Significant PA Property Tax Case Summaries

In F & M Schaeffer Brewing Co. v. Lehigh County Bd. of Appeals, 530 Pa. 451, 610 A.2d 1 (1992), the Pennsylvania Supreme Court held that the value of property for a specific use and the value of that use to its owner are not relevant in determining fair market value for purposes of assessing real estate taxes. The subject property was a 791,382 square foot facility situated on 62 acres of land. In 1971, F & M Schaeffer built a brewery which consisted of one large irregularly shaped manufacturing plant, warehouse and numerous small special purpose buildings and silos. The property was assessed at a fair market value of $34 million in 1984. The county’s valuation experts testified that they first determined the property’s highest and best use was a special purpose brewery and then applied a replacement cost approach based on the utility of the property for that use, i.e., the production of 3.5 million barrels of beer per year. The trial court accepted that fair market value determination. The Supreme Court reversed and held that value-in-use and special purpose valuation methods were impermissible methods of determining fair market value in tax assessment appeals.

In Allegheny Energy Supply Co., LLC v. Greene County Bd. of Assessment Appeals, 837 A.2d 665 (Pa. Commw. Ct. 2003), the Pennsylvania Commonwealth Court held that various equipment used in the production of electricity was properly excluded from the property assessment. The Board of Assessment Appeals and school district appealed a trial court ruling that held smoke stacks, cooling towers and water intake structures (“equipment”) located on the subject property were excluded from real estate taxation. The trial court determined the equipment consisted of items necessary and integral for use in the production of electricity. The smoke stacks served to eject heat and gasses from the various generation systems and the water system, which included the cooling towers, was necessary to maximize plant electrical output. The school district argued that the equipment at issue benefited the land generally and was adaptable to various uses. The Court held that the test is whether the machinery and equipment is integral to and necessary for and are used solely for the generation of electricity and not whether the improvements can somehow be adapted in the future for a different use. Additionally, the Court held that the trial court did not abuse its discretion in accepting evidence of economic obsolescence in using the cost method of valuation.

In Hershey Entm’t & Resort Co. v. Dauphin County Bd. of Assessment Appeals, 874 A.2d 702 (Pa. Commw. 2005), the Pennsylvania Commonwealth Court held that a property’s valuation based in part upon the productivity of the business located on the real estate is an improper valuation based upon “value-in-use.” The subject property consisted of two parcels totally over 210 acres on which the property owner operated an amusement park and zoo attraction. The Board of Assessment Appeal’s ("Board") expert testified he used the income approach to value the property, which included examining revenues derived from a combination of real and personal property, tangible assets, good will, advertising, marking management and other factors of the day to day operations. The Court determined that the board’s expert had valued the property based on valuations from revenue from admissions as well as revenue from the purchase of food, beverages and souvenirs. Those valuations were based on the property owner’s business operations on the subject property and thus the Board’s valuation approach was impermissibly based on value-in-use.

In Green v. Schuylkill County Bd. of Assessment Appeals, 730 A.2d 1017 (Pa. Commw. 1999), the Pennsylvania Commonwealth Court held it was in error for the trial court to accept the testimony of the property owner’s expert witness simply because he was unrebutted by the board. The subject property was assessed at a fair market value of $612,580. At the trial court level, the property owner’s expert testified that the property had a fair market value of $360,000, which the trial court accepted because the value was unrebutted and despite calling the expert’s testimony “suspect.” On appeal, the Commonwealth Court held that the testimony of an expert in an assessment appeal is to be evaluated in the same manner as any other expert witness, and unrebutted expert testimony is to be judged in the same manner as that of conflicting experts. The fact-finder (trial court) was not compelled to accept any of the expert’s testimony, regardless if that expert was determined to be credible or not.

In Union Electric Corp., v. Allegheny County Bd. of Assessment Appeals, 560 Pa. 581, 746 A.2d 581 (2000), the Supreme Court of Pennsylvania allowed the filing of an assessment appeal beyond the statutory deadline. In this case, the Board of Assessment Appeals ("Board")itself extended the time to file an appeal past the statutory defined deadline and the property owner relied on that extension on filing its appeal. The Court allowed the appeal to proceed under a legal doctrine called “nunc pro tunc” which allows the late appeal as if it was timely filed. Nunc pro tunc appeals are only available in extraordinary circumstances involving fraud or a breakdown in the court’s operations through a default of its officers. Here, the Court allowed the appeal because while the Board did not have the actual authority to extend the deadline, the Board did have apparent authority. The property owner believed the Board could extend the deadline because the Board is the decision maker of the appeal property owner is filing. Thus, the Court held that the Board’s negligent action in extending the filing deadline constitutes a breakdown in the court’s operation such that the appeal should be permitted nunc pro tunc.

In In re Appeal of Tenet HealthSystems Bucks County, LLC, 880 A.2d 721 (Pa. Commw. 2005), the Commonwealth Court held that an error in an unofficial publication of the Pennsylvania assessment statutes was not extraordinary enough to allow for a nunc pro tunc appeal. The property owner appealed the subject property’s 2000 tax assessment within a deadline based on Purdon’s. Purdon’s is published by the West Publishing Company, and contains annotated Pennsylvania statutes in order of title. The statutory deadline in Purdon’s was incorrectly published and was longer than the actual deadline passed by the Pennsylvania General Assembly. The Court held that Purdon’s was an unofficial source for Pennsylvania statutes and only the Pennsylvania official codification of statutes was considered the law. Additionally, reliance on Purdon’s was not enough to allow for a nunc pro tunc appeal. This case demonstrates the importance of double checking deadlines and laws because while Purdon’s is the most used resource for the codification of Pennsylvania statutes, it is not considered positive law and thus cannot be relied on as 100 percent accurate.

In In re Appeal of Sheetz, Inc., 657 A.2d 1011 (Pa. Commw. 1995), the Commonwealth Court held that a moveable canopy covering gas pumps was realty for property assessment purposes. The property owner appealed an assessment of a canopy structure asserting that because the canopy can be removed with little damage to the land and constructed elsewhere, that the canopy is personalty and thus nontaxable as realty. To determine whether the canopy was realty or personalty, the Court looked at three factors: 1) the manner in which it is physically attached or installed; 2) the extent to which it is essential to the permanent use of the building or other improvement; and 3) the intention of the parties who attached or installed it. The canopy was a large metal structure with poured concrete foundations, between areas of 24 and 44 feet and 24 and 84 feet, fabricated off premises, mounted on pillars attached to the ground by bolts sunk in concrete and weighing between 20 and 35 tons. The Court determined that to the manner of attachment of the canopy, while it was moveable, required significant effort to disassemble into its component parts and mobility alone does not mean an item is nontaxable as realty. The Court determined that the canopy was an essential use to protect customers from the elements, provide lighting, improved Sheetz image and were a necessary part of the “modern gas station.” Finally, the Court determined that the parties intended the canopy to be a permanent part of the real estate and that permanency did not equate to perpetuity because an item intended to remain where affixed until worn out or until the purpose of the item is accomplished is considered permanent.

In Jones and Laughlin Tax Assessment Case, 405 Pa. 421, 175 A.2d 856 (1961), the Supreme Court held that foundations and structures used to support machinery, tools, appliances and other equipment contained in the subject property were not to be considered for valuation purposes. The Board of Assessment and Revision of Taxes 1959 assessment of the subject property resulted in a 22.8 percent reduction because of the exclusion of machinery and industrial equipment which was previously included in property assessments under a prior statute. On appeal by the local municipality and school district, the Court held that improvements whether fast or loose that are used directly in manufacturing the products that the establishment is intended to produce, are necessary and integral parts of the manufacturing process and are used solely for effectuating that purpose are excluded from real estate assessment. The improvements discussed as excluded included foundations and structures that are vital and necessary to the operation of machinery, regardless of the fact that those structures were permanently affixed to the land. Those structures were considered crucial to the operation of the machinery itself and thus properly excluded from the assessment.

In Craftmaster Manufacturing, Inc. v. Bradford County Bd. of Assessment Appeals, 903 A.2d 620 (Pa. Commw. 2006) the Commonwealth Court held that it was error for the trial court to accept the testimony of the county expert appraiser when that expert contradicted the county’s own assessment. The property owner filed an appeal of an assessment valuation of $13,957,000 and at trial presented evidence from an expert who opined that the subject property had a fair market value of $6,225,000. The county put on an expert who testified that the property had a fair market value of $13,565,000, almost $400,000 less than the original assessment. The trial court found the county’s expert to be credible and upheld the original assessment. On appeal, the Commonwealth Court held it was error to find the county’s expert credible when that expert opined a fair market value that was less than the original assessment. While the presumption of validity of the assessment may not have been overcome by the property owner’s expert testimony, the presumption was overcome by the county’s own testimony and thus the original assessment could not stand.

In Downingtown Area School District v. Chester County Bd. of Assessment Appeals, 590 Pa. 459, 913 A.2d 194 (2006), the Pennsylvania Supreme Court held that certain provisions of the Second Class A and Third Class County Assessment Law, 72 P.S. § 5342, et seq., violated the Pennsylvania Constitution’s Uniformity of Taxation provisions located in Article VIII, § 1, Pa. Const. Art. VIII, § 1, regarding two issues.

First, property taxpayers are entitled to have their tax burden, and thus their property assessment, equalized with comparable properties in the county regardless of that county’s State Tax Equalization Board’s common level ratio. Previously, under the assessment statute, the county’s common level ratio had to vary by 15 percent or more from the county’s predetermined ratio of all county assessments in the “base year” after the last county-wide reassessment in order for that property taxpayer to be entitled to equalization. Now, that “15 percent rule” is inapplicable.

Second, the Court further held that property taxpayers are entitled to use an average assessment-to-market ratio of comparable properties in the county to equalize an assessment if that ratio accords greater relief than the county’s common level ratio. For example, if a townhouse development averages an assessment of $100,000 for each almost-identical townhouse, the average recent sales price of those townhouses is $200,000, yielding a 50% assessment-to-market ratio (“AMR”), the county’s common level ratio (“CLR”) is 88 percent and the townhouse subject to the appeal has a fair market value (“FMV”) of $205,000, then the townhouse should be assessed at $102,500(FMV x50% AMR), rather than at $205,000, using the “15 percent rule,” or $180,400, using the 88 percent CLR.

The Court reasoned that several methods of developing the AMR may exist in any case, but expressly held that sub-classifications of real estate within the county may be used based on federal Constitutional equal protection of law concepts. The Court did not elaborate on the narrowness of what qualified as “sub-classifications” of real estate from the broad distinction of residential vs. commercial realty to the narrow distinction, for example, of private vs. public golf courses. Taxpayers probably have significant leeway in developing the “sub-classification” as long as it is reasonable and consists entirely of true comparables.

Also it appears that the Court did not strike down the CLR itself as being unconstitutional; rather, only the application of the CLR in certain circumstances has been prohibited by the Court and thus it seems that the CLR is almost a default setting for calculating the equalization of the property’s assessment, unless the taxpayer proves by a preponderance of the evidence that an AMR is more applicable to the property’s assessment.

Although only one statute for Second Class A and Third Class Counties was involved in the decision, the case should apply to all 67 Pennsylvania counties because the United States and Pennsylvania constitutions apply equally throughout the Commonwealth. Finally, it is unclear whether a taxing jurisdiction may increase an assessment based on the AMR, but state actions and actors typically are not entitled to federal or state constitutional protection against individuals.