Some people actually refer to it as the "Welcome to the neighborhood stranger tax." Every year, at least as far back as 2002 that we can recall, taxing entities and most often specifically school districts across Allegheny County have filed thousands of property tax appeals in an effort to increase property taxes for new home buyers. This trend has continued into 2020, as once again thousands of property tax appeals have been filed by school districts against recent homebuyers. The premise is simple. If you paid $500K for a property which is currently assessed at $200K, the taxing entity should be able to argue for an increase to the current assessment and thus increase the property taxes and their own revenue. At least, it sounds simple. The reality is that only appealing recent home buyers is actually much more complicated than it seems.
There is a serious legal question whether or not such "Welcome to the neighborhood" appeals violate Pennsylvania law and specifically the uniformity clause of the second class County Code. We believe the taxing entities appealing the assessments of ONLY new home buyers should be considered spot-assessing in violation of the Pennsylvania constitution. This practice does not treat all property owners equally. The school districts are not allowed to single out a property to appeal. The taxing entities have gotten around this as described below, and very few, if any, property owners have been willing to take the matter on multiple appeals over multiples years to have the Pennsylvania Supreme Court address the matter.
Nevertheless, property owners who have been appealed by a taxing entity should make sure they are aware of the property tax appeal procedures and should aggressively defend school district appeals on variety of basis.
There are 45 school districts in Allegheny County, Pennsylvania. Every year, any taxing entity (County, School, or Municipality) and all property owners have the right to file a new property tax appeal on a given property. As stated, the school district is not allowed to single out any specific property or property owner. The school districts and taxing entities have gotten around the uniformity argument by alleging that they have set reasonable standards that apply equally to all of the properties in their districts. For example, they have only appealed properties that have recently sold and whose current assessment is less than 80% of the recent purchase price. It makes sense. But at the same time, it does not make sense when two houses are similar (both assessed at $300K) and one sells for $600K, and the recent homebuyer is the only one appealed and ends up paying twice as much in property taxes as their neighbor who has the same house (but has not sold).
The longer there is between county wide reassessments, the more unfair the tax burden among neighbors ends up being because of these selective tax appeals filed by the school districts. Note: The last Allegheny County wide reassessments were in 2002 and 2012. It is not known if Allegheny County will reassess all properties in 2022 or not.
There are actually four (4) interested parties included in the tax assessment appeal process for Allegheny County. They include:
Over 90% of the taxing entity appeals are filed by the school district only, and not all of the municipalities will be involved in the litigation. The school district files the most appeals because they typically have the highest millage rate and therefore the most financial incentive to raise the property assessment. The municipalities typically do not file appeals because they often have lower millage rates and “piggy back” off of the school districts. Most municipalities realize that they can receive additional taxes without paying any legal fees. (There are some municipalities that do aggressively get involved). Finally, the County’s position is supposed to support the 2012 ‘base year’ certified assessment of the property (which they were paid millions of dollars to ‘certify’). Unfortunately, the County sometimes supports the school districts. Very rarely, if ever, have we witnessed the County strongly oppose a school district appeal but it can happen, especially if the property owner or their representative provides ample evidence to justify that the increase is not warranted and instead supports the 2012 Base year value.
If your property has been appealed by a taxing entity, it is important to remember that Allegheny County is currently under a 2012 base year system. This means that all properties should be assessed on what their fair market value was as of January 1, 2012, and not simply the most recent purchase price. To make matters even more confusing, current assessment law allows the appellant (i.e. whoever is appealing) in these cases, the school district the option to choose if they would like to use the 'base year argument' or the 'fair market value' argument.
The base year argument is simply looking at the value of the property as of January 1, 2012. The fair market value is different. The FMV is trying to determine the current market value as of January 1, 2020, and then applying a ratio backwards to arrive at a 2012 assessment. It is an enormous advantage for the school districts to use the fair market value (FMV) approach because they can attempt to use the recent sales price as proof of market value and to raise the property assessment.
First and foremost, a sale price alone is not controlling and alone as evidence does not meet the School District's burden of proof.
When schools file an appeal against a property owner, the school district has the burden of proof. A sale price alone does NOT meet that burden of proof. Legally, to change an assessment, a valuation method must be used. There are 3 valuation methods: sales comparison approach, income and expense method (typically only used for commercial properties), and the cost approach (typically only relevant for newer construction).
The school districts sometimes simply try to offer as evidence the deed for the sale of the subject property as a basis to raise the property taxes. A sale of a subject can be persuasive, but it is NOT controlling. A valuation method must be used, and if only a deed is presented, (without a valuation method), the taxing entity has not met their burden of proof and the appeal should be denied. The hearing officers in Allegheny County are aware of the burden of proof obligations that a school district has when filing a tax appeal.
Property owners can also successfully defend school district appeals if they can prove that their recent sale price was higher than the true real estate market value. A sale price is not always indicative of the true market value. Property owners often pay higher or lower than the true price of a property for many reasons. We have had clients move to Pittsburgh from New York, Virginia, Washington, and California, all areas where the real estate market is significantly higher. These owners typically substantially overpaid for properties based upon their prior locations and the real estate markets in those locations.
Additionally, other items may have been included in the purchase price which makes the listed purchase price more inflated than the true price that was paid for the house. In fact, some property owners unfortunately discover various problems within their properties following the time of purchase, which can often mean that the true fair market value of the property is lower than what was actually paid.
The bottom line is that there are numerous reasons why it is improper and unfair to simply rely on a recorded sales price to raise a property assessment.
Property owners can represent themselves, but need to understand the risks of proceeding on their own.
First, property owners are at a disadvantage because they do not know the system, the rules of law, or the forum involved. The school district attorneys are instead familiar with the process and many of the other attorneys involved at these hearings. The lawyers involved will typically know the hearing officers on a first name basis, and experience can make a significant difference in the final result of an assessment appeal hearing.
Second, property owners do not have the advantage of having negotiated and litigated many cases previously. We, unfortunately, know for a fact that not all of the school district attorneys and hearing officers treat all of the property owners the same.
The reality unfortunately exists that personality and relationships still factor into assessments. The assessment process is not blind, and in our humble opinion, can be very unfair for certain property owners. We have seen basically identical houses on a street be settled by school districts with large discrepancies between the settlements because of how the evidence was presented. Knowing the best and most efficient way to present evidence can make a significant difference.
Third, and most importantly, the lawyer for the school district can cross-examine the property owner to actually make their case against the property owner. This might be the strongest argument not to represent yourself at the very least at the first hearing.
Often, at the hearing, the school district is only prepared with a copy of the deed showing the new price. Some school districts are obviously more prepared than others and will bring comparable sales. But as stated, a copy of the deed alone SHOULD NOT meet the school’s burden of proof. If the homeowner appears, the school district may then cross-examine the property owner under oath, and use their testimony as evidence to increase the owner’s assessment.
Even more simply stated, if you attend the first hearing, any and all information will then be available by the school district if the case is appealed to the BOV (which most of the cases are).
Be careful about attending the hearing in person. The school district attorney may ask you certain information that will not be helpful to your hearing. Or even worse, the school district may be able to gather new information to use in case there is a second appeal of the case.
Questions that may not be helpful would include:
Depending on the property owner's responses, the school district can actually have a better case with the property owner present than if they would have simply stayed at home. We are NOT advising anyone to stay at home or miss their hearing. However, understanding ‘burden of proof’ and understanding what the best evidence to submit is, does make a difference. Very rarely will we ever advise a property owner to attend the hearing with us.
Each case is certainly unique. However, defending school district appeals is really about being more prepared than the taxing entity with solid evidence, legal arguments, and the ability to negotiate the best settlement. There are certainly risks if an owner attends the first level hearing and the school district is able to record that information and use that same information against the property owner if the case is subsequently appealed.
Tax appeals are classified as real estate litigation. Thus, there are rules of evidence applicable to the proceedings that property owners should be aware of when defending a property tax appeal in Allegheny County.
READ: Top Allegheny County property assessment FAQ’s. If you really wish to understand the Allegheny County assessment process in more detail.
This Property tax calculator is a great tool for calculating the actual tax implications to an assessment change. Here are links to the Municipal millage rates and School District millage rates for Allegheny County.
If you would like a free consultation concerning defending a school or local tax appeal, or any other real estate matter, please call attorneys Noah Paul Fardo or Nicole Hauptman Amick directly at 412.802.6666 or complete the form below.