Did Phila.’s 2018 Selective Tax Reassessment Violate the Uniformity Clause?

In Duffield House Associates v. City of Philadelphia, 2021 Pa. Commw. LEXIS 520 (July 29, 2021), the Pennsylvania Commonwealth Court recently analyzed whether the city of Philadelphia’s selective reassessment in tax year 2018 of only commercial properties at current market value violated the uniformity clause and the assessment law’s requirement that the city assess all properties annually at actual market value.

Background and Trial Court Ruling

For the 2018 tax year, the city reassessed 41,730 commercial properties in the city at current market values, imposing more than $118 million in additional real estate taxes on those properties, the opinion said. However, the city did not reassess 538,380 residential properties in the city, leaving their assessments at 2017 tax year values and imposing no additional real estate taxes on those properties.

According to the opinion, Duffield House Associates filed a complaint alleging that the city selectively reassessed only commercial properties at fair market value for tax year 2018, in violation of the uniformity clause and Section 8565(b)(2) and (c) of the Consolidated First-Class County Assessment Law (Assessment Law), 53 Pa. C.S. Section 8565(b)(2) and (c), which requires annual reassessments of all city properties.

Months later, the owners and tenants of approximately 700 commercial properties in the city filed 12 other complaints against the city asserting similar claims. Eventually, the Philadelphia Common Pleas Court consolidated the 13 actions into the one originally filed.

The trial court issued a decree in favor of these taxpayers and against the city.

Key Legal Precedents: Valley Forge

Relying upon the Pennsylvania Supreme Court’s decision in Valley Forge Towers Apartments North v. Upper Merion Area School District and Keystone Realty Advisors, 163 A.3d 962 (Pa. 2017), the trial court concluded that the city deliberately targeted only commercial properties for reassessment in tax year 2018, thereby violating the uniformity clause.

Accordingly, the trial court struck the selective reassessment of the taxpayers’ properties, reinstated the prior tax year’s assessments, and ordered the city to refund the excess real estate taxes paid to the city.

Arguments on Appeal

On appeal, the city argued that the trial court erred in rejecting its ratio studies and mandating that only a method that revalues every property in the city would satisfy uniformity. The city claimed that uniformity does not require perfection; it only requires rough equalization. According to the city, commercial properties were grossly under assessed for years. Thus, focusing only on the egregiously nonuniform properties constituted “rough equalization” as a matter of law and was not unconstitutional.

In response, the taxpayers argued that revaluing a small minority of properties in the city at current market value, while leaving the vast majority of properties at prior base-year values, violates the uniformity clause and Section 8565 of the Assessment Law, which requires the city to assess all properties annually at actual market value.

Commonwealth Court’s Analysis

The Commonwealth Court in Duffield noted that the uniformity clause precludes a taxing jurisdiction from treating similarly situated taxpayers differently. To establish the imposition of a tax violates the uniformity clause, a taxpayer must demonstrate that the administration of a tax deliberately and purposefully discriminates in the application of the tax. The term deliberate in this context includes any intentional or systematic method of enforcement of the tax laws.

Applying Valley Forge, the court reaffirmed that taxing authorities cannot selectively target one subclass of property owners, such as commercial property owners, for reassessment or appeal while ignoring others.

Expert Testimony Undermined City’s Defense

The Commonwealth Court rejected the city’s argument that its intent was to equalize assessments based on prior underassessment. The court cited expert testimony from Kevin Gillen, Ph.D., who found the city’s ratio studies flawed and that residential properties were underassessed by approximately $20 billion. The city’s own expert, Robert Gloudemans, also acknowledged the unreliability of the ratio studies.

Further, internal city communications and staff meeting notes confirmed the city’s plan to reassess only commercial properties in 2018 and wait until 2019 to reassess residential ones.

Final Ruling

The Commonwealth Court held that the city’s selective reassessment of only commercial properties in 2018 violated the uniformity clause. The court affirmed the trial court’s ruling and ordered that tax refunds were an appropriate remedy under the circumstances.

Authorship and Copyright Notice

— Clementa Amazan, an associate at Nochumson P.C., is the co-author of this article.

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