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The Problem

Although most persons know that their real estate taxes are based upon assessed valuations multiplied
by local municipal millage rates, fewer are aware that local assessment practices vary widely
throughout the Commonwealth.  In Pennsylvania, each county is a separate assessment district having
its own individual base year valuations, depending upon the time of the last county-wide
reassessment.  Many county base year valuations are out of date—some by more than 20 years.
Also, a few third class cities have maintained separate assessment districts unrelated to the county
assessments.  Thus, the fairness or unfairness of an assessment at a particular amount in one county
provides no guide to judging the appropriateness of an assessment on a similar property in another
county.

In most counties the determination of fairness of an assessment is not readily apparent because
assessments usually are not based upon the current full market value of real estate, but upon an
officially-determined fraction (the predetermined ratio) of what the assessment office calls
actual value.  To make the solution even more obscure, in almost all counties the so-called actual
values on the assessment roll (which, in turn, are factored by a county’s official predetermined ratio
to produce assessed values) are not current "real world" market values.  See Terminology and
Definitions.

Hypothetical Example to Illustrate Problem

Far Flung Industries owns a 100,000 square foot manufacturing plant of 1960s design located on 15 acres in Duck Swamp Township in County L.  The assessment records indicate the actual value of real estate (land and building) to be $1,000,000 and County L has adopted an official 75% predetermined assessment ratio.  Thus, the assessed value is $750,000 (this being the amount upon which the county, municipal and school district millage rates are based as reflected in the tax bills).

Is this real estate being fairly assessed? At first blush, it might be considered a bargain inasmuch as the assessment roll suggests an actual value of $10 per square foot (of building improvements inclusive of land) and an assessment at $7.50 per square foot.  But consider this further fact: the Pennsylvania State Tax Equalization Board (STEB) recently has certified that County L’s common level ratio is 30%.  This STEB certification tells us that County L’s assessment records are not up-to-date and consistent with current valuations in the "real world" marketplace—and that the county assessment office’s assigned actual values, taken as a whole, are only 40% of bargained-for selling prices in the marketplace (i.e., 30% ÷ 75% = 40%).

Thus, what we thought on first impression was a bargain assessment based on an assessment office value of $10 per square foot, actually is an assessment on an implied market value of $2,500,000 or $25 per square foot.  The implied value of an assessment may be determined by dividing the assessment by the current applicable assessment appeal ratio; or, in the example, the $750,000 assessment, divided by the 30% common level ratio equals $2,500,000.  This implied value is the value the property would need to have to be fairly assessed.  If our example property had a current fair market value of only $1,500,000, it would be over-assessed.

For a person intelligently to determine whether or not a parcel of real estate is being fairly assessed,
three facts—at a minimum—first must be known:

The assessed value.  The assessment for any property will be printed on the tax bill(s).
NOTE: sometimes a property will comprise more than one tax parcel and have more than one tax bill.  In this case, the sum of the assessments should be determined.

The estimated current fair market value of the real estate.  In Pennsylvania, this is the amount for the real estate only—not inclusive of machinery or equipment and not based upon the value of the business being operated upon the real estate.  If a taxpayer is uncertain of the estimated current fair market value of the real estate, the services of an appraiser knowledgeable in assessment valuation should be retained.

The current applicable assessment appeal ratio.  This will be either the most recent STEB-certified common level ratio for the county or the county’s predetermined ratio.
The official predetermined ratio will be used unless the most recent STEB-certified common level ratio varies by more than 15% from the predetermined ratio—and if this 15% window of tolerance is exceeded, the common level ratio must be applied as the applicable assessment appeal ratio.

A knowledge of each of these three facts will allow the taxpayer to ascertain the fairness of the
assessment by undertaking the following steps:

The current fair market value of the real estate multiplied by the applicable assessment appeal ratio will equal the amount the assessment lawfully should be (the warranted assessment).  In the foregoing example, the $1,500,000 fair market value, when multiplied by the .30 common level ratio, would warrant a lawful assessment of $450,000.

A comparison of the current county assessment with what the taxpayer realistically considers should be the lawful warranted assessment will indicate whether or not an assessment appeal should be considered.  With reference to the example, the warranted assessment is $450,000 as compared with its $750,000 assessment.

 

The difference between the actual current assessment and the lawful warranted assessment, multiplied
by the total of the local millage rates, will indicate the tax savings which would be realized by a
reduction of the assessment to the warranted level.  Referring again to our example, let us assume that
the total of the local millage rates was 80 mills (.080):

Former Tax Bill:      $750,000 x .080 =     $60,000

Post-appeal tax Bill: $450,000 x .080 =    - 36,000

Annual Tax Savings at 80 mills Tax Rate:  $24,000

A taxpayer who files an assessment appeal must be aware that the county assessment board or the
court (if there is a further appeal) has the power to increase the assessment.  Therefore, the taxpayer
is cautioned to be realistic in the estimation of a subject property’s current fair market value.  In the
event of any uncertainty, competent and experienced legal and/or appraisal advice should be sought.  The great majority of business taxpayers are responsible and do not want to initiate
assessment appeals in absence of a reasonable basis.

Business taxpayers who have questions may consult with Anthony R. Thompson by telephone at
610/997-5087 or by email at anthony@assesslaw.com with no financial obligation for an initial
consultation.