Top Line Business: Pennsylvania Property Tax Assessments and Appeals

Recently we had a client who purchased an older apartment building, which had a low tax assessment. Now, if you invest outside of Pennsylvania, you would have expected an increase in taxes and built this into your underwriting. However, Pennsylvania is one of only two states in the U.S. that does not have statutorily mandated reassessments on a regular cycle, nor a mandatory reassessment at sale. Because of this, investors can usually safely expect the same taxes after a purchase.

However, in this recent purchase, our client (who we’ll call Michael) received an unhappy surprise several months later. The county’s tax assessment office had been reviewing recent sales, comparing the current tax record to the listing information to see if they could add to the assessments. In this case, they noted the building was actually larger than their records shows, and updated the tax record accordingly. Michael then received a notice of increased assessment. This meant he will now owe $2,000 more per year for his property taxes.

Is that even legal?

Legality of Reassessment Based On Listings

Pennsylvania’s tax code does not allow for spot assessment – the Pennsylvania Constitution requires “uniformity of taxation”. However, because county-wide reassessments are not popular events and reassessments are left for each county to decide independently, there have been some significant discrepancies.

Many counties, in looking to grow their tax revenue without increasing the millage rate, have started doing a “review of recent sales” to bolster their tax rolls. They add to the assessment if they notice any improvements on the recent sale that are not on the most current tax record, and then send the new owner a notice of increase in assessment for the previous owner’s improvements.

In addition, school districts, as the largest beneficiary of property taxes in Pennsylvania, are authorized to appeal property taxes. More and more school districts across the commonwealth are engaging in appeals, and largely are targeting recent sales of higher-value properties.

In a substantial court case involving this scenario, Wilson School District in Berks County authorized their business office to file tax appeals on recent sales. The resolution instructed the business office to review sold properties applying the applicable common level ratio (CLR). The CLR is a state-published ratio that measures the assessed value of properties sold over the sales price of such properties – read more about the CLR here and here.

The district filed appeals if the difference between the sales price (when adjusted for the CLR) and the assessed value was $150,000 or greater. This figure represented the threshold that would justify the legal and appraisal fees necessary for the appeal. The school district appealed the taxes on a substantial multifamily investment property that sold for $55M in 2017. The tax assessment for these properties was $10.5M. The school district appealed, and received an increase in assessment to $37M – the value relative to the CLR.

The new owners of the property appealed the decision all the way to the PA Supreme Court, where the decision was split 3-3 on whether the uniformity clause was violated by the school district targeting recent sales for their appeals. These types of increases in assessments have become more common in the last few years, as this court case set a precedence and more counties are now watching sales data and updating properties – like in Michael’s case.

The takeaway? Pennsylvania property owners now need to be aware of their assessments. If your assessment is significantly less than the recent purchase price, you should be prepared for a possible notice of increase in assessment.

Remedies for Investors

Just like a school can file an appeal for a reassessment, taxpayers may also file appeals for a reduction. The case for a reduction must be to create uniformity to other, similar properties.

In Michael’s scenario, in the same municipality, he can compare his taxes to other apartment buildings that are similar to his. A per-unit metric could be analyzed for the taxes, in order to understand if his are higher or lower than other properties in the area.

How to Understand Your Assessment

The common level ratio is a metric put out by the state each year, with figures specific to each county. (The most recent version of the table is linked in our sources below.)

The intent is that the CLR is used to help equalize the value on the assessment against the value relative to when the last assessment in the county took place. For example, Dauphin County last did a county-wide reassessment in 2001. This means the assessed value is supposed to be the actual 2001 value. For 2025, Dauphin County’s CLR is 2.31. Here’s how to use that:

Let’s say Kim purchased a building for $1,800,000. Her building is currently assessed at $693,000. When you take the assessment and multiply it by the CLR, you get the supposed market value. So, $693,000 x 2.31 = $1,600,000. This means that since Kim actually paid $1.8M, the school district could file an appeal to increase the assessment to match the higher sale price. $1.8M / 2.31 = $779,220.

Also note: Dauphin County recently increased the county millage rate, so property owners in Dauphin County may see a substantial bump in property taxes across the board for this reason.

What to Expect When You Appeal

While widely used because of its simplicity, the CLR is often not the right substitute for actual comparative data. Consider the value of office buildings today in relation to the value of an office building in 2001. Would the same metric be used for an apartment building be a fair basis of value for that office building?

The common level ratio system is broken and does not do justice for many properties, as each piece of real estate is unique.

The better method for appeal is to use actual sales comp data from the last year of assessment in the county.

Many counties have not done a reassessment in over 20 years, but Lancaster County’s last year of assessment was 2018 – much easier to obtain sales data for. Actual sale comp data will be the best determinate of value for that year, and the best argument for winning an appeal.

Conclusion

If you have received a new assessment that does not seem accurate, or if you believe your assessment is out of line in relation to similar properties, you have the right to file an appeal. A qualified commercial appraiser can help you to understand your value relative to the market.

Our thanks to Judy Striewig, MAI, Certified General Appraiser, for her contributions to this article. Judy can be contacted at www.jsrappraisal.com if you need guidance for a property tax appeal

Video Suggestions

Prefer to watch instead of reading? Check out our video about property tax assessments and appeals in Pennsylvania below!

We also have another video with complementary information about Pennsylvania property tax assessments, which you can watch here:

Sources

https://www.tuckerlaw.com/2023/06/12/state-supreme-court-decision-results-in-continued-taxing-body-appeals

https://www.legis.state.pa.us/cfdocs/legis/LI/consCheck.cfm?txtType=HTM&ttl=00&div=0&chpt=8

https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/taxtypes/rtt/documents/clr_factor_current.pdf

https://www.fox43.com/article/news/local/dauphin-county/dauphin-county-approves-budget-raises-property-taxes/521-3977a95f-1616-46fc-953f-f2c2257503b2#:~:text=HARRISBURG%2C%20Pa.,need%20for%20more%20tax%20increases.

https://jsrappraisal.com/

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