Sales-based Real Estate Tax Assessment; School District Discretion
GM Berkshire Hills LLC v. Berks Cnty. Bd. of Assessment, 257 A.3d 822 (Pa. Cmwlth. 2021), allocatur granted Feb. 1, 2022, appeal docket 16 MAP 2022
In this case, the court will consider, as a matter of first impression, whether a school district’s use of recent sales prices to select property assessments for appeal violates either the Equal Protection Clause of the U.S. Constitution or the Uniformity Clause of the Pennsylvania Constitution.
The Wilson School District used a formula based on recent sales prices to determine if the district should appeal a particular property’s assessed value in accordance with a Resolution passed by the district, which Commonwealth Court summarized as follows:
The Resolution instructed the business office to begin with recently sold properties within the District and their current assessments from the STEB reports, apply the County’s applicable common level ratio (CLR) of 68.5% to each recent sales price, compare the resulting figure to the property’s current assessed value, and pursue an appeal if the difference between the two figures exceeded $150,000 for a given property. The $150,000 figure represents a cost-benefit threshold at which the revenue from a successful appeal would justify the cost of the legal and appraisal fees necessary for the District to undertake the appeal. The Resolution does not instruct the business office to consider the type or nature of a property (commercial, residential, agricultural, or industrial, etc.) when determining whether the property may be underassessed and subject to an appeal.
Slip op. at 2-3 (record citations omitted). Applying that formula, the district concluded that two recently sold properties were assessed at a fraction of their actual value. The district appealed the assessment of these two properties to the county board of assessment, which adopted the district’s assessed values based on the district’s formula. The two property owners, GM Berkshire Hills LLC and GM Oberlin Berkshire Hills LLC, (Berkshire) appealed to common pleas, which after hearing concluded that “the District’s method relied on publicly available information providing ‘a reasonable facsimile to fair market value,’ did not select properties based on their type or classification, and ‘did not deliberately choose to appeal one property and reject another’ based on any unconstitutional premise.” Slip op. at 6. Berkshire appealed to Commonwealth Court, arguing that the district’s use of a sales-based formula violated the U.S. Constitution’s Equal Protection Clause and the Pennsylvania Constitution’s Uniformity Clause because the district, a taxing authority, may not selectively seek reassessment of properties based on their recent sales prices while declining to appeal the assessments of unsold properties that may be similarly underassessed. In support, Berkshire pointed to Mount Airy #1, LLC v. Pennsylvania Department of Revenue, 154 A.3d 268 (Pa. 2016), and Nextel Communications, Inc. v. Department of Revenue, 171 A.3d 682 (Pa. 2017) as providing that differential tax treatment based on the price or value of the thing being taxed, here the cost-benefit $150,000 threshold used by the District to appeal assessments, violates uniformity principles. The district countered that no relevant precedent prohibits it from using a sales-based formula, so long as the selection method does not differentiate based on property type or classification.
Commonwealth Court affirmed common pleas on the basis that the district’s method for selecting property assessments to appeal is within the district’s discretion so long as the formula used does not differentiate based on property type or other classification, concluding that:
…the District’s method of selecting properties for assessment appeals comports with the Commonwealth’s present jurisprudence on the subject of property assessment uniformity. Using recent sales prices as part of the selection of properties for appeals is a quantitative method of reasonably ascertaining a property owner’s fair share of the tax burden, because such figures represent the kind of evidence of market value that a school district must show when it appeals an assessment. See Aetna Life Ins. Co. v. Montgomery Cnty. Bd. of Assessment Appeals , 111 A.3d 267, 283 (Pa. Cmwlth. 2015) (“evidence of private sales is admissible to determine fair market value”).
Further, as applied by the District, this method employs a purely economic approach that is practical for the District yet does not improperly differentiate based on property type, which is the type of approach our Supreme Court condoned in Valley Forge Towers [Apartments N, LP v. Upper Merion Area Sch. Dist., 163 A.3d 962, 965 (Pa. 2017)] and which this Court subsequently accepted in Punxsutawney [Area School District v. Broadwing Timber, LLC, 2019 WL 5561413 (Pa. Cmwlth) (unreported), appeal denied, 234 A.3d 399 (Pa. 2020)], and East Stroudsburg [Area Sch. Dist. v. Meadow Lake Plaza, LLC, 2019 WL 5250831 (Pa. Cmwlth.)(unreported)]. As such, we agree with the trial court that the District’s method did not violate either the Equal Protection Clause of the U.S. Constitution or the Uniformity Clause of the Pennsylvania Constitution.
Slip op. at 20-21. The court distinguished the Supreme Court’s decisions in Mount Airy #1 and Nextel, reasoning that:
In Mount Airy #1 , our Supreme Court considered a challenge to a provision of the Pennsylvania Race Horse Development and Gaming Act, 4 Pa.C.S. §§ 1101 – 1904, that essentially created a variable-rate tax on casinos, in effect “fashioning one rate for non-Philadelphia casinos with slot machine revenue below $500 million and another for non-Philadelphia casinos with slot machine revenue greater than $500 million.” 154 A.3d at 276. In Nextel , the Court considered a challenge to a provision of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended , 72 P.S. §§ 7101 – 10004, that allowed corporations with taxable income under $3 million to deduct net losses from prior years while refusing the same advantage to corporations with taxable income in excess of $3 million. 171 A.3d at 685. Thus, both cases involved the application of differing tax rates based on the amount or value of the thing being taxed, an issue not present in this case. Those cases are also distinguishable because the taxable properties at issue were slot machine revenue (Mount Airy #1) and corporate income tax (Nextel), which are subject to their own specific statutory taxation schemes and bodies of law. This case concerns the methods by which school districts may select property tax assessments for appeal, and there is ample on-point precedent, not least of which is Valley Forge Towers .
Also, the disparate treatment in Mount Airy #1 and Nextel was based solely on revenue or income amounts. Here, the recent sales price of a real estate property is not the sole basis the District uses to select assessments to appeal. The District begins with that information, applies the CLR, compares the resulting figure with the prior assessment, and only appeals if the difference exceeds $150,000. By contrast, a property may sell this year for millions of dollars, but if it previously changed hands within the past few years, it may already have been reassessed. If so, the differential may not exceed $150,000, and it will not be selected for appeal. Thus, the market value or recent sales price alone is not the basis for any differential treatment by the District. For these reasons, Mount Airy #1 and Nextel are neither on-point nor controlling here, and Berkshire has not established that the District’s appeal selection method violates constitutional principles.
Slip op. at 22-23.
The Supreme Court granted allocatur, limited to the following issues:
(1) Do a school district’s selective real estate tax assessment appeals violate the Uniformity Clause of the Pennsylvania Constitution when the school district chooses only recently-sold properties for appeal, leaving most properties in the district at outdated base-year values?
(2) Do a school district’s selective real estate tax assessment appeals violate the Uniformity Clause of the Pennsylvania Constitution when the school district chooses only certain recently-sold properties that would generate a minimum amount of additional tax revenue for appeal, leaving most properties in the district at outdated base-year values?