Real World Results of the PA Valley Forge Reverse Tax Appeal Decision

by Reed Smith
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In early July 2017, in a case titled Valley Forge Towers Apartments N, LP, et al. v. Upper Merion Area School District & Keystone Realty Advisors, LLC, No. 49 MAP 2016, the Pennsylvania Supreme Court delivered a  landmark decision constitutionally curbing the rights of taxing jurisdictions to file selective appeals under Pennsylvania’s Consolidated County Assessment Law. Often called “reverse tax appeals,” this is a practice of a number of Pennsylvania school districts to exercise their tax assessment appellate rights solely against large commercial properties. At the same time, they excluded from reverse appeals all residential properties within the same jurisdiction.

We’re now seeing the real life effects of the Valley Forge decision.

In 2016, the Philadelphia School District filed approximately 140 selective appeals solely against commercial taxpayer properties, including a retail store operated by a Reed Smith client. To put this in perspective, the School District appealed only .025% of the aggregate properties within its jurisdiction and only .19% of the commercial properties.  

During the course of preliminary proceedings, the Philadelphia School District admitted it selectively filed appeals against only commercial properties.  The Philadelphia School District further admitted that it had a “policy” to take appeals where there was a likelihood to obtain a $7,500 increase in tax revenue.  Based on the School District’s millage rate, a Philadelphia property would have to be under-assessed by over $975,000 before subject to selective appeals.

Subsequent to the landmark Valley Forge decision, a Reed Smith team advocated for and convinced taxpayers’ counsel to file Motions to Quash. Reed Smith moved on its client’s behalf to quash each appeal on constitutional (uniformity) grounds—asserting an “as applied” constitutional challenge to Philadelphia (all taxpayers asserted an “as applied” challenge) and a novel facial attack on the right of the School District’s to take selective appeals in the first instance. After oral argument, Judge Idee Fox of the Philadelphia Court of Common Pleas accepted the taxpayers’ “as applied” challenges, and quashed the approximately 120 appeals, including the appeal filed against CVS.  The Judge also deferred ruling on Reed Smith’s facial challenge and agreed to permit a cross appeal on that issue if the Philadelphia School District attempts to take up the issue. 

Taxpayers have been bombarded with selective appeals throughout Pennsylvania over the past five years.  This is particularly true in areas where third-party “tax” consultants actively solicit school districts to utilize their services for the purposes of increasing tax revenues.  The school district compensates the consultant through a percentage of any increase revenue. Now that taxpayers have an effective tool to combat such abusive practices, Courts throughout the Commonwealth can expect to see an increased volume of challenges to reverse tax appeals by a commercial property sector that has been unfairly targeted by taxing jurisdictions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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