Thinking Clearly on Assessments and Appeals

In order to better understand the law and procedures of assessments and
assessment appeals in Pennsylvania, a person must have a basic knowledge 
of the terminology.  These terms and definitions rest upon statutory and 
case law.  As is the circumstance of most things bureaucratic, a word or
phrase can have widely differing meanings depending upon usage and
qualifications.  For example, the following terminology includes several
distinct concepts of the words "value" and "ratio."  Also, in their definitions
and usage, the terms inter-relate.  These distinctions and inter-relationships
must be known in order to understand assessments and appeal procedures
in Pennsylvania.

Differing Concepts of "Value"

Assessed Value:  This is the valuation amount which the assessment office
(or, in the event of an appeal, the assessment board or court) assigns to a
property upon which local governmental jurisdictions issue tax bills based
upon their particular millage rates.  Each tax bill will identify the assessed
value.  An assessor calculates assessed values by multiplying the assessment
office-determined actual values by the county’s predetermined ratio. 
However, in the event of an assessment appeal, the board or court will
determine the current fair market value and multiply this by the
applicable assessment appeal ratio in order to arrive at the
lawful assessed value.

Actual Value:  Sometimes called the base year value.  On the assessment
office roll is the presumed market value of every property which then is
multiplied by the predetermined ratio in order to arrive at the
assessed value.  For example, in a county whose predetermined ratio
is 50%, a property whose assessment office actual value is $200,000 will
have an assessed value of $100,000.  Assessment office actual values are
based upon prior base year presumed valuations.  Because these base years
often are remote—being more than 20 years old in some
counties—assessment office actual values usually are not equivalent to
current "real world" market values.

Fair Market Value or Market Value:  This is the current "real world" value which must be determined in an appeal of an individual assessment.
Market value is defined as:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.  Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

buyer and seller are typically motivated;

both parties are well informed or well advised, and acting in what they consider their best interests;

a reasonable time is allowed for exposure in the open market;

payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and

the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Implied Market Value:  This is the current market value suggested by a
property’s current assessment, and it may be greater or lesser than the
current "real world" market value.  The implied value of an assessment is
determined by dividing the assessment by the applicable assessment
appeal ratio  (either the county’s predetermined ratio or the current
STEB-certified common level ratio, whichever is applicable).  For example,
assume that a STEB ratio of .30 is the applicable assessment appeal ratio and
a property has a $750,000 assessment.  The implied market value of this
assessment is $2,500,000 ($750,000 ÷ .30 = $2,500,000).  If the property’s
estimated current "real world" market value is materially different from the
implied value there is non-uniformity in the assessment. See Testing The
Fairness Of Your Assessment.

Warranted Assessed Value:  Sometimes called the lawful assessed
value.  This is what the assessment should be, based upon the current
fair market value.  For example, assume that a county’s .30 common level
ratio is the applicable assessment appeal ratio and a property has a current
fair market value of $1,500,000.  The warranted assessment based upon this
market value would be $450,000 ($1,500,000 x .30 = $450,000).
See Testing The Fairness Of Your Assessment.

Differing Concepts of "Ratio"

Predetermined Ratio:  This is the arbitrary percentage factor officially
selected (i.e., predetermined) by each county and applied to the assessment
office-determined base year values of all individual tax parcels, in order to
produce the assessed values upon which taxing districts base their millage
rates.

Common Level Ratio:  Sometimes called the "STEB ratio" or the
"equalization ratio," this ratio becomes relevant in an assessment appeal and
if it varies by more than 15% from the established predetermined ratio,
it must be applied to secure assessment uniformity for the appealed property.
It is an empirical ratio which measures how a county’s assessments compare
with current real estate market valuations.  Each year the Pennsylvania
State Tax Equalization Board (STEB) certifies each county’s common
level ratio.  It is developed by comparing the recent actual arm’s length
selling prices of real property in the county with the assessments of each sold
property.  Thus, if a property with an assessment of $20,000 sells at arm’s
length for $100,000, its individual empirical assessment ratio is 20%.
The average of all such assessment ratios of county properties which sold 
at arm’s length over the past year is certified as the common level ratio or STEB ratio.

Applicable Assessment Appeal Ratio:  Sometimes called the lawful
assessment ratio.  This is the ratio which must be applied to the current
market value of an appealed tax parcel. It will be either the county’s
current STEB-certified common level ratio or the county’s predetermined
ratio, depending upon the extent to which the STEB-certified ratio varies
from the official predetermined ratio.  In the case of an assessment appeal,
the official predetermined ratio will be applied to current market value unless
 the most recent STEB-certified ratio varies by more than 15% from the
predetermined ratio; and if this 15% tolerance is exceeded, the common
level ratio must be applied as the lawful assessment ratio.

Example:  Assume a county’s predetermined ratio is .75.  
It will be used as the lawful assessment ratio to be applied in an individual
assessment appeal unless the current STEB-certified common level ratio is
lesser than .637 or greater than .863 (.75 x .15 = .113).

Others Terms and Definitions

Assessable Real Estate:  Except for exempt real estate not subject to
taxation, all real estate is assessable and subject to taxation, to wit: land and
all improvements attached to or built thereon.  Importantly, however,
industrial machinery and equipment (regardless of size or the nature of
attachment to the premises) are excluded and not to be taken into
consideration in determining what is assessable real estate.

Base Year:  This is the year which the assessment office references for the
valuation of all properties in the county. Normally, it is the year of the most
recent county-wide reassessment.  Any changes of individual assessments are
to be expressed in terms of base year values.  Depending upon when a
county has last had a county-wide reassessment, base year values
significantly can vary from current market values.

Pennsylvania State Tax Equalization Board:  Commonly called "STEB."
This is the official state agency which is required to determine each county’s
common level ratio of assessed values to market values by employing
statistically-acceptable techniques, including sales-ratio studies.
These methodologies and their employment are available for public review.
Prior to July 1 of each year, the STEB publishes each county’s common level
ratio for the prior calendar year and certifies these ratios to the chief assessor
of each county.  The county’s common level ratio is admissible in any appeal
of a real property assessment.

Pennsylvania State Tax Equalization Board Website:  

www.steb.state.pa.us/