Group of taxpayers allowed to challenge Philly property tax data

Posted: March 06, 2012

A state board that regulates local property taxes will allow a group of Philadelphia taxpayers to challenge the City of Philadelphia's appeal of a board ruling last summer.

At stake is up to $83 million in city property taxes.

Friday's decision by the State Tax Equalization Board means lawyers from Fox, Rothschild L.L.P. representing 173 taxpayers will be able to formally object to 2010 sales data the city submitted in January in support of its appeal.

"While we were successful in letting [the board] know that people are seeking clear and transparent government, they are only allowing us to challenge the submission of the last set of data," said Jeffrey M. Herskowitz, a Fox Rothschild lawyer who filed a petition to intervene.

The hearing has not yet been scheduled.

The city's Jan. 13 submission of sales data to the state tax board contained an across-the-board 41 percent increase in the assessed values of all city properties sold in 2010 - a move that dumbfounded real estate experts.

The city's goal was not to increase taxes, but to block a specific type of appeal by property owners.

The controversy was set off by a July finding of the state tax board, which is charged with monitoring the accuracy of assessments.

Using county sales data, the board calculates the ratio of assessed values to actual real estate sale prices each year to establish the "common level ratio," which is then compared with each county's "predetermined ratio."

Philadelphia's predetermined ratio is 32 percent, which means the tax rate is applied to 32 percent of a property's certified market value to determine the tax. For example, the owner of a building with a $100,000 market value pays tax on $32,000.

But if a common level ratio calculated by the tax board for a county differs by more than 15 percent from the county's predetermined ratio, then the board's ratio must be used to figure the tax when a taxpayer appeals.

For years, thanks to carefully massaged data, Philadelphia's common level ratio fell within the 15 percent limit, even though it was widely acknowledged, even by city officials, that property valuations were extremely uneven and mostly too low.

That changed in July, when the state tax board said Philadelphia's common level ratio was 18.1 percent, far below the predetermined ratio of 32 percent.

More than 1,000 property owners filed tax appeals based solely on the lower common level ratio to automatically cut their tax bills 44 percent.

Meanwhile, the city appealed the state tax board's determination and included new figures for assessed values in the data submitted Jan. 13.

The state tax board has not published a common level ratio based on those new data, but an Inquirer analysis found that it would easily fall within the 15 percent limit.

To justify the move, the city Office of Property Assessment cited a 2004 ordinance that said City Council must adjust real estate tax rates so that switching to full-market-value assessments, as opposed to 32 percent assessments, would not result in an increase in tax revenue.

The ordinance says that in 2004, the ratio of official market value to actual market value was 71 percent, an acknowledgment of widespread undervaluation in the city.

In its appeal to the state tax board, the city has interpreted the 2004 ordinance as a "mandate" that certified market values must be 71 percent of actual market values, even though a former top city property tax official said no such rule existed then.

To prepare its submission, the Office of Property Assessment divided each property's assessed value by 0.71, resulting in new assessed values that were 41 percent higher.

The core matter for the state tax board to decide is "whether it is legally proper and statistically sound for Philadelphia's [Office of Property Assessment] to have adjusted its assessed values" based on the 2004 ordinance, according to the board's memorandum and order.

To Herskowitz, the Fox Rothschild lawyer, the answer should be obvious: "We are confident that [the state tax board] will follow the law in its determination of the common level ratio for Philadelphia and reject the artificially inflated figures."

Contact Harold Brubaker at 215-854-4651 or

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