For straightforward real estate transactions involving a deed for consideration, the Pennsylvania realty transfer tax is based on the purchase price. For certain types of real estate transactions, however, such as long-term leases and acquired real estate company transactions, the transfer tax is based on the property’s so-called computed value.

The computed value is the property’s tax assessment multiplied by the current common level ratio factor (CLRF) calculated by the State Tax Equalization Board (STEB). The CLRF is the reciprocal of the assessment ratio that STEB issues for each county annually. A recent change in the CLRF will enable taxpayers to claim a realty transfer tax refund for computed value transactions made after June 30, 2012.

As part of the fallout from Philadelphia’s tax assessment problems, STEB did not establish a CLRF for the period from July 1, 2012, to June 30, 2013. Until now, the ratio in effect for this period for Philadelphia was “to be decided.” The CLRF in effect for July 1, 2011, to June 30, 2012, was 3.97. For computed value transactions that occurred after June 30, 2012, taxpayers were required to use the 3.97 CLRF to determine a property’s computed value until the new CLRF was announced.

The CLRF recently announced for July 1, 2012, through June 30, 2013, is 3.13. This means that any taxpayer who paid realty transfer tax using a 3.97 CLRF for a computed value transaction that occurred after June 30, 2012, is entitled to a refund of both Pennsylvania and Philadelphia realty transfer taxes.

For example, for a property with an assessed value of $1,000,000, the computed value calculated using a 3.97 CLRF would have been $3,970,000, resulting in a realty transfer tax of $158,800. With the new CLRF of 3.13, the tax would be $125,200, for a refund of $36,000.  To claim such a refund, a taxpayer must file claims with both the Pennsylvania Department of Revenue and the Philadelphia Revenue Department within three years of the date the tax was paid.

Ballard Spahr attorneys handle realty transfer tax matters in various jurisdictions, including Philadelphia. If you believe you may be entitled to a refund, please contact Philip B. Korb at 215.864.8709 or korb@ballardspahr.com, or Wendi L. Kotzen 215.864.8305 or kotzenw@ballardspahr.com.