Taxing Bodies May Select Individual Properties They Believe are Under-Assessed and Appeal the Assessment in an Attempt to Increase Local Taxes

Today, the Pennsylvania Commonwealth Court handed down a tax assessment appeal decision affirming the right of the Downingtown Area School District in Chester County to select two parcels used for multi-family rental housing, and appeal the assessment for those parcels in an attempt to increase the tax appraisal and, accordingly, the annual tax paid.

A group of Chester County school districts joined together to hire an independent commercial firm to review market values for all apartment complexes in Chester County in an attempt to identify under-assessed properties which should be paying a greater share of taxes.  As a result of that review of all apartment complexes in Chester County, the Downingtown Area School District selected two parcels owned by one owner operated as an apartment complex, as a business decision, and determined to appeal that assessment.  The Chester County Board of Assessment Appeals, after hearing valuation evidence, increased the fair market value of each of the parcels by about $1,000.000.00 (an actual total increase of $2,000,128.50).  The resulting increase tax expected for the school district was approximately $53,000.00 per year.

The taxpayer appealed contending that the increased assessments were unconstitutional and not uniform as required by the Pennsylvania Constitution’s Uniformity Clause and that the school district’s method for selecting the properties was arbitrary and capricious.  The actual increased valuation was not challenged.

The Chester County of Common Pleas determined that the school district chose to challenge the assessment of one apartment complex, despite evidence that there were other apartment complexes that were under assessed.  The Trial Court found that this intentional, selective application of the school district’s right to appeal violated the taxpayer’s entitlement to uniform treatment under the law.

Statutorily school districts or other taxing entities have a right to appeal an assessment in the manner and using the same procedures as an individual property owners uses to appeal the assessment for their property.  The statute does not expressly require appeals of all properties within a certain class but allows each individual property which a taxing body believes is under assessed, to be appealed.  The school district also noted that, based on its consultant’s report, the property selected for appeal was the most under assessed though it was true that there were other under assessed properties.  Thus, the school district said that, in reviewing its consultant’s report, it made a business decision to appeal the most egregiously under assessed property.

Here, the taxpayer did not attack the right of the school district to appeal an individual property which was under assessed nor did it attack the statute on its face.  Rather, it attacked the constitutionality of the statute as applied in that, the taxpayer asserted, the tax reassessment as applied violated the uniformity rule in the Uniformity Clause of Article VIII, Section 1 of the Pennsylvania Constitution which states that all taxes should be uniform upon the same class of subjects within the territorial limits of the authority levying the tax.

The Pennsylvania Commonwealth Court determined that the decision to appeal this particular property was not “arbitrary and capricious” in that it was based upon an outside consultant’s advice that this was the most under assessed property.  Thus, the Commonwealth Court found that there was a rational basis to select this property for appeal.  The taxpayer never did contest that the property was undervalued and that the reassessment was fair.  The school district, as a taxing body, is expressly authorized by statute to initiate assessment appeals on a property by property basis.  Moreover, the school district did not arbitrarily select a property to appeal but rather adopted a methodology that narrowed the class of properties evaluated for appeal upon consideration such as the financial and economic threshold or by classifications of properties which does not demonstrate deliberate purposeful discrimination.  Selecting the property to appeal was a rational business decision.

The majority opinion was written by Judge Robert Simpson and joined by four other judges of the Court.   A short dissenting opinion was written by Judge Mary Hannah Levitt.  Judge Levitt would have found that the taxpayer has property that is now assessed at a value higher than similarly situated apartment complexes in the County because of the appeal and that this violates the Uniformity Clause of the Pennsylvania Constitution.

I expect that this case will be appealed to the Pennsylvania Supreme Court.