The Commonwealth of Pennsylvania has just published its annual tax assessment ratio report for each county, and, if its finding stands, many Philadelphia property owners may be able to achieve substantial savings on their real estate taxes.

In Pennsylvania, county assessors determine the fair market value of each property and apply the county’s stated ratio (called the established predetermined ratio) to set its assessed value. The local tax rate is then applied to the assessed value to determine the real estate tax. Every year, the Pennsylvania State Tax Equalization Board (STEB) analyzes the tax assessment information for every county to monitor the accuracy of the ratios and publishes its report in July. If the STEB ratio, called the common level ratio, differs by more than 15 percent from the county’s established predetermined ratio, the common level ratio must be used whenever a taxpayer files a tax appeal. Only taxpayers who appeal their assessments are entitled to use the common level ratio.

For many years, the City’s established predetermined ratio has been 32 percent. The new STEB ratio for Philadelphia for the period July 1, 2011, to June 30, 2012, is 18.08 percent, 43 percent less. If the City finds the fair market value of a property to be $1 million, it applies the 32 percent established predetermined ratio to arrive at an assessed value of $320,000. This year, if a property owner appeals the assessment, the appeals board will be required to use the 18.08 percent STEB ratio. That would reduce the assessed value from $320,000 to $180,800.

 

This change in Philadelphia’s common level ratio will have the opposite effect on realty transfer taxes, increasing them in certain types of transactions. In transactions such as mortgage foreclosures, certain long-term leases, and taxable real estate company transactions, realty transfer tax is imposed on the “computed value” of the property. Computed value is the assessed value of the property multiplied by the common level ratio factor, the mathematical reciprocal of the common level ratio. By virtue of the substantial reduction in the common level ratio, this year’s factor has increased from 3.13 to 5.53. In the above example, if the property with a current assessed value of $320,000 were transferred in a computed value transaction, the computed value would increase from approximately $1 million to $1.8 million. The transfer tax, at Philadelphia’s total 4 percent rate, would increase from about $40,000 to about $71,000.

This development is complicated, and not all properties may benefit from a tax assessment appeal. The deadline for filing tax appeals in Philadelphia is October 3.  Ballard Spahr attorneys can assist you in determining whether an appeal is appropriate. If you have questions about this change, please contact Philip B. Korb at 215.864.8709 or korb@ballardspahr.com, Michael Sklaroff at 215.864.8700 or sklaroff@ballardspahr.com, or Matthew N. McClure at 215.864.8771 or mcclure@ballardspahr.com.  

 


Copyright © 2011 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)  

 

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.