An ongoing lawsuit in Allegheny County, Pennsylvania, looks to drop the current equalization ratio utilized in the greater Pittsburgh area from 81.1 to 64.5%. The suit may lead to a significant decline in tax burden for tax year 2022.
On Wednesday, April 27, an Allegheny County judge issued a consent order directing the County Assessment Office to recode its tax year 2020 “arm’s-length” sales data that serves as the basis for the equalization ratio set by the state. The state’s ratio, calculated by the sales presented to it by the county, is a crucial component for calculating the county’s “equalized” market values used for the basis of tax appeals this year.
Per its website, “STEB’s primary function is to determine the aggregate market value of taxable real property in each political subdivision and school district throughout Pennsylvania. The market values are certified annually to the Pennsylvania Department of Education and the respective school districts on or before July 1 of each year. These market values are used in a legislative formula that determines the distribution of the state subsidies to each school district.”
For property owners in Pennsylvania, the ratios are a crucial factor in determining the assessed market value for tax appeal decisions. With the residential real estate markets throughout the commonwealth returning record year-over-year sale price increases the last two to three years, the underlying equalization ratios are anticipated to drop significantly. Ratio decreases have the inverse effect on the equalized market values: declining ratio equals an increase to equalized market value. Higher taxable market values on already struggling retail, hospitality, and other COVID-19 impacted properties could create a significant number of appeals.
Many questioned how, in an overall rising market across almost all property types, the equalization ratio for Allegheny County could increase in recent years. An increasing ratio broadly implies property values and sale prices are declining. The recent historical ratios are 2017: 87.5%, 2018: 86.2%, 2019: 87.5%, and 2020: 81.1%. A significant correction of 10 to 15% to the current ratio could have a drastic impact not only to Allegheny County appeals but to the entire State Tax Equalization Board (STEB) ratio calculation and verification process statewide.
In the lawsuit at hand, property owners accuse Allegheny County of cherry picking sales submitted to STEB to artificially support the equalization ratio, known as the Common Level Ratio (CLR) in Pennsylvania. A consent order, agreed to by plaintiffs and the county, mandates that the county review certain categories of sales previously ignored. The plaintiffs will oversee the review, with all disputes brought before the court. Once the review is complete, the new list of sales will be provided to the state, and a new equalization ratio issued.
While the assessment appeal deadline in Allegheny County for tax year 2022 was March 31, a retroactive drop in the CLR/equalization ratio will almost certainly merit another appeal opportunity. Properties considered fairly assessed under the original ratio could likely challenge their overassessment under the new ratio.
We suggest you contact Ryan’s Philadelphia and Pittsburgh property tax practices for a review of your Pennsylvania “base year” property assessments.
TECHNICAL INFORMATION CONTACTS:
Kurt Lieberman
Principal
Ryan
215.405.0410
kurt.lieberman@ryan.com
Renee Bell
Director
Ryan
215.253.6664
renee.bell@ryan.com
Ly Ngov
Manager
Ryan
215.405.0410
ly.ngov@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.