Pennsylvania Supreme Court Issues Valley Forge Decision


July 6, 2017 – Yesterday, the Pennsylvania Supreme Court issued its much-anticipated decision in Valley Forge wherein the Court took up the issue of constitutionally guaranteed uniformity in taxation in the context of school-initiated assessment appeals.  Fittingly, the Court’s decision – which reestablished the primacy of constitutional uniformity protections to taxpayers in the strongest possible language -- issued just one day after the July Fourth holiday.

In Pennsylvania, unlike most states, taxing districts have a statutory right to file annual assessment appeals seeking to increase property owners’ assessments. Because Pennsylvania has no mandatory reassessment cycle – some counties have gone more than fifty (50) years without a reassessment – many schools turn to increase appeals as a way to generate more revenue. When they do, schools frequently target just certain commercial property owners for appeals. The result is that schools’ selective or “spot” appeals disrupt constitutionally-required uniformity in assessment. This violates fundamental fairness and puts targeted commercial owners at a competitive disadvantage with owners of properties whose assessments are not increased. It also shifts more of the tax burden from residential to commercial property owners, since most schools are loathe to sue residential property owners (who vote) to increase their assessments.

In Valley Forge Towers Apts., LP v. Upper Merion Area School District, 135 A.3d 1017, (Pa. Commw. Ct. 2015), the Upper Merion Area School District (“School”) filed increase appeals only against commercial property owners and not against residential owners. The School selected properties for appeal after consultation with Keystone Realty Advisors (a New Jersey-based tax consultant which employs trained appraisers) which takes a 25% contingent fee on any increase in taxes as a result of the appeals. Four apartment building owners (“Taxpayers”) who had been targeted for these appeals challenged the School’s selection of only commercial owners for appeals as violating Pennsylvania’s Constitution which mandates uniformity in taxation. Both the trial court and the first-level appellate court denied Taxpayers’ challenge, holding that the School need only satisfy a “rational basis” test and that the School’s goal of “increasing revenue” justified the selective nature of the appeals.

Taxpayers sought review by the Pennsylvania Supreme Court. The Supreme Court agreed to take the case on the following issue:

[The School District] deliberately chose commercial properties, such as Petitioners’, for selective assessment appeals, but did not appeal assessments of any single-family-home properties, although the latter are significantly underassessed. The Uniformity Clause of the Pennsylvania Constitution prohibits disuniformity in taxation. Is a school district’s decision to appeal property assessment insulated from review because, inter alia, the school district has a statutory right to file appeals and can identify an economic reason for its appeals?

Above all, the Pennsylvania Supreme Court’s decision mandates that all taxpayers must be uniformly treated, whether they are residential or commercial taxpayers.  The Court held that there can be no assessment scheme that systematically treats residential and commercial taxpayers differently.  The Court stated no less than 13 times that all real estate is a single class. In making this point, the Court observed that this constitutional tenet had been in place since 1909, was reaffirmed by the Court on multiple occasions and – emphatically -- “this Court plainly had no intention of discarding it.”  Valley Forge Decision at 23 n. 17.  It follows that the government may not create sub-classifications of property for different tax treatment, a holding which the Court stated 10 times in its decision.

The Court’s decision makes it abundantly clear that all realty must be taxed uniformly and that this Constitutional protection is for the benefit of the taxpayer.  Residential and commercial taxpayers cannot be treated differently.   In the Court’s own words:

“First, all property in a taxing district is a single class, and as a consequence, the Uniformity Clause does not permit the government, including taxing authorities, to treat different property sub-classifications in a disparate manner.  Second, this prohibition applies to any intentional or systematic enforcement of the tax laws and is not limited solely to wrongful conduct.”  Valley Forge Decision at 18 (emphasis added).

The Court then remanded the case for discovery to determine if there was a violation of uniformity.  The discovery process will help to establish the facts either to prove or disprove that there was a systematic disparate treatment of the taxpayers in the Valley Forge case.  It will not be necessary to show that the school intended to treat the taxpayers differently from the other taxpayers.

The principal holding that we can take away from the case is that all taxes must be uniformly assessed and that no purposeful or unintentional systematic assessment that treats taxpayers in a disparate manner is constitutional.

What’s Next?: The Supreme Court’s decision underscores the need for a standard as to how all realty is to be taxed in Pennsylvania regardless as to whether it is residential or commercial.  In current practice, residential and commercial properties are taxed on different standards, thus the need for clarifying definitions in Pennsylvania’s statutes. 

Pennsylvania’s legislature has been taking up the issue of property tax reform in its current session which ends July 7, 2017.  Among other proposals under consideration was a definition to set the standard for valuation as “fee simple unencumbered.”  With Pennsylvania’s budget and financing still under consideration for the current session, it is not expected that legislature will enact property tax reform in the session that ends tomorrow, but we will be watching to for more developments when the legislature returns for the fall session.

The need for a uniform standard is best illustrated by example.

A residential property is valued as follows:  1) Pennsylvania’s case law definition of “actual value” presumes a hypothetical willing buyer and a willing seller even though the actual homeowners are still living in the house.  In other words, the presumption in an assessment appeal is that the homeowners move out and put their house on the open market. 2) The house is, of course, vacant at the time of the hypothetical sale.  It is not being leased.  It is unencumbered.  3) The question asked in the assessment appeal is “what would a hypothetical buyer pay for this house on the open market?”  The taxpayer and the taxing districts may have different opinions as to what the price would be, but both are answering the same question.  “What is the value of the real estate interest unencumbered by any lease or private restrictions?” The same standard – fee simple unencumbered is always sought in residential assessments.

Currently, in Pennsylvania assessment practice, commercial properties are valued differently than residential properties.  If a commercial property is leased, the taxing districts answer not “what would a hypothetical buyer pay for this commercial realty on the open market” but rather, “what would a hypothetical buyer pay for this commercial realty on the open market, encumbered by this lease?” Moreover, because commercial property trades quite often as part of an ongoing business or with long term leases or with deed restrictions or with non-public use restrictions, etc. it is imperative to have a single defined interest to be valued for tax purposes.  And the only interest that is uniform across all categories is the fee simple unencumbered value.  Functionally, residential properties are taxed on a fee simple standard and commercial properties are not.  As Valley Forge makes clear, there can only be one standard because all realty is a single class. 

The only uniform standard for all realty is to be taxed on the basis of fee simple unencumbered.  The Court in the Valley Forge decision lays out the roadmap that that the key is to tax all realty uniformly. 

Valley Forge holds that systematic disparate treatment (which is exactly what we have in practice now) between residential and commercial property taxpayers is unconstitutional.  The only way to get one uniform standard in Pennsylvania all realty is to include a definition in the statute that the standard is the same for all realty – fee simple unencumbered.

To read the decision in its entirety, go to

If you have specific questions about this case or how Pennsylvania law applies to your property, please contact Siegel Jennings at:

Sharon F. DiPaolo, Esquire
Siegel Jennings, Co., L.P.A.
430 Freeport Road
Blawnox, PA 15238
(412) 486-2848
(412) 828-1069 (Fax)

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