Downingtown Area Sch. Dist. v. Chester Cnty. Bd. of Assessment Appeals

303 A.3d 1104

DOWNINGTOWN AREA SCHOOL DISTRICT v. CHESTER COUNTY BOARD OF ASSESSMENT APPEALS

Tax Parcel No.: 33-5-43.3

Appeal of: Marchwood Apartments Owners LLC

Downingtown Area School District v. Chester County Board of Assessment Appeals

Tax Parcel No.: 33-5-43.2

Appeal of: Marchwood Apartments Owners LLC

No. 92 C.D. 2022

No. 93 C.D. 2022

Commonwealth Court of Pennsylvania.

Argued March 7, 2023

Decided October 6, 2023

Reargument Denied November 27, 2023

John K. Fiorillo, West Chester, for Appellant Marchwood Apartments Owners LLC.

Scot R. Withers, West Chester, for Appellee Downingtown Area School District.

Michael S. Gill, West Chester, for Appellee Chester County Board of Assessment Appeals.

BEFORE: HONORABLE RENÉE COHN JUBELIRER, President Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE MARY HANNAH LEAVITT, Senior Judge

OPINION BY SENIOR JUDGE LEAVITT

Marchwood Apartments Owners LLC (Taxpayer) appeals an order of the Court of Common Pleas of Chester County (trial court), granting the tax assessment appeal filed by Downingtown Area School District (School District). ¹ In doing so, the trial court rejected Taxpayer's constitutional challenges to the School District's appeal of its assessment. Taxpayer argues that the trial court erred, asserting that the School District's tax assessment appeal policy, both on its face and as applied, violates the Equal Protection Clause of the United States Constitution ² and the Uniformity Clause of the Pennsylvania Constitution. ³ Likewise, Section 8855 of the Consolidated County Assessment Law, 53 Pa. C.S. § 8855, ⁴ violates the Equal Protection Clause and the Uniformity Clause because it does not require taxing authority assessment appeals to be countywide. Taxpayer contends that the School District's unconstitutional assessment appeal has left the Marchwood apartment complex overassessed when compared to other apartment complexes in Chester County, with which it must compete for tenants. For the reasons to follow, we reverse the trial court.

Background

Taxpayer owns the Marchwood apartment complex, which consists of two separate tax parcels located in Uwchlan Township, Chester County, Pennsylvania. One parcel is 6.1 acres, and the other parcel is 37.5 acres. On the 2 parcels are 40 detached buildings with 504 residential apartment units, a leasing office/clubhouse, a maintenance shop, and a vacant building.

In 2012, the School District established a policy to appeal any real property assessment that "may potentially result in total annual additional tax revenue of $10,000 or more[.]" Reproduced Record at 263a (R.R. ___). As adopted, the policy did not limit the number of appeals the School District may file in a tax year.

In 2019, the School District hired Valbridge Property Associates (Valbridge) to "identify up to 15 properties" that were "likely to be under[ ]assessed by an amount sufficient to meet the district's selection criteria." R.R. 261a. It took Valbridge "approximately one week" to identify 15 underassessed properties that met the policy's $10,000 monetary threshold for an assessment appeal. Id. The School District appealed 15 property tax assessments identified by Valbridge and then added another, i.e. , the Marchwood apartment complex. The Chester County Board of Assessment Appeals denied the School District's appeal of the Marchwood apartment complex, and the School District appealed.

The trial court conducted a de novo hearing on the School District's appeal. Notably, the parties stipulated to the fair market value of the Marchwood apartment complex for tax years 2019, 2020, and 2021. As a consequence, the evidence concerned Taxpayer's constitutional challenge to the School District's assessment appeal policy and implementation thereof.

Taxpayer presented the testimony of Reaves Lukens, an employee of Valbridge, as on cross-examination. Lukens explained that he was tasked with reviewing property assessments in the School District and choosing 15 assessments to appeal, i.e. , a "manageable" number, considering manpower and resources. Notes of Testimony, 11/17/2021, at 16 (N.T. ___); R.R. 39a. Lukens began the assignment by downloading the current tax assessments of both commercial and residential properties. However, Lukens excluded residential properties less than 3,500 square feet in size. He did not look at "the very small houses" because they would not meet the School District's monetary threshold of $10,000 even "if they had an assessment of zero." N.T. 30; R.R. 53a. As for commercial properties, he separated them into categories ( e.g. , retail or industrial) and looked at their average assessments.

Lukens testified that he "did not have a hard and fast rule with respect to the methodology [he] used" to identify properties. N.T. 31; R.R. 54a. He considered the potential net return in order "to maximize the return to the School District." N.T. 26, 32; R.R. 49a, 55a. Once he identified 15 assessments, Lukens stopped his review and gave his list to the School District. ⁵ Lukens confirmed that many other property assessments met the School District's monetary threshold. ⁶ He also acknowledged that there was a range in the amount of "pickup" in fair market value needed to meet the $10,000 threshold, depending on the municipality. For example, in Downingtown Borough, a pickup of $497,262 in the fair market value was needed to hit the $10,000 threshold, but a pickup of $617,831 was needed in Bradford Township. N.T. 34-35; R.R. 57a-58a.

Taxpayer presented its expert, Peter A. Angelides, Ph.D., ⁷ who testified about his analysis of the School District's assessment appeals for the 2019 and 2020 tax years. He testified that owner-occupied residential properties constituted 84.2% of the properties in the School District. N.T. 77; R.R. 100a. He further noted that the School District's $10,000 monetary threshold has "a larger exclusionary effect on single[-]family properties than it does on apartments, commercial or industrial properties." N.T. 83; R.R. 106a. Nevertheless, Angelides believed "a decent or large number of single[-]family properties" were underassessed and could generate an additional $10,000 in annual tax revenue. N.T. 84-85; R.R. 107a-08a. He identified five residential properties that were "worthy of further investigation" to determine whether they would meet the policy's threshold amount but were not appealed. N.T. 91; R.R. 114a.

On cross-examination, Angelides explained that he looked at recent sales prices to find properties that may meet the School District's monetary threshold. He acknowledged that some of the five residential properties that he identified as potentially underassessed were subject to Act 319, ⁸ which meant they were enrolled in programs that lowered their taxes. The Clean and Green program ⁹ "provides a lower tax rate appropriate for land devoted to farming and forest reserve purposes" by enabling landowners to apply for preferential assessments that base property taxes on use rather than fair market value. Feick v. Berks County Board of Assessment Appeals , 720 A.2d 504, 505 (Pa. Cmwlth. 1998).

The trial court did not allow Taxpayer to present expert evidence that other apartment complexes in Chester County were assessed at a lower percentage of fair market value under the State Tax Equalization Board ¹⁰ common level ratio. On average, other apartment complexes were assessed at 34.23% of their fair market value. By contrast, the Marchwood apartment complex was assessed at 49.3% or 47% of its fair market value, depending on the year. The trial court also denied Taxpayer the opportunity to introduce a stipulation regarding the range of assessment appeal policies adopted by school districts in the county.

The depositions of David Matyas, the School District's Business Manager; David Kring, School Board Director; Alicia Krebs, the School District's Accounting Supervisor; and Jane Bertone, President of the School Board, were admitted into evidence. Therein, these School District personnel testified that they did not know how Lukens chose the 15 properties for appeal. Matyas Dep. at 16; R.R. 380a; see also Krebs Dep. at 18; R.R. 452a. The Marchwood apartment complex was added to the initial list of 15 appeals by decision of Valbridge and the School District's solicitor. Matyas Dep. at 18; R.R. 382a; see also Krebs Dep. at 28; R.R. 462a. The School District rejected one commercial property for a tax assessment appeal for the stated reason that the owner was represented by a "very aggressive" attorney. N.T. 41-42; R.R. 64a-65a. ¹¹ Bertone recollected that the School District has appealed one residential property assessment, explaining she was "surprised the house could generate that much more revenue." Bertone Dep. at 20; R.R. 490a.

Trial Court Decision

The trial court found that the School District's policy did not instruct the School District "to consider the type or nature of a property" when deciding whether to appeal a property's assessment and did not limit the number of appeals that can be taken in a given year. Trial Court Op. at 2. Since the implementation of its policy in 2012, the School District has filed an assessment appeal of one residential property, in addition to its commercial property assessment appeals.

The trial court characterized Section 8855 of the Consolidated County Assessment Law as granting a school district the right to appeal assessments, and it "does not restrict the methodology" it uses to choose properties to appeal, so long as the school district exercises its discretion within constitutional boundaries. Trial Court Op. at 5. The trial court rejected Taxpayer's argument that there must be a countywide tax assessment appeal to avoid placing its apartment complex at a competitive disadvantage. In any case, school districts in the same county are free to adopt very different assessment appeal policies.

The trial court rejected Taxpayer's as-applied constitutional...