Finance Committee Meeting May 25, 2016 Finance Committee - May 25, - - PowerPoint PPT Presentation

Finance Committee Meeting May 25, 2016

Finance Committee - May 25, 2016 FC Page 1

Pennsylvania Legislator’s Municipal Deskbook, Fourth Edition (2014) Pages 137 through 141

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• Real property taxes have been and continue to be an important

source of local revenue for counties, municipalities, and school districts. In 2009, $14.5 billion dollars in property tax revenue was collected by local taxing districts—$10.7 billion by school districts, $1.9 billion by counties, $1.5 billion by municipalities, and $0.4 billion by Philadelphia.1 The property tax is not levied at the state level in Pennsylvania. The Consolidated County Assessment law2 (hereinafter referred to the assessment law) governs the real estate assess- ment process in counties of the second class A through the eighth class.3 Philadelphia4 and Allegheny5 Counties primarily are subject to distinctive statutory provisions regarding the assessment of real property, as well as to unique home rule charter and administrative code require-

• ments. The Third Class City Code sets forth procedures relating to the assessment of real property for

taxation purposes in cities of the third class.6 $

1 The Legislative Budget and Finance Committee, December 11, 2012, office email, citing 2009 data obtained from the

Department of Community and Economic Development and the Pennsylvania Department of Education.

2 53 Pa.C.S. § 8801 et seq., <http://www.legis.state.pa.us/WU01/LI/LI/CT/HTM/53/00.088..HTM>. 3 In addition, a school district of the first class A, second class, third class or fourth class is subject to the property tax rate

restrictions and anti-windfall limitations delineated in the Taxpayer Relief Act (Act of June 27, 2006, Special Session 1, P.L. 1873, No. 1).

4 “The General County Assessment Law,” Act 155 of 1933 (72 P.S. § 5020-101 et seq.); Related to Taxation; Board of Revision

• f Taxes, Act 404 of 1939 (72 P.S. § 5341.1 et seq.); 53 Pa.C.S. §§ 8561-8565 (relating to assessments in cities and counties of

the first class).

5 “The General County Assessment Law”; Second Class County Assessment Law, Act 294 of 1939 (72 P.S. § 5452.1 et seq.);

Second Class County Code, Act 230 of 1953 (16 P.S. § 3101 et seq.).

6 “The Third Class City Code,” Act 317 of 1931, § 2522 (53 P.S. § 2522).

• Finance Committee - May 25, 2016

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• “Base year.” The year upon which real property market values are based for the most recent countywide

revision of assessment of real property or other prior year upon which the market value of all real prop- erty of the county is based for assessment purposes. Real property market values shall be equalized within the county and any changes by the board7 shall be expressed in terms of base-year values.8 “Common level ratio.” The ratio of assessed value to current market value used generally in the county and published by the State Tax Equalization Board on or before July 1 of the year prior to the tax year

• n appeal before the board under the act of June 27, 1947 (P.L.1046, No.447), referred to as the State

Tax Equalization Board Law.9 “Established predetermined ratio.” The ratio of assessed value to market value established by the board of county commissioners and uniformly applied in determining assessed value in any year.10 “STEB.” The State Tax Equalization Board.

• Pennsylvania has a constitutional requirement for uniformity of taxation.11 Since 1909, the courts have

held that real estate is a taxable subject of one class and taxes must be uniform upon the same class of subjects.12 A uniform assessment rate means that all properties in a county, whether residential, commer- cial, or industrial, will be assessed at the same ratio of assessed value to market value. The Pennsylvania Supreme Court stated: . . . the principle of uniformity is a constitutional mandate to the courts, to the legislature, and to the taxing authorities, in the levy and assessment of taxes which cannot be disre-

• garded. The purpose of requiring all tax laws to be uniform is to produce equality of taxation.

Absolute equality is difficult of attainment, and approximate equality is all that can rea- sonably be expected. Hence it has been held that where there is substantial uniformity the constitutional requirement has been met. . . .13

7 “‘Board.’ The board of assessment appeals or the board of assessment revision established in accordance with section 8851

(relating to board of assessment appeals and board of assessment revision). The term, when used in conjunction with hearing and determining appeals from assessments, shall include an auxiliary appeal board.” 53 Pa.C.S. § 8802.

8 53 Pa.C.S. § 8802. 9 Id. 10 Id. 11 “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.” Pa. Const. art. XIII, § 1.

12 Delaware, Lackawanna & Western Railroad Company's Tax Assessment (No. 1), 73 A. 429 (Pa. 1909). 13 Id. at 430 (citations omitted).

Pennsyl y v l ania has a consti t tuti t onal requirement fo f r unifo f rmity t of taxati t on.1 j p A unifo f rm assessment rate means that all properti t es in a county t , whether residenti t al, commer- j p p y cial, or industrial, wi w ll be assessed at the same rati t o of assessed value to market value.

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• The controlling principle in matters of valuation is that no one taxpayer should pay any more or less than

their proportionate share of the cost of government.

• Section 8842(a), (b) of the assessment law prescribes the method by which real property is to be valued:

. . . In arriving at actual value, the county may utilize the current market value or it may adopt a base-year market value. . . . [T]he following apply: (i) In arriving at actual value, the price at which any property may actually have been sold, either in the base year or in the current taxable year, shall be considered but shall not be controlling. (ii) The selling price shall be subject to revision by increase or decrease to accomplish equalization with

• ther similar property within the county . . . .

The courts have interpreted actual value to mean market value.14 Market value has been defined by the Pennsylvania State Supreme Court as “the price in a competitive market a purchaser, willing but not

• bligated to buy, would pay an owner, willing but not obli-

gated to sell, taking into consideration all the legal uses to which the property can be adapted and might reasonably be applied.”15 In arriving at the actual value, three approaches to value must be considered in conjunction with one another: cost, compa- rable sales, and income. All property values must be equalized by the county before applying the county’s established prede- termined ratio (EPR). A property’s assessed value, or the value upon which the millage rate is applied, is then calculated by multiplying the current market or base-year market value by the EPR.16

14 Baldwin-Lima-Hamilton Corp., 412 Pa. 299, 194 A.2d 434 (1963); Buhl Foundation v. Board of Property Assessment, Appeals and

Review of Allegheny County, 407 Pa. 567, 180 A.2d 900 (1962).

15 Buhl Foundation v. Board of Property Assessment, Appeals and Review of Allegheny County, 407 Pa. 567, 180 A.2d 900 (1962);

U.S. Steel Corp. v. Board of Assessment and Revision of Taxes of Bucks County, 422 Pa. 463, 223 A.2d 92 (1966).

16 For example: If the current market value or base year value of Property A is $100,000 and the county’s predetermined ratio

is 40 percent, then the assessed value is $40,000 ($100,000 x 40 percent). Hypothetically, the county may levy 5 mills for the real estate tax; the township in which the property is located may levy 10 mills for the real estate tax; and the coterminous school district may levy 20 mills for the real estate tax. The owner of Property A would, therefore, be liable to pay real estate taxes in the amounts of $200 to the county ($40,000 x .005), $400 to the township ($40,000 x .01), and $800 to the school dis- trict ($40,000 x .02). This is the general method by which property is valued and assessed throughout the Commonwealth.

• The controlling principle in matters of valuati

t on is that no one taxpayer should pay any more or less than g p p their proporti t onate share of the cost of government. The courts have interpreted actual value to mean market value.1 In arrivi v ng at the actual value, three approaches to value must g pp be considered in conjuncti t on wi w th one another: cost, compa- j rable sales, and income.

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• The county assessment office is authorized to revise the assessment roll at any time in the year.18

Notification of a change of assessment must be provided to the property owner of record.19 All additions and revisions are deemed a “supplement to the assessment roll for levy and collection of taxes for the tax year for which the assessment roll was originally prepared.”20 Apart from a countywide reassessment, the county assessment office may only initiate a change of assessment when: (1) a property has been subdivided; (2) a physical change has been made to a property, such as new construction or removal or change of existing improvements; (3) a catastrophic loss has

• ccurred to the property; or (4) a change in use of the property (e.g., tax-exempt status) has taken place.21

The county assessment office is prohibited from engaging in “spot” reassessment.22

• Another instance in which the assessment of a property can be altered is through the appeal
• process. The assessment law affords the right to any property owner23 or taxing district to annually appeal

an assessment.24 The sale of the property solely cannot lawfully trigger a change of assessment by the county assessment

• ffice regardless of the indicated purchase price. This is deemed to be spot reassessment by the assess-

ment law and applicable case law. A spot assessment based on the sale of the property in question is unconstitutional under both the federal25 and state26 constitutions. Although the county assessment office may not reassess an existing property because it has recently been sold, the sale of a property may alert a taxing district, such as a school district, to appeal the assessment based on the sales price. Taxing districts have the same right of appeal as property owners with regard to real property assessments. This right was

17 This does not refer to an assessment that is incorrect due to a clerical or mathematical error pursuant to 53 Pa.C.S. § 8816. 18 53 Pa.C.S. § 8841(c). 19 53 Pa.C.S. § 8844 (a), (b). 20 53 Pa.C.S. § 8841(c). 21 53 Pa.C.S. §§ 8812, 8815, 8817. 22 53 Pa.C.S. § 8843. 23 53 Pa.C.S. § 8844. 24 53 Pa.C.S. § 8855. 25 The United States Supreme Court ruled in Allegheny Pittsburgh Coal Co. v. County Com’n of Webster County, W. Va., 488 U.S.

336, 109 S. Ct. 633, 102 L. Ed. 2d 688 (1989), that the practice of placing a new assessment on property which was recently sold, while effecting only minor changes to real estate which has not been sold for a number of years, was a violation of the equal protection clause of the Fourteenth Amendment to the United States Constitution.

26 Pa. Const. art. XIII, § 1.

p y y Taxing districts g pp p have the same right of appeal as property t owners wi w th regard to real property t assessments. y (1) a property t has been subdiv i i v ded; y y g (2 ( ) a physical change has been made to a property t , (3) a catastrophic loss has p p y

• ccurred to the property

t ; g g (4) 4 a change in use of the property t Another instance in which the assessment of a property can be altered is through the appeal p p y g pp

• process. The assessment law

a aff f o f rds the right to any property t owner23 or taxing district to annually appeal p an assessment.2 countyw y ide reassessment, y ( g p prohibited fr f om engagi g ng in “spot” reassessment.2 g p p y

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• upheld by the Commonwealth Court in In re Springfield School District 27 and Vees v. Carbon County Board of

Assessment Appeals.28 The Pennsylvania Supreme Court in Downingtown Area School District v. Chester County Board of Assessment Appeals 29 called into question, but did not overrule, the right of a taxing district to selectively appeal property assessments. The Pennsylvania General Assembly has been actively engaged in studying issues relating to the real estate assessment process in the Commonwealth. Among other efforts, House Resolution 334 of 2009 direct- ed the Legislative Budget and Finance Committee (LB&FC), with assistance from the Local Government Commission and other associations, to study the systems of real property valuation and assessment in Pennsylvania and other states. The LB&FC released the findings of this study in its report, Pennsylvania’s System for Property Valuation and Reassessment, in September 2010. The full report is available online.30

27 879 A.2d 335 (Pa. Cmwlth. 2005). 28 867 A.2d 742 (Pa. Cmwlth. 2005). 29 913 A.2d 194 (Pa. 2006). 30 See Legislative Budget and Finance Committee/Reports Released/State and Local Government, <http://lbfc.legis.state

.pa.us/>. Finance Committee - May 25, 2016 FC Page 7

Tax Base Management Presentation – March 11, 2015

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PASBO Conference Mini-Seminar Hershey, Pennsylvania March 11, 2015

Tax Base Management: How to Maintain and Effectively Enhance Property Tax Revenue

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Tax Assessment Appeals

• Many businesses and other property owners endeavor to pay lower real

estate taxes if they believe their tax assessment is too high. – Tax assessment appeals are a very common practice. – If tax assessments are truly too high, reductions are appropriate. – If tax assessments are about right, most property owners are satisfied. – Some property owners will appeal reasonable tax assessments for the sole purpose of driving down their real estate tax bills.

• Equitable distribution of the property tax burden is the goal.
• School districts should be able to evaluate and determine which

appeals to contest.

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Reverse Tax Assessment Appeals

• What if property tax assessments are too low?

– Property owners won’t request an increase in tax assessment. – Solicitors have advised ‘spot’ reassessments are unconstitutional.

• School Districts have the option of conducting Reverse Tax Assessment

Appeals. – Reverse Tax Assessment Appeal is not a ‘spot’ reassessment.

• Same process as an owner-initiated Tax Assessment Appeal.
• School districts must provide compelling documentation to show

the current assessment is too low.

• School Districts may consider securing services from a consultant with

experience accurately evaluating taxable assessed values.

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Reverse Tax Assessment Appeal Program at Chambersburg Area School District

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May 25, 2016 Background History The initial countywide assessment of real estate in Franklin County was completed in 1961 and has not been re-visited by the County during the intervening 55 years. Franklin County has gone without a reassessment longer than any other county in Pennsylvania. As a result of the use of the 1961 base year, successive school Boards have recognized that newer commercial and industrial buildings in the District tend to be under-assessed in relation to their actual fair market value. On January 27, 2010, a unanimous Board of School Directors embarked upon a long-term program of RTAPs. The following appeals were filed by the District in 2010 for 2011: RFS No. 65 Chambersburg LLC Rutters Farm Store RAP Fayetteville LLC Rite Aid – Fayetteville NTP Chambersburg LP Walgreens Chambersburg Chambersburg Crossing Power Shopping Center Shanri CVS CVS Pharmacy Wayne Avenue The following appeals were filed by the District in 2011 for 2012:

• Mr. Tire

Norland Avenue Sonic Norland Avenue BCR Sheetz Norland Avenue PREIT Chambersburg Mall Gateway Center Walker Road The following appeals were filed by the District in 2012 for 2013: American Real Estate warehouse: Parcels No. 06-1F-011; 06-1F-009 Prologis warehouse: Parcel No. 06-1F-005 Liberty Properties warehouse: Parcel No. 10-0D07-023B Cabot III warehouse: Parcel Nos. 10-0D08-184; 06-1F-016 PREIT Ring Road Outparcels raw land: 09-0C18-069A No appeals were filed in 2013 for 2014. No appeals were filed in 2014 for 2015. No appeals were filed in 2015 for 2016.

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Reverse Tax Assessment Appeal Program Financial Results

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Property Fiscal Year OriginalTax Assessment NewTax Assessment $Increasein Assessment %Increasein Assessment RealEstate TaxRate Changein Revenue Fee 2010Appealsfor2011

05/25/20161303

RFSNo.65Rutters 20112012 220,970 424,350 203,380 92.04% 92.757 18,865 4,716 1391S.MainStreet 20122013 424,350 203,380 92.04% 92.757 18,865 4,716 Negotiated 20132014 424,350 203,380 92.04% 93.685 19,054 4,763 Settlement 20142015 424,350 203,380 92.04% 96.120 19,549 20152016 424,350 203,380 92.04% 98.426 20,018 20162017 424,350 203,380 92.04% 101.378 20,618 RAPFayettevilleRiteAid 20112012 188,200 750,300 562,100 298.67% 92.757 52,139 13,035 5035LincolnWayE 20122013 750,300 562,100 298.67% 92.757 52,139 13,035 Negotiated 20132014 750,300 562,100 298.67% 93.685 52,660 13,165 Settlement 20142015 750,300 562,100 298.67% 96.120 54,029 20152016 750,300 562,100 298.67% 98.426 55,325 20162017 750,300 562,100 298.67% 101.378 56,985 NTPWalgreens 20112012 222,090 615,000 392,910 176.91% 92.757 36,445 9,111 949LincolnWayE 20122013 615,000 392,910 176.91% 92.757 36,445 9,111 Negotiated 20132014 615,000 392,910 176.91% 93.685 36,810 9,202 Settlement 20142015 615,000 392,910 176.91% 96.120 37,767 20152016 615,000 392,910 176.91% 98.426 38,673 20162017 615,000 392,910 176.91% 101.378 39,832 ReverseTaxAssessmentAppeals Page1of6

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Property Fiscal Year OriginalTax Assessment NewTax Assessment $Increasein Assessment %Increasein Assessment RealEstate TaxRate Changein Revenue Fee ChambersburgCrossing 20112012 3,356,500 4,649,950 1,293,450 38.54% 92.757 119,977 29,994 WalkerRoad 20122013 4,649,950 1,293,450 38.54% 92.757 119,977 29,994 Negotiated 20132014 4,649,950 1,293,450 38.54% 93.685 121,177 30,294 Settlement 20142015 4,649,950 1,293,450 38.54% 96.120 124,326 20152016 4,649,950 1,293,450 38.54% 98.426 127,309 20162017 4,649,950 1,293,450 38.54% 101.378 131,127 ShanriCVS 20112012 160,310 492,000 331,690 206.91% 92.757 30,767 7,692 OrchardDrive 20122013 492,000 331,690 206.91% 92.757 30,767 7,692 Negotiated 20132014 492,000 331,690 206.91% 93.685 31,074 7,769 Settlement 20142015 492,000 331,690 206.91% 96.120 31,882 20152016 492,000 331,690 206.91% 98.426 32,647 20162017 492,000 331,690 206.91% 101.378 33,626 ReverseTaxAssessmentAppeals Page2of6

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Property Fiscal Year OriginalTax Assessment NewTax Assessment $Increasein Assessment %Increasein Assessment RealEstate TaxRate Changein Revenue Fee 2011Appealsfor2012 MisterTire 20122013 55,160 144,100 88,940 161.24% 92.757 8,250 2,062 810NorlandAve. 20132014 144,100 88,940 161.24% 93.685 8,332 2,083 BoardofAssessment 20142015 144,100 88,940 161.24% 96.120 8,549 2,137 Appealssettlement 20152016 144,100 88,940 161.24% 98.426 8,754 20162017 144,100 88,940 161.24% 101.378 9,017 Sonic 20122013 52,480 115,875 63,395 120.80% 92.757 5,880 1,470 875NorlandAve.Lot4A 20132014 115,875 63,395 120.80% 93.685 5,939 1,485 Negotiated 20142015 115,875 63,395 120.80% 96.120 6,094 1,523 Settlement 20152016 115,875 63,395 120.80% 98.426 6,240 20162017 115,875 63,395 120.80% 101.378 6,427 BCRSheetz 20122013 178,510 285,820 107,310 60.11% 92.757 9,954 2,488 875NorlandAvenue 20132014 397,600 219,090 122.73% 93.685 20,525 5,131 Negotiated 20142015 411,600 233,090 130.58% 96.120 22,405 5,601 Settlement 20152016 406,000 227,490 127.44% 98.426 22,391 20162017 406,000 227,490 127.44% 101.378 23,062 ReverseTaxAssessmentAppeals Page3of6

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Property Fiscal Year OriginalTax Assessment NewTax Assessment $Increasein Assessment %Increasein Assessment RealEstate TaxRate Changein Revenue Fee PREITChambersburgMall 20122013 50,960 OuterRing 20132014 InNegotiations 20142015 20152016 20162017 GatewayVentures 20142015 602,340 840,580 238,240 39.55% 96.120 22,900 5,725 488GatewayAve. 20152016 869,565 267,225 44.36% 98.426 26,302 6,575 Negotiated 20162017 869,565 267,225 44.36% 101.378 27,091 6,773 Settlement ReverseTaxAssessmentAppeals Page4of6

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Property Fiscal Year OriginalTax Assessment NewTax Assessment $Increasein Assessment %Increasein Assessment RealEstate TaxRate Changein Revenue Fee 2012Appealsfor2013 AmericanRealEstate 20132014 1,077,450 1,572,040 494,590 45.90% 93.685 46,336 11,584 1440NitterhouseDrive 20142015 1,732,390 654,940 60.79% 96.120 62,953 15,738 Negotiated 20152016 1,812,380 734,930 68.21% 98.426 72,336 18,084 Settlement 20162017 1,812,380 734,930 68.21% 101.378 74,506 AmericanRealEstate 20132014 1,263,200 1,848,840 585,640 46.36% 93.685 54,866 13,716 1465NitterhouseDrive 20142015 2,037,420 774,220 61.29% 96.120 74,418 18,605 Negotiated 20152016 2,131,500 868,300 68.74% 98.426 85,463 21,366 Settlement 20162017 2,131,500 868,300 68.74% 101.378 88,027 ProLogisNA3PAIIILP 20132014 1,770,950 1490NitterhouseDrive 20142015 InNegotiations 20152016 20162017 LibertyProperty 20132014 3,581,890 5,041,991 1,460,101 40.76% 93.685 136,790 34,197 155,175KrinerRoad 20142015 5,041,991 1,460,101 40.76% 96.120 140,345 35,086 Negotiated 20152016 5,041,991 1,460,101 40.76% 98.426 143,712 35,928 Settlement 20162017 5,041,991 1,460,101 40.76% 101.378 148,022 CabotIII 20132014 3,212,940 5,027,300 1,814,360 56.47% 93.685 169,978 42,495 1475NitterhouseRoad 20142015 5,027,300 1,814,360 56.47% 96.120 174,396 43,599 Negotiated 20152016 5,027,300 1,814,360 56.47% 98.426 178,580 44,645 Settlement 20162017 5,027,300 1,814,360 56.47% 101.378 183,936 ReverseTaxAssessmentAppeals Page5of6

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Property Fiscal Year OriginalTax Assessment NewTax Assessment $Increasein Assessment %Increasein Assessment RealEstate TaxRate Changein Revenue Fee 2013Appealsfor2014 None 2014Appealsfor2015 None 2015Appealsfor2016 None Summary 20112012 2,783,530 258,192 64,548 20122013 3,043,175 282,276 70,569 20132014 7,509,646 703,541 175,885 20142015 8,110,816 779,612 128,015 20152016 8,308,271 817,750 126,598 20162017 8,308,271 842,276 6,773 ReverseTaxAssessmentAppeals Page6of6

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