How the Tables Have Turned: Property Owners v. the Tax Man
February 10, 2023
This article was originally published in the Allegheny County Bar Association’s Young Lawyers Division Point of Law eNewsletter
Pennsylvania’s Tax Equalization Board recently set the 2023 common level ratio for Allegheny County at 63.6%, which is a remarkable drop from 81.1% in 2022 and prior years. The drastic change to the common level ratio could result in significant real estate tax savings for Allegheny County property owners. It is worth noting that the 2022 common level ratio is currently subject to litigation. In the case Gioffre et al. v. Fitzgerald et al., No. GD-21-007154 (Pa. D. & C. Nov. 30, 2022), Allegheny County Court of Common Pleas Judge Alan Hertzberg ordered a reduction of the 2022 common level ratio to 63.53%. Judge Hertzberg’s order is currently under appeal to the Commonwealth Court. Assuming the reduction is not overturned on appeal, let’s break this down to explain what this all means and how property owners may see tax savings. Every county in Pennsylvania assesses property based on the fair market value of a taxpayer’s property. However, it would be unfair to assess one person’s property this year and another person’s property a few years later because the second person’s home, even if identical, would likely be assessed at a higher value due to the natural appreciation of real estate values. Under this scenario, the second person would then pay higher taxes each year because the same property tax rate is applied to a greater home value. To correct this issue, the common level ratio is used to help balance the scales. The common level ratio allows a county to assess the value of property within its domain in different years (usually when a property is sold, or a new property is built) without subjecting taxpayers to the injustice caused by natural property value appreciation. Each year the Tax Equalization Board releases each county’s common level ratio, a number which is designed to take any property value in the current year and adjust it to the approximate equivalent value for the base year. The base year is the year the last countywide reassessment took place. In Allegheny County, the base year is 2012. In other words, the common level ratio is intended to equalize for assessment purposes the current fair market value of a property as if it was valued as of the based year. Here is an example to illustrate how the 2023 common level ratio could potentially benefit property owners – if you buy a home in 2022 for $125,000, but have a base year assessment of $100,000, then application of the 2023 common level ratio to the purchase price would yield a $79,375 assessment. This reduction in the home’s assessed value would result in notably decreased real estate taxes. In most years, it is the real estate taxing bodies that file real estate assessment tax appeals against new property owners with the Allegheny County Board of Property Assessment Appeals and Reviews (“BPAAR”). In these cases, the taxing body seeks to show that the taxpayer’s property value, based on the purchase price, has increased and should result in an increased real estate assessment, thus bringing in greater tax revenue. But now, the tables have turned. The dramatic decrease to the common level ratio has shifted the power in appeals to property owners. As illustrated above, the reduced common level ratio now provides property owners the unprecedented opportunity to file appeals and potentially lower their tax bill for years to come. Not all property owners are in a position to file an appeal. Before filing a real estate assessment tax appeal, a property owner should know the current fair market value of their property and apply it to the common level ratio to see if it would result in a reduced assessment. The best way to determine the current fair market value is either the purchase price from a 2022 arms-length transaction or an appraisal. Filing an appeal without knowing your property’s value could result in the BPAAR finding the property significantly increased in value and warranting an increase in its assessment. What to do about it? The burden of proving that one’s property is overassessed lies with the property owner. Therefore, a property owner who believes their property is over-assessed will need to file an assessment appeal with the BPAAR. The deadline to file an appeal for 2023 in Allegheny County is March 31. The BPAAR will then schedule a hearing date with the property owner, municipality, and school district at which time the parties will each have the opportunity to provide testimony and present evidence of the property’s value. Based on the testimony and documentary evidence, the BPAAR will issue a decision. Allegheny County property owners will also be incentivized to file a tax appeal, if warranted, because future real estate tax millage increases will be based on the property’s assessed value. A property owner who fails to file a real estate tax appeal that would have resulted in savings will end up paying unnecessarily higher real estate taxes. At minimum, the decrease to the Allegheny County common level ratio calls for property owners to jump onto the Allegheny County website and check what their property is currently assessed at. It could merit an appeal to the BPAAR. Happy filing!