Nunc Pro Tunc Appeal Should Have Been Allowed
A panel of the Commonwealth Court held that a borough should have been permitted to appeal nunc pro tunc from the assessment of three purchased properties. In re Appeal of Borough of Riegelsville, No. 1210 C.D. 2008 (Pa. Commnw. Mar. 25, 2009) (unreported). The borough purchased properties on December 23, 2006. Notices of reassessment were sent not to the purchaser but to the former owner on March 1st of the next year. Before the expiration of the stated appeal period, counsel for the borough contacted the Assessment Board and was given an ambiguous response which the court stated could reasonably have been understood to mean that the Board would reflect the parcels as tax exempt as of the date of purchase. Considering in particular that real estate owned by a political subdivision is presumed to be exempt, the court held that under the circumstances, a nunc pro tunc appeal should have been allowed.
Administrative Office Not A Place Of Religious Worship
A panel of the Commonwealth Court held that the administrative offices of a church were not entitled to exemption for a place of religious worship. Tredyffrin/Eastown School District v. Chester County Board of Assessment Appeals, ex rel. Our Lady of Assumption Roman Catholic Church, No. 1135 C.D. 2008 (Pa. Commw. Mar. 26, 2009) (unreported). The court stated that an exemption is authorized for those places where the primary purpose is worship and any other activities are merely incidental, citing Mt. Zion New Life Center v. Board of Assessment and Revision of Taxes and Appeals, 503 A.2d 1065 (Pa. Commw. 1986). While the court later held that an administrative office for a cemetery was exempt because it was essential to the underlying religious use, the principle remains that administrative offices are not automatically exempt. In re Order of St. Paul the First Hermit, 873 A.2d 31 (Pa. Commw. 2005).
Separately, the court did not reach the issue whether the trial court correctly held the taxpayer waived the issue on appeal because its statement of matters complained of on appeal did not meet the requirements of Rule of Appellate Procedure 1925(b), but observed that they were inclined to find no waiver because in other filings the taxpayer made it clear what case law the taxpayer believed the trial court had not followed.
Board Of Finance And Revenue Must Reconsider Within 15 Days
The Commonwealth Court held that the Board of Finance and Revenue must act on a petition for reconsideration within 15 days of the Board's order, absent an overriding statute or regulation; thereafter, the Board has no jurisdiction to act on the petition. Ciavarra v. Commonwealth, No. 711 F.R. 2008 (Pa. Commw. Feb. 17, 2009). The decision was recently designated to be reported, a salutary step because it is the first known ruling on the subject.
The Board of Finance and Revenue entered an order dated February 28, 2008. On March 26, the taxpayer requested reconsideration. By letter dated August 7th, the Board denied the request for reconsideration, stating that the February 29th order was final. On September 8, the taxpayer filed a petition in court seeking review of the denial of reconsideration. The Commonwealth moved to quash the appeal.
The court held that the taxpayer could not review the February 29th decision on the merits, because it was not appealed within 30 days as required by Rule of Appellate Procedure 1571(b). With respect to the request for consideration, the court looked to the General Rules of Administrative Practice and Procedure, which require that an application for reconsideration be filed within 15 days of the order, unless otherwise provided by statute or regulation. 1 Pa. Code §§13.38, 35.241(a). Since no other time period for reconsideration is specified by statute or regulation, the Board had no jurisdiction to consider the petition for reconsideration after 15 days from its order. The court quashed the appeal insofar as it sought review of the February 29th order and dismissed it to the extent it sought review of the denial of reconsideration.
Base Year Assessment System Is Unconstitutional
In a landmark decision, the Pennsylvania Supreme Court unanimously held that Allegheny County's base year apportionment for real property taxation is unconstitutional because it violates the Uniformity Clause of Pennsylvania's Constitution. Clifton v. Allegheny County, No. 20 WAP 2005 (Pa. Apr. 29, 2009).
Judge Stanton Wettick of the Allegheny Court of Common Pleas held below that the county's system of apportionment was unconstitutional on its face because it did not require periodic reassessments and therefore inevitably resulted in substantial non-uniformity of assessments over time. The Supreme Court disagreed that the system was unconstitutional on its face, but based on the same evidence relied on by the trial court, found that as applied the system was unconstitutional. Since 1982, the applicable Pennsylvania assessment statutes have permitted a county assessment board to assess either at current market value or with reference to a base year. In Allegheny County, the base year was 2002. Assessments for subsequent years were to be set at numbers that related back to 2002 values. Based on the evidence before the trial court, the Supreme Court held that over time, the county's use of the base year system with no periodic reassessments resulted in unacceptable disparities of assessment-to-value ratios among communities in the county. The Supreme Court noted that the applicable measurements of uniformity fell far outside the tolerable limits recommended by the International Association of Assessing Officers (IAAO). The coefficient of dispersion (COD) is the average deviation from the median, mean, or weighted mean of assessed value to fair market value, expressed as a percentage. The COD in Allegheny for 2005 was 22.3% and currently was 30.2%, well outside the recommended outside limit of 15%. The price-related differential (PRD) is a measure of inequity between high value and low value properties. The county PRD was 1.1 in 2005 and currently was 1.12, both outside the recommended maximum range of .98 to 1.03. The Supreme Court agreed with the trial court that the disparities in assessments were not excused by the county's desire for a stable and predictable tax base. The disparities in assessments among communities were arbitrary and were not related to any legitimate state objective. The Court found largely irrelevant that the county assessed using an established pre-determined ratio (EPR) of 100%, since the ratio by itself is essentially meaningless, citing this author's treatise, J. Bright, Taxation, 27 Summ. Pa. Jur. 2d §§15:5, 15:12. The Court further held that the statutory right of individual taxpayers to take appeals and, above a certain threshold, to substitute the state calculated common level ratio for the EPR did not cure the systemic and pervasive problem. The Court remanded to the trial court to set a realistic timetable for the county to complete a countywide reassessment.
The reliance by the Court on the assessment standards recommended by the IAAO will have an important effect on real estate property taxation in Pennsylvania. The Court did not hold that a county assessment board must meet IAAO standards. But the heavy reliance by the Court on the comparison of the statistical evidence to the standards as a practical matter means that a county that does not comply with the IAAO standards is quite likely to be required to conduct a comprehensive reassessment. With the development of powerful computer technology to track assessments, it has become easier for an assessment board to improve its assessment practices and for interested parties to assess a board's effectiveness. The tools are certain to make major strides forward in improving assessment practices in Pennsylvania.
A concurring opinion agreed with the Court's conclusions, but expressed the view that the Court should have expressly adopted the IAAO standards as a constitutional benchmark.
The lengthy majority opinion contains a helpful discussion of the history of real property taxation both generally and in Pennsylvania, and of the application of the Uniformity Clause to real property cases.
Long Term Lease Disregarded In Assessment
In a split decision, the Commonwealth Court held that the value of real estate need not reflect the economic reality of a long term below-market lease, notwithstanding decisions to the contrary by the Pennsylvania Supreme Court. Tech One Associates v. Board of Property Assessment, Appeals and Review, No. 103 C.D. 2008 (Pa. Commn. June 1, 2009) (en banc). The decision appears incorrectly decided, principally for the reasons discussed in a dissent by two judges.
In 1989, the taxpayer leased a parcel of 47.5 acres to a lessee that had the right to improve the land, own what it built, and assign its interests at any time. The lessee constructed commercial office space on the property. The lease payments by the lessee to the taxpayer were in a relatively modest flat fixed amount; they did not include any part of the payments by the commercial tenants to the lessee. The lessee was responsible for paying all real estate and related taxes on the property.
The trial court assessed the property at a value that evidently capitalized the income that the lessee received from the lease of space to commercial tenants. The taxpayer claimed that the assessment could only reflect the value of the lease payments by the lessee to the taxpayer. In In re Appeal of Marple Springfield Center, Inc. 607 A. 2d 708 (Pa. 1992), the Pennsylvania Supreme Court held that property subject to a long term below-market lease must be valued by taking into account the limited income that the owner could derive from the property. The majority of the Commonwealth Court held that Marple Springfield did not apply, because the lessee was contractually obligated to pay all taxes, and to rule otherwise would violate the Uniformity Clause of the Pennsylvania Constitution. However, the lessee's contractual obligation to pay the taxes should be irrelevant. The obligation does not affect the key economic fact that if the taxpayer sold the property to a buyer, the buyer could realize only the lessee's payments under the lease and could not profit from any of the lease payments by the commercial tenants. The majority's reliance on the Uniformity Clause seems misplaced. The majority characterized the taxpayer's argument as claiming that the buildings were in effect exempt from taxation. As the dissent implies, that is probably incorrect. The taxpayer's argument appeared to be that the value of the land and buildings was limited by what the owner could realize from them. That is exactly the economic point made by the Supreme Court in Marple Springfield made.
If the Pennsylvania Supreme Court accepts an appeal from the decision, it should be reversed on the strength of Marple Springfield.
Conveyance Of Condominium Unit Justifies Reassessment
In a divided panel opinion, the Commonwealth Court held that the conveyance of condominium units to individual owners met the statutory condition for a reassessment. Cunius v Board of Assessment Appeals No. 1418 C.D. 2008 (Pa. Common. June 4, 2009). A father and son owned property as tenants in common. The property was improved with a multi-unit apartment complex. The owners subjected the property to a condominium regime, and a day later conveyed one condominium unit containing a number of the apartment units to the father and a second condominium unit containing the balance of the units to the son. The assessment statutes permit the reassessment of a parcel of land under certain circumstances, including when a parcel of land is divided and conveyed away in smaller parcels. Otherwise, an assessment board is prohibited from assessing a single property, as it would constitute an unlawful spot assessment. The court held that the conveyance met the condition in the assessment acts.
The decision seems entirely correct, although in a summary, the court stated that the conversion to the condominium justified a new assessment. That appears incorrect. It was not the conversion to condominium ownership, but the conveyance of property owned by two persons in tenancy in common to each individual in separate units, that justified the reassessment. One judge dissented without opinion.
No Transferee Liability For Corporation Using Another's Assets
A panel of the Commonwealth Court held that a corporation (User Corporation) that used the assets of another corporation which had a accrued tax liabilities (Debtor Corporation) was not subject to transferee liability because it was not a purchaser within the meaning of Section 1403 of the Fiscal Code, 72 P.S. § 1403. Pizzutti, Inc. v. Commonwealth, No. 306 F.R. 2007 (Pa. Commw. June 8, 2009). Section 1403 requires a corporation that sells or transfers 50% or more of its assets to give ten days notice to the Department of Revenue of the sale or transfer. It further requires a seller or transferor to present to the purchaser of such property a certificate showing that all the seller's tax reports have been filed and taxes paid through the date of the transfer. Debtor Corporation had accrued Sales Tax liabilities. Debtor Corporation permitted User Corporation to use its assets, but the assets were not sold to User Corporation. The court held that since there was no sale, the remedies in § 1403 imposed upon a purchaser were not applicable. Furthermore, the Court held that there was no evidence that the assets were transferred to User Corporation. Mere possession or use of the assets by User Corporation was insufficient to invoke the transferree liability provisions.
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