the opinion contains relevant information: The use to which the land is put is the key factor undergirding Act 319 rather than the element of transfer. Accordingly, we view the conveyance in question here not a conveyance of land for a use other than agricultural or reserve use and thus not one that falls within the roll-back provisions of Section 8(a). A landowner breaches Section 8 of Act 319 only if the parcel split off or the original parcel is used “for a use other than agricultural or agricultural reserve or forest reserve.” *

*

*

A careful reading of the statute in question here indicates that a preferential assessment shall continue until a land-use change takes place or the use is abandoned. Therefore, it follows that roll-back taxes are to be assessed only upon a change in the land’s use. Although appellants conveyed a part of their farm to their children, the land has continued to be farmed and there has been no separation for a use other than agricultural or agricultural reserve or forest reserve. Consequently, there has been no separation in the instant case of a nature which would result in a roll-back of taxes. Id. at 483. The decision in this case holds that a conveyance or a transfer in itself is normally insufficient to violate Act 319 and that something more is needed that would affect or change the use of the land. Therefore, in order for an action to constitute a breach of the Act 319 covenant, the actionmust constitute a change or alteration in the use of the land. Every alleged violation of the 319 covenant must be determined on a case-by-case basis and a finding made as to whether the property owner has crossed the threshold and changed or altered the use of the land. If these findings of fact establish the change or alteration, then and only then is the landowner in breach of the Act 319 covenant. Any practitioner involved with the conveying of open space, agricultural land, or forest reserve property possessing either an Act 319 or Act 595

Preferential Land Assessments

515 preferential assessment should be aware of the potential adverse impact of a transfer and the potential imposition of rollback assessment penalties upon both the buyer and seller. Some of these penalties on the seller can be delayed for up to seven years, and are contingent solely upon the actions of the buyer and/or any future subpurchasers. Failure to advise a client about the possible pitfalls of a sale of these preferentially assessed properties is an invitation to a malpractice suit. 13-1.6

Operation of a Bed-and-Breakfast

Hydrusko v. County of Monroe, 699 A.2d 828 (Pa.Cmwlth. 1997), discussed the implications of the operation of a bed-and-breakfast facility on Act 319 property. In this case, Grace Hydrusko purchased a 67-acre parcel of land; at the time, 62 of the 67 acres were receiving preferential assessment. Hydrusko built a structure containing her residence, a one-bedroom apartment, and a bed-and-breakfast with six rooms on a portion of those 62 acres. The assessment appeals board then revoked the preferential assessment on the property and imposed rollback taxes and interest for the previous seven years. Hydrusko unsuccessfully appealed this action to the board. The common pleas court held that the 62-acre tract was subject to rollback taxes because Hydrusko, by constructing the bed-and-breakfast facility on the preferential tract for a use other than agricultural, had caused a split off under Act 319. Hydrusko argued on appeal to the Commonwealth Court that her action did not constitute a split-off. She claimed that no sale or transfer had taken place and that the use of some of her residence as a bed-and-breakfast did not violate Act 319. The appellate court found that a bed-and-breakfast open to the public and charging $70 per night cannot be characterized as an agricultural, agricultural reserve, or forest reserve use. The court held that Hydrusko’s construction of the bed-and-breakfast created a split-off and that rollback taxes were warranted. This is a very interesting holding in that nowhere in the opinion is there any evidence that Hydrusko sold or deeded over any of the land to a third party. A clear reading of the statute in effect at the time, 72 P.S. §§ 5490.6(a) and (b) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), indicated that some type of division needed to take place: (a) The split-off of a part of the land which is being valued, assessed and taxed under this act for a use other than agricultural or agricultural reserve or forest reserve shall, except when the split-off occurs through condemnation, subject the land so divided and the entire parcel from which the land was divided to liability for the roll-back taxes as set forth in section 8 of this act except as provided in subsection (b). 596

13-1.7

(b) The owner of property subject to a preferential tax assessment may split-off land covered by the preferential tax assessment: Provided, That the tract of land so split-off shall not exceed two acres annually and may only be used for residential, agricultural, or forest reserve use during such time as the land retained shall continue to receive preferential tax assessment and the construction of a residential dwelling to be occupied by the person to whom the land is transferred. Traditionally, the term split-off had referred to some type of transfer. In this case, there was only construction of a bed-and-breakfast, not a transfer of the land in any legal manner. If a violation were to be found, it would more properly have been under 72 P.S. § 5490.8(a) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), which prohibited the non-agricultural use of preferentially assessed land. The definition of the term split-off is found at 72 P.S. § 5490.2: A division, by conveyance or other action of the owner, of lands devoted to agricultural use, agricultural reserve or forest reserve and preferentially assessed under the provisions of this act into two or more tracts of land, the use of which on one or more of such tracts does not meet the requirements of section 3. In Hydrusko, there does not appear to be any conveyance of the property by deed or other action, therefore it must be assumed that the Commonwealth Court had found some type of constructive division under the above definition. This is an extremely strained interpretation of the statute—the court could have found ample basis for its holding under other sections of the law. This theory of a constructive split-off violation of Act 319 will cause much confusion for both assessors and landowners. 13-1.7

Contiguous Land and Rollback Taxes

Feick v. Berks County Board of Assessment Appeals, 720 A.2d 504 (Pa.Cmwlth. 1998), examined the interrelationship of contiguous parcels when their division results in rollback taxes. In 1984, Richard Feick owned two adjoining parcels of undeveloped forestland. The smaller parcel was 3.3 acres, and the larger parcel was 53.6 acres. Feick enrolled both properties into the Act 319 preferential assessment program. The smaller tract did not meet the minimum 10-acre lot size, so Feick was allowed to piggyback this parcel on to his larger contiguous property. At that time, the act provided that contiguous properties under the same ownership could be lumped together to satisfy the 10-acre requirement. In 1997, Feick conveyed the 53.6-acre tract to the Berks County Conservancy in exchange for $93,000. The Berks County Conservancy is a nonprofit corporation dedicated to preserving agricultural land, forest597

Preferential Land Assessments

land, open space historical sites, and watersheds. The funds for the purchase were obtained by a grant-in-aid from the Keystone Recreation, Park, and Conservancy Fund Act. At all times after the purchase, both properties were operated in total compliance with the use provisions of Act 319. Feick’s sale of the larger parcel left him with only 3.3 acres, less than the minimum amount necessary for Act 319 eligibility, so he was assessed rollback taxes covering both tracts from 1984 through 1997. The assessment appeals board and the common pleas court both denied Feick relief. The issue before the Commonwealth Court was whether the transfer was a permissible “separation” or an impermissible “split-off.” Feick contended that the new owner’s use of the land, not the element of transfer, was the controlling factor. The appellate court summed up the parties’ positions: Appellant argues that his conveyance of 53.6 acres to the Conservancy and retention of the 3.279 acre tract should not trigger the rollback provisions of the Act since the tracts remain contiguous, not less than ten acres and devoted to use as forest reserve. Appellant further argues that there is no requirement in the Act that each tract forming the qualified forest reserve has to individually satisfy the ten-acre requirement. The Board agreed with this statement in regard to the initial application but counters that once a tract is transferred from preferentially assessed forest reserve, all tracts resulting from the transfer must individually satisfy both the use and acreage requirements of the Act. The Board asserts that Appellant’s retention of the 3.279 acre tract violates the transfer provisions of the Act irrespective of its continued use as forest reserve. We agree with the Board’s interpretation of the Act and now affirm the trial court’s order. Id. at 507. The Commonwealth Court pointed out that the transfer does not meet the definition of “separation” in Act 319 because a separation requires that the separated parcels each be able to qualify independently under the act for preferential treatment. Because Feick’s remaining lot was under the 10-acre requirement, it could not qualify for Act 319 status. Therefore, the transfer had to be treated as a split-off under the act, which triggers rollback assessment and taxes. The court explained its reasoning: The term “contiguous” cannot be read to permit a landowner to include the acreage of an adjacent landowner in satisfying the ten-acre requirement as argued by Appellant. To do so would vitiate the General Assembly’s intent with regard to the ten-acre requirement. The ten-acre requirement achieves two legislative objectives. First, the General Assembly used its dis598

13-1.8

cretion in determining that a minimum of ten acres are required before a tract can be said to serve as useful forest reserve. Second, the ten-acre requirement serves to minimize the burden imposed on county taxing authorities which must administer the clean and green program. Allowing Appellant to tack on a neighbor’s acreage to reach the ten-acre plateau would admittedly further the Act’s primary purpose of maximizing the amount of private acreage maintained as forest reserve. However, permitting tacking would produce fragmented tracts and thus undermine the administrative manageability facet inherent in the Act’s minimum acreage requirement for qualification of preferential assessment. Id. at 508. Therefore, the mechanism of tacking together two parcels of land with different ownership in order to meet the 10-acre minimum acreage will not be permitted under Act 319. 13-1.8

Transfers of Title and Rollback Taxes

Saenger v. Berks County Board of Assessment Appeals, 732 A.2d 681 (Pa.Cmwlth. 1999), dealt with the propriety of imposing rollback taxes for an alleged breach of Act 319. In this case, a husband and wife owned two parcels of land as tenants by the entireties. Parcel one consisted of 39 acres and 121 perches. Parcel two consisted of two noncontiguous tracts located at either end of parcel one and measuring 17.5 acres and 3.5 acres, respectively. Both parcels were accepted into the clean and green program for tax year 1994. In 1997, the husband died, and the wife became sole owner of the two parcels. She conveyed parcel one to herself and her son James as joint tenants with right of survivorship, and she conveyed parcel two to herself and her other son, Peter, with rights of survivorship. In 1998, the assessment appeals board removed both parcels from the Act 319 program on the basis that the conveyance of the 3.5-acre tract in parcel two constituted an illegal split-off because it did not adjoin any property owned jointly by Peter and his mother. The board took the position that the 3.5-acre tract was too small and could not be reenrolled in the program. The board denied the landowner’s appeal. At trial before the common pleas court, the landowner argued that it was improper to impose the rollback because there had been no change of use of the property. She asserted that there had been no split-off or separation, which can only occur when there is a change of use. The board’s position was that a split-off occurred when the landowner conveyed the parcel to herself and Peter as joint tenants and that the 3.5-acre part was below the 10 acre minimum. The trial court agreed with the board and found that the transfer constituted a split-off and that the rollback was proper. 599

Preferential Land Assessments

On appeal to the Commonwealth Court, the landowner relied on Phillips, 409 A.2d 481, to buttress her position that a change of use is required to justify a rollback. The appellate court distinguished that case and stated: We agree that in Phillips, we held that a split-off had not occurred because the land conveyed continued the same use (forest reserve) for which it received the preferential use assessment, even though ownership had been transferred. However, after our decision in Phillips, the General Assembly amended the Act and adopted a definition for split-off in order to accommodate the type of transfer that occurred in Phillips, where only the ownership structure changed but not the use of the parcel. As a result of this amendment, in Feick v. Berks County Board of Assessment Appeals, 720 A.2d 504 (Pa. Cmwlth. 1998), we held that when ownership was transferred and the preferential use remained the same for purposes of the assessment, a parcel was subject to roll-back taxes if it failed to meet the use and acreage requirements of Section 3 of the Act, i.e., the land divided as the result of a split-off had to be greater than ten contiguous acres in area. In other words, if any land that was “split-off” could not satisfy the criteria for entry into the clean and green program, all of the land listed in the application was subject to roll-back taxes under Section 6 of the Act. Saenger, 732 A.2d at 685. The court found that the transfer of the 3.5-acre portion of parcel two to the landowner and Peter created a split-off even though the land was still being used for agricultural purposes because the land did not meet the 10-acre requirement. This case points out the importance of a thorough review of the Act 319 ramifications of any real estate transaction involving property subject to a preferential open-space assessment. 13-1.9

Assessment Rollback Notice

Close v. Berks County Board of Assessment Appeals, 839 A.2d 462 (Pa.Cmwlth. 2003), dealt with applicability of the Clean and Green Act rollback assessment. The taxpayers in this case owned 42 acres of land that had been granted preferential assessment. They conveyed by deed a .21-acre tract of the parcel for the price of $101 for the purpose of annexation. The assessment office notified the taxpayers that they were in breach of the act because the transfer constituted a split-off, making them ineligible for preferential assessment and subject to a rollback assessment. The assessment appeals board and the common pleas court affirmed.

600

13-1.9

The taxpayers contended that the board failed to provide written notice of its intent to effectuate a rollback of the preferential assessment pursuant to 72 P.S. § 5490.3(d), which states: The county board of assessment appeals may not terminate preferential assessment of land previously determined by the board to qualify for preferential assessment without: (1)

written notice under section 4(c.1) from the landowner expressing that preferential assessment is to be terminated; or

(2)

written notice under section 5(a)(2) from the county assessor to the landowner that preferential assessment is to be terminated, stating the reason for such termination and the opportunity for a hearing under section 9.

The taxpayers argued that the statute required that they be given a pre-deprivation hearing before the rollback assessment was issued. The board’s notice of termination stated: As a result of your selling off .21 acre of land from the above referenced property, .21 acre is no longer eligible for a Clean and Green assessment and has been removed from the program. . . . This decision may be appealed to the [Board] within 40 calendar days from the date of this notice. Close, 839 A.2d at 465. The Commonwealth Court held that the notice was adequate and that the taxpayers were given notice of the rollback and a right to appeal, which included an evidentiary hearing before the board prior to the final determination of the rollback. The taxpayers also argued that the .21-acre tract should not be rolled back because it was sold to the adjacent property owner for annexation purposes, that is, to add it to his tract of land, which was already under preferential assessment. The court rejected this argument and held: As reflected by the deed, the transfer of the .21-acre tract from Taxpayers to a third party . . . did create the existence of a separate smaller tract of land no longer owned by Taxpayers. Even though the deed indicated that the [third party] acquired the property for the purpose of annexing it into a larger contiguous parcel already preferentially assessed under the Act, the conveyance nonetheless subdivided Taxpayers’ property. Inasmuch as the .21-acre tract does not meet the acreage requirement in Section 3(a) of the Act, it must be considered a split-off rather than a separation.

601

Preferential Land Assessments

Id. at 469. The appellate court once again adopted a strict construction of the Clean and Green Act and gave notice to landowners with preferential assessments to follow the provisions of the act as written by the legislature and not attempt to creatively get around its provisions. 13-1.10

Land Separation and Assessment Rollback

The Commonwealth Court scrutinized a land separation of preferential property in In re Martin, 830 A.2d 616 (Pa.Cmwlth. 2003). This case involved 63 acres of land subject to a preferential assessment. A landowner bought 14 acres of the property and received a preferential assessment for that parcel. He then transferred 2 acres to Amos Zook. The parties stipulated that the sale of the 14 acres was a separation and the transfer to Zook was a split-off from that parcel. The Lancaster County assessment board notified the landowner that he was subject to a rollback assessment of $13,248, calculated on the original 63-acre tract. The board stated that the landowner’s conveyance to Zook converted the original transaction (the purchase of 14 acres) from a separation into a split, which triggered rollback taxes. The landowner asserted that if the original 63-acre parcel governed the application of the Clean and Green Act, the conveyance to Zook did not violate the act. The landowner asserted that 2 acres was less than 10 percent of the 63 acres and was not subject to rollback taxes. The board contended that the 2-acre parcel was more than 10 percent of the 14-acre tract. The common pleas court held that the conveyance to Zook required the imposition of rollback taxes but that they should be calculated based on the 14-acre tract, not the original 63 acres. The Commonwealth Court reversed, holding that there was a violation of the act justifying rollback. The court stated: The trial court reasoned that the “entire tract so separated” referred to Landowner’s 14-acre tract because it is a tract that, indeed, had been party to a separation. The Board contends that the “entire tract so separated” refers to the original 63-acre tract that was “so separated” thereby prohibiting landowners of both parcels from changing the use of their respective parcels to a non-conforming use. We agree with the Board that in the context of Section 6(a.2) “entire” signifies the original 63-acre parcel; otherwise “entire” is surplusage. The Board’s reading gives effect to all the words in Section 6(a.2) of the Act, a result commanded by Section 1921(a) of the Statutory Construction Act of 1972, 1 Pa. C.S. § 1921(a) (“Every statute shall be construed, if possible, to give effect to all its provisions.”). The Act specifies that the landowner who changes the use of the land to an inconsistent use is the land602

13-1.10

owner liable for the roll-back tax on “the entire tract so separated.” After seven years, the roll-back tax is extinguished. Any other reading renders the seven year moratorium meaningless and will allow multiple split-offs with impunity. Further, this reading is not inconsistent with Section 6(a.1)(1) of the Act. The only term defined in the Act is “tract.” “Entire tract” is not defined, and, as such, its meaning divined from the context of the statutory provision where used. Accordingly, “entire tract” may have one meaning for determining whether a split has occurred and another for calculating the amount of roll-back tax penalty owed. The statutory scheme can produce harsh results, but Landowner could have avoided them in one of two ways. First, he could have waited seven years before making a conveyance of a 2-acre tract. Second, he could have conveyed 1.4 acres, which would have qualified as a de minimis split exempt from the roll-back tax penalty of Section 5.1. The Act’s penalties may be draconian, but they were the weapons chosen by the General Assembly in an important cause: the defense of Pennsylvania’s precious and ever-threatened farmlands and forests. Id. at 619–20. In Moore v. Berks County Board of Assessment Appeals, 888 A.2d 40 (Pa.Cmwlth. 2005), the court explored a complicated Act 319 preferential use assessment termination. Here, the taxpayers purchased 89 acres of land in 1976 and continued its use as a farm, raising hogs and producing corn, soybeans, winter wheat, and hay. The property included a residence, garage, five outbuildings, tillable land, pasture, and woodland. In 1993, the assessment appeals board granted the taxpayers preferential assessment for the property. Two years later, the taxpayers purchased nine acres of adjoining land, subdivided the combined acreage into four lots, and sold one of those lots. In 1997, the board granted taxpayers preferential assessment for 4.76 acres that had been part of the annexed nine acres and had become part of parcels two and three of the property. In 1998, the taxpayers began renting several of the buildings to third parties for storage space, which the board deemed to be a commercial use of 21,190 square feet of building space. The board notified the taxpayers that they violated Act 319 by operating a rural enterprise that covered more than two acres. The board argued before the common pleas court that the initial application was defective and that none of the parcels should have been enrolled in the program. The trial court noted, however, that this was not the reason the board gave it in its termination notice to the taxpayers. Therefore, the board could not rely on the defective application to termi603

Preferential Land Assessments

nate the preferential assessment. The Commonwealth Court agreed, finding that to use different grounds at the hearing on termination violated 72 P.S. § 5490.3(d)(2) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), which at the time of the case stated: The Board “may not terminate preferential assessment of land previously determined by the Board to qualify for preferential assessment without . . . written notice . . . from the county assessor to the landowner that preferential assessment is to be terminated, stating the reason for such termination and the opportunity for a hearing.” Moore, 888 A.2d at 43 (emphasis in original). The county assessor must send this notice within five days after the termination under 72 P.S. § 5490.5(a)(2). It seems that the court found it unfair that the taxpayers received a notice that they violated the program in one manner, and then when they showed up for their hearing, the board presented other grounds, as well, to justify their violation of the program. The court did find that the taxpayers’ rental of the land for commercial activities affected all the parcels they owned, not just the one where the activity took place. After the taxpayers annexed the nine acres in 1995, they divided the tract into four parts and sold one of them off. The taxpayers used the three tracts of land consistent with Act 319 until 1998, when they began renting out the buildings on parcel one for storage space. “Because this inconsistent use of Parcel 1 in 1998 occurred within seven years of the separation in 1995, all three parcels are subject to roll-back taxes under section 5.1.” Moore, 888 A.2d at 44. 13-1.11

Involuntary Land Separation and Assessment Rollback

In Maula v. Northampton County Division of Assessment, 149 A.3d 442 (Pa.Cmwlth. 2016), the court scrutinized an involuntary land separation of preferential property. In this case, the taxpayer owned a contiguous tract of land comprising three parcels that were enrolled in the preferential tax program. After nonpayment of outstanding property taxes on the smallest parcel, referred to as parcel C, Northampton County sold the parcel at a tax sale. Thereafter, the county, claiming that the tax sale was a split-off under the Clean and Green Act, changed the assessment of the entire tract and imposed rollback taxes on the whole property. The common pleas court reversed the board’s decision, reasoning that the subsequent conveyance of parcel C in the tax sale did not meet the statutory definition of a split-off, and thus the taxpayer was not liable for rollback taxes. Before the Commonwealth Court, the board argued that the taxpayer’s failure to pay real estate taxes on parcel C, which led to the conveyance of the parcel at the tax sale, constituted “other action of the owner” under the statutory definition of a split-off. The appellate court affirmed the trial 604

13-1.12

court’s decision and held that the taxpayer’s nonpayment of taxes did not, in and of itself, create a conveyance or a split-off. Specifically, the court looked at section 6 of the act, 72 P.S. § 5490.6(a.1)(1), which states: The split-off of a part of land which is subject to preferential assessment under this act shall subject the land so split off and the entire tract from which the land was split off to rollback taxes as set forth in section 5.1, except as provided in this subsection. The landowner who conducts the split-off shall be liable for payment of roll-back taxes. After reviewing the definitions of “conduct” and “split-off,” the court held that a tax sale is not a “conveyance or other action of the owner.” The court noted that the county—not the taxpayer—performed the conveyance and action. Accordingly, the taxpayer was not subject to rollback taxes.” 13-1.12

Cellular Communications Facilities

The Clean and Green Act provides at 72 P.S. § 5490.6(b.1) that the owner of land subject to a preferential assessment may lease land covered by that assessment to be used for wireless or cellular telecommunications when the following prerequisites are met: (1) The tract of land so leased does not exceed one-half of an acre. (2) The tract of land does not have more than one communication tower. (3) The tract of land is accessible. (4) The tract of land is not sold or subdivided. A lease of land shall not be considered a subdivision under this paragraph. The act further provides that the use of the land for wireless service may qualify fpr preferential assessment if the wireless services share a tower with a wireless telecommunications provider. Rollback taxes are to be imposed only upon the tract of land leased by the landowner for wireless or cellular telecommunications purposes, and the fair market value of that tract of land will be adjusted accordingly. This is important because the rollback is limited to only the half acre or less used for the cellular or wireless tower, not to the entire parent tract of land; it does not invalidate the preferential tax assessment of the land that is not leased as long as there is enough acreage left in the parent tract to qualify for preferential assessment. The act also gives the county assessor the right to reassess the leased property based on its new value as a leased parcel.

605

Preferential Land Assessments

13-1.13

Change-in-Use Determinations

Wending Creek 3656, LLC v. Potter County Board of Assessment Appeals, 885 A.2d 690 (Pa.Cmwlth. 2005), concerned how much change in the use of a property is considered sufficient to cause a rollback. In this case, the property was originally owned by Headwater Timber Co. and was enrolled in the clean and green program as a forest reserve. The property was sold to Wending Creek 3656 for a proposed golf course. Wending Creek obtained municipal approval to build a golf course of 800 acres, 41.6 of which were part of the property in question. Pursuant to this plan, Wending Creek altered the natural topography of a four-acre triangular area of the 41.6 acres and installed underground pipes and surface fixtures for pop-up sprinklers. The golf course was never constructed, and after the fill-in and sprinkler installation, the property consisted of forestland and a new field. An inspection of the property revealed a raised area for a golf green and a manhole installed pursuant to the approved development plan. Based on this inspection, the county removed the property from the clean and green program and billed Wending Creek rollback taxes. The court of common pleas eventually found that there had been no change in use justifying a rollback. The Commonwealth Court affirmed the lower court ruling and held: The qualifying use under which Headwater enrolled the land in the Clean and Green program is that of forest reserve, which Section 2 of Act 319 defines as “land, ten acres or more, stocked by forest trees of any size and capable of producing timber or other wood products.” 72 P.S. § 5490.2. The County takes the position that a disqualifying change in use occurred, even though the proposed disqualifying golf course never came into being, because Wending Creek began to alter the site in contemplation of the golf course. Recognizing the general rule that a statute creating a tax preference must be strictly construed against the taxpayer, see Saenger v. Berks County Board of Assessment Appeals, 732 A.2d 681, 684 n.9 (Pa. Cmwlth. 1999), we, nevertheless, discern nothing in the Act that dictates such a conclusion. Furthermore, common pleas found, based on its view of the site, that the alterations did not change in any manner the existing woodland and did not alter the small nonwooded portion of the tract in any manner that essentially changed its established character as open field. Hence, no change occurred that thwarts in any manner the purpose or policy served by the Act, i.e., “to promote conservation of privately owned woodlands covering an area of ten or more acres.” Feick v. Berks County Bd. of Assessment Appeals, 720 A.2d 504, 506

606

13-1.13

(Pa. Cmwlth. 1998). For this reason, common pleas appropriately concluded that no disqualifying change in use occurred. Id. at 693. The court pointed out that if the golf course had been constructed, even if it had never opened, that would have been grounds for the rollback. This case is significant in that a change in use, in order to be a predicate for a rollback, must be more than an intention and some minor alterations of the land; it must consist of more significant change in the land itself. This case will make it much harder for county assessors to issue rollback assessments. In Donnelly v. York County Board of Assessment Appeals, 976 A.2d 1226 (Pa.Cmwlth. 2009), the taxpayers argued that the Clean and Green Act’s provisions relating to rollback taxes were unconstitutionally vague. The taxpayers’ 32.7-acre property had been granted preferential assessment. They conveyed two acres of this tract to their daughter, who lived in a house on the two-acre parcel. The county tax assessment office notified the taxpayers that the two-acre split-off was not entitled to preferential tax treatment and that therefore seven years of rollback taxes would be imposed on the taxpayers’ 32.7-acre property. The common pleas court affirmed the administrative ruling. On appeal to the Commonwealth Court, the taxpayers claimed that Act 319 was unconstitutionally vague and thus unenforceable. The appellate court emphasized certain language in the statute, which at the time of the case stated: (a.1)(1) The split-off of a part of land which is subject to preferential assessment under this act shall subject the land so split off and the entire tract from which the land was split off to roll-back taxes as set forth in section 5.1. The landowner changing the use of the land to one inconsistent with this act shall be liable for payment of roll-back taxes. The landowner of land which continues to be eligible for preferential assessment shall not be liable for any roll-back taxes triggered as a result of a change to an ineligible use by the owner of the split-off tract. Roll-back taxes under section 5.1 shall not be due if one of the following provisions applies: (i)

The tract split off does not exceed two acres annually, except that a maximum of the minimum residential lot size requirement annually may be split off if the property is situated in a local government unit which requires a minimum residential lot size of two to three acres; the tract split off is used only for agricultural use, agricultural reserve or forest reserve or for the construction of a residential 607

Preferential Land Assessments

dwelling to be occupied by the person to whom the land is conveyed; and the total tract or tracts so split off do not exceed the lesser of ten acres or ten percent (10%) of the entire tract subject to preferential assessment. *

*

*

(2) Each tract which has been split off under paragraph (1)(i) shall be subject to roll-back taxes for such a period of time as provided in section 5.1. The landowner changing the use of the land shall be liable for payment of roll-back taxes. The court disposed of the taxpayers’ contention and held: Landowners’ theory that no roll-back taxes are owed here ignores other language in Section 6(a.1). Specifically, Section 6(a.1)(2) states that “each tract which has been split off under paragraph (1)(i) shall be subject to roll-back taxes” and that the landowner “changing the use of the land shall be liable . . . .” 72 P.S. § 5490.6(a.1)(2) (emphasis added). This targets [the daughter’s] tract, and places the tax burden on her, assuming she is the one responsible for the change in the property’s use. Landowners would simply read Section 6(a.1)(2) out of existence, which violates the principle that no provision of a statute is surplusage. See 1 Pa. C.S. § 1921(a). Landowners’ argument is inconsistent with this Court’s decision in Close v. Berks County Board of Assessment Appeals, 839 A.2d 462 (Pa. Cmwlth. 2003). In Close, this Court held that Section 6(a.1) imposed roll-back taxes where a split-off parcel had been conveyed to a third party, even though the use of the split-off parcel satisfied the criteria in Section 6(a.1)(1)(i) of the Act, which is the situation here. Thus, Close is dispositive. If Section 6(a.1)(2) had not been included in the statute, Landowners’ theory that Subsection (i) is ambiguous might have traction. However, Section 6(a.1)(2) eliminates any possible ambiguity. It may be [the daughter] alone, not the [taxpayers], who is responsible for the roll-back taxes caused by the splitoff because she appears to be the landowner responsible for the change in use and because her use satisfies the criteria in Subsection (i). However, the [taxpayers] did not challenge the order to pay roll-back taxes on this basis. Accordingly, the order of the trial court will be affirmed.

608

13-1.14

Id. at 1229–30. Therefore, the court found that the taxpayers’ claims were devoid of merit and that the rollback taxes were constitutional. 13-1.14

Timing of Assessment Changes

In Sher v. Berks County Board of Assessment Appeals, 940 A.2d 629 (Pa.Cmwlth. 2008), the appellate court examined the interrelationship between the Clean and Green Act and the anti–spot assessment provision of the Second Class A and Third Class County Assessment Law, 72 P.S. § 5348.1 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). This case involved a 13-acre property owned by Robert and Victoria Sher. In 1997, they received preferential assessment of $160,000 for the property, listing 10 acres as tillable agricultural use, two acres as forest, and one acre as a reserved homesite with a two-story dwelling and two garages. In 1998, the legislature amended the Clean and Green Act via Act 156, which added section 4.2, 72 P.S. § 5490.4b, to permit “farmstead land” to be eligible for preferential tax assessment as part of agricultural use, agricultural reserve, and forest reserve. The statute defines “farmstead land” as “[a]ny curtilage and land situated under a residence, farm building or other building which supports a residence, including a residential garage or workshop.” The assessment appeals board assessed the property under Act 156 at $113,700 beginning in 1999. Years later, in Act 235, the legislature amended sections 4.2(a) and (b) of the Clean and Green Act and added subsection (d) effective February 7, 2005, making farmstead land located in an area enrolled as agricultural reserve no longer eligible for preferential assessment unless a majority of the land is enrolled as an agricultural land use. On October 31, 2005, the county assessment office notified the Shers that the assessed value of their property had been changed for tax year 2006 as a result of Act 156 and Act 235. The common pleas court reversed the board and found that the increase in assessment constituted an illegal spot reassessment and that the rollback taxes must be rescinded. The Commonwealth Court reversed the lower court and found that the increased assessment was permissible, stating: The trial court’s conclusion that the Board may change the preferential assessment of the Shers’ property only if a change is made as part of a countywide reassessment is not supported by the statutory scheme. In Atlantic City Elec. Co. v. United School District, 780 A.2d 766 (Pa. Cmwlth. 2001), property that was used in generating electricity was exempt from local taxation under the applicable statute, which was later amended to remove the property from local tax exemption. The school board thereafter passed a resolution directing the county assessment office to add all electric generation proper609

Preferential Land Assessments

ties to the tax rolls. The owner appellant argued that the addition of its property to the tax rolls constituted an unlawful spot reassessment. In rejecting this argument, the Court held at pages 772–773: [T]he present case involves the addition of property to the tax rolls after an exemption was statutorily abolished. [The owner’s] complaint really is with the constitutionality of Act 4 [the amending act] as implemented through the assessment laws, but it has not articulated an argument as to why the legislature may not act for policy reasons to change the manner of regulation of a particular industry under the applicable equal protection analysis. . . . Similarly, . . . the District did not treat [the owner’s] property differently from all others . . . . All properties are subject to the mandates of the assessment laws as amended. (Citation omitted.) Act 235 abolished the preferential tax assessment of farmstead land or a home site within an agricultural reserve and a forest reserve unless a majority of the land is an agricultural use. As in Atlantic City Elec., Act 235 affected not only the Shers’ property but also affected all other properties enrolled in the preferential assessment program. The Court concludes after its analysis of applicable statutory and case law that the Board’s action does not constitute a spot reassessment of the Shers’ property. Therefore, the Court rejects their argument in this regard. The trial court also erred in concluding that the Board impermissibly applied Act 235 retroactively. A statute shall be construed prospectively unless the legislature clearly intended otherwise. Section 1926 of the Statutory Construction Act of 1972, 1 Pa. C.S. §1926. A retroactive law is “one which relates back to and gives a previous transaction a legal effect different from that which it had under the law in effect when it transpired.” R & P Servs., Inc. v. Department of Revenue, 116 Pa. Commw. 230, 541 A.2d 432, 434 (Pa. Cmwlth. 1988). However, “[w]here no vested right or contractual obligation is involved, an act or a regulation is not impermissibly construed retroactively when applied to a condition existing on its effective date, even though the condition results from events which occurred prior to that date.” Id. A right is not vested unless it is fixed

610

13-1.15

and without condition. Ashbourne School v. Department of Education, 43 Pa. Commw. 593, 403 A.2d 161 (Pa. Cmwlth. 1979). Sher, 940 A.2d at 634–35. The Commonwealth Court found that the actions of the assessment office were correct and did not constitute an illegal spot assessment. 13-1.15

Appropriate Jurisdiction for Challenging Use Value Determinations

Does an assessment appeals board or court of common pleas have subject matter jurisdiction to hear an appeal where the complaint is that the “use values” used in calculating preferential assessment on a property have been incorrectly determined by the Pennsylvania Department of Agriculture? The Clean and Green Act provides that the county assess all property at a standard assessment based on its fair market value. An owner of forest reserve property may apply for a preferential assessment and, if granted, the taxes paid will be based on the normal millage rate of taxation multiplied against the preferential assessment number rather than the higher standard assessment number. For purposes of breaches in the clean and green covenant, the rollback taxes will be calculated using the standard assessment number minus the preferential assessment, the difference being multiplied by the millage rates for the years subject to breach, with interest added. The Department of Agriculture regulations, at 7 Pa.Code § 137b.51, state: “The preferential assessment of land is determined by multiplying the number of acres in each land use subcategory by the use value for that particular land use subcategory, adding these products and multiplying the total by the county’s established predetermined ratio. The Department will establish land use subcategories as part of the procedure to establish use values.” The issue is the challenge to the calculation of the preferential assessment number, which is based on the use value of the land rather than the fair market value of the land for the standard assessment calculation. This use value is set and determined by the Department of Agriculture pursuant to 72 P.S. § 5490.4a, which states: (c) By June 30, 1999, and by May 1 of each year thereafter and in consultation with the Bureau of Forestry of the Department of Conservation and Natural Resources, the department shall establish and provide to all county assessors use countyspecific values for land in forest reserve.

611

Preferential Land Assessments

The county assessor can use the use values provided by the department or use lower values. 72 P.S. § 5490.4b states: (b) For each application for preferential assessment, the county assessor shall establish a total use value for land in forest reserve by considering available evidence of capability of the land for its particular use. Contributory value of farm buildings shall be used. *

*

*

(c) A county assessor may establish use values which are less than the values provided by the department under section 4.1, but lesser values shall be applied uniformly to all land in the county eligible for preferential assessment. Section 5490.5(a)(2) of the act requires the county assessor to notify the taxpayer and taxing bodies in writing of any preferential assessments granted or terminated for each parcel, including the land use category and the number of acres enrolled in each land use category, within five days after such change. Grants and terminations of preferential assessments are appealable as provided by 72 P.S. § 5490.9(a), which states: The owner of a property which is subject to preferential assessment or for which preferential assessment is sought, and the political subdivision in which said property is situated, shall have the right of appeal in accordance with existing law. It should be noted that nowhere in the Clean and Green Act is there specific authorization for appealing the land use valuations promulgated by the Department of Agriculture. The statute refers to appeals under the existing law, which would relate to the specific class county assessment laws, provided that a property owner may file and appeal to the assessment board, and at the appeal hearing the board may determine the property’s current market value and then apply the applicable ratio. The current market value is not the use value and is generally much higher than the preferential value. The statutory language use of the term “shall” makes the determinations mandatory, and this law provides no jurisdiction for the board to hear evidence or make any ruling on the use value. There is parallel statutory language for cases appealed from the board to the court of common pleas. This statutory language pertaining to the court is identical to that of the assessment board authority and jurisdiction. The statute requires the court to determine fair market value and multiply that by the appropriate ratio. The market value is clearly distinguishable from the preferential value or use value of the forest reserve land.

612

13-1.15

The Pennsylvania Code provides that actions taken by a subordinate officer of the secretary of agriculture are subject to administrative review through an appeal to the secretary. 7 Pa.Code § 131.2 defines “action” as: An order, decree, decision, determination or ruling by the Department [of Agriculture] affecting personal or property rights, privileges, immunities, duties, liabilities or obligations of a person, including, but not limited to, denials, modifications, suspensions and revocations of permits, licenses and registrations, and orders to cease the operation of an establishment or facility. This definition indicates that the promulgation of land use values by the department is subject to administrative review by the secretary of agriculture, not by the county assessment appeals boards or common pleas courts. To fail to raise this issue with the Department of Agriculture could be considered a deliberate bypass of the administrative procedure mandated in 7 Pa.Code § 131.21, and therefore no jurisdiction would exist in assessment boards or common pleas courts. It is submitted that the Pennsylvania Department of Agriculture is mandated to determine use values for preferential assessments of forest reserve land in each county, and this constitutes taking an action as defined above. Therefore, appellants must follow the administrative procedure set out in the following portion of the Pennsylvania Code. The department would best be able to handle the intricacies of the use value of forest reserve property. 7 Pa.Code § 131.21, Appeals, states: (a) Actions taken by a subordinate officer under authority delegated by the Secretary may be appealed to the Secretary by filing a written appeal within 15 days from the date of service of notice of the action. (b) The appeal shall set forth the name, address and telephone number of the appellant and shall include or be accompanied by a copy of the written notification of the action of the Department and a specification of objections setting forth the manner in which appellant is aggrieved by the action and the relevant issues to be resolved by the Secretary. Thereafter, the proceedings shall be limited to the issues set forth in the specification of objections. (c)

Failure to comply with this section shall be a sufficient basis for dismissing the appeal. The action of the Department is final to a person who fails to file an appeal or to perfect an appeal under this section. 613

Preferential Land Assessments

(d) Subsections (a)–(c) supersede 1 Pa. Code § 35.20 (relating to appeals from actions of the staff) and other applicable sections of the general rules including sections concerning the same, similar or related subject matter as provided in subsections (a)–(c). 7 Pa.Code § 131.32, Hearings, states: (a) When the proceedings are at issue and hearing is required, a formal evidentiary hearing shall be scheduled and a notice of hearing shall be sent to all parties to the proceedings. Unless ordered otherwise hearings shall be held in Harrisburg. (b) The Secretary may order proceedings involving a common question of law or fact to be consolidated for hearing of any or all of the matters in issue in the proceedings. (c)

A hearing will not be held if waived by appellant or respondent or if the parties stipulate all of the essential facts or agree to submit direct and rebuttal testimony or documentary evidence in affidavit form, sworn or affirmed on personal knowledge or by deposition.

(d) Hearings will not be continued except for compelling reasons. Requests for continuances shall be submitted to the Secretary in writing with a copy served upon the other parties to the proceedings. (e) Subsections (a)–(c) supersede 1 Pa.Code §§ 35.101, 35.121 and 35.122 (relating to waiver of hearing; initiation of hearings; and consolidation of formal proceedings) and other applicable sections of the general rules including sections concerning the same, similar or related subject matter as subsections (a)–(c). These provisions provide the appropriate forum for the hearing of complaints as to the Department of Agriculture’s calculation of use value. There is no jurisdiction for a common pleas court to hear these matters, since 42 Pa.C.S. § 761 requires that any appeals from state administrative determinations go to the Commonwealth Court. The Pennsylvania Supreme Court in Canonsburg General Hospital v. Department of Health, 422 A.2d 141, 144 (Pa. 1980), made a general statement of law: “Judicial review without either a proper record or an administrative adjudication would constitute ‘[p]remature interruption of the administrative process.’ ” This case was cited and followed in Colonial School District v. Department of Education, 602 A.2d 455 (Pa.Cmwlth.

614

13-1.16

1992). In accordance with this proposition is Pennhurst Medical Group v. Department of Public Welfare, 796 A.2d 423 (Pa.Cmwlth. 2002). Clearly, in order for any court to hear this matter, it must have first been heard and adjudicated by the Department of Agriculture, not by the assessment appeals board or common pleas court. 13-1.16

Farmstead Valuations

In Blair v. Berks County Board of Assessment Appeals, 20 A.3d 629 (Pa.Cmwlth. 2011), the court considered the proper method of valuing a farmstead on a forestland parcel eligible for preferential assessment under the Clean and Green Act. The court first noted that farmsteads are not eligible for preferential assessment where the underlying property has qualified as forestland. Only farmsteads on agricultural use parcels qualify. 72 P.S. § 5490.4b (“Farmstead land located within an area enrolled as agricultural reserve or forest reserve shall be assessed at agricultural use value if . . . (i) a majority of land in the application for preferential assessment is enrolled as agricultural use land”). At the trial court, the parties acknowledged that the farmstead in this case did not qualify for preferential assessment. The farmstead had undergone multiple renovations that resulted in the issuance of interim assessments. The parties had, in fact, agreed at trial to the value of the farmstead in light of the renovations. At issue was whether the commonlevel ratio must be applied to the value determination of the farmstead. The trial court had held that the common-level ratio must be applied to ensure that the assessment did not violate the uniformity clause of the Pennsylvania Constitution. The Commonwealth Court summarized the trial court’s holding as follows: [T]he Farmstead, which was ineligible for preferential assessment under the applicable regulations and would normally retain base year value, was instead being assessed at presentday fair market value. Determining that this procedure violated constitutional principles of uniformity, the trial court applied the county’s [common-level ratio] to the Farmstead’s fair market value, mimicking the procedure for maintaining tax uniformity in an assessment appeal involving a non-Clean and Green property. Blair, 20 A.3d at 632. On appeal, the assessment appeals board argued that the Clean and Green Act classification applied to the entire property, and the fact that the farmstead did not qualify for preferential assessment did not remove it from the ambit of the statute. The board also argued that the uniformity clause did not apply in the context of properties under the clean and green program. The Commonwealth Court rejected these arguments and stated: 615

Preferential Land Assessments

[T]he Farmstead . . . is not a Clean and Green property. Indeed, the Farmstead is specifically excluded from preferential assessment by section 4.2 of the Act. . . . [T]he Board concedes as much in its brief. The Board specifically states that “the Farmstead on the . . . property was not eligible for the preferential assessment. Instead, the Farmstead would be assessed at market value.” . . . Therefore, to avoid a violation of the constitutional requirement of tax uniformity, the trial court necessarily applied the [common-level ratio], which, “despite any inherent weaknesses, is an accepted calculation of the common level existing in the district and the standard against which the taxpayer’s assessment ratio should be measured for uniformity purposes. Blair, 20 A.3d at 633. While the sole issue in this case was the application of the commonlevel ratio to a farmstead not eligible for preferential assessment, both the trial court and the Commonwealth Court indulged in speculation about the proper calculation of the forestland property. The Clean and Green Act provides that the total use value for land in forest reserve includes “contributory value of farm buildings.” Although the parties had agreed to and accepted the farmstead’s value, the Commonwealth Court discussed the proper method of including such “contributory value”: [T]he trial court stated that, “[i]n essence, the contributory value of the farm building is set by subtracting what the fair market value of the Property would be if the farm building were never constructed from the actual fair market value of the Property, which includes the presence of the farm building.” . . . This method is consistent with 7 Pa. Code §137b.54, which requires a fair market comparison and the extraction of the contributory value of a farm building from a parcel’s total fair market value. This method is also consistent with Section 2 of the Act, 72 P.S. §5490.2, because the contributory value of a farm building is an allocated portion of a tract’s total fair market value and because the formula is not based on a farm building’s replacement cost. Id. at 634 (emphasis in original). The Commonwealth Court held that the common pleas court’s method of valuation was acceptable. 13-1.17

Calculation of Acreage

The Clean and Green Act provides for preferential assessment of certain parcels, including parcels devoted for “agricultural use.” A parcel of land is devoted for “agricultural use” if the “land was devoted to agricul616

13-1.17

tural use the preceding three years and is not less than ten contiguous acres in area, including the farmstead land, or has an anticipated yearly gross income of at least two thousand dollars ($2,000).” 72 P.S. § 5490.3. In Way v. Berks County Board of Assessment Appeals, 990 A.2d 1191 (Pa.Cmwlth. 2010), the Commonwealth Court considered the application of the acreage and income requirements. The property of the taxpayer, Richard F. Way, was described as follows: Taxpayer owns land . . . that has a gross acreage of 10.019 and a net acreage of 9.836. The two figures differ because the gross acreage includes land located on a public road. The land is divided between Taxpayer’s home, three agricultural sections totaling approximately five-and-a-half acres, and a wooded area totaling less than one acre. The three agricultural sections are farmed by Marvin Adam (Farmer), a retired farmer who lives nearby. He grows corn, barley and soybeans for sale and hay for his personal use. Farmer does not pay Taxpayer for the right to farm his land; rather, Farmer receives the benefit of the crops, and Taxpayer receives the benefit of someone taking care of his land. Id. at 1192–93. The court described the farming activity giving rise to gross income as follows: Farmer testified that he plants the same amount of each crop each year, but that the price fluctuates. In 2008, he estimated the value of the corn he planted to be $900 at the time of trial, but that he had not sold it yet, and that it “could be” worth up to $1,800 by July, depending on the market price. He also sold approximately $210 worth of barley and $320 worth of soybeans. He further testified that he uses the hay he grows to feed his farm animals, but that if he sold it, he would receive approximately $600 to $700. Farmer made less money off the crops in 2007 due to low prices, but he made a similar amount in 2006 because even though the prices were down, he had a higher yield. Id. at 1193. The Commonwealth Court held that Way’s property failed to meet both requirements. While the gross acreage of the property exceeded 10 acres, the net acreage was less than 10 acres. While noting that the Clean and Green Act did not specify the use of net versus gross acreage, the court stated that a regulation interpreting the statute defined “ineligible land” as “[l]and which is not used for any of the three eligible uses (agricultural use, agricultural reserve or forest reserve) and therefore cannot

617

Preferential Land Assessments

receive use value assessment.” 7 Pa.Code § 137b.2. With that definition in mind, the court noted: Taxpayer’s land consists of four types: land farmed by Farmer, his house and yard (farmstead land), a woodlot, and land over which runs a public road. The first three clearly fall under the definition of “agricultural use” and also make up the entirety of his 9.836 net acres of land. The public road solely accounts for the difference in size between Taxpayer’s 10.019 gross acres and his 9.836 net acres. This land is not used for agriculture or forestry, nor is it part of the farmstead. Because a public road falls under the definition of ineligible land, it cannot be used in calculating whether Taxpayer qualifies for preferential use assessment under the Clean and Green Act. Way, 990 A.2d at 1194. In further support of its holding, the court noted that requiring the use of gross acreage in computing the tax value would throw the county’s entire assessment system into chaos, as all county assessments use net acres because the tax maps use net acres. The court was unwilling to make such a sweeping change in the system of assessment, especially where Way had failed to make any justification for doing so. Way also argued that the lower court should have included in the calculation of anticipated yearly income the “expected” value of his corn, $1,800, as well as the value of his hay, $600–$700, which was not actually sold but used in the farming operation. The Commonwealth Court’s acceptance of either argument would have pushed Way’s gross income over the $2,000 threshold under the Clean and Green Act. The court, however, rejected both arguments, stating: Farmer never sold the hay he harvested from Taxpayer’s land. Rather, he testified that he used this home-grown hay to feed his farm animals rather than buying hay on the market. If he had to buy an equivalent amount of hay, it would have cost him $600–$700. . . . [I]f Farmer had sold the hay he grew on Taxpayer’s land, he would have had taxable income, but he did not, making the estimated $600 to $700 value of the hay not “anticipated yearly income” necessary to satisfy the $2,000 threshold. Likewise, Taxpayer cannot place a higher value on the corn based on what Farmer testified it “could be” worth several months after he testified if the market prices rose to a certain level. “Anticipated yearly income” is different from “hoped-for yearly income” or “possible yearly income.” Anticipation entails an expectation, not a desire or a possibility. Farmer testified that there was a possibility that the corn would be worth $1,800 by the time he sold it, but at the time of his testimony, 618

13-1.18

it was worth $900. Furthermore, Farmer testified that in the previous two years, he had received similar to slightly lower values for the crops he sold. . . . [N]othing in the record contradicts the $900 value that Farmer placed on the corn. Id. at 1195. Consequently, the court upheld the trial court’s ruling that Way’s property was not entitled to preferential assessment. 13-1.18

Forestland Valuations

In Herzog v. McKean County Board of Assessment Appeals, 14 A.3d 193 (Pa.Cmwlth. 2011), the Commonwealth Court considered the application of the income capitalization approach in valuing a parcel of forestland eligible for preferential assessment. The Clean and Green Act provides for preferential tax assessment of both farmland and forestland. It requires that the county assessor first establish a “use value” for the land. When establishing the use value of forestland, the assessor may use the values established for each county by the Pennsylvania Department of Agriculture. Alternatively, the assessor may establish his or her own use value for forestland, as long as that use value is lower than the Commonwealth’s use value and the value is applied uniformly in the county. While the Clean and Green Act mandates the use of this approach when valuing farmland, it does not specify a single method to be used when valuing forestland. In this case, landowners James and Scott Herzog had objected to the preferential assessments on their forestland for the years 2000 and 2002. The county assessor had calculated the assessments using the use value as established by the Commonwealth, which used the income capitalization approach to value. It was accepted that the Herzogs’ forestland did not actually produce any income in the years under review. Before the trial court, the Herzogs presented the testimony of two expert witnesses in support of their contention that the assessments improperly used the income capitalization approach. The Commonwealth Court summarized their testimony as follows: [T]he Herzogs called David Lombardo, an expert in forest management, to testify about the value of the timber on their land and about timber management practices. Lombardo testified that he . . . prepared a “Forest Type Evaluation Report” on the Herzogs’ property, which considered the type of timber, the rotation cycle, and average annual management costs. Lombardo’s report valued the timber, by type of tree, from 2000 to 2004. Lombardo explained that, as with any commodity, timber values fluctuate. . . . [B]ecause of these price fluctuations, Lom619

Preferential Land Assessments

bardo opined that an annual net income methodology should not be used to value a forested property the size of the Herzogs’ property. . . . Lombardo did not offer a use value for the Herzogs’ parcels for the years in question. The Herzogs next called Wesley Zapel, an accountant, to testify about an appropriate use value for their property. Zapel testified that use values should be calculated using a discounted future cash flow method, rather than an income capitalization approach. Zapel admitted that he had no experience with the Clean and Green Act or in calculating the value of forested land, but he explained that he was conversant with the income capitalization and the discounted future cash flow methods of valuation. According to Zapel, the discounted future cash flow method is better suited for businesses that do not have an annual income stream, such as forestry. Zapel opined that it was inappropriate to [use] the income capitalization approach to develop a use value for land in forest reserves. Zapel acknowledged that because his recommended discounted cash flow method assumes a 90-year rotation period, it yields a very low land value at the beginning of the rotation period. Indeed, in some years the forest land would have no value or a negative value. Recognizing that it would be unrealistic to expect a county to forgive all taxes or to have the county pay taxes to owners of forest land, Zapel reduced the assumed 90-year rotation to a 22-year, six month rotation period. Zapel’s discounted future cash flow methodology yielded use values of $10 per acre in 2000 and $22 per acre in 2003 for the Herzogs’ property. These use values were proposed to apply only to the Herzogs’ parcel; the assessed values of other forested parcels in McKean County would vary, depending upon the age and type of timber grown on those parcels. Zapel opined that his discounted cash flow methodology yielded a true use value of forested land. Id. at 197–98. In response to the Herzogs’ expert testimony, the assessment appeals board presented the testimony of Marc McDill, a professor of forest economics at Pennsylvania State University. McDill found several flaws in the testimony provided by Zapel and opined that the method set forth would result in higher tax assessments as a property owner’s forest reserves matured. This would create an incentive to harvest the timber prior to maturity, the exact opposite of the purpose expressed in the Clean and Green Act. The trial court found the Herzogs’ expert testimony unpersuasive and accepted McDill’s testimony. 620

13-2

Before the Commonwealth Court, the Herzogs first argued that the lower court improperly failed to accept their experts’ testimony. The appellate court quickly disposed of this issue, finding that the trial court’s decision was supported by ample evidence and under existing precedent could not be overturned on appeal. Earl Twp. v. Reading Broadcasting, Inc., 770 A.2d 794 (Pa.Cmwlth. 2001); Pennypack Woods Home Ownership Ass’n v. Board of Revision of Taxes of City of Philadelphia, 639 A.2d 1302 (Pa.Cmwlth. 1994). The court then turned to the Herzogs’ argument that the income approach to value should not have been applied because their forestland did not generate annual income. The Herzogs noted that the Clean and Green Act did not require the county assessor to apply the use value established by the Commonwealth. Rather, the Herzogs argued, the county assessor should be required to “select the most appropriate use value and then justify that selection.” Herzog, 14 A.3d at 201. The court noted that the statute does permit county assessors to use a different use value. If such a decision is made, the assessor must consider “the capability of the land for its particular use, and [the] . . . value must be a single, per-acre number that applies to all forest land in the county.” Id. at 202. The court, however, rejected the Herzogs’ attempt to read additional requirements into the Clean and Green Act and noted that the statute does not require the assessor to make any such finding if the Commonwealth’s use value is applied. In short, while the statute provides that county assessors may establish lower use values if they so choose, it does not mandate their establishment. The court found that the Herzogs had failed to meet their burden of proof. 13-2

Covenants Preserving Open Space—Act 515

Under 16 P.S. § 11941 et seq., county commissioners may covenant with landowners to preserve open space and to reflect the fair market value of the land as restricted by the covenant for assessment purposes. The law, also referred to as Act 515, defines “open space land” as: [a]ny land, including farm, forest and water supply land, in common ownership, of at least ten acres in area, in which site coverage by structures, roads and paved areas does not exceed three percent. Open space land includes land the restriction on the use of which could (i) conserve natural or scenic resources, including but not limited to soils, beaches, streams, wetlands, or tidal marshes; (ii) enhance the value to the public of abutting or neighboring parks, forests, wildlife preserves, nature reservations, or other public open spaces; (iii) augment public recreation opportunities; (iv) preserve sites of historic, geologic, or botanic interest; (v) promote orderly urban or subur621

Preferential Land Assessments

ban development; or (vi) otherwise preserves open space without structures, roads and paved areas exceeding three percent of site coverage. No land can be subject to Act 515 unless designated as farm, forest, water supply, or open space land in a plan adopted after a public hearing by the planning commission of the county in which the land is located. Farmland is defined as any tract or tracts of land, in common ownership of at least 20 acres in area, used for the raising of livestock or the growing of crops. Forestland is defined as any tract or tracts of land in common ownership of at least 25 acres in area used for the growing of timber crops. Water supply land is defined as any land used for the protection of watersheds and water supplies, including land used for the prevention of floods and soil erosion, for the protection of water quality, and for replenishing surface water and groundwater. 16 P.S. § 11943 provides that all counties are authorized to enter into covenants with owners of land designated as farm, forest, water supply, or open space land pursuant to a plan for the preserving of land into designated use. Such covenants and extensions take effect upon the recording of the plan in the office of the recorder of deeds. The landowner may voluntarily covenant for himself or herself and successors that the land will remain an open space use as designated on the plan for a period of five or 10 years (depending upon classification of county) commencing with the date of the covenant period. The county must covenant that the real property tax assessment for a period of five or 10 years (depending upon classification of county) commencing with the date of the covenant will reflect the fair market value of the land as restricted by the covenant. The local assessment appeals board must take into consideration the covenant’s restriction upon fixing the assessment. 16 P.S. § 11944 provides that on each year of the anniversary date of entering the covenant, it will be extended for one year unless (1) at least 30 days before the anniversary date of entering the covenant, the landowner notifies the county that he or she wishes to terminate the covenant at the expiration of 10 years from the anniversary date or (2) at least 30 days before the anniversary date of entering the covenant, the county notifies the landowner that it wishes to terminate the covenant at the expiration of 10 years from the anniversary date on the sole ground that the plan designating the land as farm, forest, water supply, or open space land has been amended officially so the designation is no longer in accord with the plan. All notifications of desires to terminate the covenant must be by registered mail. The county governments, by statute, are authorized to establish procedures governing covenants between landowners and counties for preservation of land use in their respective geographical areas. 16 P.S. § 11946 establishes remedies for the county when the landowner breaches the covenant. If the landowner, his or her successors, or 622

13-2.1

assigns, while the covenant is in effect, alters the use of the land to any use other than that designated in the covenant, the alteration will constitute a breach of the covenant, and the landowner at the time of the breach must pay to the county, as liquidated damages, the difference between the real property taxes paid and the taxes that would have been payable absent the covenant, plus compound interest at the rate of 5 percent per year from the day of entering the covenant to the date of the breach, or from a date five years prior to the date of its breach, whichever period is shorter. Such liquidated damages will be a lien upon the property collectible in the manner provided by law for the collection of unpaid real estate taxes. The acquisition by lease, purchase, or eminent domain, and use of rights of way or underground storage rights in such land by a public utility or other body entitled to exercise the power of eminent domain will not constitute an alteration of use or a breach of covenant. 13-2.1

Breach

The Commonwealth Court dealt with the interpretation of Act 515 in In re Appeal of Exton Development, Ltd., 494 A.2d 34 (Pa.Cmwlth. 1985). In this case, Exton Development, Ltd., owned a 271-acre tract protected by an Act 515 covenant with Chester County. The property consisted of three parcels that were separately maintained on the tax rolls. Four acres from one parcel were taxed separately because of the presence of various structures. Exton subdivided a three-acre lot from that four acres and conveyed that lot by deed to a third party. Exton then received a variance and/or special exception to operate two of the existing structures on the land as a restaurant and a 16-unit motel, and it received building permits for this purpose and began work on the structures. The assessment appeals board notified Exton that these actions breached the Act 515 covenant and assessed rollback taxes on the entire 271 acres. The common pleas court determined that the acres occupied by the structures had never received preferential tax treatment and were not covered by the Act 515 covenant. Therefore, Exton had not breached the covenant and was not liable for rollback taxes. The Commonwealth Court, affirming the lower court decision, held: This Court has stated that Act 515 “provides that a county may covenant that a tax assessment will reflect the fair market value of the land as restricted by the covenant. . . . [A] covenant binding on the landowner under Act 515 would have some effect upon fair market value.” Bensalem Township School District v. Bucks County Commissioners, 8 Pa. Commonwealth Ct. 411, 416-17, 303 A.2d 258, 262 (1973). The County in the case sub judice has a Plan for Implementation of Act 515 (Plan), adopted by the County Planning Commission on May 9, 1974. This Plan 623

Preferential Land Assessments

provides, inter alia, that “[l]ands used in a manner inconsistent with Act 515 and the purpose of this plan are defined as follows: . . . B. Land under or within 100 feet of any structure, parking area, paved area or free-standing sign located on the same tract.” Plan, Article III.B. The four acres which the County determined to fall within the proscription of Article III.B. of the Plan did not receive any preferential tax treatment. The record shows and the parties agreed, that the four acres were assessed the same before and after the covenant was entered into. The remainder of the 271 acres was assessed at a substantially lower value after the covenant was entered into. We, therefore, affirm the trial court’s decision that the acres here at issue were not subject to the terms of the Act 515 covenant and the conveyance of the acres and the change in use of the structures located upon those acres was not a breach of the covenant. Id. at 36. The Commonwealth Court specifically distinguished this case from Deigendesch v. County of Bucks, 482 A.2d 228 (Pa. 1984), by stating: In Deigendesch the Court held that when the landowners conveyed 5.4 acres out of a 76.39 acre tract subject to an Act 515 covenant, the covenant was breached. The 5.4 acres were subject, however, to the terms of the covenant. The three acres here conveyed were not subject to the covenant, a distinction which requires the result which we reach in the present case. Exton Development, 494 A.2d at 36, n.4. 13-2.2

Scope of Activities Constituting a Breach

The case of Jones v. Northampton County Tax Assessment Office, 688 A.2d 794 (Pa.Cmwlth. 1997), illustrates the type of activity that does not constitute a breach of the Act 515 covenant. Here, Robert Jones owned 103 acres of land in adjoining parcels. One parcel, referred to as J6-5-2677, consisted of quarry, wasteland, and woodland. In 1977, Jones entered an Act 515 covenant with the county on that parcel, which would remain vacant open land, with water from the quarry being used to irrigate adjoining farmland. In 1994, Jones sold the entire 103 acres to the Southmoore Golf Course Associates, L.P. After the sale, J6-5-2677 remained unchanged and the quarry was still used to irrigate the adjacent land, which had now been turned into a golf course. Additionally, a new pump was built to replace the old pump that formerly irrigated the adjoining farm and now provided water for the golf course. The assessment appeals board con624

13-2.2

tended that a breach of Act 515 occurred in 1994 regarding all the parcels, including J6-5-26, and assessed about $38,000 in rollback taxes. Jones paid the county $22,000 but refused to pay $16,150 levied against J6-5-26. The court of common pleas found no breach of the covenant on this parcel. The issue before the Commonwealth Court was whether the trial court erred in determining that the use of J6-5-26 had not changed and therefore no breach of the Act 515 covenant had occurred. The appellate court held: We cannot disturb this finding absent an abuse of discretion or an error of law. Recognizing that, in the instant case, there is no legal or physical division of the subject property, Appellants argue that there is a “symbiotic relationship” between the golf course and the quarry because the golf course relies on the water supply from the quarry to maintain its greens. However, we agree with the trial court that the subject property is a tax parcel in itself independently restricted by a covenant separate and distinct from the golf course. Therefore, we are limited to evaluating the use of parcel J6-5-26 only and not the use of any adjoining property because only a change in use of J6-5-26 can breach the Covenant at issue in the instant case. Id. at 795–96. The county then argued that the use of the water supply on J6-5-26 to irrigate a golf course was a breach of the covenant. A breach is warranted only where the landowner or his or her assigns alter the use of the property to any other use not designated in the covenant. Parcel J6-5-26 was an abandoned slate quarry consisting of waste from the quarry banks and included 10 acres of water. The court found that the new owner’s activities remained the same under Act 515’s definitions of “open space land” and “water supply land.” The appellate court ruled: Applying these definitions to the subject property in the case sub judice demonstrates that the subject property is open space land. First, the quarry is held in common ownership by Southmoore Golf Associates and its seventy-seven acres exceeds the ten-acre threshold required by Act 515. Secondly, the quarry is a water supply that is used to irrigate adjoining land, prevent soil erosion, preserve water quality, and replenish ground and surface water. . . . The seventy-seven-acre parcel also has the same proportion of woodlands and wasteland as it had at the inception of the Covenant. . . . *

*

*

625

Preferential Land Assessments

In the instant case, the subject parcel exists in the state that it was in prior to and contemporaneous with the inception of the agreement. . . . The physical features and the contours of the subject property did not undergo any changes. . . . The parcel remains unaltered as open space land and woodland eligible for preferential tax treatment under Act 515. Therefore, absent evidence in the record that the golf course draws more water than previously demanded by the farmland thereby threatening to change the condition of the property, the trial court did not commit an error of law or abuse its discretion in concluding that use of the water on the subject parcel to irrigate a golf course rather than farmland is not a changed use in breach of the Covenant. Id. at 797. It is clear in this case that the courts will not allow the government to deny a taxpayer the benefits of a preferential assessment without a clear violation of Act 515. Terms such as a “symbiotic relationship” with a nonpreferential use on an adjoining property will not substitute for an actual showing of a direct breach on the covenanted parcel by the property owner or his or her assigns.

626

14 Tax Abatements and Miscellaneous Exemptions

14-1 14-1.1

Local Economic Revitalization Tax Assistance Act (LERTA) General Provisions

The Local Economic Revitalization Tax Assistance Act (LERTA), 72 P.S. § 4722 et seq., allows local taxing bodies to temporarily exempt any improvements to certain deteriorated industrial, commercial, and other business property located in a designated deteriorated area. LERTA defines “deteriorated property” as: Any industrial, commercial or other business property owned by an individual, association or corporation, and located in a deteriorating area, as hereinafter provided, or any such property which has been the subject of an order by a government agency requiring the unit to be vacated, condemned or demolished by reason of noncompliance with laws, ordinance or regulations. The statute defines “improvement” as: Repair, construction or reconstruction, including alterations and additions, having the effect of rehabilitating a deteriorated property so that it becomes habitable or attains higher standards of safety, health, economic use or amenity, or is brought into compliance with laws, ordinances or regulations governing such standards. Ordinary upkeep and maintenance shall not be deemed an improvement. LERTA is an enabling act to implement the 1968 amendment to Article VIII, section 2(b)(iii) of the Pennsylvania Constitution, which states that the General Assembly may, by law: [e]stablish standards and qualifications by which local taxing authorities may make uniform special tax provisions applicable to a taxpayer for a limited period of time to encourage im627

Tax Abatements and Miscellaneous Exemptions

provement of deteriorating property or areas by an individual, association or corporation, or to encourage industrial development by a non-profit corporation. Section 4725 of LERTA provides that a local taxing authority, which is defined as a county, city, borough, incorporated town, township, institution district, or school district having authority to levy real estate tax, may by ordinance or resolution exempt from real property taxation improvements to deteriorated properties and the assessed valuation of new commercial, industrial, or business improvement within the boundaries of a specifically delimited “deteriorated area.” Before adopting such an ordinance or resolution, the municipal governing authority must set the geographic area in which the exemption will be operative. The act requires that at least one public hearing be held to determine the boundaries of the LERTA zone. At the hearing, the local taxing authorities, planning commission, or redevelopment authority, other public or private agencies, and individuals who are knowledgeable and interested in the improvement of the deteriorated area can present their recommendations concerning the boundaries of the area to be delineated by the municipal governing authority. LERTA states that such recommendations should consider the following criteria: (1) blighted areas, as defined in the Urban Redevelopment Law, 35 P.S. § 1701; (2) impoverished areas, as defined in the Neighborhood Assistance Act, 62 P.S. § 2081 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.); (3) unsafe, unsanitary, and overcrowded buildings; (4) vacant, overgrown, and unsightly lots of ground; (5) disproportionate number of tax delinquent properties; (6) excessive land coverage; (7) defective design or arrangement of buildings, street, or lot layouts; (8) economically and socially undesirable land uses. The act provides that properties adjacent to areas meeting these criteria that would not otherwise qualify may be included within the “deteriorated area” if the local taxing authority determines that the new construction or improvement would encourage, enhance, or accelerate improvement of the deteriorated properties within the depressed communities. The ordinance or resolution must specify a description of the “deteriorated areas” as determined by the municipal governing body. It should be 628

14-1.1

mentioned that “municipal governing body” is defined by the statute as a city, borough, incorporated town, or township. This definition would preclude a county from implementing a countywide LERTA program on its own, but a county is permitted to make recommendations to a municipal governing body as to the location of the deteriorated area. The ordinance or resolution must contain the cost of improvements per unit to be exempted and the schedule of taxes exempted. Section 4725(b) provides that two or more municipal governing bodies may join together to determine the location of a “deteriorated area” and to establish a uniform maximum cost of improvement per unit. This section also allows local taxing authorities such as counties, institution districts, and school districts by ordinance or resolution to agree to adopt tax exemptions based on the similar adoption by an adjacent local taxing authority or by a local taxing authority with mutual taxing jurisdiction. The local taxing authority may provide for tax exemption on the assessment attributable to the actual cost of the improvement or new construction up to any maximum cost uniformly established by the municipal governing authority. This maximum cost must be uniformly applied to all eligible deteriorated property within the jurisdiction. Section 4726(b) states that whether or not the assessment eligible for exemption is the actual cost or a maximum cost, the amount of taxes exempted must be established by the local taxing authority and conform with the following: (1) The length of the schedule of taxes exempted shall not exceed ten years. (2) The schedule of taxes exempted shall stipulate the portion of new construction or improvements to be exempted each year. (3) The exemption from taxes shall be limited to the additional assessment valuation attributable to the actual costs of new construction or improvements to deteriorated property or not in excess of the maximum cost per unit established by a municipal governing body. The exemption from taxes will be upon the property exempted and will not terminate upon the sale or exchange of the property. Under section 4727, any person desiring tax exemption must notify each local taxing district in writing on a form provided by the local governing authority. The form must be submitted at the time the taxpayer secures a building permit for the new construction or improvement. If the jurisdiction does not have a building permit process, then the form must be submitted at the start of construction. A copy of the exemption request filed with the local taxing authority must be forwarded to the local board of assessment appeals or appropriate 629

Tax Abatements and Miscellaneous Exemptions

assessment agency. The assessment board, after the completion of the new construction or improvement, must assess separately the new construction or improvement and calculate the amounts of the assessment eligible for tax exemption according to local ordinance or resolution. The board must notify the taxpayer and the local taxing authority of the reassessment and the amounts eligible for exemption. Appeals of the board’s determinations may be taken by the taxpayer or local taxing authorities as provided by law. This notice should therefore be likened to an assessment notice, and the applicable appeal procedures for each class county code should be adhered to. 14-1.2

Case Law

The case of Northwood Nursing Care & Convalescent Home, Inc. v. City of Philadelphia, 511 A.2d 281 (Pa.Cmwlth. 1986), dealt with the extent of a local taxing authority’s control over the LERTA program within its jurisdiction. On July 12, 1983, the taxpayer’s architect received a permit to construct an addition to its nursing care facility in Philadelphia. The permit notified the taxpayer that information about tax exemption could be obtained by contacting the tax revision board and listed the board’s address and phone number. As required by the city ordinance implementing LERTA, the building permit also stated that an exemption application must be filed with the board within 60 days after the issuance of the permit. On October 11, 1984, the taxpayer filed an application for a LERTA tax exemption with the board, which denied the request as untimely. The court of common pleas affirmed on the grounds that the notice printed on the building permit was sufficient to alert the taxpayer of its rights. The taxpayer appealed to the Commonwealth Court on the basis that 72 P.S. § 4727 does not provide any time limit for a taxpayer to file for a LERTA tax exemption. The appellate court rejected this argument and held: Appellant argues that because the Act does not provide for a time limit within which to apply for the exemption, [the city ordinance] which implements the Act[] may not limit the time in which a taxpayer must apply for the exemption. We disagree. The Act specifically provides that the taxpayer must notify the local taxing authority of his or her intention to seek an exemption “at the time he secures the building permit.” The Philadelphia City Council has interpreted this to mean “within sixty days of [securing] the building permit.” This is a reasonable interpretation which is within the authority granted to the City to supplement the enabling legislation. The Act specifically provides that it “shall be construed to authorize local taxing authorities to” provide tax exemptions. 72 P.S. § 4723. The 630

14-1.2

plain language of the Act clearly contemplates that whether the exemption will be available and how it is to be obtained is left to the determination of the local taxing authorities. Northwood, 511 A.2d at 282–83. Therefore, local taxing authorities are to be given reasonable latitude to administer the LERTA program within their respective jurisdictions. MacDonald, Illig, Jones & Britton v. Erie County Board of Assessment Appeals, 604 A.2d 306 (Pa.Cmwlth. 1992), addressed the commencement date for a LERTA tax exemption. In June 1988, a building permit was obtained and construction began on the shell of a new office building. A timely LERTA tax exemption application was filed with the appropriate authorities. In March 1989, another building permit was obtained, and construction began on the interior condominium units. An application for LERTA tax exemption was also timely filed. The condo units were completed and occupied in June 1989. In November 1989, the assessment appeals board issued a notice apportioning the assessment between the building shell and the interior condominium units. The notice stated that the tax exemption for the shell and common areas would run for five years starting in 1989, and for five years starting in 1990 for the condominiums. The start of the tax exemption complied with Erie County Ordinance No. 16, which provided that the LERTA tax exemption commences the year immediately following the year in which the building permit is issued. Taxpayers who owned two of the condo units appealed on the basis that LERTA section 4727(a) states that the assessment agency “shall” assess the new construction or improvement “after completion of the new construction or improvement.” The taxpayers argued that the first year of the tax exemption should have been 1990, the year after the completion of the shell and common areas. The issue before the court was whether LERTA precludes a local taxing district from starting a LERTA exemption at any time other than the tax year immediately following the completion of the new construction or improvements. The Commonwealth Court held: We agree that the time and manner of conducting the assessment are of the essence under LERTA and that a directoryonly interpretation could have a substantial effect on the benefits to be derived under the statute, as the facts of this case illustrate. The legislature’s careful choice of words demonstrates an intent that the provisions employing the word “shall” be mandatory. Also, a close reading of the disputed sentence in Section 6(a) shows that the phrase “in accordance with the limits established by the local taxing authorities” modifies only the phrase establishing the duty of the authority to “calculate the amounts of the assessment eligible for tax ex631

Tax Abatements and Miscellaneous Exemptions

emption.” LERTA authorizes an authority to limit the number of years that an exemption shall exist (Section 5(b)(1)) and to limit the portion of the assessment eligible for exemption in each year that it is available (Section 5(b)(2)). However, Section 6(a) does not authorize an authority to commence the exemption in a year other than the year after the completion of the project. Id. at 311 (emphasis in original). Therefore, it is apparent that the county interpretation overstepped LERTA’s statutory provisions and that the first year of a LERTA tax exemption cannot begin until the first year following completion of the new construction or improvement. s 14-1.3

Commencement Time for LERTA Exemptions

The Commonwealth Court revisited the issue of LERTA interpretation in Lincoln Philadelphia Realty Associates I v. Board of Revision of Taxes of City of Philadelphia, 720 A.2d 174 (Pa.Cmwlth. 1998), which involved six properties. Philadelphia issued a five-year exemption from taxation that began in the year after the building permit was issued for each property. For three of the properties, the exemption period began in 1987; for two of the properties, it started in 1989; and for one property, it began in 1991. The building owners filed assessment appeals for tax years 1993 and 1994 on the premise that the exemption period should have run from the year after completion of the improvements. The taxpayers filed initially with the city tax revision board, which denied the appeal. Subsequently, they appealed to the court of common pleas, which found that the decision in MacDonald, Illig, 604 A.2d 306, was controlling. That case held that LERTA mandates that the tax exemptions commence in the year after the completion of the construction or improvements. The court remanded the matter to the board for calculation of the benefit due each of the taxpayers. The board, on remand, denied the reassessment appeal a second time, disregarding the court’s findings and order. The case was reappealed to the common pleas court and reassigned to a different judge. The second judge, on the same set of facts, reversed the first judge and found that MacDonald, Illig was distinguishable and held that the taxpayers were not entitled to relief because they had not filed to the board in a timely manner to take advantage of the holding in MacDonald, Illig. The Commonwealth Court reversed and reinstated the first judge’s decision. The appellate court initially stated: In MacDonald, Illig we held that an Erie County ordinance was void insofar as it conflicted with the commencement of real estate tax exemptions in the year after completion of the 632

14-2

eligible improvements, as provided under LERTA. 604 A.2d at 313. A taxing authority does not have the authority under LERTA to change the statutorily mandated time for commencement of the real estate tax exemption. Id. Lincoln Philadelphia Realty Associates I, 720 A.2d at 176. The court found that the first judge correctly concluded that MacDonald, Illig applied to the case and that based on the law-of-the-case doctrine as outlined in Commonwealth v. Starr, 664 A.2d 1326 (Pa. 1995), the second judge was precluded from deciding otherwise. Furthermore, the Commonwealth Court stated that taxpayers had filed their appeal at the earliest possible moment. Specifically, the taxpayers were not required to appeal from the notice of acceptance into the LERTA program, as the exemption notices were not adjudications under local agency law because the taxpayers were not given notice or an opportunity to be heard as required by 2 Pa.C.S. § 553. Therefore, the appropriate time to appeal an assessment was on or before the first Monday in October, pursuant to 72 P.S. § 5341.14. In 525 Lancaster Ave Apts, LP v. Berks County Board of Assessment Appeals, 111 A.3d 1231 (Pa.Cmwlth. 2015), the Commonwealth Court held that the trial court improperly dismissed a taxpayer’s appeal due to the subsequent placement of the subject property in an exempt LERTA scheme. The court reasoned that the eventual LERTA exemption did not render the previous appeal moot because the entire valuation was appealed and the LERTA scheme did not permit such an appeal. 14-2

Improvement of Deteriorating Real Property or Areas Tax Exemption Act

The Improvement of Deteriorating Real Property or Areas Tax Exemption Act, 72 P.S. § 4711-101 et seq., grants tax abatement on residential improvements and new residential construction in deteriorated areas. The legislation includes two related and parallel statutes: 72 P.S. § 4711201 et seq., pertaining to improvement of structures in deteriorating neighborhoods, and 72 P.S. § 4711-301 et seq., relating to the construction of new residential dwellings in deteriorated neighborhoods. The purpose of these enactments is to provide incentives in the form of tax breaks for rehabilitation of residential housing stock in decaying neighborhoods as well as the building of new homes in the area. These tax breaks allow municipalities to phase in taxes due on improvements or new construction in blighted neighborhoods or areas over a long period of time.

633

Tax Abatements and Miscellaneous Exemptions

These statutes are enabling acts that implement the 1968 amendment to Article VIII, section 2(b)(iii) of the Pennsylvania Constitution, which states that the General Assembly may: [e]stablish standards and qualifications by which local taxing authorities may make uniform special tax provisions applicable to a taxpayer for a limited period of time to encourage improvement of deteriorating property or areas by an individual, association or corporation, or to encourage industrial development by a non-profit corporation. 14-2.1

Improvement of Deteriorated Dwellings

Section 4711-201 contains the following definitions: (1) “Deteriorated property” means a dwelling unit located in a deteriorated neighborhood, as hereinafter provided, or a dwelling unit which has been or upon request is certified by a health, housing or building inspection agency as unfit for human habitation for rent withholding, or other health or welfare purposes, or has been the subject of an order by such an agency requiring the unit to be vacated, condemned or demolished by reason of noncompliance with laws, ordinances or regulations. (2) “Dwelling unit” means, unless otherwise defined in the ordinance or resolution providing for tax exemption, a house, apartment, or group of rooms intended for occupancy as separate living quarters by family or other groups or a person living alone, containing a kitchen or cooking equipment for the exclusive use of the occupants. (3) “Improvement” means repair, construction or reconstruction, including alterations and additions, having the effect of rehabilitating a structure so that it becomes habitable or attains higher standards of housing safety, health or amenity, or is brought into compliance with laws, ordinances or regulations governing housing standards; ordinary upkeep and maintenance shall not be deemed an improvement. Section 4711-202 provides that a local taxing authority, which is defined as a county, city, borough, incorporated town, township, or school district having authority to levy real property taxes, may by ordinance or resolution exempt from real property taxation the assessed valuation of improvements to deteriorated properties in the amounts to be scheduled pursuant to statutory authority.

634

14-2.1

Before adopting an ordinance or resolution, the taxing authority must set the boundaries of a deteriorated neighborhood wholly or partially within its jurisdiction. The act requires that at least one public hearing be held to determine the boundaries of the deteriorated zone. At the hearing, the planning commission or redevelopment authority, other public or private agencies, and individuals knowledgeable and interested in the improvement of the deteriorated neighborhoods can present their recommendations concerning the location of the boundaries of a deteriorated neighborhood. 72 P.S. § 4711-202 provides that such recommendations presented to the local taxing authority should consider the following criteria: (1) blighted areas, as defined in the Urban Redevelopment Law, 35 P.S. § 1701; (2) impoverished areas, as defined in the Neighborhood Assistance Act, 62 P.S. § 2081 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.); (3) unsafe, unsanitary, and overcrowded buildings; (4) vacant, overgrown, and unsightly lots of ground; (5) disproportionate number of tax delinquent properties; (6) excessive land coverage; (7) defective design or arrangement of buildings, street, or lot layouts; and (8) economically and socially undesirable land uses. The ordinance or resolution must specify a description of the “deteriorated neighborhood” as determined by the local taxing authority. Also, the ordinance or resolution must contain the cost of improvements per unit to be exempted and the schedule of taxes exempted. The act provides that the taxing authority may grant a tax exemption on the assessment attributable to the actual cost of improvements up to the maximum cost per dwelling unit specified or up to any lesser multiple of $1,000. If a local taxing authority by ordinance or resolution specifies a lesser cost than the maximum, that amount may not be increased by any subsequent ordinance or resolution for a period of two years, nor may the schedule of taxes exempted be changed for that period. Under section 4711-203(a), regardless of whether the assessment eligible for exemption is based on a maximum cost or a lesser cost, the actual amount of taxes exempted must conform with the following: (1) For the first year for which improvements would otherwise be taxable, one hundred per cent of the eligible assessment shall be exempted; for the second year, ninety 635

Tax Abatements and Miscellaneous Exemptions

per cent of the eligible assessment shall be exempted; for the third through tenth years, eighty, seventy, sixty, fifty, forty, thirty, twenty, and ten per cent, respectively, of the eligible assessment shall be exempted; after the tenth year, the exemption shall terminate; (2) For the first year for which improvements would otherwise be taxable, one hundred per cent of the eligible assessment shall be exempted; for the second year, eighty per cent of the eligible assessment shall be exempted; for the third through fifth years, sixty, forty, and twenty per cent, respectively, of the eligible assessment shall be exempted; after the fifth year, the exemption shall terminate; (3) For the first, second and third year for which improvements would otherwise be taxable, one hundred per cent of the eligible assessment shall be exempted; after the third year the exemption shall terminate; or (4) For the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth and tenth year for which improvements would otherwise be taxable, one hundred per cent of the eligible assessment shall be exempted; after the tenth year the exemption shall terminate. (5) A local taxing authority may provide for tax exemption on the assessment attributable to the actual cost of construction of the dwelling unit in accordance with a schedule established by the taxing authority, provided that the exemption schedule does not exceed a period of ten years. The act provides that the exemption from taxes is limited to the additional assessment valuation attributable to the actual costs of improvements to deteriorated property not in excess of the maximum cost per dwelling unit, specified as $10,000 per dwelling unit for improvements constructed in 1971. Maximum cost for improvements constructed during each year thereafter is the maximum cost for the preceding year multiplied by the ratio of the U.S. Census Bureau’s New One-Family Houses Price Index for the current year to such index for the preceding year. Under 72 P.S. § 4711-205, any person desiring tax exemption must notify each local taxing district in writing on a form provided by the local governing authority. The form must be submitted at the time the taxpayer secures a building permit for the new construction or improvement. If the jurisdiction does not have a building permit process, then the form must be submitted at the start of construction. A copy of the exemption request filed with the local taxing authority must be forwarded to the board of assessment appeals or appropriate 636

14-2.2

assessment agency. The board, after the completion of the new construction or improvement, must assess separately the new construction or improvement and calculate the amounts of the assessment eligible for tax exemption according to local ordinance or resolution. The board must notify the taxpayer and the local taxing authority of the reassessment and the amounts eligible for exemption. Appeals of the board’s determinations may be taken by the taxpayer or local taxing authorities as provided by law. 14-2.2

Improvement of Deteriorating Areas

Section 4711-301 defines “deteriorating area” as that portion of the municipality that the governing body determines to be physically blighted on the basis of one or more of the following standards: (1) The residential buildings, by reason of age, obsolescence, inadequate or outmoded design or physical deterioration have become economic and/or social liabilities. (2) The residential buildings are substandard or unsanitary for healthful and safe living purposes. (3) The residential buildings are overcrowded, poorly spaced, or are so lacking in light, space and air as to be conducive to unwholesome living. (4) The residential buildings are faultily arranged, cover the land to an excessive extent or show a deleterious use of land, or exhibit any combination of the above which is detrimental to health, safety or welfare. (5) A significant percentage of buildings used for residential purposes is more than 20 years of age. (6) A substantial amount of unimproved, overgrown and unsightly vacant land exists which has remained so for a period of five years or more indicating a growing or total lack of utilization of land for residential purposes. (7) A disproportionate number of tax exempt or delinquent properties exists in the area. “Dwelling unit” means a “house, double house or duplex, townhouse or row house, apartment, or any building intended for occupancy as living quarters by an individual, a family or families or other groups of persons, which living quarters contain a kitchen or cooking equipment for the exclusive use of the occupant or occupants.” Each local taxing authority may, by ordinance or resolution, exempt from all real property taxation the assessed valuation of any residential 637

Tax Abatements and Miscellaneous Exemptions

construction built in a deteriorating area in accordance with the schedule and limitations adopted. Before adopting an ordinance or resolution, the taxing authority must set the boundaries of a deteriorated neighborhood wholly or partially within its jurisdiction. The act requires that at least one public hearing be held to determine the boundaries of the deteriorated zone. At the hearing, the planning commission or redevelopment authority, other public or private agencies, and individuals knowledgeable and interested in the improvement of the deteriorated neighborhoods can present their recommendations concerning the location of the boundaries of a deteriorated neighborhood. 72 P.S. § 4711-302 states that such recommendations presented to the local taxing authority should consider “blighted areas,” as defined in the Urban Redevelopment Law, 35 P.S. § 1701, and “impoverished areas,” as defined in the Neighborhood Assistance Act, 62 P.S. § 2081 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.). The ordinance or resolution must specify a description of the “deteriorated neighborhood” as determined by the local taxing authority. The ordinance or resolution must contain the cost of improvements per unit to be exempted and the schedule of taxes exempted. 72 P.S. § 4711-303(a) provides that a local taxing authority may grant a tax exemption on the assessment attributable to the actual cost of construction of the new dwelling unit in accordance with the following schedule: (1) For the first, second and third year for which said newlyconstructed dwelling unit or units would otherwise be taxable, one hundred per cent of the eligible assessment shall be exempted; after the third year the exemption shall terminate; (2) For the first year for which said newly-constructed dwelling unit or units would otherwise be taxable, one hundred per cent of the eligible assessment shall be exempted; for the second year, ninety per cent of the eligible assessment shall be exempted; for the third through tenth years, eighty, seventy, sixty, fifty, forty, thirty, twenty, and ten per cent, respectively, of the eligible assessment shall be exempted; after the tenth year, the exemption shall terminate; or (3) For the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth and tenth year for which said newly-constructed dwelling unit or units would otherwise be taxable, one hundred per cent of the eligible assessment

638

14-3

shall be exempted; after the tenth year the exemption shall terminate. (4) A local taxing authority may provide for tax exemption on the assessment attributable to the actual cost of construction of the new dwelling unit in accordance with a schedule established by the taxing authority, provided that the exemption schedule does not exceed a period of ten years. The exemption from taxes is limited to the assessment valuation attributable to the cost of construction of the new dwelling unit not in excess of the uniform maximum cost per dwelling unit specified by the municipal governing body. The exemption commences in the tax year immediately following the year in which the building permit is issued. No tax exemption will be granted under the provisions of this section for the construction of any dwelling unit in excess of the uniform maximum cost specified by the municipal governing body. The exemption from taxes authorized by this section is on the newly constructed dwelling unit or units exempted and does not terminate upon the sale or exchange of the property. 72 P.S. § 4711-304 states that if a property containing new residential construction is granted tax exemption, the property will not be considered as a factor in assessing the value of other properties in the same area during the exemption period. Under 72 P.S. § 4711-305, any person desiring tax exemption must notify each local taxing district in writing on a form provided by the local governing authority. The form must be submitted at the time the taxpayer secures a building permit for the new construction or improvement. If the jurisdiction does not have a building permit process, then the form must be submitted at the beginning of construction. A copy of the exemption request filed with the local taxing authority must be forwarded to the assessment appeals board or appropriate assessment agency. The assessment board, after the completion of the new construction, must assess separately the dwelling unit and land and calculate the amounts of the assessment eligible for tax exemption according to local ordinance or resolution. The board must notify the taxpayer and the local taxing authority of the reassessment and the amounts eligible for exemption. Appeals of the board’s determinations may be taken by the taxpayer or local taxing authorities as provided by law. 14-3

New Home Construction Local Tax Abatement Act

The New Home Construction Local Tax Abatement Act, 72 P.S. § 47541 et seq., authorizes local taxing authorities to exempt improvements to unimproved residential property as allowed by Article VIII, section 2(b)(iv) of the Pennsylvania Constitution. An “improvement” is defined as the “erec639

Tax Abatements and Miscellaneous Exemptions

tion or construction of one or more residential buildings in compliance with laws, ordinances or regulations governing such actions.” Local taxing authorities may, by ordinance or resolution, exempt from real property taxation the assessed valuation of improvements to unimproved residential property. The amount of the exemption is limited by statute. Before adopting an ordinance or resolution, the taxing authority must set the boundaries of the unimproved residential property or properties within its jurisdiction for which the tax exemption will be available and hold public hearings on those boundaries. The ordinance or resolution must also specify the purpose for determining such boundaries, including maintenance of neighborhoods, consistency of zoning districts, rejuvenation of blighted areas, and development of vacant property. The ordinance or resolution must specify the cost of improvements per dwelling unit to be exempted and the schedule of taxes exempted. 72 P.S. § 4754-5 defines the exemption and schedule of taxes: (a)

Amount of exemption.—A local taxing authority granting a

tax exemption pursuant to this act may provide for tax exemption on the assessment attributable to the actual cost of improvements or up to any maximum cost uniformly established by the local taxing authority. The maximum cost shall apply uniformly to all eligible unimproved residential property within the local taxing authority jurisdiction. (b)

Schedule of taxes.—Whether or not the assessment eligible

for exemption is based upon actual cost or a maximum cost, the actual amount of taxes exempted shall be in accordance with the schedule of taxes exempted established by the local taxing authority, subject to the following limitations: (1)

The length of the schedule of taxes exempted which shall be known as the abatement period shall not exceed two years.

(2)

The schedule of taxes exempted shall stipulate the portion of improvements to be exempted each year.

(3)

The exemption from taxes shall be limited to the additional assessment valuation attributable to the actual cost of improvements to the property or not in excess of the maximum cost per unit established by the local taxing authority.

Any person who wishes to take advantage of the program must apply for exemption on a form provided by the local taxing authority. The form must be submitted at the time the building permit is secured from the mu640

14-4

nicipality or when construction begins if no building permit is required. The taxing authority must send a copy of the form to the county board of assessment appeals. The board is not required to reassess the portion of the property that has been exempted by the local taxing authority until the exemption period has expired. Appeals from any reassessment and the amounts eligible for the exemption may be taken by the taxpayer or the local taxing authorities as provided by law. 14-4

First and Second Class County Property Tax Relief Act (Gentrification)

When new development moves into older, run-down areas, it can cause property values to increase, resulting in higher assessments and taxes for longtime residents, who might be forced out of their homes. In an attempt to address this gentrification, the General Assembly enacted the First and Second Class County Property Tax Relief Act, 72 P.S. § 4749.1 et seq., which gave Philadelphia County and Allegheny County the authority to provide tax relief to certain owner-occupants of residential realty. Section 4749.3 contains the following definitions “Longtime owner-occupant.” Any person who for at least ten

continuous years has owned and has occupied the same dwelling place as a principal residence and domicile, or any person who for at least five years has owned and occupied the same dwelling as a principal residence and domicile if that person received assistance in the acquisition of the property as part of a government or nonprofit housing program. “Principal residence.” The dwelling place of a person, including the principal house and lot, and such lots as are used in connection therewith which contribute to its enjoyment, comfort and convenience. For purposes of this act, the term may also include a building with a maximum of one commercial establishment and a maximum of three residential units of which one residential unit must be the principal residence of the longtime owner-occupant.

72 P.S. § 4749.4 allows counties of the first or second class to provide by ordinance or resolution uniform special real property tax relief for longtime owner-occupants. The act permits a combination of deferral or exemption of that portion of real estate tax increase due to an increase in market value as the consequence of the renovating, refurbishing, or the construction of new residences in long-established residential areas or areas of deteriorated vacant or abandoned homes and properties.

641

Tax Abatements and Miscellaneous Exemptions

The governing body of the county must hold a public hearing on the designation of the area eligible for the special tax relief. Under 72 P.S. § 4749.5, any deferral or exemption of payment of an increase in real property taxes is limited to property that us owned and occupied by a longtime owner-occupant and is the person’s principal residence and domicile. It is interesting to note that the statute specifically provides that the financial condition, need, or age of the longtime owner-occupant shall not be a determinant of eligibility in a county of the first class, while these factors may be considered in school districts and municipalities within a county of the second class. 14-5

Enterprise Zones

The Commonwealth has provided a statutory scheme for municipalities to seek reimbursement of their tax losses under the LERTA program. To receive this reimbursement for the tax abatements pursuant to 72 P.S. § 4729-3 (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.), the local municipality must file with the secretary of community affairs an application containing the following information: (1) Identify areas of the municipality that have been designated as deteriorated areas pursuant to the Local Economic Revitalization Tax Assistance Act. (2) Identify the portions of deteriorated areas that have also been designated as enterprise zones. (3) Report the market value, assessed value, millage rate and the value of real estate tax exemptions granted by the municipal governing body on improvements to deteriorated property located within deteriorated areas that have also been designated as enterprise zones during the immediately prior calendar year. (4) Request reimbursement of all or a portion of the value of such tax exemptions. (5) Provide a plan for the use of reimbursements requested by the municipality to provide for community development projects or neighborhood services in the enterprise zone. The plan must document the needs of the enterprise zone and demonstrate how the proposed projects or services meet those needs, with an emphasis on long-term physical improvements and consistency with the goals and objectives of the enterprise zone strategy.

642

14-6

(6) Provide other information requested by the department that may be necessary to evaluate the application for reimbursement. The secretary of community affairs may designate “enterprise zones,” which are defined as specific locations with identifiable boundaries within distressed municipalities. Once the secretary grants the enterprise zone application, reimbursement is calculated by the following formula outlined at 72 P.S. § 4729-3(d) (now repealed and/or consolidated at 53 Pa.C.S. § 8801 et seq.): Amount of payment.—Each municipality for which tax exemp-

tion reimbursements are approved by the secretary shall receive a payment equal to a portion of the amount of total funding available for reimbursement payments for that year, determined by dividing the amount of approved eligible tax exemptions on improvements to deteriorated property within the enterprise zone located within each municipality by the amount of approved eligible tax exemptions on improvements to deteriorated property within all enterprise zones for which reimbursements have been approved for that year. Reimbursements of tax exemptions granted in an enterprise zone shall not exceed the lesser of actual approved eligible tax exemptions granted in the enterprise zone in that year, the amount to be expended on community development projects and neighborhood services in the enterprise zone or 10% of the total funds available for reimbursement payments in that year. 14-6

Exemption of Industrial Development Authority Property

The Economic Development Financing Law, 73 P.S. § 371 et seq., establishes industrial development authorities to provide additional means of financing the development of new, expanded, and rehabilitated industrial and commercial properties and businesses. The act provides that any property owned by any industrial development agency as defined under the statute is exempt from assessment or real property taxation. 73 P.S. § 385 states: The effectuation of the authorized purpose of authorities created under section 4 of this act and the financing authority created under section 6.1 of this act shall and will be in all respects for the benefit of the people of the Commonwealth of Pennsylvania, for the increase of their commerce and prosperity, and for the improvement of their health and living conditions; and, since they will as public instrumentalities of the 643

Tax Abatements and Miscellaneous Exemptions

Commonwealth be performing essential governmental functions in effectuating such purposes, authorities and the financing authority shall not be required to pay any taxes or assessments upon any property acquired or used by them for such purposes, and the bonds issued by any authority or by the financing authority, their transfer and the income therefrom (including any profits made on the sale thereof) shall at all times be free from taxation within the Commonwealth of Pennsylvania. It should be noted that in many of the leases between industrial development authorities and tenants, the right to contest the fair market value of an assessment is delegated to the tenant, who normally pays the taxes in these transactions, but the right to request an exemption under the statute is usually not so delegated and remains with the authority. Where the authority itself brings an exemption request, it must prove to the assessment appeals board that the property is being used to further the purposes of the authority according to the statute. If this is shown, then an exemption would be appropriate under the law. 14-7

Exemption of Property Owned by a Metropolitan Transportation Authority

Property owned by a metropolitan transportation authority is exempt from local real property taxation under 74 Pa.C.S. § 1781, which states: The effectuation of the authorized purposes of an authority created or continued under this chapter shall and will be in all respects for the benefit of the people of this Commonwealth, for the increase of their commerce and prosperity and for the improvements of their health and living conditions, and, since an authority will, as a public instrumentality of the Commonwealth, be performing essential governmental functions in effectuating such purposes, such an authority shall not be required to pay any taxes or assessments of any kind or nature whatsoever, now in existence or to be enacted in the future, whether imposed by the Commonwealth or by any government agency upon any property or the income therefrom acquired or used or permitted to be used by an authority for such purposes, and the bonds issued by any authority, their transfer and the income therefrom, including any profits made on the sale thereof, shall at all times be free from State and local taxation within this Commonwealth. This exemption shall not extend to gift, estate, succession or inheritance taxes or any other taxes not levied directly on the bonds, the transfer thereof, the income therefrom or the realization of profits on the sale thereof. 644

14-8

14-8

Public Utility Realty Tax Act (PURTA)

It is the duty of the assessors of each county to assess and value all utility realty according to standards of the General County Assessment Law. Local municipalities are prohibited from taxing utility realty. The Commonwealth, under this act, levies and collects taxes, and then by legislative formula remits a portion of them to the local tax authority. See 72 P.S. § 8101 et seq. Section 1101-A(3) of the Public Utility Realty Tax Act (PURTA), 72 P.S. § 8101-A(3), defines “utility realty” as: [a]ll lands, together with all buildings, . . . pump houses, . . . and, all other structures and enclosures whatsoever which are physically affixed to the land . . . located within this Commonwealth [and] owned by a public utility . . .[which] are used or in the course of development or construction for use, . . . in the furnishing, including producing, storing, distributing or transporting, of public utility service. Section 1104-A(a) of PURTA, 72 P.S. § 8104-A(a), specifically provides that the PURTA tax “shall be in lieu of local taxes upon utility realty, as contemplated by Article VIII, section 4, of the Constitution of Pennsylvania.” Article VIII, section 4, addressed the concern that payment of real estate taxes by a public utility to the local taxing authority where the utility is located would result in a windfall to that locality, since the taxation would be reflected in the utility’s rates to customers situated both inside and outside the locality. American Telephone & Telegraph Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 337 A.2d 844 (Pa. 1975). Through the enactment of PURTA, this constitutional provision was implemented by statute. In American Telephone & Telegraph Co., the Pennsylvania Supreme Court held that a public utility’s PURTA tax is in lieu of local real estate taxation. In West Penn Power Co. v. Springdale Township, 542 A.2d 1041 (Pa.Cmwlth. 1988), aff’d, 570 A.2d 1319 (Pa. 1990), a public utility’s plant being maintained in a cold reserve state nevertheless was held to be subject to PURTA taxes and, accordingly, exempt from local real estate taxes, as property in the course of development or construction for use in furnishing future public utility service. The General Assembly significantly amended PURTA in 1999. Before these amendments, real estate owned by public utilities and used in the business of providing utility services was exempt from local real estate taxation but was subject to a tax paid to the Pennsylvania Department of Revenue. This tax on utility real estate was based on the net book value of the property, which was the original cost minus depreciation. The Department of Revenue would levy a tax on the value of this utility real estate. Pursuant to statute and regulations, the department would 645

Tax Abatements and Miscellaneous Exemptions

determine the total aggregate taxes on all utility realty in the Commonwealth and then translate this figure into a millage rate to be applied against the individual properties. The taxes levied would be redistributed to the counties, municipalities, and school districts based on a formula that weighed the total assessed base in each locality, the county assessment on the property, and the total tax base in each of the jurisdictions. A jurisdiction with a bigger tax base received more, which seemed to create fundamental unfairness in the redistribution of PURTA tax revenues. This was caused by the fact that the tax base took into consideration not just real estate taxes but also income and sales taxes, which gave an unfair advantage to cities such as Philadelphia and Pittsburgh, which by statute are allowed to levy extremely high wage taxes and collect a portion of the sales tax revenue generated in the jurisdictions. Other jurisdictions were limited in the amounts of these types of taxes that could be levied and therefore could never compete for a larger share of the PURTA redistributions. The term “total tax receipts” was defined in 72 P.S. § 8101-A as: [t]he actual amount collected by a local taxing authority under all statutes authorizing the imposition of taxes, but shall not include fines, penalties, fees, licenses or receipts from any source other than taxes. Local jurisdictions with the 1 percent limit on earned income taxes and no sales tax were at a distinct disadvantage against the big cities under the redistribution formula. Another problem with the formula was that the utilities paid taxes under PURTA based on their net book value, not the assessment set by the local assessment appeals board. The Department of Revenue redistributed the PURTA collections based on the local assessments. This resulted in a discrepancy between the amount collected under the net book value and the amount redistributed pursuant to assessed value. The department generally collected more, and then after distribution it retained the overage for the Commonwealth. This overage had generally been the rule until 1996, and the coming of electric utility deregulation caused the net book values of utility realty to be reduced. This reduction in net book values caused the amount received by the Department of Revenue to be less than the amount required to be distributed under the assessed valuations on the county assessment rolls. Pursuant to statute, the department levied a surcharge on public utility realty to make up the difference. In 1996, the General Assembly passed the Electricity Generation Customer Choice and Competition Act. This act deregulated electricity generation prices, which were no longer subject to rate regulation by the Commonwealth. The producers of electricity were given the ability to compete for 646

14-8.1

customers based on market prices. Many of the competing power producers were not traditional electric utility companies, and their real estate was taxed locally, not under PURTA. This resulted in competitors for the same market having their real estate taxed by different assessment systems. Also because of deregulation, the power companies were no longer “public utilities,” and therefore there was some question whether the Commonwealth had the constitutional authority to continue to tax their real estate statewide or whether taxation of this real property devolved back to the counties, municipalities, and school districts. In response to these issues, the legislature’s 1999 amendments (1) removed all public utility real estate used in the generation of electric power from PURTA taxation back to the county assessment rolls and (2) required that all property not removed from PURTA to be subject to PURTA taxes based on its local assessment rather than its net book value. These two changes have opened the county assessment field to new worlds of assessment and valuation problems and issues. For the first time, local county assessors will have to determine the valuation of nuclear, hydroelectric, coal-fired, and gas-operated power plants. Historically, determinations by the county assessor on these types of properties were never scrutinized or taken to court by taxpayers since they paid on the net book value of the realty, not on the assessed value. After the passage of the amendments to PURTA, not just electricity generation facilities but telephone, water, rail, and other properties are now affected by assessors’ decisions. Tax year 2000, when these changes took effect, saw a multitude of appeals by both taxpayers and taxing authorities to local assessment appeals boards. 14-8.1

Railroad Right-of-Way

In CSX Transportation, Inc. v. Delaware County Board of Assessment Appeals, 104 A.3d 612 (Pa.Cmwlth. 2014), the Commonwealth Court reviewed over 100 years’ worth of railroad cases and held that the portion of railroad property used to move cars being transported by the railroad to and from temporary storage areas was not essential to the operation of the railroad and therefore did not constitute public utility property. The court reasoned that the land was more akin to a warehouse, a use that was historically subject to local taxation, and thus it was explicitly excluded from the PURTA tax exemption for rights-of-way. One year later, in Lehigh Valley Rail Management LLC v. County of Northampton Revenue Appeals Board, 126 A.3d 1076 (Pa.Cmwlth. 2015), the Commonwealth Court reversed the trial court’s order that an 85-acre parcel of railroad property was not utility realty because the railroad’s intermodal railroad terminal was similar to a classification yard, which historically had been exempt from taxation. Thus, the appellate court found that the parcel would have been exempt from local taxation under pre-1968 law and was, therefore, not taxable by local taxing authorities. The court 647

Tax Abatements and Miscellaneous Exemptions

remanded the case for the trial court to consider whether the 85 acres were exempt from taxation under PURTA. The only real difference between this case and CSX is the fact that the intermodal facility in this case not only unloads cargo, but also loads cargo. Thus, the correlation to a switching yard could be reasoned by the court instead of a parking lot/warehouse. In Lehigh Valley Rail Management LLC v. County of Northampton Revenue Appeals Board, 178 A.3d 950 (Pa.Cmwlth. 2018), the court vacated and remanded again for more specific findings of fact on the 85 acres and reversed the trial court’s holding that the railroad’s office and parking lot were exempt from the PURTA tax on utility realty. The Commonwealth Court gave a great synopsis of what is “utility realty” and what is exempt “railroad right-of-way” by using over 200 years’ of jurisprudence to define certain key terms in PURTA such as “railroad beds,” “rails,” “land owned or used by a railroad as a right-of-way for a rail line,” and “rail line.” This case should be carefully examined by all railroads owning property in Pennsylvania and should likewise be reviewed by all county assessors and solicitors to determine what railroad property should be taxable locally, PURTA taxable, or PURTA exempt. 14-9

Property Tax Exemption for Disabled Veterans

Veterans who sustained disabilities during a war or armed conflict in which the country was engaged are eligible for a special tax benefit under 51 Pa.C.S. § 8902, which states: (a)

648

General rule.—Any resident of this Commonwealth shall be exempt from the payment of all real estate taxes levied upon any building, including the land upon which it stands, occupied by that person as a principal dwelling, if all of the following requirements are met:

(1)

That person has been honorably discharged or released under honorable circumstances from the armed forces of the United States for service in any war or armed conflict in which this nation was engaged.

(2)

As a result of such military service, that person is blind or paraplegic or has sustained the loss of two or more limbs, or has a service-connected disability declared by the United States Veterans’ Administration or its successors to be a total or 100% permanent disability.

(3)

The dwelling is owned by that person solely, with his or her spouse or as an estate by the entireties.

14-9

(4)

(b)

The need for the exemption from the payment of real estate taxes has been determined by the State Veterans’ Commission in compliance with the requirements of this chapter.

Extension of exemption.—The exemption provided in sub-

section (a) shall be extended to the unmarried surviving spouse upon the death of the eligible veteran provided that the State Veterans’ Commission determines that such spouse is in need of an exemption. 51 Pa.C.S. § 8906 limits any tax sale of the property for which an exemption exists under the statute. This limitation states: No real property solely owned, or owned as an estate by the entirety, and used exclusively as a residence by any person who has been granted an exemption from the payment of real estate taxes pursuant to the provisions of this chapter shall be sold for the nonpayment of real property taxes for which the exemption from payment has been granted. In Barner v. Juniata County Tax Claim Bureau, 522 A.2d 169, (Pa.Cmwlth. 1987), the Commonwealth Court held that providing tax exemption for veterans who suffered permanent disability in the line of duty did not violate the uniformity clause of the state constitution or equal protection guarantees. The court held that the statute granting exemption from real estate tax liability for veterans of the U.S. armed forces who have been honorably discharged as a result of permanent disability suffered in the line of duty and who have been determined by the Veterans’ Commission to be in need passes constitutional muster according to Article IX, section 1 of the Pennsylvania Constitution’s uniformity of taxation mandate. The court held: [The tax exemption statute] is designed to confer a benefit in the form of a real estate tax break upon veterans of the United States armed forces who have suffered permanent disability in the line of service to this country. Our research discloses no Pennsylvania case law which examines the constitutionality of this provision. However, affording additional compensation to those needy individuals who have sacrificed their mental or physical well being in defense of this country is a governmental objective that is reasonable and justifiable. Moreover, [the statute] provides a rational method for implementing this objective. We therefore hold that [the statute] passes constitutional scrutiny. Id. at 171–72.

649

Tax Abatements and Miscellaneous Exemptions

The Commonwealth Court examined the scope of an assessment appeals board’s ability to regulate a disabled veteran’s tax exemption in Vanderhoef v. Office of Susquehanna County Board of Assessment Appeals, 960 A.2d 212 (Pa.Cmwlth. 2008). In this case, the disabled veteran received a tax bill that exempted his house and only one acre of his 2.15acre property. On appeal to the court of common pleas, the county’s chief assessor testified that the one-acre limit for qualified veterans worked best in the county assessment system and that they had always done it that way since the tax exemption statute came into effect. The trial court found that the veteran was entitled to exemption only for his dwelling and the land upon which it stood. The court speculated that land beyond one acre would not be used for residential purposes. The Commonwealth Court reversed and granted the exemption on the entire property, stating: When the eligibility criteria have been verified and the certification of “need” for the tax exemption has been approved by the [State Veterans’] Commission, the Commission will notify the appropriate taxing authority, which in turn, “will grant the tax exception.” 42 Pa. Code § 5.24(e). It is clear from the language of the [tax exemption statute] and the regulations that the taxing authority has no discretion to exempt less than the entire property or to determine the number of acres to exempt. Rather, it is the duty of the Commission, not the taxing authority, to determine the financial need for the tax exemption. Id. at 215 (emphasis in original). The court found that the assessment board’s actions were unauthorized. This case is a clear example of bureaucratic overreaching by the assessment office, which superimposed its vision of tax fairness over its statutorily mandated duty. The case of Freeman-Bennett v. York County Board of Assessment Appeals, 209 A.3d 1137 (Pa.Cmwlth. 2019), stands for the proposition that the State Veterans’ Commission must make an independent need determination on a veteran’s application for exemption, and then the assessment appeals board is to grant the exemption upon receipt of that determination and confirmation that the applicant has satisfied the other criteria in 51 Pa.C.S. § 8902(a). Applicants for the disabled veterans tax exemption must submit the Pennsylvania Department of Military and Veterans Affairs’ Form MA-VA 41 directly to the local taxing authority and Form MA-VA 40 to the Veterans’ Commission. This bifurcated application process complements the structure of the Military and Veterans Code by allowing the commission to make and communicate a need determination independent of the board’s action on an application. 650

14-10

14-10

Exemption of Multipurpose Sports and Entertainment Facilities in First Class Counties

The legislature in 1989 passed enactments specifically tailored to the city of Philadelphia that provide a mechanism to grant tax-exempt status to city-owned properties leased to profit-making enterprises. This statute was an attempt to overrule by legislation the holding in Pier 30 Associates v. School District of Philadelphia, 493 A.2d 126 (Pa.Cmwlth. 1985), that these properties were not being used for a “purely public purpose” as defined by 72 P.S. § 5020-204. The General Assembly redefined the term “public property used for public purposes” only for counties of the first class, i.e., Philadelphia. The definition at 72 P.S. § 4706.2 states: “Public property used for public purposes.” The term shall mean

any public assembly facility located on public land (which shall include public land leased to a private individual, partnership, corporation or other business enterprise), primarily used for professional and amateur sports entertainment, musical concerts and other cultural and entertainment events, including accessory uses incident thereto which shall include, but not be limited to, dining, drinking and parking facilities, whether or not such facility is owned and operated by a public authority or is leased to or operated by a private individual, partnership, corporation or other business enterprise. The purpose of this statute is to provide a tax benefit for professional and amateur sports teams as well as facilities that are amenable to cultural and entertainment events. There is some question whether the General Assembly can redefine the court interpretation of the term “purely public property used for public purposes.” In any event, the legislators have determined that the public policy of the state would best be served by the exemption of multipurpose sports and entertainment facilities. 72 P.S. § 4706.3(a) holds that all public property as defined above, located in the city of Philadelphia, shall be exempt from local real estate tax. 72 P.S. § 4706.3(b) provides for mandatory payments in lieu of taxes: For public property used for public purposes constructed after the effective date of this section, the city shall impose in lieu of all city, county and school district real property taxes an amount annually equal to 2% of the costs of the project as are agreed to by the city and the facility developer prior to the commencement of construction of the facility, plus such other amount as agreed upon by the city and the facility developer. Such payment shall be made to the city treasury. The in lieu of payment shall commence at the expiration of five years from 651

Tax Abatements and Miscellaneous Exemptions

the effective date of the agreement between the public authority and the facility developer. 14-11

Charter Schools

In Friends of Pennsylvania Leadership Charter School v. Chester County Board of Assessment Appeals, 101 A.3d 66 (Pa. 2014), the Supreme Court held that a retroactivity provision in the charter school exemption statute, 24 P.S. § 17-1722-A(e)(3), was unconstitutional under the separation-of-powers doctrine. The appellant charter school, which had previously lost an appeal seeking an exemption, brought a new appeal after the retroactivity provision was enacted by the General Assembly. The Supreme Court rejected the appeal and noted that it was impermissible for the legislature to attempt to overturn a prior court ruling.

652

Statutory Index

The following references are to the General County Assessment Law, 72 P.S. § 5020 et seq., the Consolidated County Assessment Law, 53 Pa.C.S. § 8801 et seq., and related statutes. Page number references are to this book. Federal United States Code 5 U.S.C. 6103(a) ........................................... 90 26 U.S.C. 501(c)(3) ...................... 411, 415, 417, 432, 466, 469, 489 501(c)(4) ....................................... 416 501(c)(5) ....................................... 416 501(c)(6) ....................................... 416 501(c)(7) ....................................... 416 501(c)(8) ....................................... 416 501(c)(9) ....................................... 416 28 U.S.C. 1341 ............................................... 44 42 U.S.C. 1983 .................................. 16, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 319, 349

State Pennsylvania Statutes 1 P.S. 1504 ............................................... 57 1 Pa.C.S. 1501 et seq. ................................. 306 1908 ............................................... 90 1921(a) ................... 22, 358, 602, 608 1921(b) ......................................... 254 1922(1) ......................................... 299 1922(2) ........................................... 22 1926 ............................................. 610 1928(b) ......................................... 358

1928(b)(5) ............................ 405, 514 2 Pa.C.S. 101 et seq. ..................................... 16 102(a) ............................................ 77 553 ............................................... 633 752 ......................................... 94, 104 754 ................................. 43, 434, 435 ch. 5 ............................................. 585 ch. 7 ............................................. 585 5 P.S. 1701 ............................................. 638 10 P.S. 371 et seq. ................................... 484 371(f)(1)–(5) ................................ 408 371–385 ....................................... 407 372(a) .......................................... 408 372(b) .......................................... 409 373 ............................................... 460 375 ............................................... 410 375(a) .......................................... 410 375(b) .......................... 410, 428, 432 375(b)–(f) ..................................... 410 375(c) ........................... 411, 489, 490 375(c)(3) .............................. 489, 490 375(c)(4) .............................. 431, 432 375(d) .......................................... 412 375(d)(1) ...................................... 498 375(e) ........................................... 415 375(e)(5) ...................................... 415 375(f) ........................................... 416 375(g) ........................................... 417 376 ............................................... 417 376(a)(1) ...................................... 418 376(b) .......................................... 419 376(c) ........................................... 418 376(d) .......................................... 419

653

Statutory Index 377 ............................................... 419 377(c) ........................................... 420 378 ....................................... 420, 433 378(b) .......................................... 433 378(h) .......................................... 433 378(i) ........................................... 421 378(i)(9) ....................................... 422 16 P.S. 3708 ............................................. 571 6107-C(h)(8) ................................ 535 9781 ............................................. 548 11941 et seq. ............................... 621 11943 ........................................... 622 11944 ........................................... 622 11946 ........................................... 622 13001 ........................................... 570 13001 et seq. ............................... 570 13002 ........................................... 570 13003 ........................................... 570 13006 ........................................... 570 17 P.S. 2036 ............................................. 569 20 Pa.C.S. 5602 ............................................... 77 5603 ............................................... 77 24 P.S. 1-101 ........................................... 285 6-667.1 ........................................ 110 6-677.1 ................................ 326, 560 19-1901-A–19-1913-A ................. 477 35 P.S. 1701 ..................................... 628, 635 42 Pa.C.S. 102 ............................................... 104 721 ................................................. 62 741 ................................................. 62 761 ......................................... 62, 614 933(a)(2) ...................................... 104 1722 ............................................. 148 2503 ............................................. 140 2503(7) ................................ 140, 141 2503(9) ........................................ 356 2524 ............................................... 77 5103(a) ........................................ 292 5571(b) ........................ 35, 89, 91, 92 5572 ............................................... 90 7361 ............................................. 138 8541–8542 ................................... 191 43 Pa.C.S. 933 ................................................. 42

654

44 P.S. 11 .................................................. 90 45 Pa.C.S. 506 .............................................. 404 51 Pa.C.S. 8902 ............................................ 648 8902(a) ........................................ 650 8906 ............................................ 649 53 P.S. 301 .............................................. 471 301–322 ...................................... 481 306A ............................................ 482 318 .............................................. 481 10513(b) .............................. 375, 555 23856 .......................................... 439 35101 et seq. ............................... 303 35101–39701 .............................. 304 37503.1 ....................................... 305 37521 .......................................... 305 37521(c) ...................................... 304 42 Pa.C.S. 2503 ............................................ 277 5571(b) ........................................ 295 7532 ............................................ 277 53 Pa.C.S. 5601–5622 .................................. 483 5601–5623 .................. 471, 481, 483 8426 ............................................ 309 8563 ............................................ 316 8801 ...................................... 68, 137 8801 et seq. .................... 1, 304, 306, 311, 312, 320, 358, 359, 364, 367, 369, 370, 371, 374, 379, 383, 389, 395, 400, 404, 435, 439, 440, 464, 509, 517, 528, 547, 555, 566, 594, 596, 597, 604, 609, 628, 635, 638, 642, 643 8801(b) ............................................ 1 8801(b)(2) ........................................ 3 8802 ............................. 21, 290, 332, 357, 392, 532 8811(a) ........................ 153, 249, 250 8811(a)(1)(ii) ............................... 556 8811(a)(1)(iii) .............................. 250 8811(b) ................ 154, 186, 187, 194 8811(b)(2) .................................... 254 8811(b)(3) .................................... 227 8811(b)(4) ............................ 232, 233 8811(b)(5) ............................ 232, 234

Statutory Index 8812 ..................................... 401, 404 8812(b) ......................................... 449 8812(b)(2) .................................... 470 8812(c) ......................................... 410 8813 ..................................... 553, 554 8814 ............................................. 554 8815 ............................................. 551 8816(a) ......................................... 552 8816(b) ......................................... 553 8817 ............................. 331, 357, 545 8817(a) ................................. 533, 554 8817(b) ................................. 358, 372 8818 ..................................... 227, 561 8819 ..................................... 227, 563 8820 ............................................. 563 8821 ............................................. 556 8821(a) ......................................... 559 8822 ............................................. 563 8823 ............................................. 333 8831 ................................................. 8 8832 ................................... 9, 10, 538 8833 ....................................... 10, 530 8834 ........................................... 7, 10 8841 ........................................... 7, 11 8841(c) ................................... 13, 545 8841(d) ......................................... 566 8841(d)(1) .................................... 437 8842 ............................................. 185 8842(a) ........................... 12, 289, 332 8842(b) ........................ 152, 155, 232, 234, 288, 333 8842(b)(1) .................... 257, 288, 557 8843 ............................ 331, 355, 357, 358, 381, 392 8844 ..................... 7, 19, 68, 532, 545 8844(a) ................................. 544, 546 8844(b) ......................................... 545 8844(c) ..................... 13, 36, 437, 465 8844(c)(1) ........................... 18, 28, 34 8844(d) ....................... 41, 42, 44, 139 8844(d)(1) ...................................... 13 8844(e) ........................... 37, 118, 533 8844(e)(1) ...................................... 13 8844(e)(2) ........................ 21, 36, 550 8844(e)(2.1) ................................... 36 8844(f) ........................................... 37 8844(f)(2) ....................................... 14 8844(f)(3) ....................................... 14 8845 ............................................. 546 8847 ..................................... 309, 440 8847(a) ......................................... 309

8848(a) ........................................ 335 8848(b) ........................ 338, 533, 534 8848(c) ......................................... 336 8848(d) .......................... 37, 336, 342 8851 ............................................. 532 8851(a)(1) ........................................ 7 8851(a)(2) ........................................ 7 8851(b) ............................................ 7 8851(c) ............................................. 8 8851(d) ............................................ 8 8852 ............................................. 7, 8 8853 ............................................. 337 8854 ..................................... 294, 307 8854(a) .................................. 36, 295 8854(a)(1) ...................................... 35 8854(a)(2) .................................... 299 8854(a)(3) .................................... 298 8854(b) ........................................ 143 8855 ............................. 274, 294, 391 8861 ............................................. 564 8862(a) ........................................ 565 8862(b) ........................................ 565 8862.1 .......................................... 565 55 P.S. 573 ......................................... 34, 473 582 ................................................. 34 62 P.S. 2081 ............................. 628, 635, 638 63 P.S. 455.101 ........................................ 543 458.1 et seq. ........................ 342, 538 458.2 ............................................ 342 458.4 ............................................ 538 458.6 .................................... 342, 539 458.7(a) ............................... 540, 541 458.7(b) ....................................... 541 458.8 ............................................ 542 65 P.S. 66.1(2) ......................................... 567 66.2 .............................................. 569 66.3 .............................................. 569 67.102 .......................................... 566 67.102 et seq. .............................. 566 65 Pa.C.S. 701 ............................................... 285 68 P.S. 803 ............................................... 238 68 Pa.C.S. 3101 ............................................. 374 3101–3414 ................................... 239 3105 ..................................... 239, 375

655

Statutory Index 3414 ............................................. 374 5101 ............................................. 321 5101–5414 ................................... 240 5102 ............................................. 242 5103 ..................................... 241, 243 5105 ..................................... 242, 244 5105(b) ........................................ 245 5105(b)(1) ............................. 62, 241, 242, 245, 246 5105(b)(2) .................................... 241 5414 ............................................. 321 71 P.S. 1709.1516a(c) .............................. 291 72 P.S. 201 ....................................... 229, 230 204(a)(1) ...................................... 520 204(b) .......................................... 467 204(c) ........................................... 467 703.3 ............................................ 320 806.1 ............................................ 310 4656.1–4656.17 ........................... 266 4706.2 .......................................... 651 4706.3(a) ..................................... 651 4706.3(b) ..................................... 651 4711-101 et seq. .......................... 633 4711-201 ..................................... 634 4711-201 et seq. .......................... 633 4711-202 ............................. 634, 635 4711-203(a) ................................. 635 4711-205 ..................................... 636 4711-301 ..................................... 637 4711-301 et seq. .......................... 633 4711-302 ..................................... 638 4711-303(a) ................................. 638 4711-304 ..................................... 639 4711-305 ..................................... 639 4722 ............................................. 627 4723 ............................................. 630 4725 ............................................. 628 4725(b) ........................................ 629 4726(b) ........................................ 629 4727 ..................................... 629, 630 4727(a) ........................................ 631 4729-3 ......................................... 642 4729-3(d) ..................................... 643 4749.1 et seq. .............................. 641 4749.3 .......................................... 641 4749.4 .......................................... 641 4749.5 .......................................... 642 4754-1 ......................................... 639 4754-5 ......................................... 640

656

4821 ............................................ 325 4821–4902 .................................. 324 5010.1–5010.10 .......................... 543 5010.5 ......................................... 544 5010.6 ......................................... 544 5020 ............................................ 173 5020 et seq. ..................................... 1 5020-1 ......................................... 374 5020-1–5020-602 ........................ 436 5020-102 ..................................... 537 5020-201 .................... 176, 195, 196, 200, 202, 227, 231, 252 5020-201 et seq. .......................... 434 5020-201(a) ......... 176, 177, 188, 190 5020-204 ............ 401, 403, 404, 434, 443, 464, 500, 522, 651 5020-204(7) ................................. 474 5020-204(a) ................................. 453 5020-204(a)(1) ............................ 465 5020-204(a)(2) ............................ 441 5020-204(a)(3) ........... 458, 468, 485, 486, 487, 488, 495, 504, 505, 513, 514 5020-204(a)(4) ............................ 508 5020-204(a)(5) ............................ 442 5020-204(a)(7) ............ 442, 476, 478 5020-204(a)(9) ................... 406, 453, 463, 464 5020-204(b) ........................ 449, 452, 453, 454, 508 5020-204(c) ................. 452, 453, 508 5020-402 ............................ 159, 162, 177, 178, 219 5020-402(a) .................. 24, 179, 331, 339, 347, 348, 377, 385, 387, 388 5020-402(c) ................................. 218 5020-402(c)(1) ..................... 218, 219 5020-402(c)(2) ............................. 223 5020-505(b) ................................. 440 5020-511 ............................... 53, 320 5020-511(a) ................................. 320 5020-511(b.1) .............................. 341 5020-518.1 ........... 32, 106, 108, 138, 141, 307, 308, 435 5020-518.1(a) .................. 31, 33, 307 5020-518.2 .................................. 300 5020-519 ............................. 129, 143 5020-520 ..................................... 391 5020-602 ..................................... 374 5341 et seq. ..................................... 1

Statutory Index 5341.1 .............................................. 4 5341.4 .............................................. 4 5341.14 ........................................ 633 5342 ............................. 350, 374, 566 5342.1 .......................................... 395 5342–5350 ..................................... 49 5344(a) ......................................... 312 5347.1 .......................... 371, 395, 396 5348(a) ................................. 347, 387 5348(d) ................. 162, 347, 387, 389 5348.1 ........................... 53, 201, 358, 379, 395, 396, 609 5349 ............................................. 464 5349(c) .............................. 28, 38, 42, 43, 266, 358, 396 5349(d) ........................................... 40 5349(d.1) ...................................... 266 5349(d.2) ...................................... 265 5350 ............................... 28, 130, 394 5350(a.1) ...................................... 298 5350(c) ........................... 97, 105, 106 5350b ............................................. 40 5350i ............................................ 395 5350j(a) ........................................ 304 5350j(b) ........................................ 304 5350k ........................................... 374 5441.6 .............................................. 4 5448.1 .......................................... 395 5452 et seq. ..................................... 1 5452.1 ............................................ 27 5452.1 et seq. ................................ 58 5452.15 ........................................ 548 5452.1–5452.20 ....................... 6, 534 5452.2 .............................................. 4 5452.2(a) .......................................... 5 5452.2(c) .......................................... 5 5452.2(d) .......................................... 5 5452.2(e) .......................................... 5 5452.3 .............................................. 5 5452.4 ........................................ 5, 24 5452.4) ......................................... 277 5452.4(a.2) ................... 135, 255, 339 5452.4(b) ........................................ 27 5452.7 ............................................ 59 5452.10 .......................................... 24 5452.10(f) ...................................... 25 5452.11 .............................. 58, 85, 87 5452.12 .......................................... 92 5452.13 ........................................ 546 5453.101 ...................................... 321 5453.101 et seq. .......................... 435

5453.101–5453.706 ..................... 364 5453.201 ...................... 190, 199, 254 5453.201(a) ......... 202, 203, 253, 558 5453.202(a)(1) ............................. 517 5453.202(a)(3) ............................. 509 5453.202(b) ................................. 507 5453.202(c) .................................. 507 5453.601 ...................................... 109 5453.602 ...................... 295, 296, 297 5453.602(a) ......................... 211, 363 5453.602(b) ................................. 365 5453.602a ............ 369, 370, 383, 555 5453.701 .......................... 60, 61, 439 5453.701(a) ......... 359, 367, 528, 547 5453.701(a.1) .............................. 440 5453.701(b) ................... 60, 109, 320 5453.702(a) ................................... 73 5453.703 ...................................... 147 5453.703c ...................... 54, 320, 383 5453.704 ..................... 258, 295, 296, 297, 310, 311 5453.704(a) ......................... 101, 436 5453.704(b) ......................... 258, 302 5453.704(b)(1) ............................. 302 5453.704(b)(2) ............................. 302 5453.704(f) .................................. 110 5453.706 ............................... 73, 147, 321, 395, 400 5490.1 et seq. .............................. 573 5490.2 ......................... 580, 582, 588, 597, 606, 616 5490.3 .................. 617, 573, 577, 578 5490.3(a) ..................................... 594 5490.3(d)(2) ......................... 601, 604 5490.4 .......................................... 582 5490.4(b) ..................................... 615 5490.4a ........................................ 611 5490.4b ........................ 583, 609, 612 5490.5 .......................................... 576 5490.5(a)(2) ......................... 604, 612 5490.5(b.1) .................................. 588 5490.6 .................................. 577, 588 5490.6(a) ..................................... 596 5490.6(a.1)(1) .............................. 605 5490.6(a.1)(2) .............................. 608 5490.6(b) ..................................... 596 5490.6(b.1) .................................. 605 5490.6(c.1) ................................... 589 5490.6(c.3) ................................... 591 5490.6(c.4) ................................... 591 5490.6(c.5) ................................... 592

657

Statutory Index 5490.8 .......................................... 578 5490.8(a) ............................. 594, 597 5490.8(c) ...................................... 578 5490.9 .......................................... 579 5490.9(a) ..................................... 612 5566b .................... 54, 318, 323, 324, 325, 355, 356, 359 5566b(a) ........................ 54, 320, 321 5566b(b) ................................ 54, 360 5566c ................................... 360, 320 5860.504 ...................................... 313 5860.626 ...................................... 559 5860.627(a) ................................. 559 5860.627(b) ................................. 560 5860.628 ...................................... 560 7252–7255 ..................................... 58 7361(b) ........................................ 138 7601–7606 ................................... 198 7602(a) ........................................ 195 7602(b) ........................................ 195 8101 et seq. ................................. 645 8101-A ................................. 325, 646 8101-A(3) .................................... 645 8104-A(a) .................................... 645 73 P.S. 371 ............................................... 643 385 ....................................... 175, 643 820.101–820.1309 ....................... 326 74 Pa.C.S. 1781 ............................................. 644

Pennsylvania Code 1 Pa.Code 35.20 ............................................ 614 35.101 .......................................... 614 35.121 .......................................... 614 35.122 .......................................... 614 7 Pa.Code 131.2 ............................................ 613 131.21 .......................................... 613 131.32 .......................................... 614 137b.2 .......................................... 618 137b.51 ........................................ 611 137b.54 ........................................ 616 25 Pa.Code 78.121 .......................................... 590 42 Pa.Code 5.24(e) ......................................... 650 61 Pa.Code 32.1 ...................................... 405, 404

658

72 Pa.Code 137.1–137.68 .............................. 593 137.26 ......................................... 593 603.1 ........................................... 297 603.31 ......................................... 297

Index of Cases

A Abington Sch. Dist., see McCloskey v. Abington Sch. Dist. ......................................... 189 Academy Plaza Assocs., Ltd. v. Board of Revision of Taxes of City of Philadelphia, 503 A.2d 1101 (Pa.Cmwlth. 1986) ...................... 65, 68, 322 Ackerman v. Carbon County, 703 A.2d 82 (Pa.Cmwlth. 1997) ............................ 338, 350 Adamson v. Pennsylvania Liquor Control Bd., 410 A.2d 392 (Pa.Cmwlth. 1980) ....................................................................... 140 Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813 (1986) ....................................................... 529 Air Products & Chems., Inc. v. Board of Assessment Appeals of Lehigh County, 720 A.2d 790 (Pa.Cmwlth. 1998) ................................ 206, 208, 237, 308, 309 Airo Die Casting v. Westmoreland County Bd. of Assessment Appeals, 706 A.2d 1279 (Pa.Cmwlth. 1998) ............................................ 93, 94, 95 Akron v. Pennsylvania Pub. Util. Comm’n, 310 A.2d 271 (Pa. 1973) ........................................................................................ 61 Alabama, see United States v. Alabama ....................................................................... 481 Albarano v. Board of Assessment & Revision of Taxes & Appeals of Lycoming County, 494 A.2d 47 (Pa.Cmwlth. 1985) ............................................................................... 69, 258, 259, 260, 263, 264 Albright Coll. Tax Assessment Case, 249 A.2d 833 (Pa.Super. 1968) ......................... 506 Aldine Apts., Inc. v. Commonwealth, 379 A.2d 333 (Pa.Cmwlth. 1977) ....................... 57 Aldine Apts., Inc. v. Commonwealth, 426 A.2d 1118 (Pa. 1981) ......................... 293, 294 Algon Realty Co. Tax Assessment Appeal, 198 A. 49 (Pa. 1938) ................................. 160 Allegheny County Bd. of Comm’rs, see McKinney v. Board of Comm’rs of Allegheny County ................................................................. 3 Allegheny County Bd. of Prop. Assessment, Appeals, Rev. & Registry v. County of Allegheny, 773 A.2d 816 (Pa.Cmwlth. 2001) ............................ 534, 535 Allegheny County Bd. of Prop. Assessment, Appeals, Rev. & Registry, Appeal from Decision of, 797 A.2d 414 (Pa.Cmwlth. 2002) ................................................................... 32, 33 Allegheny County Board of Property Assessment, Appeals & Review, see American Telephone & Telegraph Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ................................ 645 Bower Hill Civic League v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ............................................. 403, 404 Buhl Found. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ....................................................................... 137, 155, 160, 177, 221

659

Index of Cases Catholic Inst. of Pittsburgh v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ............................... 441 Chartiers Industrial & Comm’l Dev. Auth. v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev. ......................... 312, 313 Chartiers Valley Sch. Dist. v. Board of Prop. Assessment, Appeals, Rev. & Registry of Allegheny County ........................................... 106, 108, 460, 461, 537 Community Options, Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ............................................ 425, 428, 429, 430, 431 Deitch Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ................................................................. 69, 120, 124, 127, 131, 174, 177, 216, 257, 260, 263, 265, 266, 267, 269, 270, 271, 290, 291, 297, 378 Dunn v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev. ................................................................................ 377, 378 Elmhurst Group v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................................... 174 Federated Dep’t Stores v. Board of Prop. Assessment, Appeals & Rev. .......................................................................................... 93 Greentree, Borough of, v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County .................................... 47, 54, 58, 60, 229, 355, 356, 444 Horn v. Board of Prop. Assessment of Allegheny County ............................ 548, 549 Longvue Disposal Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................................... 402 Macy’s Inc. v. Board of Prop. Assessment, Appeals & Rev. ................................. 111 Masalehdan v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev. .................................................................. 255 McKnight Shopping Ctr., Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County .............................................. 45, 156, 207, 258, 271 Messenger Publ’g Co. v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev. .......................................................... 196, 199 North Side Laundry Co. v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev. .......................................................... 197, 199 Pittsburgh, City of, v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County .......................................................... 434, 442, 510, 511, 523 Pittsburgh Des Moines Steel Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................... 156, 158, 236 Pittsburgh Miracle Mile Shopping Ctr. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ............................... 177 Pittsburgh Pub. Parking Auth. v. Board of Prop. Assessment, Appeals & Review of Allegheny County .......................................... 55, 476 Richland Civic Club v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................................... 404

660

Index of Cases Robert Morris Coll. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................................... 503 Savko v. Board of Assessment Appeals & Rev. of Allegheny County .................. 138 St. Margaret Seneca Place v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County .................................... 462, 465, 491, 493, 495, 496, 497, 499, 501, 502 Tech One Assocs. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ............................................................... 170, 171, 173, 174, 175, 177, 180, 249, 559 Union Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ................................................. 85, 86 United Laundries Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................... 196, 197, 199 West Allegheny Hosp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County .................................... 486, 487, 488, 490, 491, 495, 496, 510 West Mifflin Area Sch. Dist. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County .......................... 31, 107 Westinghouse Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................... 117, 291, 536 Wilkinsburg Sch. Dist. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County ..................................... 376, 397, 398 Allegheny County, see Allegheny County Bd. of Prop. Assessment, Appeals, Rev. & Registry v. County of Allegheny ......................... 534, 535 Beattie v. Allegheny County .......................................................................... 277, 353 Chartiers Valley Industrial & Comm’l Dev. Auth. v. Allegheny County ..................................................... 268, 269 Clifton v. Allegheny County ................................................... 138, 271, 273, 338, 339 Daugherty v. County of Allegheny .................................................................... 23, 25 Kowenhoven v. County of Allegheny ....................................................................... 45 Martel v. Allegheny County ........................................................................... 276, 277 Salvation Army v. Allegheny County .................................................................... 490 Allegheny County, Southern Dist., Tax Assessment Appeals, 298 A.2d 643 (Pa.Cmwlth. 1972) ......................................................................... 56 Allegheny Energy Supply Co., LLC v. Greene County Bd. of Assessment Appeals, 869 A.2d 31 (Pa.Cmwlth. 2005) ................................. 205 Allegheny Energy Supply Co. v. County of Greene, 788 A.2d 1085 (Pa.Cmwlth. 2001) ..................................................................... 203 Allegheny Energy Supply Co. v. Greene County Bd. of Assessment Appeals, 837 A.2d 665 (Pa.Cmwlth. 2003) ........................... 182, 183 Allegheny Gen. Hosp., see Connor v. Allegheny Gen. Hosp. .......................................... 39 Allegheny Pittsburgh Coal Co. v. County Comm’n of Webster County, 488 U.S. 336 (1989) ...................................... 46, 288, 360, 394 Allentown Hosp. v. Bd. of Assessment Appeals of Lehigh County, 611 A.2d 793 (Pa.Cmwlth. 1992) ............................................................... 487, 488

661

Index of Cases Allentown Power Center, L.P. v. Township of Whitehall, 735 A.2d 741 (Pa.Cmwlth. 1999) ............................................................... 396, 398 Alliance Home of Carlisle v. Board of Assessment Appeals of Cumberland County, 919 A.2d 206 (Pa. 2007) ................. 425, 426, 427, 469, 507 Alma v. Monroe County Bd. of Assessment Appeals, 83 A.3d 1121 (Pa.Cmwlth. 2014) ......................................................................... 98 Althouse v. County of Monroe, 633 A.2d 1267 (Pa.Cmwlth. 1993) .............................................................. 366, 367, 368, 380, 381 American Acad. of Music, Appeal of, 184 A. 657 (Pa. 1936) ........................................ 212 American Ass’n for Lost Children, Inc. v. Westmoreland County Bd. of Assessment Appeals, 977 A.2d 595 (Pa.Cmwlth. 2009) ........................ 467 American Bd. of Internal Medicine, see Philadelphia Bd. of Revision of Taxes v. American Bd. of Internal Medicine ................................................ 524 American Home Products Corp. v. Board of Assessment Appeals of Northumberland County, 476 A.2d 497 (Pa.Cmwlth. 1984) ............ 310, 311, 313 American Inst. for Chartered Prop. & Cas. Underwriters, In re Appeal of, 928 A.2d 433 (Pa.Cmwlth. 2007) ............................................ 524 American Sunday Sch. Union v. Philadelphia, 29 A. 26 (Pa. 1894) .............................. 54 American Telephone & Telegraph Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 337 A.2d 844 (Pa. 1975) ....................... 645 Ames Shopping Plaza, In re, 476 A.2d 1001 (Pa.Cmwlth. 1984) ................................ 136 Amidon v. Kane, 279 A.2d 53 (Pa. 1971) ...................................................... 174, 293, 294 Annenberg v. Commonwealth, 757 A.2d 333 (Pa. 1998) ............................................. 324 Annenberg v. Commonwealth, 757 A.2d 338 (Pa. 2000) ..................................... 324, 325 Apollo Gas Co., see Hetrick v. Apollo Gas Co. .............................................................. 229 Appointment of Viewers, In re, 178 A.2d 149 (Pa. 1962) ............................................. 328 Aquarian Church of Universal Serv. v. County of York, 494 A.2d 891 (Pa.Cmwlth. 1985) ............................................................... 443, 444 ARC Human Servs. v. Clearfield County Assessment Office & Tax Bur., 120 A.3d 465 (Pa.Cmwlth. 2015) .................................................. 431 Archdiocese of Philadelphia, In re Appeal of, 617 A.2d 821 (Pa.Cmwlth. 1992) ...................................................... 412, 453, 454, 455, 457, 470 Arizona v. California, 283 U.S. 423 (1931) ................................................................... 481 Armco, Inc., In re Appeal of, 515 A.2d 326 (Pa.Cmwlth. 1986) ................................................................ 25, 295, 297, 298, 400 Armstrong County Bd. of Comm’rs, see Carino v. Board of Comm’rs of County of Armstrong ....................................... 345, 348, 387 Armstrong County Board of Assessment Appeals, see Callas v. Armstrong County Bd. of Assessment .................................. 362, 364, 365, 366, 367, 368, 379, 380, 383 Gelormino v. Board of Assessment Appeals of Armstrong County ..................... 558 Lazor v. Board of Assessment Appeals of Armstrong County ............................. 559 Armstrong County, see Kittanning Borough v. Armstrong County .............................. 55 Armstrong v. United States, 364 U.S. 40 (1960) .......................................................... 481 Arredondo v. Cumberland County Bd. of Assessment Appeals, 697 A.2d 614 (Pa.Cmwlth. 1997) ............................................................... 190, 191

662

Index of Cases Ashbourne Sch. v. Department of Educ., 403 A.2d 161 (Pa.Cmwlth. 1979) .............................................................................................. 611 Assid, In re, 842 A.2d 995 (Pa.Cmwlth. 2004) ...................................................... 168, 170 Associated YM-YWHA of Greater N.Y./Camp Poyntelle v. County of Wayne, 613 A.2d 125 (Pa.Cmwlth. 1992) ................................. 508, 509 Aston Twp., see Southwest Delaware County Mun. Auth. v. Aston Twp. .................................................................................. 328 Atiyeh v. Bear, 690 A.2d 1245 (Pa.Super. 1997) .......................................................... 480 Atlantic City Electric Co. v. United Sch. Dist., 780 A.2d 766 (Pa.Cmwlth. 2001) .............................................................................. 325, 609, 610 Avco Corp., In re Appeal of, 515 A.2d 335 (Pa.Cmwlth. 1986) .............................................................. 121, 124, 135, 158, 185

B B.P. Oil Co. v. Board of Assessment Appeals of Jefferson County, 633 A.2d 1241 (Pa.Cmwlth. 1993) ............................................................. 224, 226 B.P. Oil Co. v. Delaware County Bd. of Assessment Appeals, 539 A.2d 473 (Pa.Cmwlth. 1988) ....................................................................... 133 Babcock, see Chicago, B. & Q. Ry. Co. v. Babcock .......................................................... 70 Baker v. Carr, 369 U.S. 186 (1962) ............................................................................... 351 Balint, see Corace v. Balint ............................................................................................ 356 Baltimore & Ohio R.R., Appeals of, 175 A.2d 841 (Pa. 1961) ............................ 27, 29, 31 Bamford, see Garrett v. Bamford .............................................................................. 41, 45 Banzhoff v. Dauphin County Bd. of Assessment Appeals, 606 A.2d 974 (Pa.Cmwlth. 1992) ............................................................... 259, 261 Barner v. Juniata County Tax Claim Bur., 522 A.2d 169 (Pa.Cmwlth. 1987) .............................................................................................. 649 Barnes Found. v. Keeley, 171 A. 267 (Pa. 1934) ............................................................. 54 Barry, Appeal of, 44 A.2d 296 (Pa. 1945) ...................................................................... 211 Bassett v. Bassett, 671 A.2d 661 (Pa. 1995) ............................................................. 90, 91 Beal, see Coshey v. Beal ................................................................................................. 441 Bear, see Atiyeh v. Bear ................................................................................................. 480 Beattie v. Allegheny County, 907 A.2d 519 (Pa. 2006) ........................................ 277, 353 Beaver County Bd. of Assessment Appeals, see Concerned Taxpayers of Beaver County v. Beaver County Bd. of Assessment Appeals ............... 45, 443 Beaver County, see Betters v. Beaver County .............................................................. 137 Bedford County Board of Assessment & Revision of Taxes, see Custer v. Bedford County Bd. of Assessment & Revision of Taxes ............. 234, 235 Four Quarters Interfaith Sanctuary of Earth Religion v. Bedford County Bd. of Taxes ..................................... 465 Behe, see Chester County Bd. of Assessment Appeals v. Behe ........................... 338, 350 Behe v. Chester County Bd. of Assessment Appeals, 952 F.2d 66 (3d Cir. 1991) .............................................................................. 44, 45 Bemis v. Shipe, 26 Pa. Super. 42 (1904) ......................................................................... 29 Benedictine Sisters of Pittsburgh v. Fayette County Bd. of Assessment Appeals, 844 A.2d 86 (Pa.Cmwlth. 2004) ............................. 517, 518 Bensalem Twp. Sch. Dist. v. Bucks County Comm’rs, 303 A.2d 258 (Pa.Cmwlth. 1973) ............................................................... 451, 623

663

Index of Cases Berks County Board of Assessment Appeals, see 525 Lancaster Ave Apts., LP v. Berks County Bd. of Assessment Appeals ........................................................................... 633 Blair v. Berks County Bd. of Assessment Appeals ....................................... 615, 616 Brandywine Heights Area Sch. Dist. v. Berks County Bd. of Assessment Appeals ............................................... 81, 82, 83, 84, 85 Ceramic Art & Cultural Institute v. Berks County Bd. of Assessment Appeals ..................................................................... 470 Close v. Berks County Bd. of Assessment Appeals .............................. 600, 601, 608 Delaware County Solid Waste Auth. v. Berks County Bd. of Assessment Appeals ............................................................. 471, 481 Douglass Vill. Residents Group v. Berks County Bd. of Assessment Appeals ..................................................................... 559 Feick v. Berks County Bd. of Assessment Appeals .............................. 597, 600, 606 Fleetwood Area Sch. Dist. v. Berks County Bd. of Assessment Appeals ........................................................... 81, 84, 85 Moore v. Berks County Bd. of Assessment Appeals ............................. 309, 603, 604 Reading Hous. Auth. v. Board of Assessment Appeals of Berks County .......................................................................................... 473 Reform Congregation Oheb Sholom v. Berks County Bd. of Assessment Appeals ..................................................... 476, 521, 522 Saenger v. Berks County Bd. of Assessment Appeals .......................... 599, 600, 606 Sher v. Berks County Bd. of Assessment Appeals ....................................... 609, 611 Truck Terminal Motels of America, Inc. v. Berks County Bd. of Assessment Appeals ................................................. 3, 174, 311, 313 Upper Tulpehocken Twp. v. Berks County Bd. of Assessment Appeals ............................................................. 472, 479 Way v. Berks County Bd. of Assessment Appeals ........................................ 617, 618 Wilson Townhouses v. Berks County Bd. of Assessment Appeals ....................................................................... 89, 98 Berks County, see Convent of Sisters, Servants of the Immaculate Heart of Mary v. Berks County .............................................................. 402 Murtagh v. County of Berks .................................................... 46, 47, 48, 49, 53, 319 Sunderland Props., Inc. v. County of Berks ............................................................ 45 Berlo Vending Co., see Commonwealth v. Berlo Vending Co. ..................................... 195 Berman Props., Inc. v. Delaware County Bd. of Assessment & Appeals, 658 A.2d 492 (Pa.Cmwlth. 1995) ................................................ 51, 52 Bermudian Springs Sch. Dist., see Lincoln Intermediate Unit No. 12 v. Bermudian Springs Sch. Dist. ..................................................... 39 Berry v. Unemployment Comp. Bd. of Rev., 382 A.2d 487 (Pa.Cmwlth. 1978), aff’d, 411 A.2d 1198 (Pa. 1980) ......................................... 147 Berwick Assocs. v. Columbia County Bd. of Assessment Appeals, 929 A.2d 708 (Pa.Cmwlth. 2007) ........................................................ 368 Bethlehem Area Sch. Dist., see Gore v. Bethlehem Area Sch. Dist. ........................... 189 Bethlehem Area Sch. Dist. v. Board of Revenue Appeals of Northampton County, 225 A.3d 212 (Pa.Cmwlth. 2020) ............................. 283 Betters v. Beaver County, 200 A.3d 1044 (Pa.Cmwlth. 2018) .................................... 137

664

Index of Cases BFC Hardwoods, Inc. v. Board of Assessment Appeals of Crawford County, 771 A.2d 759 (Pa. 2001) ................................... 198, 199, 200 Biosciences Info. Serv. v. Commonwealth, 551 A.2d 672 (Pa.Cmwlth. 1988), aff’d per curiam, 569 A.2d 927 (Pa. 1990) ...................................................................................... 509 Black, see Doverspike v. Black .............................................................................. 543, 544 Blackwell v. City of Philadelphia, 684 A.2d 1068 (Pa. 1996) ....................................... 352 Blair County Board of Assessment Appeals, see Morrisons Cove Home v. Blair County Bd. of Assessment Appeals ........................................................................ 147, 148 Quad Assocs. v. Blair County Bd. of Assessment Appeals ........................... 126, 127 Blair v. Berks County Bd. of Assessment Appeals, 20 A.3d 629 (Pa.Cmwlth. 2011) ......................................................... 615, 616, 645 Blair v. Commissioner, 300 U.S. 5 (1937) ....................................................................... 64 Blanda v. Somerset County Bd. of Assessment Appeals, 131 A.3d 560 (Pa.Cmwlth. 2016) ....................................................................... 553 Bliss Excavating Co. v. Luzerne County, 211 A.2d 532 (Pa. 1965) ............................... 59 Blocker v. City of Philadelphia, 763 A.2d 373 (Pa. 2000) .................................... 191, 192 Blue Knob Recreation, Inc., Assessment Appeal, In re, 551 A.2d 9 (Pa.Cmwlth. 1988) ................................................................. 30, 32, 33 Bluestein, see Rupel v. Bluestein .................................................................................... 97 Board of Christian Educ. of Presbyterian Church in United States v. School Dist. of Philadelphia, 91 A.2d 372 (Pa.Super. 1952) ............................................................................. 430 Board of Finance & Revenue, see Box Office Pictures, Inc. v. Board of Finance & Revenue ...................................... 57 Land Holding Corp. v. Board of Finance & Revenue ............................................. 57 PICPA Found. for Educ. & Research v. Board of Finance & Revenue ................................................................................. 524 Universal Film Exchs., Inc. v. Board of Finance & Revenue ................................. 57 Bolus, see Monroe County v. Bolus ............................................................... 124, 205, 207 Bolus v. County of Monroe, 650 A.2d 1188 (Pa.Cmwlth. 1994) ........................... 235, 237 Bonin, In re Assessment Appeal of, 442 A.2d 43 (Pa.Cmwlth. 1982) .......................... 146 Bower Hill Civic League v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 215 A.2d 305 (Pa.Super. 1965) ................... 403, 404 Bower, see Department of Transp. v. Bower ................................................................. 441 Box Office Pictures, Inc. v. Board of Finance & Revenue, 166 A.2d 656 (Pa. 1961) ........................................................................................ 57 Bracken Constr. Co., see Department of Transp. v. Brayman Constr. Corp.—Bracken Constr. Co. .................................................................. 549 Bradford County Board of Assessment Appeals, see Craftmaster Mfg., Inc. v. Bradford County Bd. of Assessment Appeals ............................................................. 124, 125 McLoughlin v. Bradford County Bd. of Assessment ............................................. 592 Brady v. State Bd. of Chiropractic Exam’rs, 471 A.2d 572 (Pa.Cmwlth. 1984) ................................................................................................ 71

665

Index of Cases Brandywine Heights Area Sch. Dist. v. Berks County Bd. of Assessment Appeals, 821 A.2d 1262 (Pa.Cmwlth. 2003) ........................................................................ 81, 82, 83, 84, 85 Braniff Airways, Inc. v. C.A.B., 379 F.2d 453 (D.C. Cir. 1967) ..................................... 71 Bratton, see Pennsylvania State Athletic Comm’n v. Bratton ...................................... 16 Brayman Constr. Corp.—Bracken Constr. Co., see Department of Transp. v. Brayman Constr. Corp.—Bracken Constr. Co. ............................... 549 Broadwing Timber, LLC, see Punxsutawney Area Sch. Dist. v. Broadwing Timber, LLC .................................................................... 282, 285, 286 Brooks Bldg., In re Appeal of, 137 A.2d 273 (Pa. 1958) ....................... 177, 257, 258, 265 Brown v. Forest Water Co., 62 A. 1078 (Pa. 1906) ............................................... 155, 156 Buckingham Springs, Residents of, v. Bucks County Assessment Office, 60 A.3d 883 (Pa.Cmwlth. 2013) ......................................... 246 Bucks County Assessment Office, see Buckingham Springs, Residents of, v. Bucks County Assessment Office ............................................ 246 Bucks County Board of Assessment, see Bucks County Community Coll. v. Bucks County Bd. of Assessment Appeals ........................................................................... 477 Community Serv. Found., Inc. v. Bucks County Bd. of Assessment & Revision of Taxes ................................ 425, 429, 461, 463 Expressway 95 Business Center, LP v. Bucks County Bd. of Assessment ................................................................................... 125 U.S. Steel Corp. v. Board of Assessment & Revision of Taxes of Bucks County .............................................................................. 192, 194 Bucks County Comm’rs, see Bensalem Twp. Sch. Dist. v. Bucks County Comm’rs ................................................................. 451, 623 Bucks County Community Coll. v. Bucks County Bd. of Assessment Appeals, 608 A.2d 622 (Pa.Cmwlth. 1992) ................................... 477 Bucks County, see Deigendesch v. County of Bucks .................................................... 624 Buhl Found. v. Board of Prop. Assessment Appeals & Rev. of Allegheny County, 180 A.2d 900 (Pa. 1962) .................. 137, 155, 160, 177, 221 Bureau of Empl. Sec., see Lehigh Valley Coop. Farmers v. Bureau of Empl. Sec., Dep’t of Labor & Industry .......................... 474

C C.A.B., see Braniff Airways, Inc. v. C.A.B. ................................................................................ 71 Great Lakes Airlines, Inc. v. C.A.B. ........................................................................ 71 Calcagni v. Board of Assessment Appeals of Lehigh County, 394 A.2d 663 (Pa.Cmwlth. 1978) ....................................................................... 258 California, see Arizona v. California ............................................................................. 481 Callas v. Armstrong County Bd. of Assessment, 453 A.2d 25 (Pa.Cmwlth. 1982) ........................................................ 362, 364, 365, 366, 367, 368, 379, 380, 383 Cambria County Board of Assessment Appeals, see Clark v. Cambria County Bd. of Assessment Appeals ............................... 78, 80, 82

666

Index of Cases County Amusement Co. v. County of Cambria Bd. of Assessment Appeals ............................................. 110, 111, 132, 261 Lee Hosp. v. Cambria County Bd. of Assessment Appeals .................................................... 407, 450, 451, 528, 529, 530 Richland Sch. Dist. v. County of Cambria Bd. of Assessment Appeals ............................................... 72, 132, 394, 395 Camp Hachshara Moshava of N.Y. v. Wayne County Bd. for the Assessment & Revision of Taxes, 47 A.3d 1271 (Pa.Cmwlth. 2012) ....................................................................... 509 Campbell v. Coatesville Area Sch. Dist., 270 A.2d 385 (Pa. 1970) .............................. 293 Canonsburg Gen. Hosp. v. Department of Health, 422 A.2d 141 (Pa. 1980) ...................................................................................... 614 Capital Extended Care, In re Appeal of, 609 A.2d 896 (Pa.Cmwlth. 1992) ................ 466 Carbon County Board of Assessment Appeals, see Smith v. Carbon County Bd. of Assessment Appeals ................................... 271, 272 Vees v. Carbon County Bd. of Assessment Appeals ..................................... 266, 399 Carbon County, see Ackerman v. Carbon County ................................................ 338, 350 Carino v. Board of Comm’rs of County of Armstrong, 468 A.2d 1201 (Pa.Cmwlth. 1983) ..................................................... 345, 348, 387 Carpentertown Coal & Coke Co. v. Laird, 61 A.2d 426 (Pa. 1948) ................................ 61 Carr, see Baker v. Carr .................................................................................................. 351 Catholic Inst. of Pittsburgh v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 423 A.2d 1114 (Pa.Cmwlth. 1980) .................................. 441 Cedarbrook Realty, Inc., Appeal of, 395 A.2d 613 (Pa.Cmwlth. 1978) ................................................................................ 65, 145, 443 Cedarbrook Realty, Inc. v. Cheltenham Twp., 611 A.2d 335 (Pa.Cmwlth. 1992) ....................................................... 165, 168, 220 Cellco P’ship v. Lycoming County Bd. of Assessment, 934 A.2d 779 (Pa.Cmwlth. 2007) ............................................................... 202, 203 Cemetery Ass’n, see Harrisburg v. Cemetery Ass’n ..................................................... 403 Central Lithograph Co. v. Eatmor Chocolate Co., 175 A. 697 (Pa. 1934) .......................................................................................... 196 Centre County Bd. of Comm’rs, see Nittany Printing & Publ’g Co. v. Centre County Bd. of Comm’rs ..................................................... 531 Ceramic Art & Cultural Inst. v. Berks County Bd. of Assessment Appeals, 227 A.3d 46 (Pa.Cmwlth. 2020) ................................. 470 Certain Parcels of Land in Philadelphia, see United States v. Certain Parcels of Land in Philadelphia ....................................................... 27, 89 Chartiers Industrial & Comm’l Dev. Auth. v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev., 645 A.2d 944 (Pa.Cmwlth. 1994) .................................... 312, 313 Chartiers Valley Industrial & Comm’l Dev. Auth. v. Allegheny County, 963 A.2d 587 (Pa.Cmwlth. 2008) ................................ 268, 269 Chartiers Valley Sch. Dist. Appeal, 462 A.2d 673 (Pa. 1983) .................................. 89, 90 Chartiers Valley Sch. Dist., Appeal of, 447 A.2d 317 (Pa.Cmwlth. 1982) ........... 130, 145 Chartiers Valley Sch. Dist. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 622 A.2d 420 (Pa.Cmwlth. 1993) .................... 106, 108, 537

667

Index of Cases Chartiers Valley Sch. Dist. v. Board of Prop. Assessment, Appeals, Rev. & Registry of Allegheny County, 794 A.2d 981 (Pa.Cmwlth. 2002) ...................................................................................... 460, 461 Chatfield v. Board of Revision of Taxes, 29 A.2d 685 (Pa. 1943) ................................ 207 Cheltenham Twp., see Cedarbrook Realty, Inc. v. Cheltenham Twp. ............................................................................... 165, 168, 220 Chester County Bd. of Assessment Appeals v. Behe, 632 A.2d 1102 (Pa.Cmwlth. 1993) ............................................................. 338, 350 Chester County Board of Assessment Appeals, see Behe v. Chester County Bd. of Assessment Appeals ........................................ 44, 45 Cunius v. Board of Assessment Appeals of Chester County ........................ 374, 375 Downingtown Area Sch. Dist. v. Chester County Bd. of Assessment Appeals .................................................... 180, 249, 264, 265, 266, 267, 268, 269, 270, 271, 275 Friends of Pa. Leadership Charter Sch. v. Chester County Bd. of Assessment Appeals .......................................... 652 Hershey’s Mill Homeowners Ass’n v. Chester County Bd. of Assessment Appeals .................................................... 62, 65 Kennett Consol. Sch. Dist. v. Chester County Bd. of Assessment Appeals ........................................................... 284, 285, 287 Unionville-Chadds Ford Sch. Dist. v. Chester County Bd. of Assessment Appeals ........................................ 423, 468, 497 Weissenberger v. Chester County Bd. of Assessment Appeals ........... 272, 273, 275 Chester County, see Hershey’s Mill Homeowners Ass’n v. Chester County ........................................... 62 Tracy v. County of Chester .................................................................................... 549 Chester-Upland Sch. Dist., In re Consolidated Appeals of, 238 A.3d 1213 (Pa. 2020) ................................................................................... 233 Chestnut Street Tax Assessment Case, 64 A.2d 769 (Pa. 1949) ................................. 145 Chicago, B. & Q. Ry. Co. v. Babcock, 204 U.S. 585 (1907) ............................................. 70 Chiropractic Examiners, State Board of, see Brady v. State Bd. of Chiropractic Exam’rs ............................................................ 71 Coder v. State Bd. of Chiropractic Exam’rs ............................................................ 71 Church of the Overcomer v. Delaware County Bd. of Assessment Appeals, 18 A.3d 386 (Pa.Cmwlth. 2011) ......................................................................... 518 Church Street Assocs. v. County of Clinton, 959 A.2d 490 (Pa.Cmwlth. 2008) .............................................................................................. 219 Churchill, Borough of, In re Appeal of, 575 A.2d 550 (Pa. 1990) .................................................................. 42, 94, 95, 113, 114, 139, 143, 531 Ciaffoni v. Washington County Bd. for Assessment of Appeals, 535 A.2d 247 (Pa.Cmwlth. 1987) ........................................................ 227 Clairton, City of, Bd. of Revision of Taxes & Appeals, see U.S. Steel Corp. v. Board of Revision of Taxes & Appeals of City of Clairton ........................ 194, 253 Clark, see Lennox v. Clark ............................................................................................ 535 Clark v. Cambria County Bd. of Assessment Appeals, 747 A.2d 1242 (Pa.Cmwlth. 2000) ........................................................... 78, 80, 82

668

Index of Cases Clearfield County Assessment Office & Tax Bur., see ARC Human Servs. v. Clearfield County Assessment Office & Tax Bur. ........................................................................... 431 Clifton v. Allegheny County, 969 A.2d 1197 (Pa. 2009) ...................................... 138, 271, 272, 273, 339 Clinton County Bd. of Assessment Appeals, see Lock Haven Univ. Found. v. Clinton County Bd. of Assessment Appeals & Revision of Taxes .............................................................................. 507 Clinton County, see Church Street Assocs. v. County of Clinton .......................................................... 219 Consolidated Gas Supply Corp. v. County of Clinton ................................. 45, 59, 61 Close v. Berks County Bd. of Assessment Appeals, 839 A.2d 462 (Pa.Cmwlth. 2003) ....................................................... 600, 601, 608 CNG Coal Co. v. Greene County Bd. of Assessment & Revision of Taxes, 551 A.2d 328 (Pa.Cmwlth. 1988) ........................................................ 228 Coatesville Area Sch. Dist., In re Appeal of, 244 A.3d 373 (Pa. 2021) ........................ 148 Coatesville Area Sch. Dist., see Campbell v. Coatesville Area Sch. Dist. ................... 293 Coder v. State Bd. of Chiropractic Exam’rs, 471 A.2d 563 (Pa.Cmwlth. 1984) ............ 71 Collegium Found., In re Appeal of, 991 A.2d 990 (Pa.Cmwlth. 2010) ......................... 508 Colonial Lodge & Banquet Ctr. v. Lancaster County Bd. of Assessment Appeals, 44 Pa.D.&C.3d 115 (C.P. Lancaster 1986) ........................................................................................... 27 Colonial Sch. Dist. v. Department of Educ., 602 A.2d 455 (Pa.Cmwlth. 1992) .......... 614 Colonial Sch. Dist. v. Montgomery County Bd. of Assessment Appeals, 232 A.3d 1051 (Pa.Cmwlth. 2020), ............................ 285 Colorado, see United States v. Colorado ....................................................................... 481 Colson, see Commonwealth v. Colson ........................................................................... 132 Columbia County Bd. of Assessment Appeals, see Berwick Assocs. v. Columbia County Bd. of Assessment Appeals ......................... 368, 511 Columbia Gas of Pa., Inc. v. Pennsylvania Pub. Util. Comm’n, 521 A.2d 105 (Pa.Cmwlth. 1987) .......................................................... 62 Columbia Gas Transmission Corp. v. Commonwealth, 360 A.2d 592 (Pa. 1976) ...................................................................................... 294 Columbia Gas Transmission Corp. v. Piper, 615 A.2d 979 (Pa.Cmwlth. 1992) .............................................................................................. 116 Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591 (1948) ............................ 63 Commissioner, see Blair v. Commissioner ...................................................................... 64 Commonwealth ex rel. Chidsey v. Mallen, 63 A.2d 49 (Pa. 1949) ................................. 16 Commonwealth, see Aldine Apts., Inc. v. Commonwealth ....................................................... 57, 293, 294 Annenberg v. Commonwealth ........................................................................ 324, 325 Biosciences Info. Serv. v. Commonwealth ............................................................. 509 Columbia Gas Corp. v. Commonwealth ................................................................ 294 Eastern Auto Car Wash, Inc. v. Commonwealth .................................................. 203 Fisher Controls Co. v. Commonwealth .................................................................. 445 Gilmore v. Commonwealth ................................................................................. 94, 95

669

Index of Cases Hospital Utilization Project v. Commonwealth ................................... 404, 406, 407, 408, 410, 417, 423, 424, 425, 426, 428, 429, 430, 437, 455, 456, 457, 458, 459, 460, 468, 469, 486, 487, 488, 489, 491, 493, 494, 495, 496, 497, 498, 499, 500, 501, 503, 504, 509, 511, 513, 514, 515, 519, 525 Kalodner v. Commonwealth .................................................................................. 451 Lilian v. Commonwealth ...................................................................... 43, 56, 57, 292 Philadelphia Life Ins. Co. v. Commonwealth ......................................................... 59 Potomac Edison Co. v. Commonwealth ................................................................. 195 Sacred Heart Healthcare Sys. v. Commonwealth ................................ 417, 458, 461 Schmidt v. Commonwealth ...................................................................................... 93 Spirit of the Avenger Ministries v. Commonwealth ............................. 428, 446, 447 Commonwealth v. 108.3 Acres of Land, 246 A.2d 124 (Pa. 1968) ............................... 158 Commonwealth v. 2101 Coop., Inc., 183 A.2d 325 (Pa. 1962) ..................................... 478 Commonwealth v. Berlo Vending Co., 202 A.2d 94 (Pa. 1964) .................................... 195 Commonwealth v. Colson, 490 A.2d 811 (Pa. 1985), cert. denied, 476 U.S. 1140 (1986) .......................................................................................... 132 Commonwealth v. Dauphin County, 6 A.2d 870 (Pa. 1939) ........................................ 472 Commonwealth v. Hagan, 654 A.2d 541 (Pa. 1995) ..................................................... 394 Commonwealth v. Life Assur. Co. of Pa., 214 A.2d 209 (Pa. 1965) ............................. 293 Commonwealth v. Morris Half Hour Laundromat, 277 A.2d 148 (Pa. 1971) ..................................................................................... 203 Commonwealth v. Mullen, 333 A.2d 755 (Pa. 1975) ...................................................... 61 Commonwealth v. Noll, 662 A.2d 1123 (Pa.Super. 1925) ............................................ 132 Commonwealth v. O’Shea, 567 A.2d 1023 (Pa. 1989), cert. denied, 498 U.S. 881 (1990) ....................................................................... 530 Commonwealth v. Pennsylvania Pub. Util. Comm’n, 331 A.2d 598 (Pa.Cmwlth. 1975) ......................................................................... 71 Commonwealth v. Provident Trust Co. of Philadelphia, 180 A. 16 (Pa. 1935) ........................................................................................... 403 Commonwealth v. Rohm & Haas Co., 368 A.2d 909 (Pa.Cmwlth. 1977), aff’d, 386 A.2d 491 (Pa. 1978), app. dismissed, 439 U.S. 805 (1978) ............................................... 451 Commonwealth v. Schellenberger, 568 A.2d 968 (Pa.Super. 1990) .............................. 45 Commonwealth v. Staley, 381 A.2d 1280 (Pa. 1978) ................................................... 294 Commonwealth v. Starr, 664 A.2d 1326 (Pa. 1995) ..................................................... 633 Commonwealth v. Thomas, 282 A.2d 693 (Pa. 1971) ................................................... 138 Commonwealth v. Weldon Pajamas, Inc., 248 A.2d 204 (Pa. 1968) ............................ 459 Community Ass’n of Pocono Farms, Inc. v. Monroe County Bd. of Assessment Appeals, No. 947 January Term, 1979 (August 14, 1980) ...................................................................................... 240 Community Options, Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 813 A.2d 680 (Pa. 2002) .......................................... 425, 431

670

Index of Cases Community Options, Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 764 A.2d 645 (Pa.Cmwlth. 2000) ....................................................... 428, 429, 430 Community Serv. Found., Inc. v. Bucks County Bd. of Assessment & Revision of Taxes, 672 A.2d 373 (Pa.Cmwlth. 1996) ............ 425, 429, 461, 463 Community YMCA, see Dynamic Sports Fitness Corp. of America v. Community YMCA ........................................................... 428, 432, 512 Concerned Taxpayers of Beaver County v. Beaver County Bd. of Assessment Appeals, 462 A.2d 347 (Pa.Cmwlth. 1983) ............................. 45, 443 Conestoga Nat’l Bank of Lancaster v. Patterson, 275 A.2d 6 (Pa. 1971) ............................................................................................ 16 Connellsville, City of, v. Fayette County Tax Claim Bur., 632 A.2d 1065 (Pa.Cmwlth. 1993) ............................................................. 359, 547 Connellsville Street Church of Christ v. Fayette County Bd. of Assessment Appeals, 838 A.2d 848 (Pa.Cmwlth. 2003) ...................................................................................... 518, 521 Connor v. Allegheny Gen. Hosp., 461 A.2d 600 (Pa. 1983) ............................................ 39 Connor v. Westmoreland County Bd. of Assessment Appeal, 598 A.2d 610 (Pa.Cmwlth. 1991) ........................................................... 65, 67, 148 Consol Pa. Coal Co. v. Board of Assessment Appeals of Greene County, 617 A.2d 852 (Pa.Cmwlth. 1992) ........................................ 528 Consolidated Gas Supply Corp. v. County of Clinton, 470 A.2d 1113 (Pa.Cmwlth. 1984) ........................................................... 45, 59, 61 Convent of Sisters, Servants of the Immaculate Heart of Mary v. Berks County, 37 Berks 231 (1945) ................................................................... 402 Coolspring Stone Supply, Inc. v. County of Fayette, 879 A.2d 323 (Pa.Cmwlth. 2005), aff’d, 929 A.2d 1150 (Pa. 2007) ................................. 230, 231 Coolspring Stone Supply, Inc. v. County of Fayette, 929 A.2d 1150 (Pa. 2007) .................................................................................... 176 Corace v. Balint, 210 A.2d 882 (Pa. 1965) .................................................................... 356 Coshey v. Beal, 366 A.2d 1295 (Pa.Cmwlth. 1976) ...................................................... 441 Cost Bros., Inc., see McKenzie v. Cost Bros., Inc. ........................................................... 52 Costar Marine Tax Assessment Appeal, 382 A.2d 156 (Pa.Cmwlth. 1978) .............................................................................................. 475 Council Rock Sch. Dist., see G.D.L. Plaza Corp. v. Council Rock Sch. Dist. .............................................................. 406, 429, 503, 509 County Amusement Co. v. County of Cambria Bd. of Assessment Appeals, 692 A.2d 300 (Pa.Cmwlth. 1997) ................................ 110, 111, 132, 261 Couriers-Susquehanna, Inc. v. County of Dauphin, 645 A.2d 290 (Pa.Cmwlth. 1994) ....................................................................... 496 Court of Common Pleas, see Municipal Publ’ns, Inc. v. Court of Common Pleas ........................................................................................ 62 Craftmaster Mfg., Inc. v. Bradford County Bd. of Assessment Appeals, 903 A.2d 620 (Pa.Cmwlth. 2006) ............................................................... 124, 125 Crawford County Bd. of Assessment Appeals, see BFC Hardwoods, Inc. v. Board of Assessment Appeals of Crawford County ............... 198, 199, 200

671

Index of Cases Croasdale v. Dauphin County Bd. of Assessment Appeals, 492 A.2d 793 (Pa.Cmwlth. 1985) (Croasdale I) ................................ 332, 347, 365, 384, 386, 387, 388, 389, 390, 393 Cryan (EA Media) v. Snyder County Bd. of Assessment Appeals, 29 A.3d 873 (Pa.Cmwlth. 2011) ............................................................ 20 CSX Transp., Inc. v. Delaware County Bd. of Assessment Appeals, 104 A.3d 612 (Pa.Cmwlth. 2014) ................................................ 647, 648 Cumberland County Board of Assessment Appeals, see Alliance Home of Carlisle v. Board of Assessment Appeals of Cumberland County ....................................................................... 425, 426, 427, 469, 507 Arredondo v. Cumberland County Bd. of Assessment Appeals ....................................................................... 190, 191 Cumberland Valley Sch. Dist. v. Cumberland County Bd. of Assessment Appeals ..................................................................... 158 Philadelphia, City of, v. Cumberland County Bd. of Assessment Appeals ............................................................................... 484 Cumberland Valley Sch. Dist. v. Cumberland County Bd. of Assessment Appeals, 557 A.2d 1178 (Pa.Cmwlth. 1989) ............................. 158 Cunius v. Board of Assessment Appeals of Chester County, 976 A.2d 635 (Pa.Cmwlth. 2009) ............................................................... 374, 375 Curione, see McCain v. Curione .................................................................................... 446 Custer v. Bedford County Bd. of Assessment & Revision of Taxes, 910 A.2d 113 (Pa.Cmwlth. 2006) ............................................................... 234, 235 Cynwyd Invs., In re Appeal of Prop. of, 679 A.2d 304 (Pa.Cmwlth. 1996) ...................................................................................... 167, 222

D Daddona v. Thind, 891 A.2d 786 (Pa.Cmwlth. 2006) ................................................... 119 Dana Corp. v. Wentz, 505 A.2d 639 (Pa.Cmwlth. 1986) ........................................ 72, 378 Daugherty v. County of Allegheny, 920 A.2d 936 (Pa.Cmwlth. 2007) .................... 23, 25 Dauphin County Board of Assessment Appeals, see Banzhoff v. Dauphin County Bd. of Assessment Appeals ........................... 259, 261 Croasdale v. Dauphin County Bd. of Assessment Appeals ................. 332, 347, 365, 384, 386, 387, 388, 389, 390, 393 Dauphin County Gen. Auth. v. Dauphin County Bd. of Assessment Appeals ....................................................................... 481, 482 Grand Prix Harrisburg, LLC v. Dauphin County Bd. of Assessment Appeals ....................................................................... 183, 185 Harrisburg, City of, v. Dauphin County Bd. of Assessment Appeals (Croasdale II) ....................... 338, 350, 388, 389, 390 Hershey Entertainment & Resorts Co. v. Dauphin County Bd. of Assessment Appeals ........................................ 181, 182, 183 Pinnacle Health Hosps. v. Dauphin County Bd. of Assessment Appeals ............................................................................... 447

672

Index of Cases Shenandoah Mobile Co. v. Dauphin County Bd. of Assessment Appeals ........................................................ 201, 202, 383, 384 Upper Dauphin Nat’l Bank v. Dauphin County Bd. of Assessment Appeals ..................................................................... 450 Wesley United Methodist Church v. Dauphin County Bd. of Assessment Appeals ..................................................... 519, 520, 521 Dauphin County Gen. Auth. v. Dauphin County Bd. of Assessment Appeals, 768 A.2d 895 (Pa.Cmwlth. 2000) ....................... 481, 482 Dauphin County, see Commonwealth v. Dauphin County ...................................................................... 472 Couriers-Susquehanna, Inc. v. County of Dauphin .............................................. 496 Pennsylvania State Employes’ Ret. Sys. v. Dauphin County .................................................................. 328 Deigendesch v. County of Bucks, 482 A.2d 228 (Pa. 1984) .......................................... 624 Deitch Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 209 A.2d 397 (Pa. 1965) ........................... 69, 120, 124, 127, 131, 174, 177, 216, 257, 260, 263, 265, 266, 267, 269, 270, 271, 290, 291, 297, 378 Deitch, see Scripture Union v. Deitch ................................................................... 455, 509 Delaware County Board of Assessment Appeals, see B.P. Oil Co. v. Delaware County Bd. of Assessment Appeals ................................................................................ 133 Berman Props., Inc. v. Delaware County Bd. of Assessment & Appeals .................................................................... 51, 52 Church of the Overcomer v. Delaware County Bd. of Assessment Appeals ................................................................................ 518 CSX Transp., Inc. v. Delaware County Bd. of Assessment Appeals .................................................................... 647, 648 Gulf Oil Corp. v. Delaware County Bd. of Assessment Appeals ........................................................................ 252, 253 Marcus Hook Dev. Park, Inc. v. Board of Assessment Appeals of Delaware County .................................... 27, 29, 30 Southeastern Pa. Transp. Auth. v. Board for Assessment & Revision of Taxes of Delaware County ............................................... 471 Strawbridge & Clothier v. Board of Assessment Appeals of Delaware County .......................................................... 105, 106 Delaware County, see Patterson v. Delaware County .................................................. 196 Delaware County Solid Waste Auth. v. Berks County Bd. of Assessment Appeals, 626 A.2d 528 (Pa. 1993) ...................................... 471, 481 Delaware, Lackawanna & Western Railroad Co.’s Tax Assessment (No. 1), 73 A. 429 (Pa. 1909) .................................................. 185, 347 Delaware, see United States v. Delaware ..................................................................... 481 Delphais, In re, 903 A.2d 80 (Pa.Cmwlth. 2006) .................................................. 370, 372 Department of Education, see Ashbourne Sch. v. Department of Educ. ............................................................... 611 Colonial Sch. Dist. v. Department of Educ. ........................................................... 614

673

Index of Cases Department of Envtl. Resources, see Sedat, Inc. v. Department of Envtl. Resources ........................................................................ 531 Department of Health, see Canonsburg Gen. Hosp. v. Department of Health ............................................... 614 Shenango Valley Osteopathic Hosp. v. Department of Health ......................................................................... 54, 60 Department of Public Welfare, see Hallgren v. Department of Pub. Welfare .............................................................. 477 Hospital & Healthsystem Ass’n of Pa. v. Department of Pub. Welfare ..................................................................... 35 Nolan v. Department of Pub. Welfare ................................................................... 446 Nolf v. Department of Pub. Welfare ........................................................................ 77 Pelton v. Department of Pub. Welfare .................................................................... 27 Pennhurst Med. Group v. Department of Pub. Welfare ...................................... 615 Pennsylvania Med. Soc’y v. Department of Pub. Welfare ...................................... 35 Sewickley Valley Hosp. v. Department of Pub. Welfare .................................. 65, 67 Department of Revenue, see R&P Servs., Inc. v. Department of Revenue ................................................. 358, 610 Stevenson v. Department of Revenue ..................................................................... 43 Department of Transp., Bur. of Driver Licensing v. Grasse, 606 A.2d 544 (Pa.Cmwlth. 1991) .......................................................... 549 Department of Transp. v. Bower, 410 A.2d 91 (Pa.Cmwlth. 1980) ............................. 441 Department of Transp. v. Brayman Constr. Corp.—Bracken Constr. Co., 513 A.2d 562 (Pa.Cmwlth. 1986) .................................................. 549 Department of Transportation, see Gehris v. Department of Transp. .......................................................................... 358 McNeilis v. Department of Transp. ................................................................... 94, 95 Derry Twp. Sch. Dist., see Pennsylvania State Univ. v. Derry Twp. Sch. Dist. ................................................................................. 483, 485 Dickey, see Pennsylvania Bank & Trust Co., Youngsville Branch v. Dickey ............................................................................ 229 Dilliplaine v. Lehigh Valley Trust Co., 322 A.2d 114 (Pa. 1974) .................................. 23 Donnelly v. York County Bd. of Assessment Appeals, 976 A.2d 1226 (Pa.Cmwlth. 2009) ..................................................................... 607 Donohugh’s Appeal, 86 Pa. 306 (1878) ................................................................. 429, 502 Dooley v. Luzerne County Bd. of Assessment Appeals, 649 A.2d 728 (Pa.Cmwlth. 1994) ....................................................................... 568 Dougherty, see Philadelphia, City of, v. Dougherty ..................................................... 441 Dougherty v. City of Philadelphia, 171 A. 583 (Pa. 1934) ....................................... 54, 55 Dougherty v. City of Philadelphia, 172 A. 177 (Pa.Super. 1934) ................................ 402 Douglass Vill. Residents Group v. Berks County Bd. of Assessment Appeals, 84 A.3d 407 (Pa.Cmwlth. 2014) .......................................................... 559 Doverspike v. Black, 535 A.2d 1217 (Pa.Cmwlth. 1988) ..................................... 543, 544 Downingtown Area Sch. Dist. v. Chester County Bd. of Assessment Appeals, 131 A.3d 152 (Pa.Cmwlth. 2015) ........................................................ 180 Downingtown Area Sch. Dist. v. Chester County Bd. of Assessment Appeals, 819 A.2d 615 (Pa.Cmwlth. 2003) ........................................................ 265

674

Index of Cases Downingtown Area Sch. Dist. v. Chester County Bd. of Assessment Appeals, 913 A.2d 194 (Pa. 2006) ................................. 249, 264, 266, 267, 268, 269, 270, 271, 275 Duke Energy Fayette II, LLC v. Fayette County Bd. of Assessment Appeals, 116 A.3d 1176 (Pa.Cmwlth. 2015) .............................................. 372, 373 Duke Energy Fayette II, LLC v. Fayette County Bd. of Assessment Appeals, 129 A.3d 1237 (Pa. 2015) ........................................ 454, 455 Dunn v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev., 794 A.2d 416 (Pa.Cmwlth. 2002) .................................................. 377, 378 Duquesne Club, In re Appeal of, 498 A.2d 459 (Pa.Cmwlth. 1985) ..................... 135, 136 Dynamic Sports Fitness Corp. of America v. Community YMCA, 768 A.2d 375 (Pa.Cmwlth. 2000) .......................................... 428, 432, 512

E E.L.C.A. Dev. Corp. v. Lackawanna County Bd. of Assessment Appeals, 752 A.2d 466 (Pa.Cmwlth. 2000) ............................................... 240, 242, 244, 245, 246 Earl Twp. v. Reading Broadcasting, Inc., 770 A.2d 794 (Pa.Cmwlth. 2001) .............. 621 East Stroudsburg Area Sch. Dist. v. Meadow Lake Plaza, LLC, 219 A.3d 724 (Pa.Cmwlth. 2019) ........................... 280, 282, 283, 285 Eastern Auto Car Wash, Inc. v. Commonwealth, 309 A.2d 611 (Pa.Cmwlth. 1973), aff’d, 344 A.2d 277 (Pa. 1975) ........................................... 203 Eatmor Chocolate Co., see Central Lithograph Co. v. Eatmor Chocolate Co. ......................................................................................... 196 841 Assocs. v. Board of Revision of Taxes of City & County of Philadelphia, 674 A.2d 1209 (Pa.Cmwlth. 1996) .......................... 121, 123, 124 1198 Butler St. Assocs. v. Northampton County Bd. of Assessment Appeals, 946 A.2d 1131 (Pa.Cmwlth. 2008) ...................................................... 218 Elmhurst Group v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 20 A.3d 624 (Pa.Cmwlth. 2011) ...................................... 174 ENF Fam. P’ship v. Erie County Bd. of Assessment Appeals, 861 A.2d 438 (Pa.Cmwlth. 2004) ....................................................................... 209 Episcopal Acad. v. Philadelphia, 25 A. 55 (Pa. 1892) ........................................... 405, 500 Erie, City of, see Hammermill Paper Co. v. Erie .......................................................... 185 Erie County Board of Assessment Appeals, see ENF Fam. P’ship v. Erie County Bd. of Assessment Appeals ................................................................................ 209 Erie-Western Pa. Port Auth. v. Erie County Bd. of Assessment Appeals ............................................................. 248, 249 Lake Erie Promotions, Inc. v. Erie County Bd. of Assessment Appeals .......................................................................... 99, 100 MacDonald, Illig, Jones & Britton v. Erie County Bd. of Assessment Appeals ................................................ 323, 324, 631, 632, 633 Millcreek Twp. Sch. Dist. v. Erie County Bd. of Assessment Appeals ........................................................... 133, 135, 394, 395, 396, 398, 400

675

Index of Cases Senior Citizen Health Care Council of Erie County, Pa., Inc. v. Board of Tax Assessment Appeals of Erie County ........................ 463, 464 Erie County, see Extended Care Centers, Inc. v. County of Erie ............................................ 323, 324 Millcreek Twp. Sch. Dist. v. County of Erie ......................... 272, 338, 350, 351, 352 Erie, School Dist. of, v. Hamot Med. Ctr., 602 A.2d 407 (Pa.Cmwlth. 1992) ............................................................................. 402, 412, 429, 430, 434, 435, 436, 437, 450, 486, 487 Erie-Western Pa. Port Auth. v. Erie County Bd. of Assessment Appeals, 213 A.3d 1041 (Pa.Cmwlth. 2019) .............. 248, 249 Erie-Western Port Authority and Bay Harbor Marina, In re Appeal of, 78 Erie C. L.J. 94 (No. 1594-A-1989) ................................................................. 249 Evangel Baptist Church v. Mifflin County Bd. of Assessment Appeals, 815 A.2d 1174 (Pa.Cmwlth. 2003) ...................................................... 517 Excell 2000, Inc., see Walacavage v. Excell 2000, Inc. ................................................. 446 Expressway 95 Business Center, LP v. Bucks County Bd. of Assessment, 921 A.2d 70 (Pa.Cmwlth. 2007) ................................................... 125 Extended Care Centers, Inc. v. County of Erie, 749 A.2d 566 (Pa.Cmwlth. 2000) ...................................................................................... 323, 324 Exton Dev., Ltd., In re Appeal of, 494 A.2d 34 (Pa.Cmwlth. 1985) .................... 623, 624

F F&M Schaefer Brewing Co. v. Lehigh County Bd. of Assessment Appeals, 502 A.2d 310 (Pa.Cmwlth. 1985) .................................................... 37, 39 F&M Schaeffer Brewing Co. v. Lehigh County Bd. of Appeals, 610 A.2d 1 (Pa. 1992) ............................................. 159, 160, 182, 187, 204, 205, 218, 233, 234 F.J. Busse Co. v. Pittsburgh, 279 A.2d 14 (Pa. 1971) .......................................... 293, 294 F.W. Woolworth Co., Appeal of, 235 A.2d 793 (Pa. 1967) .................................... 124, 271 F.W. Woolworth Co. v. City of Pittsburgh, 284 A.2d 143 (Pa.Cmwlth. 1971) .............................................................................................. 358 Fair Tax Assessment in Real Estate Ass’n v. McNary, 454 U.S. 100 (1981) .............................................................................................. 49 Farnham & Pfile Co., see Monessen, School Dist. of City of, v. Farnham & Pfile Co. .............................................................................. 326, 327 Farrell, see Shortz v. Farrell ......................................................................................... 446 Fasnacht v. Board of Prop. Assessment Appeals of Schuylkill County, 156 A.3d 365 (Pa.Cmwlth. 2017) ............................................................... 372, 374 Fayerweather v. Ritch, 195 U.S. 276 (1904) .................................................................. 70 Fayette County Board of Assessment Appeals, see Benedictine Sisters of Pittsburgh v. Fayette County Bd. of Assessment Appeals ............................................................. 517, 518 Connellsville Street Church of Christ v. Fayette County Bd. of Assessment Appeals ............................................................. 518, 521 Duke Energy Fayette II, LLC v. Fayette County Bd. of Assessment Appeals ................................................................... 372, 373

676

Index of Cases Fayette Resources, Inc. v. Fayette County Bd. of Assessment Appeals ................................................................................ 431 Independent Oil & Gas Ass’n of Pa. v. Board of Assessment Appeals of Fayette County ..................................................... 173, 176, 177, 229, 230, 234 Jordan v. Fayette County Bd. of Assessment Appeals ..................... 52, 54, 277, 319 Lutes v. Fayette County Bd. of Assessment Appeals ................................... 319, 321 RAS Dev. Corp. v. Fayette County Bd. of Assessment Appeals ........................................................ 132, 210, 211, 212 St. Aloysius Roman Catholic Church v. Fayette County Bd. of Assessment Appeals ..................................................................... 516 Fayette County, see Coolspring Stone Supply, Inc. v. County of Fayette ....................................................................................... 230, 231 Fayette County Tax Claim Bur., see Connellsville, City of, v. Fayette County Tax Claim Bur. ............................................................. 359, 547 Fayette Resources, Inc. v. Fayette County Bd. of Assessment Appeals, 107 A.3d 839 (Pa.Cmwlth. 2014) ........................................................ 431 Federated Dep’t Stores, Inc. Appeal, 467 A.2d 908 (Pa.Cmwlth. 1983) .................................................................................... 89, 90, 93 Feick v. Berks County Bd. of Assessment Appeals, 720 A.2d 504 (Pa.Cmwlth. 1998) ....................................................... 597, 600, 606 Feist v. Luzerne County Bd. of Assessment Appeals, 347 A.2d 772 (Pa.Cmwlth. 1975) ....................................................................... 141 Felin v. Philadelphia, 47 A.2d 227 (Pa. 1946) .............................................................. 145 Fidelity-Philadelphia Trust Co. v. Land Title Bank & Trust Co., 192 A. 121 (Pa. 1937) .......................................................................... 29 Filbern Manor Apts. v. Board of Assessment Appeals of Westmoreland County, 589 A.2d 279 (Pa.Cmwlth. 1991) ............................................................. 30, 31, 33 First Baptist Church of Pittsburgh v. Pittsburgh, 20 A.2d 209 (Pa. 1941) .......................................................................................... 55 First Korean Church of N.Y., Inc. v. Montgomery County Bd. of Assessment Appeals, 926 A.2d 543 (Pa.Cmwlth. 2006) ............................... 523 Fisher Controls Co. v. Commonwealth, 381 A.2d 1253 (Pa. 1977) .............................. 445 525 Lancaster Ave Apts., LP v. Berks County Bd. of Assessment Appeals, 111 A.3d 1231 (Pa.Cmwlth. 2015) ...................................................... 633 Fleetwood Area Sch. Dist. v. Berks County Bd. of Assessment Appeals, 821 A.2d 1268 (Pa.Cmwlth. 2003) ............................................ 81, 84, 85 Forest Water Co., see Brown v. Forest Water Co. ................................................ 155, 156 Fosko v. Board of Assessment Appeals of Luzerne County, 646 A.2d 1275 (Pa.Cmwlth. 1994) .................................................... 247, 260, 261, 264, 267, 268 Four Freedoms House, Inc. v. Philadelphia, 279 A.2d 155 (Pa. 1971) ................................................................................ 66, 402 Four Quarters Interfaith Sanctuary of Earth Religion v. Bedford County Bd. of Assessment & Revision of Taxes, 99 A.3d 603 (Pa.Cmwlth. 2014) .......................................................... 465 Frankford Grocery Co., see Philadelphia Sch. Dist. v. Frankford Grocery Co. ........................................................................................ 230

677

Index of Cases Franklin County Bd. of Assessment & Revision of Taxes, see Menno Haven, Inc. v. Franklin County Bd. of Assessment & Revision of Taxes ....................................................................... 427 Freeman, see Voorhis v. Freeman ................................................................................. 196 Freeman-Bennett v. York County Bd. of Assessment Appeals, 209 A.3d 1137 (Pa.Cmwlth. 2019) ..................................................................... 650 Fresno County, see United States v. County of Fresno ............................................... 481 Friends of Pa. Leadership Charter Sch. v. Chester County Bd. of Assessment Appeals, 101 A.3d 66 (Pa. 2014) ......................................... 652

G G.D.L. Plaza Corp. v. Council Rock Sch. Dist., 526 A.2d 1173 (Pa. 1987) ........................................................... 406, 429, 503, 509 Garrett Group, L.P. v. County of Schuylkill, 667 A.2d 255 (Pa.Cmwlth. 1995) ................................................................................................ 48 Garrett v. Bamford, 582 F.2d 810 (3d Cir. 1978) ..................................................... 41, 45 Gehris v. Department of Transp., 369 A.2d 1271 (Pa. 1977) ....................................... 358 Gelormino v. Board of Assessment Appeals of Armstrong County, 986 A.2d 222 (Pa.Cmwlth. 2009) ......................................................... 558 George A. Fuller Co. v. City of Pittsburgh, 327 A.2d 191 (Pa.Cmwlth. 1974) ................................................................................................ 85 Gilmore v. Commonwealth, 590 A.2d 1369 (Pa.Cmwlth. 1991) .............................. 94, 95 Gilmour Props. v. Board of Assessment Appeals of Somerset County, 873 A.2d 64 (Pa.Cmwlth. 2005) .......................................... 236 Global Links v. Keystone Oaks Sch. Dist., 115 A.3d 418 (Pa.Cmwlth. 2015) .............................................................................................. 440 Goldberg v. Kelly, 397 U.S. 254 (1970) ........................................................................... 17 Gore v. Bethlehem Area Sch. Dist., 537 A.2d 913 (Pa.Cmwlth. 1988) ....................... 189 Grace Center Community Living Corp. v. County of Indiana, 796 A.2d 1008 (Pa.Cmwlth. 2002) ............................................................. 497, 499 Graham v. Lyons, 546 A.2d 1129 (Pa.Super. 1988) ..................................................... 480 Grand Prix Harrisburg, LLC v. Dauphin County Bd. of Assessment Appeals, 51 A.3d 275 (Pa.Cmwlth. 2012) ............................. 183, 185 Grandview Cemetery Ass’n, Appeal of, 224 A.2d 780 (Pa.Super. 1966) ................................................................................................. 442 Granville Twp. v. Board of Assessment Appeals of Mifflin County, 900 A.2d 1012 (Pa.Cmwlth. 2006) ........................................... 471 Grasse, see Department of Transp., Bur. of Driver Licensing v. Grasse ............................................................................................ 549 Gray v. Holdship, 17 S. & R. 413 (1828) ....................................................................... 196 Great Lakes Airlines, Inc. v. C.A.B., 291 F.2d 354 (9th Cir. 1961) ............................... 71 Greater Erie Economic Dev. Corp., In re Tax Assessment of Real Estate of, 433 A.2d 568 (Pa.Cmwlth. 1981) ...................................... 458, 474 Green v. Schuylkill County Bd. of Assessment Appeals, 730 A.2d 1017 (Pa.Cmwlth. 1999), aff’d, 772 A.2d 419 (Pa. 2001) .......... 123, 124 Greene County Board of Assessment & Revision of Taxes, see Allegheny Energy Supply Co. v. Greene County Bd. of Assessment Appeals ........................................ 182, 183, 205

678

Index of Cases CNG Coal Co. v. Greene County Bd. of Assessment & Revision of Taxes ............................................................ 228 Consol Pa. Coal Co. v. Board of Assessment Appeals of Greene County .................................................. 528 Greene County, see Allegheny Energy Supply Co. v. County of Greene ................................................................................................ 203 Greentree, Borough of, v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 328 A.2d 819 (Pa. 1974) ..................... 47, 54, 58, 60, 229, 355, 356, 444 Greenwich Twp. v. Murtagh, 601 A.2d 1352 (Pa.Cmwlth. 1992) ............................ 45, 46 Greenwich Twp. v. Murtagh, 659 A.2d 1083 (Pa.Cmwlth. 1995) ................ 48, 49, 51, 52 Groner v. Monroe County Bd. of Assessment Appeals, 803 A.2d 1270 (Pa. 2002) .................................................................... 369, 370, 371 Gulf Oil Corp. v. Delaware County Bd. of Assessment Appeals, 489 A.2d 321 (Pa.Cmwlth. 1985) ................................................ 252, 253 Gulf Oil Corp. v. Philadelphia, 53 A.2d 250 (Pa. 1947) ................................ 187, 251, 252 Guthrie Clinic, Ltd. v. Sullivan County Bd. of Assessment Appeals, 898 A.2d 1194 (Pa.Cmwlth. 2006) ...................................................... 489

H H.K. Porter Co., Appeal of, 219 A.2d 653 (Pa. 1966) ............................................ 230, 478 Hadley, see Suermann v. Hadley ................................................................................... 212 Hagan, see Commonwealth v. Hagan ............................................................................ 394 Hahn Home v. York County Bd. of Assessment Appeals, 778 A.2d 755 (Pa.Cmwlth. 2001) ............................................................... 428, 497 Hallgren v. Department of Pub. Welfare, 712 A.2d 776 (Pa.Cmwlth. 1997) .............................................................................................. 477 Hammermill Paper Co. v. Erie, 92 A.2d 422 (Pa. 1952), cert. denied, 345 U.S. 940 (1953) ....................................................................... 185 Hamot Med. Ctr., see Erie, Sch. Dist. of, v. Hamot Med. Ctr. .................... 402, 412, 429, 430, 434, 435, 436, 437, 450, 486, 487 Hanna v. Zoning Bd. of Adjustment of Pittsburgh, 437 A.2d 115 (Pa.Cmwlth. 1981) ......................................................................... 93 Hanoverian, Inc. v. Lehigh County Bd. of Assessment Appeals, 701 A.2d 288 (Pa.Cmwlth. 1997) ......................................................................... 67 Harford County, see United States v. Harford County ................................................ 481 Harley-Davidson Motor Co., In re Appeal of, 80 A.3d 506 (Pa.Cmwlth. 2013) ...................................................................................... 225, 226 Harley-Davidson Motor Co. v. Springettsbury Twp., 124 A.3d 270 (Pa. 2015) ...................................................................................... 225 Harper, see Sovereign Bank v. Harper ......................................................................... 480 Harrisburg, City of, v. Dauphin County Bd. of Assessment Appeals, 677 A.2d 350 (Pa.Cmwlth. 1996) (Croasdale II) ...................................... 338, 350, 388, 389, 390 Harrisburg Park Apts., Inc., In re, 489 A.2d 996 (Pa.Cmwlth. 1985) .............................................................................. 121, 130, 131 Harrisburg v. Cemetery Ass’n, 9 Pa.D.&C. 773 (C.P. Dauphin 1927) ........................ 403

679

Index of Cases Haverford Coll. v. Rhoads, 6 Pa. Super. 71 (1897) ....................................................... 500 Hayes v. School Dist. of Pittsburgh, 381 A.2d 193 (Pa.Cmwlth. 1977) ........................ 39 Heinel Bros., Inc., see North Philadelphia Trust Co. v. Heinel Bros., Inc. ........................................................................................ 27, 29 Hendel Appeal, 170 A.2d 109 (Pa. 1961) ...................................................................... 438 Hershey Entertainment & Resorts Co. v. Dauphin County Bd. of Assessment Appeals, 874 A.2d 702 (Pa.Cmwlth. 2005) ............... 181, 182, 183 Hershey’s Mill Homeowners Ass’n v. Chester County Bd. of Assessment Appeals, 764 A.2d 1153 (Pa.Cmwlth. 2000) ................................... 62 Hershey’s Mill Homeowners Ass’n v. Chester County, 862 A.2d 146 (Pa.Cmwlth. 2004) ................................................................... 62, 65 Herzog v. McKean County Bd. of Assessment Appeals, 14 A.3d 193 (Pa.Cmwlth. 2011) ......................................................... 225, 619, 621 Hetrick v. Apollo Gas Co., 608 A.2d 1074 (Pa.Super. 1992) ........................................ 229 Hickey’s Appeal, 192 A. 923 (Pa. 1937) ........................................................................ 212 Hill Sch., see Pottstown Sch. Dist. v. Hill School ......................................................... 515 Hill Sch. Tax Exemption Case, 87 A.2d 259 (Pa. 1952) ............................... 402, 406, 501 Holdship, see Gray v. Holdship ..................................................................................... 196 Homestead, Borough of, v. St. Mary Magdalen Church, 798 A.2d 823 (Pa.Cmwlth. 2002) ............................................................... 454, 455 Horn v. Board of Prop. Assessment of Allegheny County, 641 A.2d 15 (Pa.Cmwlth. 1994) ................................................................. 548, 549 Hospital & Healthsystem Ass’n of Pa. v. Department of Pub. Welfare, 88 A.2d 601 (Pa. 2005) ......................................................................................... 35 Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985) .......................................................... 404, 406, 407, 408, 410, 417, 423, 424, 425, 426, 428, 429, 430, 437, 455, 456, 457, 458, 459, 460, 468, 469, 486, 487, 488, 489, 491, 493, 494, 495, 496, 497, 498, 499, 500, 501, 503, 504, 509, 511, 513, 514, 515, 519, 525 Howlett v. Rose, 496 U.S. 356 (1990) ........................................................................ 46, 47 Hromisin v. Board of Assessment Appeals of Luzerne County, 719 A.2d 815 (Pa.Cmwlth. 1998) ...................................................... 261, 262, 263, 264, 266, 267 Hydrusko v. County of Monroe, 699 A.2d 828 (Pa.Cmwlth. 1997) ..................... 596, 597

I In re Appeal of Erie-Western Port Auth. and Bay Harbor Marina, 78 Erie C. L.J. 94 (No. 1594-A-1989) ................................................................. 248 Independent Oil & Gas Ass’n of Pa. v. Board of Assessment Appeals of Fayette County, 780 A.2d 795 (Pa.Cmwlth. 2001) ............................... 229, 230 Independent Oil & Gas Ass’n of Pa. v. Board of Assessment Appeals of Fayette County, 814 A.2d 180 (Pa. 2002) ..................................................... 173, 176, 177, 230, 234

680

Index of Cases Independent Oil & Gas Ass’n of Pa. v. Board of Assessment Appeals of Fayette County, 760 A.2d 80 (Pa.Cmwlth. 2000) ........................... 229 Indiana County Board of Assessment & Revision of Taxes, see Rochester & Pittsburgh Coal Co. v. Indiana County Bd. of Assessment & Revision of Taxes ................................. 45, 54, 55, 56, 57, 58, 60, 444 Veterans of Foreign Wars Post 1989 v. Indiana County Bd. of Assessment Appeals ............................................................. 467, 469 Indiana County, see Grace Center Community Living Corp. v. County of Indiana ................................................................................... 497, 499 Indiana Univ. of Pa. v. Jefferson County Bd. of Assessment Appeals, 243 A.3d 745 (Pa.Cmwlth. 2020) ................................... 484

J J.C. Penney Co., In re Appeal of, 492 A.2d 1189 (Pa.Cmwlth. 1985) ............................ 91 Janicik v. Prudential Ins. Co. of America, 451 A.2d 451 (Pa.Super. 1982) ................... 43 Jefferson County Board of Assessment Appeals, see B.P. Oil Co. v. Board of Assessment Appeals of Jefferson County .............. 224, 226 Indiana Univ. of Pa. v. Jefferson County Bd. of Assessment Appeals ..................................................................... 484 WRC North Fork Heights, Inc. v. Board of Assessment Appeals of Jefferson County ........................................................... 514, 515 Johnstown Assocs., In re Appeal of, 431 A.2d 932 (Pa. 1981) .................... 164, 165, 168, 213, 215, 216, 217, 218, 220, 222, 239, 297 Jones & Laughlin Tax Assessment Case, 175 A.2d 856 (Pa. 1961) ........................................................................................... 186, 187, 188, 190, 194, 196, 200, 252 Jones Motor Co. v. Public Util. Comm’n, 195 A.2d 125 (Pa.Super. 1963) ................................................................................................... 77 Jones v. Northampton County Tax Assessment Office, 688 A.2d 794 (Pa.Cmwlth. 1997) ....................................................................... 624 Jordan v. Fayette County Bd. of Assessment Appeals, 782 A.2d 642 (Pa.Cmwlth. 2001) ................................................... 52, 54, 277, 319 Jostens, Inc., In re Appeal of, 508 A.2d 1319 (Pa.Cmwlth. 1986) ............... 301, 302, 303 Jubilee Ministries Int’l, In re Appeal of, 2 A.3d 706 Pa.Cmwlth. 2010) ....................................................................................... 439, 440 Juniata County Tax Claim Bur., see Barner v. Juniata County Tax Claim Bur. ................................................................................................... 649

K Kalodner v. Commonwealth, 615 A.2d 900 (Pa.Cmwlth. 1992) .................................. 451 Kane, see Amidon v. Kane ...................................................................................... 174, 293, 294 Longstreth v. Kane ................................................................................................... 57 Karlin, see Monroe County Bd. of Assessment Appeals v. Karlin ......................... 23, 260 Keebler Co., see Kenney v. Keebler Co. ................................................................. 347, 348

681

Index of Cases Keebler Co. v. Board of Revision of Taxes of Philadelphia, 436 A.2d 583 (Pa. 1981) ............................................................................. 266, 289 Keeley, see Barnes Found. v. Keeley ............................................................................... 54 Kelly, see Goldberg v. Kelly ............................................................................................. 17 Kennett Consol. Sch. Dist. v. Chester County Bd. of Assessment Appeals, 228 A.3d 29 (Pa.Cmwlth 2020) ...................... 284, 285, 287 Kenney v. Keebler Co., 419 A.2d 210 (Pa.Cmwlth. 1980) .................................... 347, 348 Kenrich Corp. v. Miller, 377 F.2d 312 (3d Cir. 1967) ..................................................... 79 Keystone Oaks Sch. Dist., see Global Links v. Keystone Oaks Sch. Dist. ................................................................................................... 440 Kipps v. Susquehanna County Bd. of Assessment, 743 A.2d 539 (Pa.Cmwlth. 1999) ............................................................... 253, 254 Kittanning Borough v. Armstrong County, 31 A.2d 710 (Pa. 1943) ............................. 55 Kmart Corp. v. Washington County Bd. of Assessment Appeals, 950 A.2d 1089 (Pa.Cmwlth. 2008) ..................................................................... 108 Kohlman v. Western Pa. Hosp., 652 A.2d 849 (Pa.Super. 1994) ................................... 77 Kolb, see Philadelphia, City of, v. Kolb ........................................................................... 55 Koppel Steel Corp., In re, 849 A.2d 303 (Pa.Cmwlth, 2004) ....................................... 212 Kowenhoven v. County of Allegheny, 901 A.2d 1003 (Pa. 2006) ................................... 45 Kraushaar v. Wayne County Bd. of Assessment & Revision of Taxes, 603 A.2d 264 (Pa.Cmwlth. 1992) ....................................... 375, 555, 556 Kriebel Tax Assessment Case, 470 A.2d 649 (Pa.Cmwlth. 1984) ............................... 130 Krohn v. Snyder County Bd. of Assessment Appeals, 62 A.3d 476 (Pa.Cmwlth. 2013) ......................................................................... 381 Krygier v. Monroe County Bd. of Assessment Appeals, 668 A.2d 239 (Pa.Cmwlth. 1995) ....................................................................... 237

L Lackawanna Coal Co., see Lillibridge v. Lackawanna Coal Co. .................................. 231 Lackawanna County Bd. of Assessment Appeals, see E.L.C.A. Dev. Corp. v. Lackawanna County Bd. of Assessment Appeals .............................................................................. 240, 242, 244, 245, 246 Lafayette Coll., see Northampton County v. Lafayette Coll. ....................................... 505 Laird, see Carpentertown Coal & Coke Co. v. Laird ...................................................... 61 Lake Erie Promotions, Inc. v. Erie County Bd. of Assessment Appeals, 60 A.3d 194 (Pa.Cmwlth. 2012) ................................................................... 99, 100 Lancaster, City of, v. County of Lancaster, 599 A.2d 289 (Pa.Cmwlth. 1991) ............................................................................. 338, 344, 345, 349, 351, 358, 376, 386, 387, 389, 390, 393, 398, 451 Lancaster County Board of Assessment Appeals, see Colonial Lodge & Banquet Ctr. v. Lancaster County Bd. of Assessment Appeals ............................................................................. 27 Willow Valley Manor, Inc. v. Lancaster County Bd. of Assessment Appeals ........................................................................... 219

682

Index of Cases Lancaster County, see Lancaster, City of, v. County of Lancaster ............. 338, 344, 345, 349, 351, 358, 376, 386, 387, 389, 390, 393, 398, 451 Lancaster Redev. Auth., see Mishkin v. Lancaster Redev. Auth. ................................ 128 Lancaster Theological Seminary Tax Exemption Case, 214 A.2d 285 (Pa.Super. 1965) ........................................................................... 505 Land Holding Corp. v. Board of Finance & Revenue, 130 A.2d 700 (Pa. 1957) ........................................................................................ 57 Land Title Bank & Trust Co., see Fidelity-Philadelphia Trust Co. v. Land Title Bank & Trust Co. ..................................................................... 29 Landy, see Smaha v. Landy ........................................................................................... 446 Lantz Appeal, 184 A.2d 127 (Pa.Super. 1962) .............................................................. 558 Lashe v. Northern York County Sch. Dist., 417 A.2d 260 (Pa.Cmwlth. 1980) ...................................................................................... 292, 443 Lavoie, see Aetna Life Ins. Co. v. Lavoie ....................................................................... 529 Lazor v. Board of Assessment Appeals of Armstrong County, 986 A.2d 219 (Pa.Cmwlth. 2009) ....................................................................... 559 Leasure v. Borough of Trafford, 531 A.2d 559 (Pa.Cmwlth. 1987) ................................ 42 Lee Hosp. v. Cambria County Bd. of Assessment Appeals, 638 A.2d 344 (Pa.Cmwlth. 1994) ...................................................... 407, 450, 451, 528, 529, 530 Lehigh & Wilkes-Barre Coal Co.’s Assessment, In re, 148 A. 301 (Pa. 1929) .......................................................................................... 213 Lehigh County Board of Assessment Appeals, see Air Products & Chems., Inc. v. Board of Assessment Appeals of Lehigh County .................. 206, 208, 237, 308, 309 Allentown Hosp. v. Board of Assessment Appeals of Lehigh County ............................................................... 487, 488 Calcagni v. Board of Assessment Appeals of Lehigh County ............................... 258 F&M Schaefer Brewing Co. v. Lehigh County Bd. of Assessment Appeals ........................................................................ 37, 39 F&M Schaeffer Brewing Co. v. Lehigh County Bd. of Appeals ......................................................................... 159, 160, 182, 183, 187, 204, 205, 218, 233, 234 Hanoverian, Inc. v. Lehigh County Bd. of Assessment Appeals .................................................................................. 67 Lehigh-Northampton Airport Auth. v. Lehigh County Bd. of Assessment Appeals ..................................................... 472, 473, 483 Mack Trucks, Inc. v. Lehigh County Bd. of Assessment Appeals ................................................................ 205, 206, 208 St. Luke’s Hosp. v. Board of Tax Assessment Appeals of Lehigh County ..................................................................................... 488 Lehigh Valley Coop. Farmers v. Bureau of Empl. Sec., Dep’t of Labor & Industry, 447 A.2d 948 (Pa. 1982) ......................................... 474 Lehigh Valley Rail Mgmt. LLC v. County of Northampton Revenue Appeals Bd., 126 A.3d 1076 (Pa.Cmwlth. 2015) ................................ 647

683

Index of Cases Lehigh Valley Rail Mgmt. LLC v. County of Northampton Revenue Appeals Bd., 178 A.3d 950 (Pa.Cmwlth. 2018) .................................. 648 Lehigh Valley Trust Co., see Dilliplaine v. Lehigh Valley Trust Co. ............................ 23 Lehigh-Northampton Airport Auth. v. Lehigh County Bd. of Assessment Appeals, 843 A.2d 443 (Pa.Cmwlth. 2004) ................................... 483 Lehigh-Northampton Airport Auth. v. Lehigh County Bd. of Assessment Appeals, 889 A.2d 1168 (Pa. 2005) ............................... 472, 473, 483 Lennox v. Clark, 93 A.2d 834 (Pa. 1953) ...................................................................... 535 Leonard v. Thornburgh, 489 A.2d 1349 (Pa. 1985) ...................................................... 293 Levy, see Spykerman v. Levy .......................................................................................... 61 Lewistown Hosp. v. Mifflin County Bd. of Assessment Appeals, 706 A.2d 1269 (Pa.Cmwlth. 1998) ...................................................... 461 Life Assur. Co. of Pa., see Commonwealth v. Life Assur. Co. of Pa. ........................... 293 Lilian v. Commonwealth, 311 A.2d 368 (Pa.Cmwlth. 1973) ................................... 56, 57 Lilian v. Commonwealth, 354 A.2d 250 (Pa. 1976) ................................................ 43, 292 Lillibridge v. Lackawanna Coal Co., 22 A. 1035 (Pa. 1891) ........................................ 231 Lincoln Intermediate Unit No. 12 v. Bermudian Springs Sch. Dist., 441 A.2d 813 (Pa.Cmwlth. 1982) ....................................................... 39 Lincoln Philadelphia Realty Assocs. I v. Board of Revision of Taxes of City of Philadelphia, 720 A.2d 174 (Pa.Cmwlth. 1998) ........................ 632, 633 Lincoln Philadelphia Realty Assocs. I v. Board of Revision of Taxes of City of Philadelphia, 758 A.2d 1178 (Pa. 2000) ............................ 322, 536, 537 Lock Haven Univ. Found. v. Clinton County Bd. of Assessment Appeals & Revision of Taxes, 920 A.2d 207 (Pa.Cmwlth. 2007) ...................... 507 Locust Lake Vill. Prop. Owners Ass’n, Inc. v. Monroe County Bd. of Assessment Appeals, 940 A.2d 591 (Pa.Cmwlth. 2008) ....................... 321, 322 Longstreth v. Kane, 3 Pa. Cmwlth. 311 (1971) .............................................................. 57 Longvue Disposal Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 99 A.2d 464 (Pa. 1953) ......................... 402 Louden Hill Farm, Inc. v. Milk Control Comm’n, 217 A.2d 735 (Pa. 1966) ......................................................................... 27, 28, 138 Lower Merion Sch. Dist. v. Montgomery County Bd. of Assessment Appeals, 642 A.2d 1142 (Pa.Cmwlth. 1994) ........................................................ 41 Luir v. Republican Alliance, 192 A.2d 367 (Pa. 1963) ................................................. 292 Luitweiler v. Northchester Corp., 319 A.2d 899 (Pa. 1974) ........................................ 140 Lutes v. Fayette County Bd. of Assessment Appeals, 936 A.2d 573 (Pa.Cmwlth. 2007) ............................................................... 319, 321 Lutheran Home at Topton, Appeal of, 515 A.2d 59 (Pa.Cmwlth. 1986) ...................................................................................... 491, 509 Lutheran Home v. Schuylkill County Bd. of Assessment Appeals, 782 A.2d 1 (Pa.Cmwlth. 2001) ............................................................ 496 Lutheran Soc. Servs., East Region, Appeal of, 539 A.2d 895 (Pa.Cmwlth. 1988) .............................................................................................. 509 Luzerne County Board of Assessment Appeals, see Dooley v. Luzerne County Bd. of Assessment Appeals ........................................ 568 Feist v. Luzerne County Bd. of Assessment Appeals ........................................... 141 Fosko v. Board of Assessment Appeals of Luzerne County ................ 247, 260, 261, 264, 267, 268

684

Index of Cases Hromisin v. Board of Assessment Appeals of Luzerne County ...................................................................... 261, 262, 263, 264, 266, 267 Pocono Downs, Inc. v. Board for Assessment & Revision of Taxes for Luzerne County ................................................... 145 Terminal Freight Handling Corp. v. Board of Assessment Appeals of Luzerne County ................................................ 103 Wilkes-Barre, City of, Industrial Dev. Auth. v. Board of Tax Assessment Appeals of County of Luzerne .............. 298, 299 Wilkes-Barre Holiday Inn v. Luzerne County Bd. of Assessment Appeals ....................................................................... 96 Wyoming Valley Montessori Ass’n v. Board of Assessment Appeals of Luzerne County ........................................ 445, 499 Luzerne County, see Bliss Excavating Co. v. Luzerne County ...................................... 59 Lycoming County Board of Assessment & Revision of Taxes & Appeals, see Albarano v. Board of Assessment & Revision of Taxes & Appeals of Lycoming County .................................... 69, 258, 259, 260, 263, 264 Cellco P’ship v. Lycoming County Bd. of Assessment .................................. 202, 203 Lynch v. O.J. Roberts Sch. Dist., 244 A.2d 1 (Pa. 1968) .......................................... 55, 56 Lyness v. State Bd. of Medicine, 605 A.2d 1204 (Pa. 1992) ......................... 529, 530, 536 Lyons, see Graham v. Lyons .......................................................................................... 480

M M.W. Kellogg Co., In re Appeal of, 492 A.2d 130 (Pa.Cmwlth. 1985) ........................... 69 MacDonald, Illig, Jones & Britton v. Erie County Bd. of Assessment Appeals, 604 A.2d 306 (Pa.Cmwlth. 1992) .............................................................. 323, 324, 631, 632, 633 Mack Trucks, Inc. v. Lehigh County Bd. of Assessment Appeals, 692 A.2d 661 (Pa.Cmwlth. 1997) ....................................................... 205, 206, 208 Mackey, In re Class Action Appeal of, 687 A.2d 1186 (Pa.Cmwlth. 1997) ........ 42, 43, 44 Macy’s Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 61 A.3d 361 (Pa.Cmwlth. 2013) ...................................... 111 Maine v. Thiboutot, 448 U.S. 1 (1980) ............................................................................ 47 Mallen, see Commonwealth ex rel. Chidsey v. Mallen ................................................... 16 Mansfield Hospitality L.P. v. Board of Assessment Appeals of Tioga County, 680 A.2d 916 (Pa.Cmwlth. 1996) ........................................... 140 Marcus Hook Dev. Park, Inc. v. Board of Assessment Appeals of Delaware County, 449 A.2d 70 (Pa.Cmwlth. 1982) ................................ 27, 29, 30 Marple Newtown Sch. Dist., In re Appeal of, 453 A.2d 68 (Pa.Cmwlth. 1982) .......................................................................................... 27, 28 Marple Springfield Ctr., Inc., In re Appeal of, 576 A.2d 106 (Pa.Cmwlth. 1990) .............................................................................. 207, 209, 210

685

Index of Cases Marple Springfield Ctr., Inc., In re Appeal of, 607 A.2d 708 (Pa. 1992) (Marple Springfield I) ............................... 164, 165, 166, 167, 168, 169, 170, 172, 174, 175, 178, 179, 180, 217, 218, 220, 221 Marple Springfield Ctr., Inc., In re Appeal of, 654 A.2d 635 (Pa.Cmwlth. 1995) (Marple Springfield II) ........................ 170, 175 Marriott Corp. v. Board of Assessment Appeals of Montgomery County, 438 A.2d 1032 (Pa.Cmwlth. 1982) ............................................................. 105, 106 Mars Area Sch. Dist. v. United Presbyterian Women’s Ass’n of North America, 721 A.2d 360 (Pa. 1998) ............................................. 424 Martel v. Allegheny County, 216 A.3d 1165 (Pa.Cmwlth. 2019) ........................ 276, 277 Martin, In re, 830 A.2d 616 (Pa.Cmwlth. 2003) ........................................................... 602 Marx Tax Assessment Case, 377 A.2d 199 (Pa.Cmwlth. 1977) ................................... 146 Maryland, see McCulloch v. Maryland ......................................................................... 481 Masalehdan v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev., 931 A.2d 122 (Pa.Cmwlth. 2007) ........................................... 255 Masonic Home of Pa., see Philadelphia, City of, v. Masonic Home of Pa. .......................................................................................... 486 Massachusetts Mutual Life Ins. Co., Appeal of, 235 A.2d 790 (Pa. 1967) .................. 174 Mathies Coal Co. Appeal, 255 A.2d 906 (Pa. 1969) ...................................................... 227 Maula v. Northampton County Div. of Assessment, 149 A.3d 442 (Pa.Cmwlth. 2016) ....................................................................... 604 Mausoleum Constr. Co., In re Petition of, 423 A.2d 809 (Pa.Cmwlth. 1980) ................................................................................ 66, 441, 442 Maxwell, see Price v. Maxwell ....................................................................................... 500 Mayo v. United States, 319 U.S. 441 (1943) ................................................................. 480 McCain v. Curione, 527 A.2d 591 (Pa.Cmwlth. 1987) ................................................. 446 McCloskey v. Abington Sch. Dist., 515 A.2d 642 (Pa.Cmwlth. 1986) ......................... 189 McCulloch v. Maryland, 17 U.S. 316 (1819) ................................................................. 481 McGraw-Edison Co. v. Washington County Bd. of Assessment Appeals, 573 A.2d 248 (Pa.Cmwlth. 1990) ........................................ 160, 205, 206 McKean County Bd. of Assessment Appeals, see Herzog v. McKean County Bd. of Assessment Appeals .................................... 225, 619, 621 McKenzie v. Cost Bros., Inc., 409 A.2d 362 (Pa. 1979) .................................................. 52 McKinney v. Board of Comm’rs of Allegheny County, 385 A.2d 596 (Pa.Cmwlth. 1978) ........................................................................... 3 McKnight Shopping Ctr., Inc., v. Board of Prop. Assessment, Appeals & Review of Allegheny County, 209 A.2d 389 (Pa. 1965) ...................................................................... 45, 156, 174, 207, 258, 271 McLaughlin, see Pittsburgh Des Moines Steel Co. v. McLaughlin ................................................................................. 128, 136, 160, 163 McLoughlin v. Bradford County Bd. of Assessment, 568 A.2d 721 (Pa.Cmwlth. 1989) ....................................................................... 592 McMahon v. McMahon, 612 A.2d 1360 (Pa.Super. 1992) ............................................ 358 McNary, see Fair Tax Assessment in Real Estate Ass’n v. McNary ............................. 49

686

Index of Cases McNeilis v. Department of Transp., 546 A.2d 1339 (Pa.Cmwlth. 1988) .......................................................................................... 94, 95 Meadow Lake Plaza, LLC, see East Stroudsburg Area Sch. Dist. v. Meadow Lake Plaza, LLC .......................................................... 280, 282, 283, 285 Meadowbrook Props., In re Appeal of, 492 A.2d 766 (Pa.Cmwlth. 1985) (Meadowbrook II) ................................. 129, 295 Meadowbrook Props., Inc. v. Board of Assessment Appeals of Montgomery County, 388 A.2d 1110 (Pa.Cmwlth. 1978) (Meadowbrook I) ......................................... 128, 129, 130, 181 Mellon Bank, N.A., Appeal, 467 A.2d 1201 (Pa.Cmwlth. 1983) .................... 69, 130, 131 Menno Haven, Inc. v. Franklin County Bd. of Assessment & Revision of Taxes, 919 A.2d 333 (Pa.Cmwlth. 2007) ........................................ 427 Mercer County Board of Assessment Appeals, see National Church Residences of Mercer County v. Mercer County Bd. of Assessment Appeals ....................................... 515 Pennsylvania Conf. of the Pentecostal Holiness Church v. Mercer County Bd. of Assessment Rev. ................................................. 517 Mercer County, see Stranahan v. County of Mercer .................................................... 320 Mercersburg Coll. v. Poffenberger, 36 Pa. Super. 100 (1908) ...................................... 403 Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Bd. of Assessment Appeals, 44 A.3d 3 (Pa. 2012) ................................................ 407, 408 Messenger Publ’g Co. v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev., 132 A.2d 768 (Pa.Super. 1957) ....................................... 196, 199 Methodist Episcopal Church v. Philadelphia, 109 A. 664 (Pa. 1920) .......................... 456 Metropolitan Life Ins. Co., see Paris v. Metropolitan Life Ins. Co. ............................. 480 Michigan, see United States v. Michigan ...................................................................... 481 Middletown, Twp. of, Appeal of, 654 A.2d 195 (Pa.Cmwlth. 1995) ............................. 166 Midland Land & Water Transp., Inc., Appeal of, 711 A.2d 612 (Pa.Cmwlth. 1998) ...................................................................................... 100, 102 Mifflin County Board of Assessment Appeals, see Evangel Baptist Church v. Mifflin County Bd. of Assessment Appeals ..................................................................... 517 Granville Twp. v. Board of Assessment Appeals of Mifflin County ....................................................................... 471 Lewistown Hosp. v. Mifflin County Bd. of Assessment Appeals ................................................................................ 461 Milk Control Comm’n, see Louden Hill Farm, Inc. v. Milk Control Comm’n ............................................................................. 27, 28, 138 Millcreek Twp. Sch. Dist. v. County of Erie, 714 A.2d 1095 (Pa.Cmwlth. 1998) ..................................... 272, 338, 350, 351, 352 Millcreek Twp. Sch. Dist. v. Erie County Bd. of Assessment Appeals, 140 A.3d 737 (Pa.Cmwlth. 2016) ................................................ 133, 135 Millcreek Twp. Sch. Dist. v. Erie County Bd. of Assessment Appeals, 737 A.2d 335 (Pa.Cmwlth. 1999) ........................ 394, 395, 396, 398, 400 Miller, see Kenrich Corp. v. Miller ............................................................................................. 79 Monroe County Bd. of Assessment Appeals v. Miller ........................................................... 22, 23, 65, 223, 224

687

Index of Cases Miller v. Northampton County, 162 A. 209 (Pa. 1932) ............................................ 54, 55 Minehart, see Volunteer Firemen’s Relief Ass’n of City of Reading v. Minehart ................................................................................ 85 Mishkin v. Lancaster Redev. Auth., 293 A.2d 135 (Pa.Cmwlth. 1972) ...................... 128 Monell v. New York City Dep’t of Soc. Servs., 436 U.S. 658 (1978) .............................. 47 Monessen, City of, Bd. of Revision of Taxes & Appeals, see Wheeling-Pittsburgh Steel Corp. v. Board of Revision of Taxes & Appeals of City of Monessen ........................................... 108, 311, 312 Monessen, Sch. Dist. of City of, v. Farnham & Pfile Co., 878 A.2d 142 (Pa.Cmwlth. 2005) ............................................................... 326, 327 Monroe County Bd. of Assessment Appeals v. Karlin, 631 A.2d 1062 (Pa.Cmwlth. 1993) ............................................................... 23, 260 Monroe County Bd. of Assessment Appeals v. Miller, 570 A.2d 1386 (Pa.Cmwlth. 1990) ........................................... 22, 23, 65, 223, 224 Monroe County Board of Assessment Appeals, see Alma v. Monroe County Bd. of Assessment Appeals ............................................. 98 Althouse v. Monroe County Bd. of Assessment Appeals .............................. 380, 381 Community Ass’n of Pocono Farms, Inc. v. Monroe County Bd. of Assessment Appeals ..................................................................... 240 Groner v. Monroe County Bd. of Assessment Appeals ......................... 369, 370, 371 Krygier v. Monroe County Bd. of Assessment Appeals ........................................ 237 Locust Lake Vill. Prop. Owners Ass’n, Inc. v. Monroe County Bd. of Assessment Appeals .................................. 321, 322 O’Merle v. Monroe County Bd. of Assessment Appeals ...................... 364, 365, 366, 367, 368, 381, 393 Pedersen v. Monroe County Bd. of Assessment Appeals ............................. 249, 250 Pinecrest Lake Community Trust v. Monroe County Bd. of Assessment Appeals ................................................ 244, 245 Pocono Community Theater v. Monroe County Bd. of Assessment Appeals ........................................................................... 468 Monroe County, see Althouse v. County of Monroe ............................................................... 366, 367, 368 Bolus v. County of Monroe ............................................................................. 235, 237 Hydrusko v. County of Monroe ...................................................................... 596, 597 Monroe County v. Bolus, 613 A.2d 178 (Pa.Cmwlth. 1992) ........................ 124, 205, 207 Monroe County v. Pinecrest Dev. Corp., 510 A.2d 1274 (Pa.Cmwlth. 1986) .............................................................................................. 238 Monroeville, Village of, see Ward v. Village of Monroeville ........................................ 529 Montgomery County Board of Assessment Appeals, see Colonial Sch. Dist. v. Montgomery County Bd. of Assessment Appeals ............. 285 First Korean Church of N.Y., Inc. v. Montgomery County Bd. of Assessment Appeals ..................................................................... 523 Lower Merion Sch. Dist. v. Montgomery County Bd. of Assessment Appeals ....................................................................... 41 Marriott Corp. v. Board of Assessment Appeals of Montgomery County ................................................................... 105, 106 Meadowbrook Props., Inc. v. Board of Assessment Appeals of Montgomery County ................ 128, 129, 130, 181

688

Index of Cases Runyan v. Board of Assessment Appeals of Montgomery County ....................... 348 Valley Forge Golf Club v. Board of Assessment & Revision of Taxes of Montgomery County .................................. 259, 261 Montgomery, see Westmoreland County Bd. of Assessment Appeals v. Montgomery ......................................................... 567, 569 Moodie v. Westinghouse Electric Co., 80 A.2d 734 (Pa. 1951) ..................................... 158 Moon Twp. Appeal, 229 A.2d 890 (Pa. 1967) ................................................................ 476 Moore v. Berks County Bd. of Assessment Appeals, 888 A.2d 40 (Pa.Cmwlth. 2005) ......................................... 309, 338, 339, 603, 604 Morgan, see United States v. Morgan ....................................................................... 70, 71 Morgan v. United States, 298 U.S. 468 (1936) ............................................................... 70 Morris Half Hour Laundromat, see Commonwealth v. Morris Half Hour Laundromat .......................................................................... 203 Morrisons Cove Home v. Blair County Bd. of Assessment Appeals, 764 A.2d 90 (Pa.Cmwlth. 2000) ................................................................. 147, 148 Mount Zion New Life Ctr. v. Board of Assessment & Revision of Taxes & Appeals of Tioga County, 503 A.2d 1065 (Pa.Cmwlth. 1986) .............................................................................. 465, 517, 518 Mullen, see Commonwealth v. Mullen ............................................................................ 61 Municipal Publ’ns, Inc. v. Court of Common Pleas, 489 A.2d 1286 (Pa. 1985) ...................................................................................... 62 Murtagh, see Greenwich Twp. v. Murtagh ....................................... 45, 46, 48, 49, 51, 52 Murtagh v. County of Berks, 634 A.2d 179 (Pa. 1993), cert. denied, 511 U.S. 1017 (1994) ........................................................... 46, 47, 48 Murtagh v. County of Berks, 715 A.2d 548 (Pa.Cmwlth. 1998) ................ 48, 49, 53, 319 Myers, see Philadelphia, City of, v. Myers ...................................................................... 29

N Narehood v. Pearson, 96 A.2d 895, cert. denied, 346 U.S. 866 (1953) ........................ 229 National Church Residences of Mercer County v. Mercer County Bd. of Assessment Appeals, 925 A.2d 220 (Pa.Cmwlth. 2007) ............................... 515 National Private Truck Council, Inc. v. Oklahoma Tax Comm’n, 515 U.S. 582 (1995) ................................................................................... 48, 49, 53 New Castle Cent. Renewals Assocs., In re Appeal of, 389 A.2d 225 (Pa.Cmwlth. 1978) .............................................................................................. 145 New York City Dep’t of Soc. Servs., see Monell v. New York City Dep’t of Soc. Servs. ................................................................................................ 47 Nittany Printing & Publ’g Co. v. Centre County Bd. of Comm’rs, 627 A.2d 301 (Pa.Cmwlth. 1993) ....................................................................... 531 Nolan v. Department of Pub. Welfare, 673 A.2d 414 (Pa.Cmwlth. 1995) ................... 446 Nolf v. Department of Pub. Welfare, 452 A.2d 574 (Pa.Cmwlth. 1982) ........................ 77 Noll, see Commonwealth v. Noll .................................................................................... 132 Norfolk & Western Ry. Co. v. Public Util. Comm’n, 413 A.2d 1037 (Pa. 1980) ...................................................................................... 26 North Philadelphia Trust Co. v. Heinel Bros., Inc., 172 A. 692 (Pa. 1934) ........................................................................................................ 27, 29 North Side Laundry Co. v. Allegheny County Bd. of Prop. Assessment, Appeals & Rev., 79 A.2d 419 (Pa. 1951) .................................................... 197, 199

689

Index of Cases Northampton County Board of Assessment Appeals, see 1198 Butler St. Assocs. v. Northampton County Bd. of Assessment Appeals ..................................................................... 218 Penn’s Grant Assocs. v. Northampton County Bd. of Assessment Appeals ..................................................................... 375 Northampton County Board of Revenue Appeals, see Bethlehem Area Sch. Dist. v. Board of Revenue Appeals of Northampton County .......................................................................... 283 Lehigh Valley Rail Mgmt. LLC v. County of Northampton Revenue Appeals Bd. ............................................... 647, 648 Reichard-Coulston, Inc. v. Revenue Appeals Bd. of Northampton County .................................................................. 159, 204 Northampton County Div. of Assessment, see Maula v. Northampton County Div. of Assessment ......................................................... 604 Northampton County, see Miller v. Northampton County ...................................... 54, 55 Northampton County Tax Assessment Office, see Jones v. Northampton County Tax Assessment Office .......................................... 624, 645 Northampton County v. Lafayette Coll., 18 A. 516 (Pa. 1889) .................................... 505 Northchester Corp., see Luitweiler v. Northchester Corp. .......................................... 140 Northern York County Sch. Dist., see Lashe v. Northern York County Sch. Dist. ........................................................................................ 292, 443 Northumberland County Bd. of Assessment Appeals, see American Home Products Corp. v. Board of Assessment Appeals of Northumberland County ................................................................ 310, 311, 313 Northumberland County Commissioners, see Philadelphia & Reading Coal & Iron Co. v. Commissioners of Northumberland County ........................................................................ 227, 229 Northwestern Corp., Appeal of, 665 A.2d 856 (Pa.Cmwlth. 1995) .............. 417, 456, 459 Northwood Nursing Care & Convalescent Home, Inc. v. City of Philadelphia, 511 A.2d 281 (Pa.Cmwlth. 1986) .................................... 630, 631 Norwegian Twp. v. Schuylkill County Bd. of Assessment Appeals, 74 A.3d 1124 (Pa.Cmwlth. 2013) ........................................................ 472

O O.J. Roberts Sch. Dist., see Lynch v. O.J. Roberts Sch. Dist. .................................. 55, 56 O’Merle v. Monroe County Bd. of Assessment Appeals, 504 A.2d 975 (Pa.Cmwlth. 1986) ............................................................................. 364, 365, 366, 367, 368, 381, 393 O’Shea, see Commonwealth v. O’Shea .......................................................................... 530 Ohio, see Tumey v. Ohio ................................................................................................ 529 Oil City, City of, Bd. of Tax Revision & Appeals, see Penn-Aire Aviation v. City of Oil City Bd. of Tax Revision & Appeals .................................... 305, 306 Oklahoma Tax Comm’n, see National Private Truck Council, Inc. v. Oklahoma Tax Comm’n ............................................................................ 48, 49, 53 Olson v. United States, 292 U.S. 246 (1934) ........................................................ 155, 156 108.3 Acres of Land, see Commonwealth v. 108.3 Acres of Land ................................ 158 Overmont Corp. v. Board of Tax Revision of City of Philadelphia, 388 A.2d 311 (Pa. 1978) ............................................................................. 463, 464

690

Index of Cases

P Paris v. Metropolitan Life Ins. Co., 167 F.2d 834 (2d Cir. 1948), cert. denied, 335 U.S. 827 (1948) ....................................................................... 480 Park Drive Manor, Inc. Tax Assessment Case, 110 A.2d 392 (Pa. 1955) .............................................................................. 146, 155 Park Terrace Apts., Inc., In re Appeal of, 646 A.2d 614 (Pa.Cmwlth. 1994) ...................................................................................... 303, 304 Parkside Townhomes Assocs. v. Board of Assessment Appeals of York County, 711 A.2d 607 (Pa.Cmwlth. 1998) ........................................ 221, 223 Parmentier Trustees’ Appeal, 11 A.2d 690 (Pa.Super. 1940) ...................................... 505 Patterson, see Conestoga Nat’l Bank of Lancaster v. Patterson ................................... 16 Patterson v. Delaware County, 70 Pa. 381 (1872) ........................................................ 196 Pearson, see Narehood v. Pearson ................................................................................. 229 Pedersen v. Monroe County Bd. of Assessment Appeals, 84 A.3d 402 (Pa.Cmwlth. 2014) ................................................................. 249, 250 Pelton v. Department of Pub. Welfare, 523 A.2d 1104 (Pa. 1987) ................................. 27 Penn Hills, Municipality of, In re Appeal of, 546 A.2d 50 (Pa. 1988) ...................... 26, 27 Penn Plastic Co., Appeal of, 435 A.2d 943 (Pa.Cmwlth. 1981) .................................... 146 Penn’s Grant Assocs. v. Northampton County Bd. of Assessment Appeals, 733 A.2d 23 (Pa.Cmwlth. 1999) .......................................................... 375 Penn-Aire Aviation v. City of Oil City Bd. of Tax Revision & Appeals, 715 A.2d 568 (Pa.Cmwlth. 1998) ............................................................... 305, 306 Penn-Delco Sch. Dist., In re Appeal of, 903 A.2d 600 (Pa.Cmwlth. 2006) ............ 40, 119 Pennhurst Med. Group v. Department of Pub. Welfare, 796 A.2d 423 (Pa.Cmwlth. 2002) ....................................................................... 615 Pennsylvania Bank & Trust Co., Youngsville Branch v. Dickey, 335 A.2d 483 (Pa.Super. 1975) ........................................................................... 229 Pennsylvania Bar Ass’n Endowment v. Robins, 69 Dauph. 181 (1957) ...................... 404 Pennsylvania Co. for Insurances on Lives & Granting Annuities v. Philadelphia, 105 A. 630 (Pa. 1918) ............................................................... 116 Pennsylvania Conf. of the Pentecostal Holiness Church v. Mercer County Bd. of Assessment Rev., 25 Pa.D.&C.3d 536 (C.P. Mercer 1982) ............................................................. 517 Pennsylvania Dep’t of Labor & Industry, Bur. of Empl. Sec. v. Pennsylvania Eng’g Corp., 421 A.2d 521 (Pa.Cmwlth. 1980) .............................................................................................. 358 Pennsylvania Eng’g Corp., see Pennsylvania Dep’t of Labor & Industry, Bur. of Empl. Sec. v. Pennsylvania Eng’g Corp. ............................... 358 Pennsylvania Liquor Control Bd., see Adamson v. Pennsylvania Liquor Control Bd. .............................................................................................. 140 Pennsylvania Liquor Control Bd. v. Rapistan, 323 A.2d 410 (Pa.Cmwlth. 1974) ................................................................................................ 39 Pennsylvania Liquor Control Bd. v. Spa Athletic Club, 485 A.2d 732 (Pa. 1984) ...................................................................................... 293 Pennsylvania Med. Soc’y v. Department of Pub. Welfare, 39 A.3d 267 (Pa. 2012) .......................................................................................... 35 Pennsylvania Public Utility Commission, see Akron v. Pennsylvania Pub. Util. Comm’n ............................................................. 61

691

Index of Cases Columbia Gas of Pa., Inc. v. Pennsylvania Pub. Util. Comm’n .................................................................................... 62 Commonwealth v. Pennsylvania Pub. Util. Comm’n ............................................. 71 Jones Motor Co. v. Public Util. Comm’n ................................................................. 77 Norfolk & Western Ry. Co. v. Public Util. Comm’n ................................................ 26 Pennsylvania State Athletic Comm’n v. Bratton, 112 A.2d 422 (Pa.Super. 1955) ................................................................................................... 16 Pennsylvania State Employes’ Ret. Sys. v. Dauphin County, 6 A.2d 870 (Pa. 1939) ........................................................ 328 Pennsylvania State Police, see Soja v. Pennsylvania State Police ................................ 16 Pennsylvania State Tax Equalization Bd., see Phillips v. Pennsylvania State Tax Equalization Bd. ........................................................ 292 Pennsylvania State Univ. v. Derry Twp. Sch. Dist., 731 A.2d 1272 (Pa. 1999) ........................................................................... 483, 485 Pennsylvania Stave Co.’s Appeal, 84 A. 761 (Pa. 1912) ................................................ 29 Pennypack Woods Home Ownership Ass’n v. Board of Revision of Taxes of City of Philadelphia, 639 A.2d 1302 (Pa.Cmwlth. 1994) ............................................. 165, 167, 218, 621 Philadelphia & Reading Coal & Iron Co. v. Commissioners of Northumberland County, 186 A. 105 (Pa. 1936) .................................. 227, 229 Philadelphia Bd. of Revision of Taxes v. American Bd. of Internal Medicine, 623 A.2d 418 (Pa.Cmwlth. 1993) ...................................................... 524 Philadelphia Board of Revision of Taxes, see 841 Assocs. v. Board of Revision of Taxes of City & County of Philadelphia ........................................................... 121, 123, 124 Academy Plaza Assocs., Ltd. v. Board of Revision of Taxes of City of Philadelphia .................................. 65, 68, 322 Chatfield v. Board of Revision of Taxes ................................................................ 207 Keebler Co. v. Board of Revision of Taxes of Philadelphia ..................................................................... 266, 289 Lincoln Philadelphia Realty Assocs. I v. Board of Revision of Taxes of City of Philadelphia .................................................... 322, 536, 537, 632, 633 Overmont Corp. v. Board of Tax Revision of City of Philadelphia .............. 463, 464 Pennypack Woods Home Ownership Ass’n v. Board of Revision of Taxes of City of Philadelphia ..................................... 165, 167, 219, 621 Philadelphia, Sch. Dist. of, v. Board of Revision of Taxes ..................................................... 278, 280, 287 Presbyterian Univ. of Pa. Med. Ctr. v. Board of Revision of Taxes of City of Philadelphia .................................................................... 402, 478 Walnut-Twelve Assocs. v. Board of Revision of Taxes of City of Philadelphia ................................................................................ 303 Welsh Grant Developers Co. v. Board of Revision of Taxes of City of Philadelphia ............................................................. 310 Philadelphia, City of, see American Sunday Sch. Union v. Philadelphia ....................................................... 54 Blackwell v. City of Philadelphia .......................................................................... 352 Blocker v. City of Philadelphia ...................................................................... 191, 192

692

Index of Cases Dougherty v. City of Philadelphia ............................................................. 54, 55, 402 Episcopal Acad. v. Philadelphia ..................................................................... 405, 500 Felin v. Philadelphia .............................................................................................. 145 Four Freedoms House, Inc. v. Philadelphia .................................................... 66, 402 Gulf Oil Corp. v. Philadelphia ............................................................... 187, 251, 252 Methodist Episcopal Church v. Philadelphia ........................................................ 456 Northwood Nursing Care & Convalescent Home, Inc. v. City of Philadelphia ..................................................................... 630, 631 Pennsylvania Co. for Insurances on Lives & Granting Annuities v. Philadelphia ....................................................... 116 Second Church of Christ Scientist of Philadelphia v. Philadelphia ......................................................................... 520, 521, 522 University of Pa. Christian Ass’n v. Philadelphia ............................................................................................... 55 W.G. Halkett Co. v. City of Philadelphia .............................................................. 438 Whitcomb v. Philadelphia .............................................................................. 155, 156 Wynnefield United Presbyterian Church v. City of Philadelphia .................................................................................. 55 Young Men’s Christian Ass’n of Germantown v. Philadelphia ......................................................................... 434, 456, 465 Philadelphia, City of, v. Cumberland County Bd. of Assessment Appeals, 18 A.3d 421 (Pa.Cmwlth. 2011) .......................................................... 484 Philadelphia, City of, v. Cumberland County Bd. of Assessment Appeals, 81 A.3d 24 (Pa. 2013) .......................................................................... 484 Philadelphia, City of, v. Dougherty, 34 A.2d 918 (Pa.Super. 1943) ............................ 441 Philadelphia, City of, v. Kolb, 136 A. 239 (Pa. 1927) ..................................................... 55 Philadelphia, City of, v. Masonic Home of Pa., 28 A. 954 (Pa. 1894) .......................... 486 Philadelphia, City of, v. Myers, 157 A. 13 (Pa.Super. 1931) .......................................... 29 Philadelphia, City of, v. Rohm & Haas Co., 290 A.2d 428 (Pa.Cmwlth. 1972) ....... 66, 68 Philadelphia, City of, v. Silverman, 497 A.2d 689 (Pa.Cmwlth. 1985) ....................... 102 Philadelphia Life Ins. Co. v. Commonwealth, 190 A.2d 111 (Pa. 1963) ........................ 59 Philadelphia, School Dist. of, v. Board of Revision of Taxes, 217 A.3d 472 (Pa.Cmwlth. 2019) ....................................................... 278, 280, 287 Philadelphia, School Dist. of, v. Frankford Grocery Co., 103 A.2d 738 (Pa. 1954) ...................................................................................... 230 Philadelphia, School Dist. of, v. Super Salvage, Inc., No. 2016-CV-0850 (C.P. Philadelphia February 5, 2021) ................................................................ 279 Philadelphia School District, see Board of Christian Educ. of Presbyterian Church in United States v. School Dist. of Philadelphia ........................................ 430 Pier 30 Assocs. v. School Dist. of Philadelphia ..................................... 474, 475, 651 Wilson v. Philadelphia Sch. Dist. ............................................................................ 66 Phillips, In re Appeal of, 409 A.2d 481 (Pa.Cmwlth. 1979) ................................. 594, 600 Phillips v. Pennsylvania State Tax Equalization Bd., 948 A.2d 889 (Pa.Cmwlth. 2008) ....................................................................... 292 PICPA Found. for Educ. & Research v. Board of Finance & Revenue, 634 A.2d 187 (Pa. 1993) ...................................................................................... 524

693

Index of Cases Pier 30 Assocs. v. School Dist. of Philadelphia, 493 A.2d 126 (Pa.Cmwlth. 1985) .............................................................................. 474, 475, 651 Pike County Board of Assessment Appeals, see Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Bd. of Assessment Appeals ............................................................. 407, 408 PPL Holtwood, LLC v. Pike County Bd. of Assessment & Revision of Taxes ............................................................ 318 Tanglwood Lakes Community Ass’n v. Pike County Bd. of Assessment & Revision of Taxes ......................... 104, 113, 114, 143 Pike County, see Saw Creek Estates Community Ass’n v. County of Pike ................................................... 62, 242, 243, 244, 246, 321 Pinecrest Dev. Corp., see Monroe County v. Pinecrest Dev. Corp. ............................. 238 Pinecrest Lake Community Trust v. Monroe County Bd. of Assessment Appeals, 64 A.3d 71 (Pa.Cmwlth. 2013) ............................... 244, 245 Pinnacle Health Hosps. v. Dauphin County Bd. of Assessment Appeals, 708 A.2d 1284 (Pa.Cmwlth. 1998) ...................................................... 447 Piper, see Columbia Gas Transmission Corp. v. Piper ................................................ 116 Pittsburgh, City of, Appeal of, 977 A.2d 71 (Pa.Cmwlth. 2009) .................................. 466 Pittsburgh, City of, In re Appeal of, 541 A.2d 40 (Pa.Cmwlth. 1988) ......................... 121 Pittsburgh, City of, see F.J. Busse Co. v. Pittsburgh .......................................................................... 293, 294 F.W. Woolworth Co. v. Pittsburgh ........................................................................ 358 First Baptist Church of Pittsburgh v. Pittsburgh .................................................. 55 George A. Fuller Co. v. City of Pittsburgh .............................................................. 85 William Penn Parking Garage, Inc., v. City of Pittsburgh .................................... 35 Xerox Corp. v. City of Pittsburgh ............................................................................ 85 Pittsburgh, City of, v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 564 A.2d 1026 (Pa.Cmwlth. 1989) ................. 434, 510, 511 Pittsburgh, City of, v. Board of Prop. Assessment, Appeals & Rev. of County of Allegheny, 412 A.2d 655 (Pa.Cmwlth. 1980) ....................... 442, 523 Pittsburgh, City of, v. WIIC-TV Corp., 321 A.2d 387 (Pa.Cmwlth. 1974) ............................................................................. 194, 198, 199, 200, 202, 203 Pittsburgh Des Moines Steel Co. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 519 A.2d 1080 (Pa.Cmwlth. 1987) ..................................................... 156, 158, 236 Pittsburgh Des Moines Steel Co. v. McLaughlin, 466 A.2d 1092 (Pa.Cmwlth. 1983) ............................................. 128, 136, 160, 163 Pittsburgh Inst. of Aeronautics Tax Exemption Case, 258 A.2d 850 (Pa. 1969) ..................................................................................... 491 Pittsburgh Miracle Mile Shopping Ctr. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 209 A.2d 394 (Pa. 1965) ....................... 177 Pittsburgh Miracle Mile Town & Country Shopping Ctr., Inc. Tax Appeals, 294 A.2d 226 (Pa.Cmwlth. 1972) ................................................ 145 Pittsburgh Outdoor Advertising Corp. Appeal, 272 A.2d 163 (Pa. 1970) ............................................................................................................ 133

694

Index of Cases Pittsburgh Pub. Parking Auth. v. Board of Prop. Assessment, Appeals & Review of Allegheny County, 105 A.2d 165 (Pa. 1954) ............. 55, 476 Pittsburgh Sch. Dist., see Hayes v. School Dist. of Pittsburgh ...................................... 39 Pittsburgh Zoning Bd. of Adjustment, see Hanna v. Zoning Bd. of Adjustment of Pittsburgh ................................................................................. 93 Planned Parenthood Ass’n of Bucks County, In re Appeal of, 423 A.2d 760 (Pa.Cmwlth. 1980) ............................................................... 402, 474 Pocono Community Theater v. Monroe County Bd. of Assessment Appeals, 142 A.3d 110 (Pa.Cmwlth. 2016) ........................................................ 468 Pocono Downs, Inc. v. Board for the Assessment & Revision of Taxes for Luzerne County, 312 A.2d 452 (Pa.Cmwlth. 1973) ..................................... 145 Poffenberger, see Mercersburg Coll. v. Poffenberger ................................................... 403 Poland Coal Co., see Titus v. Poland Coal Co. .............................................................. 196 Potomac Edison Co. v. Commonwealth, 411 A.2d 1287 (Pa.Cmwlth. 1980), aff’d per curiam, 421 A.2d 214 (Pa. 1980) ...................................................................................... 195 Potter County Bd. of Assessment Appeals, see Wending Creek 3656, LLC v. Potter County Bd. of Assessment Appeals ............................................ 606 Pottstown Sch. Dist. v. Hill Sch., 786 A.2d 312 (Pa.Cmwlth. 2001) ............................ 515 PP&L, Inc., In re, 838 A.2d 1 (Pa.Cmwlth. 2003) ................................................ 182, 183 PPL Holtwood, LLC v. Pike County Bd. of Assessment & Revision of Taxes, 846 A.2d 201 (Pa.Cmwlth. 2004) ........................................................ 318 Presbyterian Homes Tax Exemption Case, 236 A.2d 776 (Pa. 1968) .................. 406, 498 Presbyterian Univ. of Pa. Med. Ctr. v. Board of Revision of Taxes of City of Philadelphia, 357 A.2d 696 (Pa.Cmwlth. 1976) ......... 402, 478 Price v. Maxwell, 28 Pa. 23 (1857) ................................................................................ 500 Provident Trust Co. of Philadelphia, see Commonwealth v. Provident Trust Co. of Philadelphia .................................................................. 403 Prudential Ins. Co. of America, see Janicik v. Prudential Ins. Co. of America ................................................................................................ 43 Punxsutawney Area Sch. Dist. v. Broadwing Timber, LLC, 219 A.3d 729 (Pa.Cmwlth. 2019) ....................................................... 282, 285, 286 P-Ville Assocs., In re Appeal of, 87 A.3d 898 (Pa.Cmwlth. 2014) ................................ 109

Q Quad Assocs. v. Blair County Bd. of Assessment Appeals, 566 A.2d 1274 (Pa.Cmwlth. 1989) ............................................................. 126, 127

R R&P Servs., Inc. v. Department of Revenue, 541 A.2d 432 (Pa.Cmwlth. 1988) ............................................................... 358, 610 Radecke v. York County Bd. of Assessment Appeals, 798 A.2d 265 (Pa.Cmwlth. 2002) .............................................. 201, 379, 380, 381, 383, 384, 475, 476 Radnor Twp. Sch. Dist. v. Valley Forge Military Acad. Found., 59 Pa.D.&C.2d 768 (C.P. Delaware 1970) ......................................................... 328 Randall, see Speiser v. Randall ....................................................................................... 67 Rapistan, see Pennsylvania Liquor Control Bd. v. Rapistan ......................................... 39

695

Index of Cases RAS Dev. Corp. v. Fayette County Bd. of Assessment Appeals, 704 A.2d 1130 (Pa.Cmwlth. 1997) .............................. 132, 210, 211, 212 Reading Anthracite Co. v. Rich, 577 A.2d 881 (Pa. 1990) ............................................. 61 Reading Broadcasting, Inc., see Earl Twp. v. Reading Broadcasting, Inc. ................. 621 Reading, City of, see Young Men’s Christian Ass’n v. City of Reading ......................................................................... 55, 56, 59, 402, 443 Reading Hous. Auth. v. Board of Assessment Appeals of Berks County, 103 A.3d 869 (Pa.Cmwlth. 2014) .............................................. 473 Reading Mun. Airport Auth. v. Schuylkill Valley Sch. Dist., 286 A.2d 5 (Pa.Cmwlth. 1972) ................................................................... 475, 476 Redevelopment Auth., see Sams v. Redevelopment Auth. .......................................... 459 Reese, In re Assessment Appeal of, 620 A.2d 605 (Pa.Cmwlth. 1993) ....................... 303 Reform Congregation Oheb Sholom v. Berks County Bd. of Assessment Appeals, 839 A.2d 1217 (Pa.Cmwlth. 2004) ...................................... 476, 521, 522 Reichard-Coulston, Inc. v. Revenue Appeals Bd. of Northampton County, 517 A.2d 1372 (Pa.Cmwlth. 1986) ............................................... 159, 204 Reilly v. Southeastern Pa. Transp. Auth., 489 A.2d 1291 (Pa. 1985) ......................... 530 Republican Alliance, see Luir v. Republican Alliance .................................................. 292 RHA Pa. Nursing Homes Health & Rehab. Residence, In re, 747 A.2d 1257 (Pa.Cmwlth. 2000) ................................................... 428, 431 Rhoads, see Haverford Coll. v. Rhoads ......................................................................... 500 Rich, see Reading Anthracite Co. v. Rich ....................................................................... 61 Richland Civic Club v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 215 A.2d 310 (Pa.Super. 1965) ....................................... 404 Richland Sch. Dist. v. County of Cambria Bd. of Assessment Appeals, 724 A.2d 988 (Pa.Cmwlth. 1999) .................................. 72, 132, 394, 395 Rieck Ice Cream Co. Appeal, 209 A.2d 383 (Pa. 1965) ........................................ 155, 177 Ritch, see Fayerweather v. Ritch .................................................................................... 70 Robert Morris Coll. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 291 A.2d 567 (Pa.Cmwlth. 1972) ................................... 503 Robins, see Pennsylvania Bar Ass’n Endowment v. Robins ........................................ 404 Rochester & Pittsburgh Coal Co. v. Indiana County Bd. of Assessment & Revision of Taxes, 266 A.2d 78 (Pa. 1970) ............................................................................ 45, 54, 56, 57, 58, 60, 444 Rodgers, see Westmoreland County v. Rodgers ........................................... 76, 78, 80, 84 Rohm & Haas Co., see Commonwealth v. Rohm & Haas Co. .................................................................... 451 Philadelphia, City of, v. Rohm & Haas Co. ....................................................... 66, 68 Rose, see Howlett v. Rose .......................................................................................... 46, 47 RTA Group, Inc., see Westmoreland County v. RTA Group, Inc. ................ 80, 81, 82, 84 Runyan v. Board of Assessment Appeals of Montgomery County, 401 A.2d 870 (Pa.Cmwlth. 1979) ....................................................................... 348 Rupel v. Bluestein, 421 A.2d 406 (Pa.Super. 1980) ....................................................... 97

S Sacred Heart Healthcare Sys. v. Commonwealth, 673 A.2d 1021 (Pa.Cmwlth. 1996) ..................................................... 417, 458, 461

696

Index of Cases Saenger v. Berks County Bd. of Assessment Appeals, 732 A.2d 681 (Pa.Cmwlth. 1999) ....................................................... 599, 600, 606 Salvation Army v. Allegheny County, 80 A.2d 758 (Pa. 1951) .................................... 490 Sams v. Redevelopment Auth., 244 A.2d 779 (Pa. 1968) ............................................. 459 Sandycreek Twp., In re Estate of, 184 A.2d 127 (Pa.Super. 1962) .............................. 558 Savko v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 516 A.2d 107 (Pa.Cmwlth. 1986), vac., 531 A.2d 576 (Pa.Cmwlth. 1987) .............................. 138 Saw Creek Community Ass’n v. County of Pike, 866 A.2d 260 (Pa. 2005) ............................................................................. 242, 243, 244, 246, 321 Saw Creek Estates Community Ass’n v. County of Pike, 808 A.2d 322 (Pa.Cmwlth. 2002) ................................................................. 62, 242 Schellenberger, see Commonwealth v. Schellenberger .................................................. 45 Schmidt v. Commonwealth, 433 A.2d 456 (Pa. 1981) .................................................... 93 Schuylkill County Board of Assessment Appeals, see Fasnacht v. Board of Prop. Assessment Appeals of Schuylkill County ....... 372, 374 Green v. Schuylkill County Bd. of Assessment Appeals .............................. 123, 124 Lutheran Home v. Schuylkill County Bd. of Assessment Appeals ...................... 496 Norwegian Twp. v. Schuylkill County Bd. of Assessment Appeals ..................... 472 Schuylkill County, see Garrett Group, L.P. v. County of Schuylkill ............................. 48 Schuylkill Valley Sch. Dist., see Reading Mun. Airport Auth. v. Schuylkill Valley Sch. Dist. .................................................................... 475, 476 Scripture Union v. Deitch, 531 A.2d 64 (Pa.Cmwlth. 1987) ........................................ 455 Scripture Union v. Deitch, 572 A.2d 51 (Pa.Cmwlth. 1990) ........................................ 509 Second Church of Christ Scientist of Philadelphia v. Philadelphia, 157 A.2d 54 (Pa. 1959) ........................................................................ 520, 521, 522 Secretary of Labor, see Tony & Susan Alamo Found. v. Secretary of Labor .............................................................................................. 444 Sedat, Inc. v. Department of Envtl. Resources, 641 A.2d 1243 (Pa.Cmwlth. 1994) .............................................................................................. 531 Senior Citizen Health Care Council of Erie County, Pa., Inc. v. Board of Tax Assessment Appeals of Erie County, 678 A.2d 430 (Pa.Cmwlth. 1996) ..................................... 463, 464 Sewickley Valley Hosp. v. Department of Pub. Welfare, 550 A.2d 1351 (Pa.Cmwlth. 1988) ................................................................. 65, 67 Sewickley Valley YMCA, Appeal of, 774 A.2d 1 (Pa.Cmwlth. 2001) ........... 428, 511, 512 Shadyside Hosp., Appeal of, 218 A.2d 355 (Pa.Super. 1966) ............................... 478, 479 Sheetz, Inc., In re Appeal of, 651 A.2d 563 (Pa.Cmwlth. 1994) ................................... 144 Sheetz, Inc., In re Appeal of, 657 A.2d 1011 (Pa.Cmwlth. 1995) ................ 188, 189, 190, 192, 202, 227, 233, 235, 249, 250, 254 Shenandoah Mobile Co. v. Dauphin County Bd. of Assessment Appeals, 869 A.2d 562 (Pa.Cmwlth. 2005) ................................ 201, 202, 383, 384 Shenango Valley Osteopathic Hosp. v. Department of Health, 451 A.2d 434 (Pa. 1982) .................................................................................. 54, 60 Sher v. Berks County Bd. of Assessment Appeals, 940 A.2d 629 (Pa.Cmwlth. 2008) ............................................................... 609, 611

697

Index of Cases Shipe, see Bemis v. Shipe ................................................................................................ 29 Shipley Sch., In re Appeal of, 464 A.2d 692 (Pa.Cmwlth. 1983) ................................. 506 Shortz v. Farrell, 193 A. 20 (Pa. 1937) ......................................................................... 446 Showman, see Yatzor v. Showman .................................................................................. 67 Silverman, see Philadelphia, City of, v. Silverman ...................................................... 102 Smaha v. Landy, 638 A.2d 392 (Pa.Cmwlth. 1994) ..................................................... 446 Smith, see White v. Smith ....................................................................................... 54, 505 Smith v. Carbon County Bd. of Assessment Appeals, 10 A.3d 393 (Pa.Cmwlth. 2010) ......................................................................... 271 Snyder County Board of Assessment Appeals, see Cryan (EA Media) v. Snyder County Bd. of Assessment Appeals ......................... 20 Krohn v. Snyder County Bd. of Assessment Appeals ........................................... 381 Soja v. Pennsylvania State Police, 455 A.2d 613 (Pa. 1982) ......................................... 16 Somerset County Board of Assessment Appeals, see Blanda v. Somerset County Bd. of Assessment Appeals ..................................... 553 Gilmour Props. v. Board of Assessment Appeals of Somerset County ..................................................................................... 236 South Whitehall Twp. Police Serv. v. South Whitehall Twp., 555 A.2d 793 (Pa. 1989) ....................................................................................... 35 South Whitehall Twp., see South Whitehall Twp. Police Serv. v. South Whitehall Twp. ...................................................................................... 35 Southeastern Pa. Transp. Auth., see Reilly v. Southeastern Pa. Transp. Auth. .................................................................... 530 Southeastern Pa. Transp. Auth. v. Board for Assessment & Revision of Taxes of Delaware County, 319 A.2d 10 (Pa.Cmwlth. 1974) ....................... 471 Southwest Delaware County Mun. Auth. v. Aston Twp., 198 A.2d 867 (Pa. 1964) ................................................................ 328 Sovereign Bank v. Harper, 674 A.2d 1085 (Pa.Super. 1996) ....................................... 480 Spa Athletic Club, see Pennsylvania Liquor Control Bd. v. Spa Athletic Club ............................................................................................... 293 Spahr-Alder Group v. Zoning Bd. of Adjustment of Pittsburgh, 581 A.2d 1002 (Pa.Cmwlth. 1990) ..................................................................... 370 Speiser v. Randall, 357 U.S. 513 (1958) ......................................................................... 67 Spirit of the Avenger Ministries v. Commonwealth, 767 A.2d 1130 (Pa.Cmwlth. 2001) ..................................................... 428, 446, 447 Sports & Exhibition Auth. of Allegheny County, In re Appeal of, 789 A.2d 316 (Pa.Cmwlth. 2001) ....................................................................... 439 Springdale Twp., see West Penn Power Co. v. Springdale Twp. ................................. 645 Springettsbury Twp., see Harley-Davidson Motor Co. v. Springettsbury Twp. .......................................................................................... 225 Springfield Hosp., In re Appeal of, 179 A.3d 632 (Pa.Cmwlth. 2018) ......................... 329 Springfield Sch. Dist., In re Appeal of, 101 A.3d 835 (Pa.Cmwlth. 2015) ...................................................... 273, 275, 281, 282, 285, 341 Spykerman v. Levy, 421 A.2d 641 (Pa. 1980) ................................................................. 61 St. Aloysius Roman Catholic Church v. Fayette County Bd. of Assessment Appeals, 849 A.2d 293 (Pa.Cmwlth. 2004) ............................... 516

698

Index of Cases St. Luke’s Hosp. v. Board of Tax Assessment Appeals of Lehigh County, No. 88-C-2691 (C.P. Lehigh April 19, 1990) ...................................................... 488 St. Margaret Seneca Place v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 604 A.2d 1119 (Pa.Cmwlth. 1992) ............. 465, 491 St. Margaret Seneca Place v. Board of Prop. Assessment, Appeals & Review of Allegheny County, 640 A.2d 380 (Pa. 1994) ................ 462, 493, 495, 496, 497, 499, 501, 502 Staley, see Commonwealth v. Staley ............................................................................. 294 Starr, see Commonwealth v. Starr ................................................................................ 633 State Bd. of Medicine, see Lyness v. State Bd. of Medicine ......................... 529, 530, 536 Stevenson v. Department of Revenue, 413 A.2d 667 (Pa. 1980) .................................... 43 Stilman v. Tax Rev. Bd., 166 A.2d 661 (Pa. 1961) ........................................................ 445 Stranahan v. County of Mercer, 697 A.2d 1049 (Pa.Cmwlth. 1997) ........................... 320 Strawbridge & Clothier, Inc. v. Board of Assessment Appeals of Delaware County, 492 A.2d 108 (Pa.Cmwlth. 1985) ............................ 105, 106 Studio Theaters, Inc. v. City of Washington, 209 A.2d 802 (Pa. 1965) ............. 55, 56, 58 Suermann v. Hadley, 193 A. 645 (Pa. 1937) ................................................................. 212 Sullivan County Bd. of Assessment Appeals, see Guthrie Clinic, Ltd. v. Sullivan County Bd. of Assessment Appeals ................................................. 489 Sullivan, In re Appeal of, 37 A.3d 1250 (Pa.Cmwlth. 2012) ................ 269, 271, 272, 309 Summit House Real Prop. Assessment Appeals, In re, 349 A.2d 505 (Pa.Cmwlth. 1975) ....................................................................... 390 Sunderland Props., Inc. v. County of Berks, 750 F.Supp. 704 (E.D. Pa. 1990) ...................................................................................................... 45 Sunnen, see Commissioner of Internal Revenue v. Sunnen .......................................... 63 Super Salvage, Inc., see Philadelphia, School Dist. of, v. Super Salvage, Inc. ........... 279 Susquehanna County Board of Assessment Appeals, see Kipps v. Susquehanna County Bd. of Assessment ....................................... 253, 254 Vanderhoef v. Office of Susquehanna County Bd. of Assessment Appeals ................................................................................ 650 Swarthmore Coll., In re, 645 A.2d 470 (Pa.Cmwlth. 1994) ................................. 506, 522

T T.S.C. Motor Freight Lines, Inc. v. United States, 186 F.Supp. 777 (S.D. Tex. 1960) ......................................................................... 71 Tanglwood Lakes Community Ass’n v. Pike County Bd. of Assessment & Revision of Taxes, 642 A.2d 581 (Pa.Cmwlth. 1994) ............................................... 104, 113, 114, 143 Tarlo v. University of Pittsburgh, 443 A.2d 879 (Pa.Cmwlth. 1982) ............................ 89 Tate, see Walsh v. Tate .................................................................................................. 516 Tax Appeals of United Presbyterian Homes, In re, 236 A.2d 776 (Pa. 1968) ...................................................................................... 493 Tax Rev. Bd., see Stilman v. Tax Rev. Bd. .................................................................... 445 Tech One Assocs. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 53 A.3d 685 (Pa. 2012) ........................... 170, 171, 177, 180, 249, 559

699

Index of Cases Tech One Assocs. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 974 A.2d 1225 (Pa.Cmwlth. 2009) ................ 171, 173, 174, 175 Terminal Freight Handling Corp. v. Board of Assessment Appeals of Luzerne County, 790 A.2d 1068 (Pa.Cmwlth. 2001) ...................... 103 Thiboutot, see Maine v. Thiboutot .................................................................................. 47 Thind, see Daddona v. Thind ......................................................................................... 119 Thomas, see Commonwealth v. Thomas ....................................................................... 138 Thomas Wynne, Inc. Tax Assessment Case, 253 A.2d 632 (Pa. 1969) ........................ 163 Thompson Appeal, In re, 233 A.2d 237 (Pa. 1967) ............................................... 482, 483 Thornburgh, see Leonard v. Thornburgh ..................................................................... 293 322 Boulevard Assocs., Appeal of, 600 A.2d 630 (Pa.Cmwlth. 1991) .......................... 259 Tioga County Board of Assessment & Revision of Taxes, see Mansfield Hospitality L.P. v. Board of Assessment Appeals of Tioga County .................................................... 140 Mount Zion New Life Ctr. v. Board of Assessment & Revision of Taxes & Appeals of Tioga County ................... 465, 517, 518 Wellsboro Area Sch. Dist. v. Tioga County Bd. for Assessment & Revision of Taxes ...................................... 435, 436, 482 Title Servs., Inc., Appeal of, 252 A.2d 585 (Pa. 1969) .................................. 438, 439, 464 Titus v. Poland Coal Co., 119 A. 540 (Pa. 1923) ........................................................... 196 Tony & Susan Alamo Found. v. Secretary of Labor, 471 U.S. 290 (1985) .................. 444 Torres, In re, 512 A.2d 732 (Pa.Cmwlth. 1986) .................................................. 85, 86, 87 Tracy v. County of Chester, 489 A.2d 1334 (Pa. 1985) ................................................ 549 Trafford, Borough of, see Leasure v. Borough of Trafford ............................................. 42 Tredyffrin-Easttown Sch. Dist. v. Valley Forge Music Fair, 627 A.2d 814 (Pa.Cmwlth. 1993) ....................................................... 355, 356, 360 Truck Terminal Motels of America, Inc. v. Berks County Bd. of Assessment Appeals, 561 A.2d 1305 (Pa.Cmwlth. 1989) .......................................................................... 3, 174, 311, 313 Tumey v. Ohio, 273 U.S. 510 (1927) ............................................................................. 529 2101 Coop., Inc., see Commonwealth v. 2101 Coop., Inc. ............................................ 478

U U.S. Steel Corp. v. Board of Assessment & Revision of Taxes of Bucks County, 223 A.2d 92 (Pa. 1966) .................................................. 192, 194 U.S. Steel Corp. v. Board of Revision of Taxes & Appeals of City of Clairton, 366 A.2d 637 (Pa.Cmwlth. 1976) ....................... 194, 252, 253 U.S. Steel Corp. v. Workmen’s Comp. Appeal Bd., 457 A.2d 155 (Pa.Cmwlth. 1983) ....................................................................... 140 Unemployment Comp. Bd. of Rev., see Berry v. Unemployment Comp. Bd. of Rev. ........................................................................................................... 147 Union Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 721 A.2d 823 (Pa.Cmwlth. 1998) ............................... 85, 86 Union Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 746 A.2d 581 (Pa. 2000) .................................................... 86 Unionville-Chadds Ford Sch. Dist. v. Chester County Bd. of Assessment Appeals, 714 A.2d 397 (Pa. 1998) ............................. 423, 468, 497

700

Index of Cases United Laundries Inc. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 58 A.2d 833 (Pa. 1948) ......... 196, 197, 199 United Presbyterian Women’s Ass’n of North America, see Mars Area Sch. Dist. v. United Presbyterian Women’s Ass’n of North America ....................................................................... 424 United Sch. Dist., see Atlantic City Electric Co. v. United Sch. Dist. ......... 325, 609, 610 United States, see Armstrong v. United States ................................................................................... 481 Mayo v. United States ............................................................................................ 480 Morgan v. United States .......................................................................................... 70 Olson v. United States ................................................................................... 155, 156 T.S.C. Motor Freight Lines, Inc. v. United States .................................................. 71 United States v. Alabama, 313 U.S. 274 (1941) ........................................................... 481 United States v. Certain Parcels of Land in Philadelphia, 130 F.2d 782 (3d Cir. 1942) .................................................................................. 27 United States v. Colorado, 460 F.Supp. 1184 (D. Colo. 1978) ..................................... 481 United States v. County of Fresno, 429 U.S. 452 (1977) ............................................. 481 United States v. Delaware, 958 F.2d 555 (3d Cir. 1992) ............................................. 481 United States v. Harford County, 572 F.Supp. 239 (D. Md. 1983) .............................. 481 United States v. Michigan, 346 F.Supp. 1277 (E.D. Mich. 1972) ................................ 481 United States v. Morgan, 307 U.S. 183, 191 (1939) ....................................................... 71 United States v. Morgan, 313 U.S. 409 (1941) ......................................................... 70, 71 Universal Film Exchs., Inc. v. Board of Finance & Revenue, 185 A.2d 542 (Pa. 1962), cert. denied, 372 U.S. 958 (1963) ...................................................... 57 University of Pa. Christian Ass’n v. Philadelphia, 75 Pa.Super. 516 (1921) ....................................................................................... 55 University of Pittsburgh, Appeal of, 180 A.2d 760 (Pa. 1962) ............................. 505, 522 University of Pittsburgh, see Tarlo v. University of Pittsburgh .................................... 89 Upper Dauphin Nat’l Bank v. Dauphin County Bd. of Assessment Appeals, 561 A.2d 378 (Pa.Cmwlth. 1989) ........................................................ 450 Upper Merion Area Sch. Dist., see Valley Forge Towers Apts. N, LP v. Upper Merion Area Sch. Dist. .................................. 274, 275, 276, 277, 278, 281, 282, 283, 285, 286, 287, 400 Upper Tulpehocken Twp. v. Berks County Bd. of Assessment Appeals, 842 A.2d 1041 (Pa.Cmwlth. 2004) .............................................. 472, 479

V V.V.P. P’ship, In re Appeal of, 647 A.2d 990 (Pa.Cmwlth. 1994) ................................ 166 Valley Forge Golf Club, Inc., Tax Appeal, 285 A.2d 213 (Pa.Cmwlth. 1971) ...................................................................... 258, 259, 260, 261 Valley Forge Military Acad. Found., see Radnor Twp. Sch. Dist. v. Valley Forge Military Acad. Found. ...................................................... 328 Valley Forge Music Fair, see Tredyffrin-Easttown Sch. Dist. v. Valley Forge Music Fair ................................................ 355, 356, 360

701

Index of Cases Valley Forge Towers Apts. N, LP v. Upper Merion Area Sch. Dist., 163 A.3d 962 (Pa. 2017) .................................................. 274, 275, 276, 277, 278, 281, 282, 283, 285, 286, 287, 400 Vanderhoef v. Office of Susquehanna County Bd. of Assessment Appeals, 960 A.2d 212 (Pa.Cmwlth. 2008) ........................................................ 650 Vanguard Sch. Tax Exemption Case, 243 A.2d 323 (Pa. 1968) ................................... 511 Vees v. Carbon County Bd. of Assessment Appeals, 867 A.2d 742 (Pa.Cmwlth. 2005) ............................................................... 266, 399 Veterans of Foreign Wars Post 1989 v. Indiana County Bd. of Assessment Appeals, 954 A.2d 100 (Pa.Cmwlth. 2008) ........................... 467, 469 Volunteer Firemen’s Relief Ass’n of City of Reading v. Minehart, 227 A.2d 632 (Pa. 1967) .................................................................. 85 Voorhis v. Freeman, 2 W. & S. 116 (1841) ................................................................... 196

W W.G. Halkett Co. v. City of Philadelphia, 175 A. 299 (Pa.Super. 1934) ..................... 438 Wagner Free Inst. of Science’s Appeal, 11 A. 402 (Pa. 1887) ...................................... 403 Walacavage v. Excell 2000, Inc., 480 A.2d 281 (Pa.Super. 1984) ................................ 446 Walnut-Twelve Assocs. v. Board of Revision of Taxes of City of Philadelphia, 570 A.2d 619 (Pa.Cmwlth. 1990) ................................ 303 Walsh v. Tate, 282 A.2d 284 (Pa. 1971) ........................................................................ 516 Ward v. Village of Monroeville, 409 U.S. 57 (1972) ..................................................... 529 Washington, City of, see Studio Theaters, Inc. v. City of Washington ............. 55, 56, 58 Washington, City of, v. Board of Assessment Appeals of Washington County, 666 A.2d 352 (Pa.Cmwlth. 1995) ........................ 499, 501 Washington, City of, v. Board of Assessment Appeals of Washington County, 704 A.2d 120 (Pa. 1997) .............................. 423, 497, 503 Washington County Board of Assessment Appeals, see Ciaffoni v. Washington County Bd. for Assessment of Appeals .......................................................................... 227 Kmart Corp. v. Washington County Bd. of Assessment Appeals ............................................................................... 108 McGraw-Edison Co. v. Washington County Bd. of Assessment Appeals ............................................................... 160, 205, 206 Washington, City of, v. Board of Assessment Appeals of Washington County ................................................................... 423, 497, 499, 501, 503 Washington Twp. Comm’rs, see Yatzor v. Washington Twp. Comm’rs ........................ 66 Way v. Berks County Bd. of Assessment Appeals, 990 A.2d 1191 (Pa.Cmwlth. 2010) ............................................................. 617, 618 Wayne County Bd. of Assessment v. Federation of Jewish Philanthropies, 403 A.2d 613 (Pa.Cmwlth. 1979) ....................................................................... 479 Wayne County Board of Assessment & Revision of Taxes, see Camp Hachshara Moshava of N.Y. v. Wayne County Bd. for the Assessment & Revision of Taxes ......................................... 509 Kraushaar v. Wayne County Bd. of Assessment & Revision of Taxes ................................................................ 375, 555, 556

702

Index of Cases Wayne County, see Associated YM-YWHA of Greater N.Y./Camp Poyntelle v. County of Wayne ................................................. 508, 509 Webster County Comm’n, see Allegheny Pittsburgh Coal Co. v. County Comm’n of Webster County .......................... 46, 288, 360, 394 Weissenberger v. Chester County Bd. of Assessment Appeals, 62 A.3d 501 (Pa.Cmwlth. 2013) .......................................... 272, 273, 275 Weissman v. Weissman, 121 A.2d 100 (Pa. 1956) ........................................................ 356 Weldon Pajamas, Inc., see Commonwealth v. Weldon Pajamas, Inc. .......................... 459 Wellsboro Area Sch. Dist. v. Tioga County Bd. for Assessment & Revision of Taxes, 651 A.2d 592 (Pa.Cmwlth. 1994) ........................................ 435, 436, 482 Welsh Grant Dev. Co. v. Board of Revision of Taxes of City of Philadelphia, 503 A.2d 98 (Pa.Cmwlth. 1986) ................................................................. 309, 310 Wending Creek 3656, LLC v. Potter County Bd. of Assessment Appeals, 885 A.2d 690 (Pa.Cmwlth. 2005) ........................................................ 606 Wentz, see Dana Corp. v. Wentz .............................................................................. 72, 378 Wesley United Methodist Church v. Dauphin County Bd. of Assessment Appeals, 844 A.2d 57 (Pa.Cmwlth. 2003) ......................... 519, 520 Wesley United Methodist Church v. Dauphin County Bd. of Assessment Appeals, 889 A.2d 1180 (Pa. 2005) ............................................ 521 West Allegheny Hosp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 439 A.2d 1293 (Pa.Cmwlth. 1981) .............................................................................................. 490 West Allegheny Hosp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 455 A.2d 1170 (Pa. 1982) ................................................................... 486, 487, 488, 491, 495, 496, 510 West Mifflin Area Sch. Dist. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 802 A.2d 687 (Pa.Cmwlth. 2002) ................................................................................................ 31 West Mifflin Area Sch. Dist. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 844 A.2d 602 (Pa.Cmwlth. 2004) ......... 107 West Penn Power Co., In re Appeal of, 588 A.2d 997 (Pa.Cmwlth. 1991) .................. 252 West View Borough Mun. Auth. Appeal, 113 A.2d 307 (Pa. 1955) ...................... 449, 476 West View, Borough of, In re Appeal of, 501 A.2d 706 (Pa.Cmwlth. 1985) ............ 92, 93 Western Pa. Hosp., see Kohlman v. Western Pa. Hosp. ................................................. 77 Westinghouse Electric Co., see Moodie v. Westinghouse Electric Co. ......................... 158 Westinghouse Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 595 A.2d 1145 (Pa.Cmwlth. 1991) ..................... 291 Westinghouse Electric Corp. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 652 A.2d 1306 (Pa. 1995) .................... 117, 291, 536 Westmoreland County Bd. of Assessment Appeals v. Montgomery, 321 A.2d 660 (Pa.Cmwlth. 1974) ............................................................... 567, 569 Westmoreland County Board of Assessment Appeals, see Airo Die Casting v. Westmoreland County Bd. of Assessment Appeals ...................................................................... 93, 94, 95 American Ass’n for Lost Children, Inc. v. Westmoreland County Bd. of Assessment Appeals ........................................................ 467 Connor v. Westmoreland County Bd. of Assessment Appeal ..................................................................... 65, 67, 148

703

Index of Cases Filbern Manor Apts. v. Board of Assessment Appeals of Westmoreland County .................................................................. 30, 31, 33 Wheeling-Pittsburgh Steel Corp. v. Board of Assessment Appeals of County of Westmoreland ................................. 194 Westmoreland County v. Rodgers, 693 A.2d 996 (Pa.Cmwlth. 1997) .............................................................................. 76, 78, 80, 84 Westmoreland County v. RTA Group, Inc., 767 A.2d 1144 (Pa.Cmwlth. 2001) .............................................................................. 80, 81, 82, 84 Wheeling-Pittsburgh Steel Corp. v. Board of Assessment Appeals of County of Westmoreland, 360 A.2d 265 (Pa.Cmwlth. 1976) ........................ 194 Wheeling-Pittsburgh Steel Corp. v. Board of Revision of Taxes & Appeals of City of Monessen, 565 A.2d 504 (Pa.Cmwlth. 1989) .................... 108, 311, 312 Whitcomb v. Philadelphia, 107 A. 765 (Pa. 1919) ................................................ 155, 156 White v. Smith, 42 A. 125 (Pa. 1899) ...................................................................... 54, 505 Whitehall, Township of, see Allentown Power Center, L.P. v. Township of Whitehall ............................................................................... 396, 398 WIIC-TV Corp., see Pittsburgh, City of, v. WIIC-TV Corp. ........................ 194, 198, 199, 200, 202, 203 Wiley v. Woods, 141 A.2d 844 (Pa. 1958) ....................................................................... 16 Wilkes-Barre, City of, Industrial Dev. Auth. v. Board of Tax Assessment Appeals of County of Luzerne, 514 A.2d 1012 (Pa.Cmwlth. 1986) ............................................................. 298, 299 Wilkes-Barre Holiday Inn v. Luzerne County Bd. of Assessment Appeals, 674 A.2d 1181 (Pa.Cmwlth. 1996) ........................................................ 96 Wilkinsburg Sch. Dist. v. Board of Prop. Assessment, Appeals & Rev. of Allegheny County, 797 A.2d 1034 (Pa.Cmwlth. 2002) ................. 376, 397, 398 William Penn Parking Garage, Inc. v. City of Pittsburgh, 346 A.2d 269 (Pa. 1975) ....................................................................................... 35 Willow Valley Manor, Inc. v. Lancaster County Bd. of Assessment Appeals, 810 A.2d 720 (Pa.Cmwlth. 2002) ........................................................ 219 Wilson Townhouses v. Berks County Bd. of Assessment Appeals, 535 A.2d 1226 (Pa.Cmwlth. 1988) ................................................................. 89, 98 Wilson v. Philadelphia Sch. Dist., 195 A. 90 (Pa. 1937) ................................................ 66 Winchester Group, Appeal of, 687 A.2d 52 (Pa.Cmwlth. 1996) .................................. 478 Woods Sch. Tax Exemption Case, 178 A.2d 600 (Pa. 1962) ........................................ 402 Woods, see Wiley v. Woods .............................................................................................. 16 Workmen’s Comp. Appeal Bd., see U.S. Steel Corp. v. Workmen’s Comp. Appeal Bd. ....................................................................... 140 WRC North Fork Heights, Inc. v. Board of Assessment Appeals of Jefferson County, 917 A.2d 893 (Pa.Cmwlth. 2007) ............................. 514, 515 Wynnefield United Presbyterian Church v. City of Philadelphia, 35 A.2d 276 (Pa. 1944) ......................................................................................... 55 Wyoming Valley Montessori Ass’n v. Board of Assessment Appeals of Luzerne County, 532 A.2d 931 (Pa.Cmwlth. 1987) ................ 445, 499

X Xerox Corp. v. City of Pittsburgh, 327 A.2d 206 (Pa.Cmwlth. 1974) ............................ 85

704

Index of Cases

Y Yatzor v. Washington Twp. Comm’rs, 280 A.2d 130 (Pa.Cmwlth. 1971) .......................................................................................... 66, 67 York County Board of Assessment Appeals, see Donnelly v. York County Bd. of Assessment Appeals .......................................... 607 Freeman-Bennett v. York County Bd. of Assessment Appeals ............................ 650 Hahn Home v. York County Bd. of Assessment Appeals ............................. 428, 497 Parkside Townhomes Assocs. v. Board of Assessment Appeals of York County .............................................. 221, 223 Radecke v. York County Bd. of Assessment Appeals .......................... 201, 379, 380, 381, 383, 384, 475, 476 York County, see Aquarian Church of Universal Serv. v. County of York ............................................................................................ 443, 444 Young, In re Appeal of, 911 A.2d 605 (Pa.Cmwlth. 2006) ................................... 382, 384 Young Men’s Christian Ass’n of Germantown v. Philadelphia, 187 A. 204 (Pa. 1936) .......................................................................... 434, 456, 465 Young Men’s Christian Ass’n of Pittsburgh Tax Case, 117 A.2d 743 (Pa. 1955) .............................................................................. 402, 490 Young Men’s Christian Ass’n v. City of Reading, 167 A.2d 469 (Pa. 1961) ............................................................ 55, 56, 59, 402, 443

Z Zoning Bd. of Adjustment of Pittsburgh, see Spahr-Alder Group v. Zoning Bd. of Adjustment of Pittsburgh ............................................................ 370

705

Subject Matter Index

A Abatements Enterprise zones, 642 Neighborhood gentrification, 641 New home construction, 639 Act 319 Generally, 573–579 2004 amendments, 586 Act 156 revisions, 579 “Agricultural commodity,” defined, 580 Application deadline, 582 Bed-and-breakfast facilities, 596 Calculation of acreage necessary to qualify, 616 Cellular communication facilities, 605 Change-in-use determination, 606 Change of use notice, 584 Contiguous tracts generally, 581 rollback taxes, 597 Domicile of owner, 582 Eligibility for preferential treatment, 579 Enrollment of land, 581 Farm buildings, 583 Farmstead land, 582 Farmstead valuations, 615 Fees, 582 Forestland valuations, 619 Jurisdiction for challenging use value determinations, 611 Land use values, 584 Mixed-use tracts, 592 Penalties civil penalties, 584 rollback taxes, below Prerequisites for preferential treatment, 581 Rollback taxes change-in-use determination, 606 contiguous land and, 597

involuntary land separation, 604 land separation and, 602 notice to effectuate a rollback, 600 transfer of title, 599 violations of act, 584 Separation of land generally, 585 rollback taxes, 602 Special situations generally, 588 cell tower usage, 588 gas and oil exploration leases, 589 noncoal surface mining, 591 temporary pipe storage yards, 591 wind power generation, 592 Split-off liability, 585 Termination of preferential treatment, 586, 594 Timing of assessment changes, 609 Transfer of ownership generally, 586 rollback taxes, 599 Woodlot treatment, 580 Act 515 Breach of covenants preserving open space, 624 Statutory provisions, 573 Ad Valorem Taxation Real property taxation, 527 Aged Persons Homes for the elderly, 496 Nursing and retirement homes, 490 Tax deferral, 313 Tax-exempt organizations homes for the elderly, 496 nursing and retirement homes, 490 services-to-the-elderly test, 465

707

Subject Matter Index Airports Municipal airports, 483 Air Rights Valuation, 238 All-Boys Schools Exemption of, 515 Amusement Parks Valuation of, 227 Appeal Boards Administrative and quasi-judicial functions, 528 Attorney/client privilege, 531 Auxiliary boards, 337 Homestead Act appeals, 337 Cities of the third class, 303–305 Collateral functions, 571 Conflicts of interest, 530 Counties first class, 3 fourth to eighth class counties, 3 second class, 4, 534 second class A, 7 third class, 7 Discovery, 68 Dissolution, in second class county, 534 Exemptions burden of proof, 437 hearing procedures, 434 Extension of time for filing appeal, 85 Findings of fact, 36 Functions administrative and quasi-judicial functions, 528 collateral functions, 571 General county versus specific class county codes, 3 Jurisdiction, 26 Remedy for notice violation, 40 Solicitor, appointment of, 530 Standing before, 28 Taxpayer representation before, 74 Trial de novo. See Trial De Novo See also Appeals Appeals Abandonment of, 19 Attorneys’ fees, 140 Base-year value, 21

708

Civil rights challenges. See Civil Rights Challenges Class actions, 41 Common pleas courts, to. See Courts of Common Pleas Commonwealth Court, to. See Commonwealth Court Appeals Continuances, 17 Court costs and fees, 140 Defects, technical, 37 Discovery generally, 113–115 before appeal boards, 68 appraisal reports of non-trial witnesses, 115 prehearing discovery generally, 18 uniformity and, 18 Due process generally, 15–20 board hearings, 536 municipalities’ rights, 72 Exemption procedure burden of proof, 437 hearing procedures, 434 Ex parte proceedings, 17 Extension of time, 85 Fees generally, 20 court fees, 140 Hearings generally, 15 due process, above exemption procedure, 434 non-board members, hearing held by, 531 remedy for notice violation, 40 Homestead Act, 337 Institutions of Purely Public Charity Act, 418 Municipal appeals generally, 391–396 exemption appeals, 479 Notice generally, 544 mailing, 544 Payment of tax during generally, 307–308 interest on overpayment, 309 nonpayment in fourth to eighth class counties, 318

Subject Matter Index Post-hearing procedure, 37 Procedure, 15 Public property exemptions, 479 Spot assessments premature appeal review, 396 taxing district appeals, 399 Standing to appeal generally, 27 before boards of assessment appeals, 28 before courts of common pleas, 29 lessees of Commonwealth agency, 33 municipal ownership cases, 32 Stipulations, limitation of, 311 Successful appeals interest, award of, 309–310 reduction of assessment, 309 Time limits courts of common pleas. See Courts of Common Pleas extension of time for filing appeal, 85 nunc pro tunc appeals, 67 Trial de novo. See Trial De Novo Valuation dates, 111 Appraisals Discovery, where prepared by non-trial witnesses, 115 Expert appraisal evidence versus evidence of sale of property, 210 Hearsay exception, 133 Hypothetical highest and best use, 209 Reports, exchange of, 119 Taxpayer representation, 74 Appraisers Contingent-fee appraisers, 73 Mass appraisal companies, 342 Qualifications, 543 Arbitration of Disputes Generally, 138 Institutions of Purely Public Charity Act, 421 Assessors Appointment of, 537 County chief assessor’s authority to remove exemptions, 447 Assessors Certification Act Generally, 538–543

Mass appraisal companies, 342 Attorney/Client Privilege Appeal boards, 531 Attorneys Solicitors, appointment of, 530 Taxpayer representation, 74 Attorneys’ Fees Appeals, 140

B Bed-and-Breakfast Facilities Act 319, 596 Billboards and Signs Taxation of, 232–234 Boards of Assessment Appeals. See Appeal Boards Boards of Revision of Taxes. See Appeal Boards Building and Construction Exemptions charitable facilities, 463 residential construction, 553 New Home Construction Local Tax Abatement Act, 639 Spot assessments, 369 Burden of Proof Adverse party overcoming assessment presumption, 124 Assessment’s prima facie validity, overcoming, 120, 126 Exemptions generally, 402 before appeal boards, 437 Trial de novo adverse party overcoming assessment presumption, 124 overcoming assessment’s prima facie validity, 120, 126 surrebuttal evidence, 128

C Catastrophic Losses Generally, 551–552

709

Subject Matter Index Cellular Communications “Act 319” facilities, 605 Cellular towers, 201 Land supporting, 382 Champerty and Maintenance Taxpayer representation before appeal board, 74 Changes in Assessments Decrease, after successful appeal, 309 Increases. See Increases in Assessments Interim assessments. See Interim Assessments Real estate transfers, after, 151 Church Property. See Religion-Based Exemptions Civil Rights Challenges Common pleas court jurisdiction, 45 Federal civil rights actions, 44 Fourth to eighth class counties, in, 52

Common Pleas Courts. See Courts of Common Pleas Commonwealth Court Appeals Generally, 143 Exemptions, 446 Leasehold interests, valuation and assessment, 171 Procedure, 144 Standard of review, 145 State Tax Equalization Board ratios, challenging, 291 Timeliness of taxing authority’s appeal, 147 Community College Property Exemption of, 477 Comparable Properties Valuation, 158 Condominium Appurtenant Easements Condominium declaration, 374 Valuation, 238

Civil Rights Liability Municipalities and school districts, 49

Conflicts of Interest Appeal boards, 530

Class Actions Appeals, 41 Common pleas court actions, 139 Court-ordered countywide across-theboard assessment increases, 377

Construction. See Building and Construction

“Clean and Green” Law. See Act 319

Correction of Errors Spot assessment subterfuge, 379

“Clerical” Errors Generally, 552 Spot assessment under guise of correction of, 379

Costs of Court Appeals, 140

Coal Properties Valuation, 227, 563 Collateral Estoppel Common pleas court appeals, 62 Parallel challenges by separate taxing districts, 148–149 Colleges. See Educational Facilities Exemptions Common-Law Ratio. See Ratio Law

710

Continuances Appeals, 17

Country Club Subsidies Valuation, 181 County Boundary Lines Lands divided by, 561 County Chief Assessor Exemptions, removal of, 447 County Council Dissolution of appeal boards, 534 County Land Repository Property sold from, 559

Subject Matter Index local rules, effect of, 100 nunc pro tunc appeals petitions for appeal, 65 time limits, 67 petitions for, 65 pleadings defects in, 96 filing deadlines, 95 service of process, 93 standing to appeal generally, 29 subtenant standing, 31 sua sponte dismissal of appeal, 103 subsequent years interim assessment appeal for, 109 need to appeal subsequent year’s assessment, 105 time limits generally, 89–93 for nunc pro tunc appeals, 67 withdrawal of appeal, 112 Appeals from. See Commonwealth Court Appeals Civil rights jurisdiction, 45 Class actions before, 139 Equitable relief, 54 Jurisdiction civil rights challenges, 45 equity jurisdiction, 54 State Tax Equalization Board ratios, challenging, 291–292 Nunc pro tunc appeals petitions for appeal, 65 time limits, 67 Pleadings. Appeals, above, 54 Prohibition, writs of, 61 Standing to appeal before, 29 Trial before. See Trial De Novo

Countywide Reassessment Generally, 331–351 Base-year assessment system, validity of, 338 Court-ordered reassessment generally, 344–351 class actions attacking, 377 as nonjusticiable political question, 351 De facto reassessments court-ordered remedies Dauphin County reassessment, 388 Lancaster County reassessment, 386 illegality of, 384 Mass appraisal companies, 342 Mechanics, equity action attacking, 353 Notices, 335 Ratio law, 341 Second class A counties auxiliary boards of assessment appeals, 337 Homestead Act appeals, 337 informal taxpayer-designee meetings, 338 notice of reassessment, 335 ratio law, 341 Third class counties auxiliary boards of assessment appeals, 337 Homestead Act appeals, 337 informal taxpayer-designee meetings, 338 notice of reassessment, 335 ratio law, 341 Validity of base-year assessment system, 338 Court Costs Appeals, 140

Croasdale II Dauphin County reassessment, 388

Court-Ordered Countywide Reassessment Generally, 344–351 Class actions attacking, 377 Political question, as, 351

D

Courts of Common Pleas Appeals before automatic statutory appeal rules, 108 collateral estoppel and, 62

Declaratory Judgment Actions Spot assessments, 357 Decrease in Assessment Successful appeal, after, 309 Deed Registration Generally, 571

711

Subject Matter Index De Facto Reassessments. See Countywide Reassessment Deteriorated Property Exemptions. See Improvement of Deteriorating Real Property or Areas Tax Exemption Act Disabled Veterans’ Property Exemption of, 648 Scope of exemption, 650 Discovery Appraisal reports prepared by non-trial witnesses, 115 Assessment appeals. See Appeals Institutions of Purely Public Charity Act, 419 Work-product privilege, 531 Due Process. See Appeals

E Economic Reality Test Value, income approach to, 170 Educational Facilities Exemptions All-boys schools, 515 Charter schools, 508 Community college property, 477 Faculty and staff residences, 504 Liberal arts colleges, 499 Private schools, 499 State-owned universities, 484–485 Student housing, 507 Elderly Persons Homes for the elderly, 496 Nursing and retirement homes, 490 Tax deferral, 313 Tax-exempt organizations homes for the elderly, 496 nursing and retirement homes, 490 services-to-the-elderly test, 465 Electric Generating Facilities Land under, 203 Machinery and equipment, 194 Enterprise Zones Reimbursement of tax loss, 642

712

Entertainment Facilities Multipurpose facilities in first class counties, 651 Environmentally Contaminated Realty Valuation of, 223 Equalization Generally, 287–289 State Tax Equalization Board ratio. See State Tax Equalization Board Ratio Equal Protection. See Uniformity Issues Equipment Valuation. See Valuation Equitable Estoppel Public property exemptions, 476 Equitable Relief Courts of common pleas, 54 Exemptions, 441 Spot assessments, 355 Errors Generally, 552 Spot assessment under guise of correction of, 379 Evidence Appraisal reports, 133 Contingent-fee appraisers, 73 Federal income tax depreciation schedules, 136 Trial de novo. See Trial De Novo Valuation expert appraisal evidence versus evidence of sale, 210 failure to rebut, 121 tax consequences of sale, 213 Exemptions Generally, 2 “Actual place of regularly scheduled worship,” 465 All-boys schools, 515 Appeal boards burden of proof, 437 hearing procedures, 434 Building and construction charitable facilities, 463

Subject Matter Index residential construction, 553 Burden of proof generally, 402 before appeal board, 437 Charitable use equitable ownership of property, 470 relieve government of burden, 467 requirement of, 466 use and occupancy, 469 Charter schools, 652 Commonwealth Court appeals, 446 Community college property, 477 Constitutional authorization, 401 County chief assessor’s authority to remove, 447 Date effective, 438 Deteriorated property exemptions. See Improvement of Deteriorating Real Property or Areas Tax Exemption Act Disabled veterans’ property generally, 648 scope of exemption, 650 Educational facilities all-boys schools, 515 community college property, 477 faculty and staff residences, 504 liberal arts colleges, 499 private schools, 499 student housing, 507 Elderly services, institutions providing homes for the elderly, 496 services-for-the-elderly test, 465 Entertainment facilities in first class counties, multipurpose, 651 Equitable relief, 441 Exhaustion of administrative remedies, 443 Faculty and staff residences, 504 Federally subsidized housing, 513 Governmental demands for money, 450 Governmentally funded charities, 461 Governmental purpose, exemption for. See Public Property Exemptions Homes for the elderly, 496 Hospital exemption generally, 485–486 mathematical test, 488 physician compensation-based productivity, 489 “purely public charity” test, 487

Housing, federally subsidized, 513 Illegally zoned church, 523 Industrial development authority property, 643 Lease of property of one charity to another charity, 452 LERTA exemptions. See Local Economic Revitalization Tax Assistance Act Liberal arts colleges, 499 List of property exempt, 401 Metropolitan transportation authority property, 644 Money-in-lieu-of-taxes exchange, 450 Nursing homes, 490 Occupational organization, 524 Parish houses, 516 Partial exemptions, 448 Private schools, 499 Professional organization, 524 Public utility property generally, 645 railroad right-of-way, 647–648 Purely public charity generally, 402–404 all-boys schools, 515 case law definition, 406 stare decisis effect, 406 charitable use, 466 constitutional test, 404 equitable ownership of property, 470 examination of generally, 455–456 independent examination of charities, 458 governmentally funded charities, 461 relieve government of burden, 467 statute. See Institutions of Purely Public Charity Act use and occupancy requirement, 469 Religion-based exemptions “actual place of regularly scheduled worship,” 465 church parking lots, 519 illegally zoned church, 523 multiuse religious buildings, 518 noncontiguous religious property, 521 parish houses, 516 spiritual retreats, 517 summer camps, 508

713

Subject Matter Index Retirement homes, 490 Spiritual retreats, 517 Sports facilities in first class counties, multipurpose, 651 Statutory authority, 401 Student housing, 507 Subsidiaries of charitable entities, 456 Uniformity issues, 445 YMCA facilities, 510 Exhaustion of Administrative Remedies Exemptions, 443 Ex Parte Proceedings Appeals, 17 Expert Witnesses Appraisal evidence, 210 Contingent-fee appraisers, 73 Credibility of, 135 Evaluation of testimony, 135 Experts’ reliance on expert reports not in evidence, 137–138

First and Second Class County Tax Relief Act Neighborhood gentrification, 641 Forestland. See Act 319 Freedom of Information Assessment records, 566 Freezes on Assessments Spot assessments and, 376

G Governmental Agencies Immunity of, 481 Governmental Purpose, Exemption for. See Public Property Exemptions Greenhouses Taxation of, 234

H

F

Hearings. See Appeals

Faculty and Staff Residences Exemption of, 504

Hearsay Exceptions Appraisal reports, 133

Farm Buildings Act 319, 582. See also Act 319

Highest and Best Use Generally, 156–157 Hypothetical highest and best use generally, 206–208 appraisals, 209

Farmstead Land Act 319, 582. See also Act 319 Open space land. See Open Space Land Federal Income Tax Depreciation Schedules Evidence, 136 Federal Property Exemption of, 480 Fees Act 319, 582 Appeals generally, 20 court fees, 140 Fire Companies, Volunteer Apartment buildings owned by, 478

714

Homes for the Elderly Exemption of, 496 Homestead Act Appeals, 337 Hospital Exemption Generally, 485–486 Mathematical test, 488 Physician compensation-based productivity, 489 “Purely public charity” test, 487 Housing, Subsidized Federally subsidized, 215, 513 Tax credits and, 218

Subject Matter Index

I Immunity from Taxation Governmental agencies, 481 Municipal authorities, 471 State-owned universities, 484–485 See also Exemptions Improvement of Deteriorating Real Property or Areas Tax Exemption Act Generally, 633 Deteriorated dwellings improvement, 634 Deteriorating area improvement, 637 Improvements of Vacant Land Generally, 554–556 Increases in Assessments Common pleas court’s authority, 128 Court-ordered countywide across-theboard assessment increases, 377 Industrial Development Authority Property Exemption of, 643 Industrial Equipment Exclusion Application of, 192 Information processing and, 200 Inspection of Premises Motion for view, 121 Institutions of Purely Public Charity Act Generally, 407–409 Arbitration, mandatory, 421 Articles of incorporation language, 431 Assessment administration and appeals, 418 Charitable-purpose requirement, 410 Charity-to-persons requirement, 415 Commonwealth Court interpretations, 428 Community service requirement, 412 Discovery proceedings, 419 Exemption presumptions, 417 Five-point test, 410 Free-from-private-profit requirement, 411 Legislative findings, 408 Legislative intent, 409 Nonprofit entity, what is, 417 Relief-of-government-from-burdens requirement, 416

Supreme Court decisions, 423 Unfair competition allegations under Act, 432 with small business, 420 Voluntary agreements, 419 Interest Successful appeal, on, 309–310 Interim Assessments Appeal for all subsequent years, 109 Notice requirement, 544 School district request, at, 560

J Jurisdiction Appeal boards, 26 Common pleas courts civil rights challenges, 45 equity jurisdiction, 54 State Tax Equalization Board ratios, challenging, 291–292

L Lancaster County De facto reassessments, 386 Leases Charity’s lease of property to another charity, 452 Long-term, impact on market value, 168 Oil and gas interests, taxation of, 229 Public property for public use, 475 Valuation and assessment, 171 LERTA. See Local Economic Revitalization Tax Assistance Act Liberal Arts Colleges Exemption of, 499 Local Economic Revitalization Tax Assistance Act Case law, 630 Commencement of exemption period, 632 Statutory provisions, 627 Losses Catastrophic loss, 551

715

Subject Matter Index ownership cases, 32 Boards of assessment appeals. See Appeal Boards Civil rights liability, 49 Due process rights in assessment appeals, 72 Immunity from taxation, 471

Low-Income Housing Federally subsidized, 215, 513 Tax credits and, 218

M Machinery Valuation. See Valuation Mailbox Rule Assessment notices and, 549 Marinas Valuation of, 248–249 Market Value Generally, 155–156 Long-term leases, impact of, 168 See also Valuation Mass Appraisal Companies Assessors Certification Act, 538

N Neighborhood Gentrification First and Second Class County Tax Relief Act, 641 New Home Construction Local Tax Abatement Act Generally, 639–641 New Trial. See Trial De Novo

Mobile Homes Generally, 556–559 Taxability as real estate, 558

Notice(s) Act 319 assessment rollback notice, 600 change-of-use notices, 584 Assessment board hearings, remedy for notice violation, 40 Assessment notices Generally, 335, 544 incorrect addresses, 548 mailbox rule and, 549 service of, 546 timely mailing of, 547 Countywide reassessment. See Countywide Reassessment

Motion for View Generally, 121

Nursing Homes Exemption of, 490

Motions Post-trial motions, 143 See also specific motion

O

“Mathematical” Errors Generally, 552 Spot assessment under guise of correction of, 379 Metropolitan Transportation Authority Property Exemption of, 644

Motions in Limine Trial de novo, 132 Municipal Airports Taxation of, 483 Municipalities Appeals by generally, 391–396 exemption appeals, 479 exemption procedures, 471

716

Oil and Gas Leases Taxation of, 229 Old Persons Homes for the elderly, 496 Nursing and retirement homes, 490 Tax deferral, 313 Tax-exempt organizations homes for the elderly, 496 nursing and retirement homes, 490 services-to-the-elderly test, 465

Subject Matter Index Municipal airports, 483 Municipal exemption appeals, 479 Municipal exemption procedures, 471 “Public purpose” requirement, 474 United States property, 480 Volunteer fire company’s apartment building, 478

Open Space Land Breach of covenants preserving open space, 624 Statutory provisions, 621

P Parish Houses Exemption of, 516 Parking Lots Exempt church property, 519 Payment in Lieu of Taxes (PILOT) Agreements Enforcement of, 328–330 Limitation of, 326–328 Payment of Taxes. See Tax Payments Planned Community Common Areas Taxation of, 240 Pleadings. See Courts of Common Pleas Polluted Property Valuation of, 223 Preferential Assessments Farmland and Forest Land Assessment Act. See Act 319 Open space land. See Open Space Land Prima Facie Validity of Assessment Overcoming, 126 Private Schools Exemption of, 499 Prohibition, Writs of Generally, 61–62 Public Access Assessment records, 566 Grantee register deed with chief assessor, 565 Public Property Exemptions Community college property, 477 Equitable estoppel, 476 Governmental trustees, 484 Lease of public property for public use, 475

Public Utility Realty Tax Act (PURTA) Generally, 645–647 Spot assessments, 325 Purely Public Charity Generally, 402–404 All-boys schools, 515 Case law definition, 406 stare decisis effect, 406 Constitutional test, 404 Examination of generally, 455–456 independent examination of charities, 458 Governmentally funded charities, 461 Statute. See Institutions of Purely Public Charity Act Purpose of Assessment Generally, 1

R Ratio Law Generally, 289–290 Cities of the third class predetermined ratios, 305 ratio applications to assessments, 303 predetermined ratios, 305 Countywide reassessment, 341 Predetermined ratios, 305 “Split the difference” approach, 291 See also State Tax Equalization Board Ratio Real Estate Professionals Taxpayer representation before appeal board, 74 Real Estate Subject to Ground Rent or Mortgage Generally, 563

717

Subject Matter Index Third class counties, 545 Fourth to eighth class counties, 545 Spot reassessment statute, 357 Tax Refund Law, 321

Real Estate Transfers Act 319 land, 586 Assessment changes after, 151 Deed registration, 571 Reassessments County land repository, property sold from, 559 Countywide. See Countywide Reassessment De facto. See Countywide Reassessment Tax rates, 314 Recorder of Deeds Obligation to furnish records to appeal boards, 565 Records of Assessments Building and demolition permits, 564 Furnishing to appeal boards, 565 Penalty, 565 Public access, 566 Retention of, 569 Substantial improvement, 565 Reduction in Assessment Successful appeal, after, 309 Refunds. See Tax Refunds Religion-Based Exemptions “Actual place of regularly scheduled worship,” 465 Church parking lots, 519 Illegally zoned church, 523 Multiuse religious buildings, 518 Noncontiguous religious property, 521 Parish houses, 516 Spiritual retreats, 517 Summer camps, 508 Res Judicata Parallel challenges by separate taxing districts, 148–149 Retirement Homes Exemption of, 490 Retroactivity of Assessments Generally, 545 Second class counties, 546 Second class A counties, 545

718

Rollback Actions “Act 319” rollback taxes. See Act 319 Spot assessments, 358

S Sales Comparable properties, 158 Evidence of sale versus expert appraisal evidence, 210 Evidence of tax consequences of sale, 213 Potential realty purchasers, owners as, 205 Realty transfers, assessment changes after, 151 School Districts Civil rights liability, 49 Interim assessment request, 560 Reassement of first class, 316 Schools. See Educational Facilities Exemptions Senior Citizens Homes for the elderly, 496 Nursing and retirement homes, 490 Tax deferral, 313 Tax-exempt organizations homes for the elderly, 496 nursing and retirement homes, 490 services-to-the-elderly test, 465 Service of Notice Assessment notices, 546 Service of Process Common pleas court appeals, 93 Settlement of Cases Generally, 310–311 Approval of taxing body, 312 Court stipulations, limitation of, 311 Sewer Bans Temporary, 554

Subject Matter Index Signs and Billboards Taxation of, 232

Statutory Authority Generally, 1

Solicitors Appointment of, 530

Stipulations Assessment appeals, limitation in, 311

Spiritual Retreats Exemption of, 517

Storage Facilities Taxation of, 251

Split-off Liability Act 319, 585

Subdivisions of Vacant Land Generally, 554–556

Sports Facilities Multipurpose facilities in first class counties, 651

Subsidiaries Exempt charitable property, 456

Spot Assessments Generally, 357–358 Appeals premature appeal review, 396 taxing district appeals, 399 Assessment freezes and, 376 Assessment rolls, additions to, 382 Building renovations generally, 369 timing of assessment, 372 Cellular towers, land supporting, 382 Condominium declarations, 374 Constitutional prohibition, 360 Correction of errors, under guise of, 379 Declaratory judgment actions, 357 End of practice, 366 Equitable relief, 355 Prohibitions against constitutional prohibition, 360 statutory prohibition, 357 Public Utility Realty Tax Act, 325 Refund statute, applicability of, 359 Retroactive application of statute, 357 Rollback actions, 358 Statutory prohibition, 357 Tax refunds, 359 What are, 362 Standing to Appeal. See Appeals State Tax Equalization Board Ratio Application of, 298 Challenging, 291 Uniformity issues, 293 Use of, 299 Venue and jurisdiction, 291

Subsidized Housing Federally subsidized, 215, 513 Tax credits and, 218–221 Subsurface Limestone Taxability of, 230 Summer Camps Religious property exemption, 508

T Taxation Generally, 527 Rollback taxes. See Act 319 Tax Credits Property subject to, 218 Subsidized housing, valuation of, 218 Tax Mapping Generally, 572 Taxpayer Representation Before appeal board, 74 Tax Payments Appeal, during pendency of generally, 307–308 interest on overpayment, 309 nonpayment in fourth to eighth class counties, 318 Payments in lieu of taxes, limitation of, 326 Protest, payment under generally, 307 cash refunds, in order to obtain, 308 Senior citizen tax deferral, 313

719

Subject Matter Index Tax Refunds Generally, 318 Assessment errors, 552 Interpretation of statute, 323 Retroactive refund request, 319 Spot assessments, 359 Tax Refund Law, 321 Television Towers Industrial equipment exclusion, 200 Transfer of Land Ownership “Act 319” land, 586 Assessment changes after, 151 Deed registration, 571 Trial De Novo Generally, 117–119 Appraisal reports, exchange of, 119 Assessment increases, 128 Burden of proof adverse party overcoming assessment presumption, 124 overcoming assessment’s prima facie validity, 120, 126 surrebuttal evidence, 128 Evidence burden of proof, above federal income tax depreciation schedules, 136 objections to, 132 order of proof, 128 surrebuttal evidence, 128 valuation evidence, failure to rebut, 121 Findings of fact, 130 Judge’s role, 120 Motion for view, 121 Motions in limine, 132 Order of proof, 128 Post-trial motions, 143 Valuation evidence, failure to rebut, 121

U Unfair Competition Institutions of Purely Public Charity Act. See Institutions of Purely Public Charity Act Uniformity Issues Generally, 1–2 Appellate hearing, discovery prior to, 18

720

Constitutional challenges, 257 Exemptions, 445 State Tax Equalization Board ratio, 293 Taxing authority assessment appeal uniformity, 274 Uniformity Tests Generally, 261–268 Equity actions in lieu of appeals, 276–278 Monetary thresholds, school district appeals based on, 278–287 Post-Downingtown, 268–273 United States Property Exemption of, 480 Universities. See Educational Facilities Exemptions

V Vacant Land Improvements and subdivisions, 554 Valuation “Act 319” land use values, 584 Air rights, 238 Amusement parks, 227 Appraisals. See Appraisals Approaches to value generally, 2 comparable properties, 158 cost approach, below income approach, below reconciliation of, 185 Base-year value, appeal of, 21 Billboards and signs, 232–234 Cellular towers, 201 Coal properties, 227 Comparable properties, 158 Condominium appurtenant easements, 238 Cost approach generally, 158 special-purpose properties, 159 Country club subsidies, 181 Economic whole, property as, 212 Electric generating facilities land under, 203 machinery and equipment, 194

Subject Matter Index Environmentally contaminated realty, 223 Equipment. Machinery and equipment, below Evidence expert appraisal evidence versus evidence of sale, 210 failure to rebut, 121 tax consequences of sale, 213 Exclusions under the Consolidated County Assessment Law, 154 Greenhouses, 234 Highest and best use generally, 156–158 hypothetical highest and best use generally, 206–208 appraisals, 209 Housing, subsidized federal subsidized, 215 tax credits and, 218 Inclusions under the Consolidated County Assessment Law, 153 Income approach generally, 162 business income versus real estate income, 181 country club subsidies, 181 economic reality test, 170 economic rent, use of, 163 long-term leases, impact of, 168 Industrial equipment exclusion application of, 192 information processing and, 200 Interpretation of exclusions, 253 Leasehold interests, 171 Machinery and equipment generally, 186 electric generating facility machinery, 194 industrial equipment exclusion application of, 192 information processing and, 200 realty versus equipment, 188 storage facilities, 251 Manufactured homes, 246 Marinas, 248–249 Market value generally, 155–156 long-term leases, impact of, 168 Methods of. Approaches to value, above Oil and gas interests, 229

Planned community common areas, 240 Potential realty purchasers, owners as, 205 Real sales transfers, changes after, 151 Sales comparable properties, 158 evidence of sale versus expert appraisal evidence, 210 evidence of tax consequences of sale, 213 potential realty purchasers, owners as, 205 Signs and billboards, 232 Statutory authority, 152 Storage facilities, 251 Storage sheds, 249 Subsurface limestone, 230 Tax credits property subject to, 218 subsidized housing, valuation of, 218 Uniform Standards of Professional Appraisal Practice (USPAP) Statement, 255 Wetlands, 235 Wind energy generating equipment and structures, 232 Viewing of Premises Motion for view, 121 Voluntary Agreements Institutions of Purely Public Charity Act, 419 Volunteer Fire Companies Apartment buildings owned by, 478

W Wetlands Valuation, 235 Wind Energy Generating Equipment and Structures Generally, 232 Witnesses Contingent-fee appraisers, 73 Expert. See Expert Witnesses Woodlot Treatment Act 319, 580

721

Subject Matter Index Work-Product Privilege Discovery, 531 Writs of Prohibition Generally, 61–62

Y YMCA Facilities Exemption of, 510

722