The Uniformity Clause and the Burden of Proof in Tax Assessment Appeals
Kennett Consolidated School District v. Chester County Board of Assessment Appeals, 228 A.3d 29 (Pa. Cmwlth. 2020), allocatur granted Nov. 3, 2020, appeal docket 63 MAP 2020
The Pennsylvania Supreme Court granted allocatur in this case to consider whether the Uniformity Clause prohibits school districts from (i) appealing tax assessments only for properties that have an actual market value of over $1 million; and (ii) implementing an assessment appeal selection system which subjected only commercial properties to disparate treatment in operation and effect. Additionally, the Court will consider whether the burden of proof in matters of alleged discrimination by school districts in tax assessment appeals lies with the districts or the taxpayers.
School Districts are permitted to appeal tax assessments of properties within their jurisdiction. Kennett Consolidated School District (KCSD) directed its consultant to review all assessments of property within the district and recommend assessments for possible appeal, explicitly requesting that the consultant not limit himself “to any particular class of properties…but [to] review all classes of properties including commercial, residential, and otherwise.” Slip op. at 3 (emphasis removed). The review identified 13 properties he described as having “a high probability of being underassessed by more than [$1 million] of market value.” Id.
KCSD identified 12 property assessments from which it decided to appeal, including a New Garden Township parcel owned by AutoZone Development Corporation. KCSD filed the assessment appeals and a hearing was held. The Chester County Board of Assessment Appeals determined that the then-current assessment of the AutoZone parcel would remain unchanged.
KCSD appealed the decision to the trial court, claiming that the parcel’s value was less than the fair market value, the assessment was inconsistent with similarly situated properties, and the assessment did not reflect actual market value. The trial court issued its decision upholding the fair market value and resulting assessment. AutoZone appealed to the Commonwealth Court, raising three issues:
(1) whether KCSD violated public policy, the Uniformity Clause, the Sunshine Act, and the Public School Code of 1949 by failing to enact any policy for the selection of assessment appeals;
(2) whether KCSD violated the requirements of the Uniformity Clause by adopting a monetary threshold for determining whether to file an assessment appeal which exclusively targeted properties with an actual market value of more than $1 million; and
(3) whether KCSD violated the requirements of the Uniformity Clause by implementing an assessment appeal selection scheme that systematically subjected commercial properties to disparate treatment.
AutoZone argued that PA Supreme Court precedent in Valley Forge Towers Apartments N, LP v. Upper Merion Area Sch. Dist., 640 Pa. 489 (2017) controlled here. AutoZone argued that Valley Forge prevents taxing authorities from treating different property sub-classifications in a disparate manner. AutoZone noted that in Valley Forge, the school district appealed only the assessments of commercial properties and that the PA Supreme Court found that practice to be unconstitutional. AutoZone essentially argued that the Uniformity Clause can be violated in practice where no formal policy is in place.
Additionally, AutoZone argued that under Valley Forge, all real estate constitutes a single class entitled to uniform treatment, asserting that all property within a taxing district is a single class and cannot be subject to different, intentional, or systematic sub-classification. AutoZone argued that as a result, the monetary value of property can never be made a basis for the imposition of an unequal burden.
KCSD responded that its conduct in appealing the assessments did not violate the Uniformity Clause because the system it used was merely based on a cost/benefit analysis that weighed the cost of pursuing an appeal against the additional revenue the school district might realize, and that its approach did not target commercial properties.
Commonwealth Court ruled that KCSD did not violate the Uniformity Clause. The Court also ruled that it would not consider the issue of UCSD’s alleged failure to enact a policy for assessment appeals because the issue was first raised on appeal.
The Commonwealth Court summarized Valley Forge and the relevant body of law as follows:
(1) under the Uniformity Clause, all property within a taxing district is a single class and, as such, may not be treated in a disparate manner;
(2) similarly situated taxpayers should not be deliberately treated differently by taxing authorities; and
(3) [“deliberate” here] does not exclusively connote wrongful conduct, but includes any intentional or systematic method of enforcement of the tax laws.
Slip op. at 11-12. The Commonwealth Court also noted that Valley Forge stands for the proposition that courts must balance districts’ right to appeal assessments against the demands of the Uniformity Clause, but that “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. Notably, however, the two objectives do not necessarily conflict.” Slip op. at 13,quoting Valley Forge, 163 A.3d at 979-80 (internal citations omitted).
The Commonwealth Court ruled that KCSD did not violate the Uniformity Clause by implementing an assessment appeal selection scheme that systematically subjected commercial properties to disparate treatment:
The record reflects that District intentionally disregarded the type of property and, thus, it cannot be said that District’s actions in appealing the assessments of commercial properties were intentional. Where, as here, a taxing authority intentionally disregards the type of property when deciding what property assessments to appeal, its conduct is inherently not deliberate. Moreover, 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. Valley Forge makes it abundantly clear that there is a balance to be struck between a school district’s ability to appeal an assessment and the Uniformity Clause. Thus, a school district’s policy that attempts to be fiscally responsible by only appealing assessments that would generate enough revenue to justify the cost of the appeal does not violate the Uniformity Clause.
Slip op. at 14. The Commonwealth Court went on to explain that there “is no indication [KCSD] would not have appealed the assessment of residential properties in the event that such properties would have fallen within its fiscal parameters. [KCSD] is concerned with maximizing its revenue…The mere fact that all appealed properties were commercial does not per se create a violation of the Uniformity Clause.” Slip op. at 18.
The Commonwealth Court also ruled that KCSD did not violate the Uniformity Clause by adopting a monetary threshold for determining whether to file an assessment appeal which exclusively targeted properties with an actual market value of more than $1 million. The Commonwealth Court noted it addressed such a question in 2014 in In re Springfield School District, 101 A.3d 835 (Pa. Cmwlth. 2014), and that though the case was reviewed by the Supreme Court, the Supreme Court deliberately chose not to rule on this particular question. The Commonwealth Court explained that it addressed the question again more recently in East Stroudsburg Area School District v. Meadow Lake Plaza, LLC, [2019 WL 5250831] (Pa. Cmwlth. No. 371 C.D. 2018, filed October 17, 2019), concluding that “nothing in our Supreme Court’s analysis in Valley Forge precludes application of a reasonable monetary threshold for assessment appeals, based on an estimate of the minimum potential revenue gain that will make a tax assessment appeal cost-effective.” Slip op. at 21, quoting East Stroudsburg at 11. There, the Commonwealth Court also rejected the argument that a facially neutral policy leading to appeals only of commercial properties would offend the Uniformity Clause.
Leaning on its reasoning in In re Springfield School District and East Stroudsburg, the Commonwealth Court held that KCSD’s use of a monetary threshold for the purpose of making prudent fiscal decisions did not violate the Uniformity Clause because the district did not act with discriminatory purpose against certain sub-classes of property. It deliberately ignored property type and focused solely on its own cost-benefit considerations.
The Commonwealth Court also refused on the basis of waiver to consider whether KCSD violated public policy, the Uniformity Clause, the Sunshine Act, and the Public School Code of 1949 by failing to enact an explicit policy for the selection of assessment appeals. AutoZone did not raise the issue before the trial court.
The Pennsylvania Supreme Court granted allocatur to examine three questions:
(1) Did the School District violate the requirements of the Uniformity Clause by subdividing real estate in the District based [upon] the money value [of] the property and imposing unequal tax burdens on properties with actual market value of more than $1,000,000?
(2) Did the School District violate the requirements of the Uniformity Clause by implementing an assessment appeal selection system which subjected only commercial properties to disparate treatment in operation and effect?
(3) Did the Commonwealth Court err by shifting the burden of proof and holding taxpayers to an impossible standard that this Court has specifically rejected, namely by requiring taxpayers to prove that the School District intended to discriminate against a sub-class of taxpayers?