United States: Tax Assessment Case Proves School Districts Maintain Broad Rights

With real estate assessments receiving increased attention, particularly in Philadelphia and its surrounding counties, the Commonwealth Court of Pennsylvania filed an interesting opinion on March 8, 2013, written by Judge Robert Simpson, in the case of Guntram Weissenberger d/b/a Blackhawk Circle Apartments v. Chester County Board of Assessment Appeals and Downingtown Area School District. The decision will not provide much encouragement to property owners concerned about their exposure to increased real estate tax assessments.

The Downingtown Area School District participated in an organization known as the Chester County School District Managers. That group hired a real estate appraisal firm to review the market values and assessments for all apartment complexes in Chester County, Pennsylvania, for the 2004 Tax Year (note that this decision – issued in 2013 – addresses a tax assessment from nine years prior). The Commonwealth Court noted that the consultant was hired to evaluate a different class of properties each year, one year looking at shopping centers, then apartment complexes, with other categories of properties to be reviewed in subsequent years.

The consultants identified six apartment complexes that were under-assessed in Chester County. The report indicated that five of the total six under-assessed complexes were in the Downingtown Area School District and two of these parcels, owned by Blackhawk Circle Apartments were significantly more valuable than the other under-assessed apartment complexes. So, the Downingtown Area School District made a "business decision" to appeal just the assessments for Blackhawk Circle Apartments and did not take any other assessment appeals that year for any other type of property, apartment complex or otherwise.

Following the appeal, the Chester County Board of Assessment Appeals increased each of the subject parcels by approximately $1 million, generating an additional tax bill of approximately $53,000. Blackhawk Circle Apartments filed an appeal contending that the increased assessments were in violation of the Uniformity Clause of the Pennsylvania Constitution and that the method for selecting the properties to appeal was arbitrary and capricious. Eventually, the Chester County Court of Common Pleas agreed with the property owner, and ruled that the method used by the Downingtown Area School District to select the properties for appeal was unconstitutional. The Downingtown Area School District appealed that decision to the Commonwealth Court.

The Commonwealth Court summarized the taxpayer's argument that the appeal by the school district of the assessment demonstrated a selective and discriminatory application of its right of appeal by targeting apartment complexes, and particularly the Blackhawk Circle Apartment complex. In fact, the Blackhawk Circle Apartment complex was the only property subject to an assessment appeal by any school district in Chester County, despite claims that other apartment complexes were under-assessed. In its discussion, the Commonwealth Court noted that the taxpayer did not argue that its properties were over-assessed, and did not dispute the increased value assigned to its property. The only grounds for the appeal were that the taxpayer's property had been singled out in contravention of the uniformity clause of the Pennsylvania Constitution, which provides that "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," and that the method of selecting the apartment complex assessment for appeal was "arbitrary and capricious."

The Commonwealth Court quickly dismissed the claim that the decision to appeal was "arbitrary and capricious." The Commonwealth Court deferred to the decision of the Downingtown Area School District to focus its efforts on an appeal that would generate significantly increased tax revenue, noting that "judicious use of resources to legally increase revenue is a legitimate governmental purpose."

The taxpayer also apparently left a gap in its case by asserting that other properties within the Downingtown Area School District were under-assessed, but failing to prove that other under-assessed properties were similarly situated to its own properties. The Commonwealth Court confirmed prior case law that in making uniformity arguments, an aggrieved taxpayer must first establish the various valuations at issue and subsequently show how disparate assessments violate the uniformity requirements. The Commonwealth Court confirmed that the Downingtown Area School District's had the statutory right to initiate assessment appeals and that filing such an appeal does not constitute an impermissible spot assessment. The existing case law allows for a methodology that narrows the class of properties that may be evaluated for appeal based on financial and economic thresholds and doing so does not, as a matter of law, show purposeful discrimination.

The majority decision was joined by four of the five judges on The Commonwealth Court panel. A single dissent by Judge Mary Hannah Leavitt focused on the fact that Blackhawk Circle Apartments had been singled out and that its competitors continued to be under-assessed. As a result, Judge Leavitt believed the school district had not complied with the prevailing requirement that similarly situated taxpayers should not be deliberately treated differently by taxing authorities. The competitive disadvantage faced by Blackhawk Circle Apartments, in the opinion of Judge Leavitt, was the precise result prohibited by the uniformity clause, and she concluded that the Chester County Common Pleas Court decision should be affirmed.

The lesson for taxpayers is that the protection provided by the uniformity clause is not always as broad as they would like, and that school districts maintain broad rights to appeal assessments that are too low in the opinion of the districts.

Origially published by In the Zone

View the entire May 2013 issue of In the Zone

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