The city and school district of Philadelphia may have to repay $ 48 million in taxes plus interest after Mayor Jim Kenney's administration lost their appeal this week on a 2019 case that was found to be illegal Assessment targeted for commercial property owners on their property in 2018.

A panel of judges from the Commonwealth Court on Thursday upheld a lower court ruling that the city had violated the state's unity clause that requires all commercial and residential properties to be valued and taxed using the same method as used in its 2018 valuation targets commercial real estate.

The city has yet to say whether it will try to bring the case to the Pennsylvania Supreme Court. She has 30 days after the decision on Thursday to make up her mind.

"Although we are disappointed with the verdict, we are reviewing and evaluating the next steps," said Kenney spokesman Kevin Lessard in a statement.

The case, which affects around 700 properties from neighborhood stores to 1 Liberty Place, was remarkable for its size and because plaintiffs did not dispute the valuations themselves, but rather the way the valuations were conducted.

"This one is pretty unique and I've been doing this for a long time," said Peter Kelsen, a Blank Rome attorney who has represented the owners of more than 250 of the properties involved. "I haven't seen a constitutional challenge of this magnitude against the city for decades."

If the city fails to appeal, the ruling could put a significant strain on the bankrupt school district as well as the city struggling to recover from the economic downturn caused by the coronavirus pandemic. The $ 48 million disputed tax payments include $ 14 million in community property tax revenue and $ 34 million in district property and business use and use taxes. They would also have to pay millions of dollars in interest.

The opinion of Judge Ellen Ceisler, a Democrat from Philadelphia, has no impact on the city's ratings of the affected properties in the years since 2018, although some property owners are challenging these ratings separately.

The Pennsylvania Unity Clause states that "taxes must be uniform for the same class of subject within the territorial boundaries of the agency collecting the tax." Like similar provisions in other states, the clause has long been seen as an obstacle to making local government tax bases more progressive by preventing certain types of property owners – such as those who own businesses or more valuable real estate – from being taxed more heavily than others .

It also applies to the city's wage tax, which, unlike federal income tax, is just as high for low-income earners as it is for CEOs. This means that if the city and school district need more money, they will have to raise taxes for the poorest Philadelphians just as they do for the richest.

The commercial and residential real estate impact clause law is well established, especially after a 2017 Pennsylvania Supreme Court case where judges ruled that the Upper Merion School District cannot expressly contest real estate appraisals because it is commercial real estate.

That's why many in the real estate industry were surprised when the Kenney administration revalued commercial real estate in Philadelphia just a year later. The city argued that these parcels are systemically undervalued and that residential properties will soon be revalued as well.

"Why Philadelphia thought it could do this, especially after [the 2017 case], is a mystery to me, "said Lawrence J. Arem, an attorney for Klehr Harrison who represents the owners of hundreds of properties in the case. "I have no idea what they were thinking."

Arem said he and Kelsen, whose companies together represented more than half of the property owners, offered to negotiate with the city over a possible settlement that could have saved the city's taxpayers millions of dollars and avoided years of litigation. The city refused, he said.

Typically, owners who believe the tax authorities have overrated an entire category of property have to prove their claim through complicated valuation data and circumstantial evidence. But the Philadelphia case seemed short and dry, Arem and Kelsen said, because the Kenney administration announced its intention to re-evaluate only commercial real estate in a press release at the time.

"If they hadn't published this press release, it would have been a much more difficult case for us," said Arem.

source https://seapointrealtors.com/2021/07/31/philadelphia-and-the-school-district-may-owe-48-million-after-losing-a-property-tax-case/

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