In a panel decision filed August 6, 2002, the Commonwealth Court affirmed the trial court’s rejection of the taxpayer-appellant’s attempt to apply an alleged uniform ratio based upon a comparison of the assessments and selling prices of real estate in a single development. Baechtold v. Monroe County Board of Assessment Appeals (No. 1826 C.D. 2001, filed August 6, 2002). Relying upon its prior decision in Hromisin v. Board of Assessment Appeals of Luzerne County, 719 A.2d 815 (Pa. Commw. 1998), the court held that the STEB-certified common level ratio which is based upon the entire taxing district is the appropriate method to establish uniformity in an individual assessment appeal and that a taxpayer is not entitled to the lowest ratio of assessed value to market value to which he could point in the taxing district if such lowest ratio does not reflect the common assessment level which prevails in the district as a whole. [Citing In re Rick, 167 A.2d 261 (Pa. Supreme Ct. 1961) and Deitch Company v. Board of Property Assessment, 209 A.2d 397 (Pa. Supreme Ct. 1965).]

The Opinion observed that the statute which had established the STEB Act (72 P.S. § 4656.16a) contained a provision permitting challenges to the STEB-certifications by any political subdivision or taxpayer. In the instant case, no challenge of the STEB ratio had occurred. Also, in the instant case, the county’s predetermined ratio did not vary by more than 15% from the relevant STEB-certified ratio (and, thus, the predetermined ratio was the one which the assessment statute required to be applied). The taxpayers and the county stipulated that the subject property had a fair market value of $430,502; and, thus, the only issue was the proper ratio for application. The Commonwealth Court affirmed the trial court’s determination that the STEB-certification provides a complete mechanism for assuring uniformity within a taxing district.

COMMENTARY: Earlier Pennsylvania Supreme Court decisions which pre-dated the STEB common level ratio certifications were relatively tolerant of taxpayer uniformity challenges based upon the assessment-market value ratios of neighborhood properties. See In re Brooks Building, 137 A.2d 273 (1958) and Deitch Company v. Board of Property Assessment, 209 A.2d 397 (1965). However, since the 1982 assessment amendments which created a statutory mechanism for determining the common level ratio for each taxing district, it seems unlikely that assessment appeal litigants may challenge the STEB-certified ratio at the county board or the county court level.

In a June 26, 2002 panel decision, the Court held that a sub-tenant of a portion of an assessment parcel (having an obligation to bear the real estate tax burden on its leased portion), has standing to maintain an assessment appeal. West Mifflin Area School District v. Board of Property Assessment Appeals and Review of Allegheny County, 802 A.2d 687 (Pa. Commw. Ct. decided June 26, 2002). Section 518.1(a) of the General County Assessment Law establishes the predicate for standing to file an assessment appeal:

"Any owner of real estate or taxable property in this Commonwealth, who may feel aggrieved by the last or any future assessment or valuation of his real estate or taxable property, may appeal from the decision of the … Board for the Assessment and Revision of Taxes …." 72 P.S. § 5020-518.1(a)

The Commonwealth Court held that the word "owner" includes not only the registered owner of the real estate, but also an equitable owner or owner of a taxable interest in the property. Citing its recent decision in Appeal of West Allegheny School District, 797 A.2d 414 (decided May 1, 2002), a majority of the three-judge panel concluded that a sub-lessee is the owner of a non-freehold, possessory interest in the taxable property for a term of years, albeit something less than legal or equitable ownership, but ownership nonetheless for the purposes of Section 518.1.

While recognizing that tribunals hearing assessment appeals have an obligation to determine a final valuation for the entire assessment parcel, the majority panel decision recognized that separate valuations may be an intermediate step toward ascertainment of the taxable value of the property as a whole; and that intermediate partial assessments are not precluded so long as there is a final valuation of the entire property.

COMMENTARY: This decision gives no guidance concerning the problems of evaluating an entire tax parcel based upon the collective valuations of its sub-tenancies. The dissenting opinion by Judge Pellegrini recognizes the practical confusion which will be raised if individual tenants (each having a pro rata obligation to reimburse the landlord for apportioned real estate taxes) have the right to challenge the entire property’s assessment. As he recognized, "Most leases now have pass-through clauses for taxes, and to allow every individual tenant in a large office building the right to challenge the taxes assessed on the building’s owner would create a legal morass."

Moreover, the majority panel’s reliance upon Appeal of West Allegheny School District seems misplaced inasmuch as, in that former case, each sub-lease concession had a separate tax parcel identifier.

In Appeal of West Allegheny School District, 797 A.2d 414 (decided by Commw. Ct. on May 1, 2002), the School District challenged the trial court’s conclusion that subtenant parcels at the airport utilized for the sale of alcoholic beverages and candy were entitled to real estate tax exemption on the ground that they were reasonably necessary for the efficient operation of the airport. The decision by the en banc court acknowledged that prior contrary decisions on this subject [e.g., Appeal of the Township of Moon, 387 Pa. 144, 127 A.2d 361 (1956); and Pier 30 Associates v. School District of Philadelphia, 493 A.2d 126, Pa. Commw. 1985] required modification in view of "the evolution of air travel, additional airport facilities and services … required to meet the needs and demands of the traveling public and to make the airport’s operation efficient." The Commonwealth Court agreed that where public property is used by a private entity, the key to maintaining the tax exemption is evidence establishing that the lessee’s use of the public property furthers the purpose of the governmental agency from which the lessee rents the property. Contrasting the old terminal (which the court determined served primarily travelers who began and ended their flights in Pittsburgh), the purpose of the new "hub" terminal was to accommodate passengers who would spend time in the terminal between flights—thus necessitating a wide range of concessions in multiple locations in order to be near gates.

Another portion of this decision held that individual concessionaires, having seven-year leases, have standing to challenge the taxability of their particular locations. This extended the prior doctrine that a tenant with a long-term leasehold interest in public property has standing to challenge the assessment on the theory that he either owns the fee or something equivalent. [Blue Knob Recreation, Inc. Appeal, 551 A.2d 9, Pa. Commw. 1988; Filbern Manor v. Board of Assessment Appeals, 589 A.2d 279, Pa. Commw. 1991]. Of significance, however, was the fact that each sub-lease concession had a separate tax parcel identifier.

COMMENTARY: This decision illustrates the continuing tension in the interpretation of what kinds of property or uses fall within the category of "public purposes."

In a May 22, 2001 decision, destined to have effects beyond the facts of the particular case, the Pennsylvania Supreme Court determined that the entire apparatus of a lumber dry kiln—the heaters, dryers, exhausts/ventilators, moisture controls, and also including the containment structure—was machinery and equipment excluded from assessment. The opinion accompanying the order, which reversed the Commonwealth Court’s per curium affirmance of the county court determination of taxability, set forth a scholarly analysis of the competing arguments in context of Pennsylvania’s statutory and case history of the machinery and equipment exclusion. BFC Hardwoods, Inc. v. Board of Assessment Appeals of Crawford County, 771 A.2d 759 (2001). Pennsylvania assessment statutes exclude as subjects of real estate assessment "machinery, tools, appliances and other equipment contained in any mill, mine, manufactory or industrial establishment." 72 P.S. § 5020-201(a) and 72 P.S. § 5453.201(a). The May 22, 2001 Supreme Court decision clarifies and strengthens three principles:

1. Where a containment structure or support is integral to and a necessary portion of machinery or equipment, the entire assembled apparatus (including the containment structure) qualifies for the statutory exclusion;
2. "Industrial establishment" is not merely synonymous with "manufactory," and may embrace a variety of business operations; and
3. Case law interpreting or defining what activities qualify for the "manufacturing" exemption under the Pennsylvania Capital Stock Tax Act is not precedential authority for determining the machinery and equipment exclusion in assessment appeals.

The county trial court decision (affirmed by the Commonwealth Court) determined that the dry kiln structures did not constitute machinery "contained in" a manufactory or industrial establishment, but, rather, constitute the "sine qua non of the business." Although recognizing the dry kiln structures were rather unique in design, the trial court considered them as analogous to buildings which comprise an industrial establishment. "The kilns are the ‘manufactory’ or the ‘building’ that produces the company’s only product—dried lumber. "The Supreme Court disagreed and, citing the seminal decisions of Jones & Laughlin Tax Assessment Case, 175 A.2d 856 (Pa. 1961), and United States Steel Corp. v. Board of Assessment, 223 A.2d 92 (Pa. 1966), concluded that where supporting foundations and structural enclosures were essential integrated parts of machinery and equipment, the entire apparatus was excluded from assessment, despite the fact that the structures may bear some analogy to "buildings." Instead, the Supreme Court determined that the dry kilns are comparable to the shells of an oven and, as such, are inseparable parts of the machinery and equipment.

In another issue before the Supreme Court, the assessment board argued that the dry kilns did not qualify for the machinery and equipment exclusion, because the lumber drying operations did not constitute "manufacturing"—since there was no creation of a new and different product. The trial court cited Commonwealth v. Babcock Lumber Co., 272 A.2d 522 (Pa. Commw. 1971) which held that the business of kiln drying lumber did not qualify for the manufacturing exemption of the Pennsylvania Capital Stock Tax. However, the Pennsylvania Supreme Court held that decisions construing the Capital Stock Tax Act are not to be relied upon in construing the assessment statutes. The Capital Stock Tax Act sets forth an exemption for manufacturing establishments, whereas the assessment statutes set forth an exclusion of machinery and equipment. Exemptions are evaluated according to a principle of strict construction in favor of taxation, whereas exclusions are to be strictly construed against the taxing body and in favor of the taxpayer to the extent that there is any reasonable doubt regarding the meaning of the statutory language. Importantly, there was no need to analyze the issue of whether the kiln drying of lumber constituted "manufacturing," inasmuch as the assessment code exclusion of machinery and equipment applied to a "mill, mine, manufactory or industrial establishment." The Supreme Court cited prior Pennsylvania decisions which held that commercial laundry equipment, newspaper publishing equipment and a commercial TV antenna qualified as equipment in industrial establishments for purposes of the exclusion.

COMMENTARY: This decision is expected to have an important influence on assessment appeals in other industries. By clarifying that an "industrial establishment" is not merely synonymous with a "manufactory," this decision casts doubt upon the holding of Arredondo, et al v. Cumberland Count Board of Assessment Appeals, 697 A.2d 614 (Pa. Commw. 1997); app. denied, 717 A.2d 1029 (1998)—wherein the Commonwealth Court determined that a warehouse, being a "storage facility," is not integral to the manufacturing process. Moreover, the Supreme Court’s rejection of the precedential value, in assessment litigation, of cases decided under the Capital Stock Tax Act is significant to electrical generating facilities. In Potomac Edison Company v. Commonwealth of Pennsylvania, 411 A.2d 1287 (Pa. Commw. 1980), aff’d 421 A.2d 214 (Pa. Supreme Ct. 1980); app. dismissed, 451 U.S. 901 (1981), it was held that an electric company is not entitled to the capital stock manufacturing exemption because the production of electricity is not manufacturing. After BFC Hardwoods, it appears that taxing jurisdictions which have relied upon Potomac Edison in seeking to assess electrical generating machinery and equipment as real estate will need to find a different rationale.

On May 22, 2001, the Pennsylvania Supreme Court affirmed the Commonwealth Court’s decision in Green v. Schuylkill County Board of Assessment Appeals, 772 A.2d 419 (2001). The case holds that a trial court was not obliged to accept an expert’s unrebutted conclusion of value, in toto, merely because some credible testimony has been provided. The decision of this case has application to those assessment appeal hearings where only one party presents expert appraisal testimony.

In the instant case, the trial court found that the unrebutted testimony of the taxpayer’s appraiser was credible in part, but the conclusion of value was not entirely persuasive. The trial court explained that it would have been inclined to utilize the expert’s evidence, but arrive at a different conclusion of value. However, being bound by a prior 1996 Commonwealth Court holding in 841 Associates v. Board of Revision, 674 A.2d 1209, the trial court held that market value was the same as the expert opined. [841 Associates held that, in the case of a single expert, the trial court was obliged to either reject or accept the appraisal conclusion and was not free to determine a different value.] In the instant Green appeal, the Commonwealth Court reversed its prior 841 Associates holding and determined that the trial court did have discretion to rely upon the testimony of an unrebutted expert, but come to a different valuation conclusion.

The Supreme Court observed that the assessment statutes require the trial court, on a de novo appeal, to determine the market value of the subject property. This does not mean that the trial court becomes an assessor. Rather, in assessment cases, as in others, the trial court must make its determination on the basis of the evidence put before it. In those cases where a taxpayer offers expert testimony challenging the assessment and the taxing authority offers no evidence in rebuttal, the court has several alternatives: (1) conclude the expert’s testimony is not credible and does not overcome the assessment; (2) find that the expert’s testimony is competent and credible in all respects, in which case it must be accepted; (3) accept the expert’s testimony as wholly credible, but recognize the need to correct or modify the valuation due to a simple error (e.g., mathematical) which can be corrected utilizing principles grounded in common experience; or (4) find the expert’s testimony is sufficient to overcome the prima facie validity of the assessment, but not credible in all respects pertaining to the valuation ultimately reached by the expert—in which case, the trial court may conclude a value different from the expert’s conclusion. Regardless of which scenario is followed, however, the trial court’s ultimate determination of value must be based upon competent and credible evidence. If such evidence exists in the record upon which the trial court may arrive at a different conclusion of value, it will be permitted, provided that the fact finder’s valuation be tied firmly to the evidence.

COMMENTARY: It must be emphasized that this case has application to single-expert assessment appeal hearings. In those hearings where there are "dueling experts," case law is clear that the trial court has considerable latitude in arriving at a valuation different from both of the experts—provided that the decision not be arbitrary and be based upon competent credible evidence on the record.

Based upon findings of champerty and unauthorized practice, in a wide-ranging decision filed February 12, 2001, the Pennsylvania Commonwealth Court affirmed a county court decision which enjoined a tax agent from soliciting the filing of tax assessment appeals, preparing administrative appeals and appearing before or representing taxpayers before the county board in any capacity except as a witness offering opinion testimony. Westmoreland County v. RTA Group, Inc. and Westmoreland Bar Association, 767 A.2d 1144. This was affirmed by the Supreme Court on October 9, 2001.

This recent decision expands upon the previous Commonwealth Court decisions of Westmoreland County v. Rodgers, 693 A.2d 996 (Pa. Commw. 1997) and Clark v. Cambria County Board of Assessment Appeals, 747 A.2d 1242 (Pa. Commw. 2000) which held, respectively, that courts would enforce a county board rule forbidding taxpayer representation by anyone other than a licensed attorney, and that administrative appeals jurisdictionally are defective if they are filed by a tax agent engaged in champerty.

In the RTA case, the Commonwealth Court affirmed the finding that the tax agent had engaged in both champerty and the unauthorized practice of law. Primarily relying upon documentary evidence of the tax agent's prior solicitation materials, representation contract and power of attorney, the decision discusses the indicia of these forbidden practices.

Champerty

In order to establish a prima facie case of champerty, three elements must exist: (1) the party involved must be one who has no legitimate interest in the suit; (2) the party must expend its own money in prosecuting the suit; and (3) the party must be entitled by the bargain to share in the proceeds of the suit.

A non-attorney tax agent who works on a contingency fee agreement is guilty of champerty if he pays for costs associated with the assessment appeal (e.g., filing costs, appraisal charges, attorneys fees).

The Commonwealth Court rejected the RTA's argument that its power of attorney gave it a legitimate interest in the appeal and held that, since the agent was neither a party aggrieved by the assessment nor an owner of the assessed real estate, it was not an interested party.

Hearings before administrative boards or commissions are essentially "judicial in character" and a person who is not a licensed attorney may not prepare or file an administrative appeal nor appeal in a representative capacity on behalf of a taxpayer in assessment board proceedings.

The court determined that, by solicitation brochures, the tax agent publicly held itself out as capable of providing services to reduce tax assessments, to process appeals to the county assessment board, to actively negotiate settlements with tax jurisdictions and to manage the appeal process.

It is an unauthorized practice of law for a non-attorney tax agent to determine whether an appeal should be taken and to advise a property owner of the necessity of and method of paying taxes under protest.

The court placed great importance upon the contract provisions that the tax agent had the sole discretion to determine whether an attorney should be hired to represent the property owner and whether an appeal should be taken. Thus, it was an unauthorized practice for a tax agent to have and exercise a power of attorney permitting it to employ attorneys at law for the owner if the tax agent, in its sole discretion, deemed it advisable. 

The procuring of an agreement by one who is not an attorney to institute and prosecute an action in which the compensation shall, directly or indirectly, depend upon the amount of recovery constitutes an unauthorized practice of law. 

In a divided panel decision, the Commonwealth Court has raised considerable doubt concerning whether the Institutions of Purely Public Charity Act (Act 55 of 1997), 10 P.S. § 371, et seq. continues to provide "safe harbor" criteria for institutions which seek qualification as a "purely public charity." Community Options, Inc. v. Board of Property Assessment, Appeals and Review, 764 A.2d 645 (Pa. Commw.), decided November 21, 2000, reargument denied January 29, 2001. In its reversal of the trial court which held that Community Options met the statutory test for those years subsequent to the effective date of Act 55, the majority panel decision determined that an institution must meet both the constitutional definition and the statutory definition as a "purely public charity." In a significant commentary in footnote 11, the opinion breathed added life into Hospital Utilization Project, 507 Pa. 1, 487 A.2d 1306 (1985) and concluded that Act 55 "is a nullity as to those parts which attempt to define 'purely public charity' as a constitutional provision. The General Assembly is empowered to only legislate the category of the constitutional 'purely public charities' which are exempt from taxation." 764 A.2d at 653. The Supreme Court has granted an allowance of appeal.

COMMENTARY: If this decision remains the law of the Commonwealth, an institution seeking to qualify as a "purely public charity" will need to satisfy two tests: (1) a vague "constitutional" test which will be determined by individual judges (case-by-case) and (2) a statutory test which, while having the benefit of uniformity, has complexities analogous to those found in the Internal Revenue Code. The dissenting opinion noted that the purpose of Act 55 was to eliminate the vagueness of the term "institutions of purely public charity" which was subject to differing and non-uniform interpretations by the various courts.

The assessment codes permit a taxing jurisdiction to take an appeal from a decision of a court of common pleas "as though it had been a party to the proceedings before such ... court even though it was not such a party in fact." 72 P.S. § 5453.706; 72 P.S. § 5350i. However, Pennsylvania Rule of Appellate Procedure 903(a) requires the filing of an appeal within 30 days after entry of the order from which the appeal is taken.  

In the instant case, the taxing jurisdictions (who had not intervened as parties in an assessment appeal) were not sent notice of the trial court's action until 28 days following entry of the order on the court's docket. The taxing jurisdictions appealed to the Commonwealth Court in reliance upon the above-mentioned statutory provision authorizing appeals by non-party municipalities. However, the appeal was quashed for lack of jurisdiction because of the 30 day limit set forth in Pa. R.C.P. 903(a). Art. V, § 10(c) of the Pennsylvania Constitution provides that the Supreme Court has the power to prescribe general rules governing practice and procedure and that "all laws shall be suspended to the extent that they are inconsistent with rules prescribed under these provisions." Thus, assessment code provisions that municipal authorities have 30 days following mailing of notice of assessment changes in which to file an appeal [e.g., 72 P.S. § 5349.1; 5453.703a] are subservient to the requirements of the Rules of Appellate Procedure. Morrisons Cove Home v. Blair County Board of Assessment Appeals, 764 A.2d 90 (December 4, 2000)  

COMMENTARY: By footnote, the opinion noted that where a taxing authority is not provided with timely notice of an assessment change, it may petition the court of common pleas to allow a nunc pro tunc appeal. If an appropriate factual record can be developed, common pleas may allow the appeal. The writer suggests that, while this may be an appropriate procedure where an appeal is sought from a board decision to the county court, it would seem to be an inapplicable remedy in an appeal from common pleas to the Commonwealth Court. Taxing jurisdictions which have received notice of the pendency of an assessment appeal, but do not choose to intervene, should stay abreast of court proceedings if they want to protect their appeal rights.

The Commonwealth Court determined that a tax agent was guilty of champerty where (1) he had a contractual power-of-attorney to file and maintain an assessment appeal on behalf of the owner; (2) he paid for the costs of the appeal, including attorneys fees and appraisal charges; and (3) his compensation was based upon a percentage of tax savings achieved. The Commonwealth Court panel decision reasoned that the tax agent (not being an aggrieved property owner) was not the "real party in interest" and, as a result, the appeals were jurisdictionally defective and must be dismissed. Clark v. Cambria County Board of Assessment Appeals, 747 A.2d 1242 (Pa. Commw. Ct. 2000)--decided with six additional consolidated taxpayer appeals on the same issue. [NOTE: On May 21, 2002, the Pennsylvania Supreme Court denied allowance of appeal.]

COMMENTARY: Champerty is a Common Law "offense" which rarely is invoked by U.S. courts. Simply stated, it may be found to exist where all three of the following factors co-exist: (a) the party involved must be one who has no legitimate interest in the suit; (b) the party must expend his own money in prosecuting the suit; and (c) the party must be entitled by the bargain to a share in the proceeds of the suit. At Common Law, the offense of champerty did not distinguish between whether the conduct was performed by an attorney-at-law or a non-attorney. Unless reversed or modified, this unusual decision may significantly affect the manner of doing business by tax agents in Pennsylvania who work on a contingent fee basis.

Although an assessor is forbidden, selectively, to change an individual assessment in absence of a comprehensive county-wide reassessment, a subdivision or a physical change in the property, it is not a violation of constitutional principles of uniformity and equal protection for a taxing jurisdiction to initiate a selective appeal in absence of a "triggering event." Allentown Power Center, L.P. v. Township of Whitehall, et al, 735 A.2d 741 (Pa. Commw. Ct. 1999); also Millcreek Township School District v. Erie County Board of Assessment Appeals, et al, 737 A.2d 335 (Pa. Commw. Ct. 1999). [NOTE: On June 1, 2000, the Pennsylvania Supreme Court denied applications for allowance of appeals.]

The following counties are undertaking or have determined to undertake comprehensive county-wide reassessments which will take effect at future dates.

• BEDFORD—Planning has begun for a comprehensive county-wide reassessment, but no definite timetable formally has been established.

• ERIE—A comprehensive county-wide reassessment is planned to take effect January 1, 2003 and a 100% predetermined ratio has been selected. Informal change notices are expected to be mailed in or about February, 2002 with formal change notices to follow by July, 2002.

• FAYETTE—Planning has begun for a comprehensive county-wide reassessment to take effect January 1, 2003. Formal reassessment notices will issue in 2002 and the predetermined ratio is expected to be established at 100%.

• LAWRENCE—A comprehensive county-wide reassessment will become effective January 1, 2003. However, no predetermined ratio has yet been selected. Informal change notices are expected to be mailed in February, 2002, with formal change notices to follow in June, 2002.