By: Michael L. Solomon and Steven M. Williams
Each year in Pennsylvania brings a new promise of property tax reform from the State legislature and each year Commonwealth residents waiting for relief are sadly disappointed. Meanwhile, in some jurisdictions across the state, property values remain stagnant or have actually lost value. Aside from the inevitable frustration with the legislature, is there anything you can do? Just waiting around for tax relief has real monetary consequences. Every property owner in the Commonwealth is entitled to an annual appeal of their property assessment through the real estate tax assessment appeal hearing process. Knowing the value of your property, your tax liability and whether you can reduce your tax burden is as critical as managing any other area of your investment portfolio.
What is in Your Real Estate Tax?
Real estate taxes are levied on every parcel of land in the Commonwealth. Each of Pennsylvania’s sixty-seven counties defines its own system to digest and assess its taxes upon properties. Typically, real estate taxes include a municipality tax, a county tax and a local school district tax—of which the latter is generally the most costly of the three. Municipality and county taxes are issued annually. Bills for these taxes typically are issued in February of each year and are payable without penalty on or before May 31st of each year. School taxes are generally issued in July or August and are payable without penalty on or before October or November of each year. In some jurisdictions, payment is permitted in monthly or quarterly installments. Others require a lump sum tax payment but allow a discount if paid within the first two months of issuance.
Calculating Your Property Tax
Each of the three taxes is assigned a millage rate which is used to calculate each property’s tax liability. A mill is equal to $1.00 for every $1,000 of assessed property value. Each of the three taxing authorities outlined above set their own millage rate. The total real estate tax that someone owes is equal to the total millage of all of the taxing authorities multiplied by the assessed value of the real estate. An appeal is taken against the county-assigned assessed value of your real estate. Because tax assessment appeals DO NOT challenge the imposed millage rate, knowing your millage rate and the amount of tax you pay on the real estate you own are only two factors to consider before deciding on a tax assessment appeal.
Determining Fair Market Value (FMV)
In addition to understanding the amount of your property tax liability, you should also know the fair market value (FMV) of your property. To determine FMV all property owners should know their assessed value and its application to a county-wide Common Level Ratio (CLR). The CLR is created by the PA State Tax Equalization Board on an annual basis for each county. The CLR is an average of assessments and sale prices. For example, a commercial property assessed at $800,000 with a county CLR of 1.32 has a FMV, also known as the implied market value, of $1,056,000.00 ($800,000 x 1.32).
The implied market value is the important component for determining whether a tax assessment appeal is warranted. If your $800,000 assessed property is a 5,000 square foot free standing coffee shop, you would try to find a property of similar size and use that has recently sold in your county or a neighboring county. Ideally, you should find 3-5 other comparable properties that have sold at values less than $1,000,000 in the past two to three years. These comparable properties could then be presented at your appeal, giving you a fairly good chance of obtaining tax relief.
The Tax Assessment Appeal Process
Property owners are afforded an annual appeal right. Appeal forms can be obtained from each county and are filed from June through early August. Hearings are typically scheduled from mid-August through mid-to-late November. By the end of November, counties should be able to certify the tax roll of every property located within each of its municipalities.
Presenting an Appeal
Whether you are appealing the tax assessment of a commercial or residential property, a good first step in the appeal process is engaging the services of a licensed real estate appraisal professional. Your appraisal will typically set forth an array of comparably sold properties, contemporaneous photos and measurements which will all make the value of the property more understandable, as well as two valuations. One valuation will be based on both the real and potential income of the property and the second should be based on the cost to build a similar building. Using these two valuation methods, the appraiser will arrive at a median property value. Appraisers can also provide an explanation of the differences between the subject and comparable properties and what those differences mean toward the value of the property being appealed. The value of residential properties is often determined by neighborhood, structure, size and similarity of design. You should request that the appraiser attend your assessment appeal so that he or she can answer questions from the Board of Assessment Appeals and the County Assessor regarding the appraisal.
The Board of Assessment Appeals
The decision on your appeal is made by a county-based Board of Assessment Appeals. Each county’s Board has its own rules, regulations and procedures. It is critical to be familiar with the rules that are in effect in the county in which your appeal is filed. In smaller counties, it is common that county commissioners also serve on the assessment appeals board. Otherwise, the members of the Board of Assessment Appeals are an independent body, appointed by the county commissioners. The decision of the Board is either rendered at the conclusion of the hearing, or in more complicated cases, within a matter of weeks. Some Boards of Appeal defer announcing their decisions until they meet privately at the conclusion of all hearings.
Appealing the Board’s Decision
If you are dissatisfied with the outcome of your hearing, you may appeal the decision of the Board to the county Court of Common Pleas. As with the conduct of hearings before the Board of Assessment Appeals, each county’s Court of Common Pleas has its own unique method of determining property tax appeals. It is here where we strongly advise that you engage a licensed attorney familiar with the required procedures. Most tax appeals do not warrant further judicial proceedings, but when they do, it is best to engage a professional that knows the ropes.
If you are frustrated with your current property taxes the best course of action is not to wait for the slow wheels of government. Rather, consider filing an assessment appeal. The real estate tax assessment appeals process is relatively simple and a great way to take control of your tax liability going forward. A successful appeal can save you money for years to come.
About the Authors:
Michael L. Solomon is Senior Counsel in Cohen Seglias’ Harrisburg office and is a sitting appointee of the Dauphin County Board of Assessment Appeals. Michael concentrates his practice in the areas of real estate, administrative law, creditors’ rights, commercial transactions and corporate finance. He can be reached at (717) 234-5530 or firstname.lastname@example.org.
Steven M. Williams is the Managing Partner of the Harrisburg office of Cohen Seglias, Chair of the firm’s Commercial Litigation Group and a member of the Business Practices and Labor & Employment Groups. Steve concentrates his practice in the areas of commercial and civil litigation, real estate, landlord and tenant law, employment law, business and corporate law and construction law. He can be reached at (717) 234-5530 or email@example.com.