Upcoming Hearing on New Regulations That Could Devalue 10-Year Tax Abatement for Some Mixed-Use Properties

Ballard Spahr LLP

Ballard Spahr LLP

Philadelphia Zoning and Land Use Update

The Philadelphia Office of Property Assessment (OPA) has issued draft regulations for the implementation of the changes in Philadelphia’s 10-year tax abatement in 2022.

Starting on January 1, 2022, the residential abatement decreased in value by roughly 50%, while the commercial abatement decreased by 10%. So it now matters whether a property is categorized as residential or commercial.

OPA’s new regulations establish new rules to determine which abatement will apply to a project. The regulations state that a newly constructed mixed-use property will be eligible for only one of the two abatements (commercial or residential). The regulations provide that a mixed-use property “shall be considered residential property . . . if fifty percent (50%) or more of the newly constructed assessable square footage is dedicated to residential use.” The same is true of commercial uses. This appears to be a reversal of OPA’s long-standing practice of treating rental residential property as commercial property because the owner/landlord needs a business privilege tax license to operate the property.

A public hearing on the draft regulations has been requested to gain clarity on several issues not fully addressed by the regulations, including:

  • How mixed-use condominiums will be treated;
  • When the abatement will begin for multi-unit residential rental properties;
  • Whether Developer’s Abatement will apply to mixed-use properties deemed residential under the regulations; and
  • Whether the regulations affect abatement applications submitted before January 1, 2022 (the date on which the changes to the 10-year abatements became effective).

The hearing is scheduled for Friday, January 14, 2022, at 12:00 p.m. The hearing will be held virtually. Any interested party may register to participate and provide comment by emailing Drew.aldinger@phila.gov by 12:00 p.m. on January 13, 2022. Ballard Spahr already has already submitted written comments, which can be accessed here. The draft regulations can be accessed here.

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