Each year, Pennsylvania property owners and tenants have an opportunity to file a real estate tax assessment appeal. With the exception of Allegheny County, the annual appeal deadline for every county in Pennsylvania falls on different dates between August 1 and the first Monday in October. Allegheny County is the only exception – its tax appeal filing deadline is March 31.
It is prudent for property owners to review real property assessments for accuracy every year. In Allegheny County, a convenient website exists to check a parcel’s current assessment: Typing in the property’s address or parcel number will lead to a page containing the "2014 Full Market Value," which is the current assessment.
Ideally, this review should include more than just consideration of the property-owner’s opinion of what the property is worth, or what capitalizing last year’s rental income stream suggests an income-producing property is worth today. Below are some common and not-so-common issues that property owners should be familiar with when evaluating the fairness of their assessment. It is not an exhaustive list; rather, it offers some initial issues to consider that may lead to other questions that a property owner – or tenant with the responsibility for payment of these taxes – should answer when determining whether to file a tax assessment appeal.
Are there future events that impact value today?
Is there deferred maintenance or other capital expenditures on the horizon that would not be ignored by any prospective purchaser? Are there reasons to expect an increase in annual operating expenses, like a significant increase in flood insurance, that impact what someone would pay for the property? For rental properties, do you have significant tenants whose leases are coming to an end in the next few years, such that there is a question as to whether vacancy may increase significantly soon? These issues should be considered when determining a property’s current assessment.
Is the property worth more to the current owner than what it would be worth on the open market?
Under Pennsylvania assessment law, a property’s assessment is not to be based upon the value of the building to the particular current owner, but what it would sell for on the open market. Your building may be ideal for you, but you should consider whether it has features that would be less than ideal for most market participants. These could include characteristics like limited highway access and other factors related to location, or functional obsolescence caused by deficiencies or super-adequacies.
Is a distinction being made between income produced by the property and income from services?
Occasionally the line blurs between income attributable to rent, and income attributable to business activities or services rendered on or from the property. Income to the property owner realized as a result of the latter is not attributable to the real estate, and as such, must be excluded from an evaluation of the income generated by the real property. These distinctions can and should be drawn, so that only the real estate component of the income stream is considered when evaluating the real estate’s value. Pennsylvania real estate taxation is to be just that – a tax on real estate, and not on income that happens to be generated by services rendered on the property.
What are the economic realities of property ownership?
If a property is subject to a long-term lease, such that any hypothetical purchaser would consider the terms of the lease when evaluating the value of the property, the property’s value may be impacted. The assessment should reflect this market reality.
In the event you are interested in exploring whether filing a real estate tax assessment appeal may reduce this significant operating expense, please contact the Reed Smith attorney with whom you work, or one of this Client Alert’s authors.
Client Alert 2014-050