Alert: Pennsylvania Supreme Court Decision: Valley Forge Towers Apartments v. Upper Merion Area School District

In a long awaited and much anticipated Opinion, the Pennsylvania Supreme Court on July 5, 2017, considered “the question of whether the Uniformity Clause of the Pennsylvania Constitution permits a taxing authority to selectively appeal only the assessments of commercial properties, such as apartment complexes, while choosing not to appeal the assessments of other types of property-most notably, single-family residential homes – many of which are under-assessed by a greater percentage.” School districts across the Commonwealth had been selectively appealing the valuation of certain large commercial properties. The Supreme Court reversed lower court holdings that constitutional uniformity requirements did not apply to these cases.

Although the Opinion does not on its face bar a school district from challenging assessments and proposing increases in assessments for commercial properties, it does offer some guidance on procedures and litigation options available to property owners. It now seems appropriate for property owners to initiate equity actions in the Court of Common Pleas challenging assessments under the Uniformity Clause. It has long been understood by the Courts in Pennsylvania that “a taxpayer is entitled to relief under the Uniformity Clause where his property is assessed at a higher percentage of fair market value than other properties throughout the taxing district." After all, “this precept is based upon the general principal that taxpayers should pay no more or less than their proportionate share of government.”

The Pennsylvania Supreme Court clearly stated in this Opinion that “all property in a taxing district is a single class, and, as a consequence, the Uniformity Clause does not permit the government, including taxing authorities, to treat different properties sub-classifications in a disparate manner.” The Court went on to hold that “this prohibition applies to any intentional or systematic enforcement of the tax laws, and is not limited solely to wrongful conduct.”

The allegations by the property owner in the original complaint alleged that its apartment buildings were singled out for assessment appeals by the Upper Merion School District based upon financial (apartment buildings pay more taxes than single-family homes) and political reasons (residents in single-family homes elect the people who serve in local government while apartment owners generally do not live or vote where the property is located). The Court took seriously in this case the allegation made by the property owners that they had been subjected by the school district to “intentional, systemic, disparate treatment of a sub-classification of properties” which, in this case, referred to apartment buildings.

Citing prior cases, the Court reiterated the legal principle that “all real estate in a taxing district forms a single collective class to be treated uniformly, and that systematic disparate enforcement of the tax laws based on property sub-classification, even absent wrongful conduct, is constitutionally precluded” and that “it follows that a taxing authority is not permitted to implement a program of only appealing the assessments of one sub-classification of properties, where that sub-classification is drawn accordingly to property type-that is, its use as a commercial, apartment complex, single-family residential, industrial, or the like."

In its Opinion, the Court noted that it was not holding that the use of a monetary threshold or some other selection criteria would violate uniformity if it were implemented without regard to the type of property in question or the residency status of its owner. These and other methodologies were not presented to the Court and, therefore, were not considered. So there are many open questions remaining for further appeals and future decisions. In the meantime, the Supreme Court remanded the case to the lower courts, which are now bound to apply the principles mandated in the Opinion.

If you have any questions or would like to discuss these issues, you can call Carl Primavera at 215.569.1663 cprimavera@klehr.com or Larry Arem at 215.569.4142 larem@klehr.com.  Please keep in mind that appeals for Philadelphia properties for tax year 2018 must be filed on or before October 1, 2017.