Tax Assessment Appeals Formula Ruling | KingSpry

Divided Court Leaves Prior Ruling in Place Regarding Tax Assessment Appeals Formula 

Posted on March 16th, 2023
by Jonathan M. Huerta

Graig M. Schultz

On February 28, 2023, a divided PA Supreme Court issued its ruling in the case of GM Berkshire Hills LLC v. Berks Cnty. Bd. of Assessment.

Because the Court was divided, its decision leaves in place the Commonwealth Court’s prior ruling that a school district may continue to challenge underassessed properties if they use a sales-based formula to determine when to file tax assessment appeals, provided that the selection method does not differentiate based on property type or classification.

Facts in the Case

The Wilson School District in Berks County (the “District”) used a formula based on recent sales prices to determine if the District should appeal a particular property’s assessed value in accordance with a Resolution passed by the District.  The Resolution instructed the District’s business office to begin with recently sold properties within the District and their current assessments from the State Tax Equalization Board reports, apply the County’s applicable common level ratio to each recent sales price, compare the resulting figure to the property’s current assessed value, and pursue an appeal if the difference between the two figures exceeded $150,000 for a given property. The $150,000 figure represented a cost-benefit threshold at which the revenue from a successful appeal would justify the cost of the legal and appraisal fees necessary for the District to undertake the appeal. Importantly, the Resolution did not instruct the business office to consider the type or nature of a property (commercial, residential, agricultural, industrial, etc.) when determining whether the property may be underassessed and subject to an appeal.

Two property owners, GM Berkshire Hills LLC and GM Oberlin Berkshire Hills LLC (collectively “Berkshire”), appealed to the trial court, which concluded that the District’s method did not select properties based on their type or classification, and did not deliberately choose to appeal one property and reject another based on any unconstitutional premise. Berkshire then appealed to Commonwealth Court.

The Commonwealth Court affirmed the trial court on the basis that the District’s method of selecting properties for assessment appeals using recent sales prices is a quantitative method which employs a purely economic approach that is practical for the District, yet does not improperly differentiate based on property type, which is the type of approach the Pennsylvania Supreme Court condoned in Valley Forge Towers Apartments N, LP v. Upper Merion Area Sch. Dist., 163 A.3d 962 (Pa. 2017). 

Berkshire then appealed to the Supreme Court, which granted allocatur, limited to the following issues:

(1) Do a school district’s selective real estate tax assessment appeals violate the Uniformity Clause of the Pennsylvania Constitution when the school district chooses only recently-sold properties for appeal, leaving most properties in the district at outdated base-year values?

(2) Do a school district’s selective real estate tax assessment appeals violate the Uniformity Clause of the Pennsylvania Constitution when the school district chooses only certain recently-sold properties that would generate a minimum amount of additional tax revenue for appeal, leaving most properties in the district at outdated base-year values?

The Opinions

The Supreme Court split 3-3 on these issues. In support of affirming the Commonwealth Court’s ruling, Justice Mundy noted: “[w]hat the Uniformity Clause does prohibit is the systematic differential treatment of a subclass of property defined, for example, by property type or residency status of the owner…Use of monetary figures and recent sales data is qualitatively different…A sales price thus has two features making its use consistent with uniformity; it is not unique to one subset of property within the district; and as long as the transaction is undertaken at arm’s length; it reflects the property’s fair market value, an important piece of evidence in determining whether the [property is properly assessed].”

On the other hand, Justice Donohue stated: “I fail to see how the school district’s policy does not create an unconstitutional subclass of properties, which can be described as ‘properties recently purchased at a price exceeding an established threshold.’” That Opinion for Reversal focused on the fact that “selecting only newly purchased properties for an assessment appeal creates a sub-classification of properties because this sub-classification may exclude a vast majority of properties in the school district. 

What Justice Donohue did not address, and what Justice Mundy adequately captured, was how such a subclass is qualitatively different from one “based on property type” which has been a standard for finding a violation of uniformity.

What This Means

The Court’s equal division means it’s ruling establishes no precedent and leaves in place the Commonwealth Court’s determination that no violations of the Equal Protection Clause of the U.S. Constitution or the Uniformity Clause of the Pennsylvania Constitution occurred. Notably, the untimely passing of Justice Max Baer allowed this unique situation wherein the Court could come out with a tie.

Bottom Line for Schools 

The current law of Pennsylvania is that a school district’s use of monetary method for selecting property assessments to appeal is within its discretion so long as that method does not differentiate properties based on property type or another constitutionally infirm basis. However, because the Supreme Court split 3-3, the opinion in support of affirmance does not have precedential value and can be challenged again in the future.

The Education Law team at KingSpry has successfully navigated tax assessment appeals for various school districts for decades.  

School officials with questions about tax assessment should contact their solicitor or a member of the Local Tax and Assessment Law Practice Group at KingSpry. 

School Law Bullets are a publication of KingSpry’s Education Law Practice Group. They are meant to be informational and do not constitute legal advice.