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Philly property owner asked about his tax abatement and got sudden reassessment. Was it legal?

The battle over the property at the corner of 40th and Sansom Streets comes as the Office of Property Assessment faces scrutiny over its practices.

At 125-29 S. 40th St., developer Alan Casnoff constructed a building with four small restaurants. He is now alleging that the city improperly increased his property assessment.
At 125-29 S. 40th St., developer Alan Casnoff constructed a building with four small restaurants. He is now alleging that the city improperly increased his property assessment.Read moreGoogle Maps

When developer Alan Casnoff looked into his property records last year, he found that the city was not applying the 10-year tax abatement to the University City property on which he had built four small restaurants.

His lawyer reached out to the Office of Property Assessment and got a surprising response: A sudden and drastic change in his property assessment that increased the value more than 230 percent.

OPA recognized the abatement, which exempts new construction from property taxes, but dramatically increased the land value, on which he still owed taxes.

Casnoff is now in a legal battle with the city, alleging that assessors broke state law by changing his property value arbitrarily, without proper notice, and not as part of a citywide reassessment. If the abatement had been applied correctly before the change, the sudden reassessment would have represented a more than $36,000 tax hike over three years.

“I’m happy to pay whatever the legitimate taxes are — that’s never an issue,” Casnoff said. “But let’s have fairness for everybody, and let’s follow the rules.”

Assessment officials insist they did follow the rules, and say changes are permitted at any time to correct errors. An error was made in assessing Casnoff’s property that was not discovered until he pointed out the problem with the tax abatement, officials said.

The battle over the property at 40th and Sansom Streets comes as the Office of Property Assessment faces scrutiny over its practices. An audit released this month said the city’s assessment practices are flawed and do not meet industry standards. A report by City Controller Rebecca Rhynhart had similar findings.

City Council President Darrell L. Clarke has called for the firing of Chief Assessment Officer Michael Piper. While Mayor Jim Kenney’s administration has defended the Office of Property Assessment and disputed findings in the audit, the administration announced that it would make improvements to the assessing process based on recommendations from an independent consultant.

Two problems flagged in the recent audit are related to Casnoff’s situation in University City. The city has deficient data for many properties, the auditor found, and otherwise similar properties sometimes have very different land values. The land value discrepancies result in problems for property owners who have the 10-year tax abatement on new or rehabilitated properties and pay taxes on the value of their land but not the new building, the auditor said.

Casnoff purchased his University City property for $2 million in 2007. He demolished a church on the site and constructed a building that opened in 2015 and holds four small restaurants, including Dunkin' Donuts, Zesto Pizza, a Greek restaurant named Yiro Yiro, and, until recently, Hai Street Kitchen.

Casnoff said he was preparing to sell the property last year, so he looked into the tax records to make sure everything was in order and discovered that the 10-year abatement was not reflected in his property record. After he asked the city to correct it, assessors issued new property values for tax years 2017, 2018, and 2019. The property’s land value — the amount used to calculate real estate tax bills for properties that have 10-year tax abatements — increased more than 400 percent for each of those years.

Changing the value of a property outside of a countywide reassessment, known as a “spot assessment,” is prohibited under state law. If a property sells at a higher price than its assessment, for example, the city could not change its value based on the sale alone and instead would have to wait until the next reassessment of all properties.

Some changes are excluded from the ban on spot assessments: Assessors can change values to correct errors, when properties are subdivided, or when construction occurs.

Piper said the city was simply correcting an error because the demolition of the church and the construction of the new building were not reflected in the previous values.

“We corrected every error as we caught it,” Piper said last week. “We corrected the error that the abatement wasn’t on. But we also corrected the error that the new construction wasn’t on.”

A snapshot of the property record from September, however, shows that while the prior assessment was still in place, the city did have data showing that a one-story store, not a church, was on the property. Casnoff’s settlements of tax assessment appeals from 2015 and 2016 also reflect that he had demolished the church and constructed a new building on the site. Jacqueline Dunn, chief of staff to finance director Rob Dubow, said that even if the updated building information was in the property record, it was not reflected in the assessment and the city was permitted to make a correction.

Claiming such an error as a means of changing an assessment is an “administrative tactic,” said Robert P. Strauss, a professor of economics and public policy at Carnegie Mellon University.

“It’s very peculiar and not surprising," Strauss said. “And it’s smug.”

Chief Deputy City Solicitor Drew Aldinger said there was no net increase in Casnoff’s taxes as a result of the changes. That’s because, under the tax abatement, he pays taxes only on the land value of his property. Before the city made its changes, Casnoff’s property records did not reflect his abatement and he was taxed on the full market value. After the adjustment in question, his prior market values for 2017 and 2018 became the land value for those years.

Piper insisted that the city did not simply switch the market value to the land value, but instead calculated land value based on a price per square foot. He could not explain why the two figures were identical.

For 2019, the new land value was less than the previous 2019 market value — but still 418 percent higher than the previous land value, increasing from $232,380 to $840,000.

Casnoff is not the first property owner to face a significant land value increase on a parcel with an abatement. The city changed its method for assessing land values 2017, resulting in large tax increases for many abated properties. Some taxpayers fought the changes, and successfully challenged the city’s stance that land values alone are not subject to appeal.

Casnoff sold his property to new owners in December for $6.2 million, but said he will continue fighting the new assessment.

“People should not be able to do these kinds of things,” he said. “Someone’s got to stand up and say something.”

The Board of Revision of Taxes held a hearing on his appeal this month, but did not allow his lawyer to make an argument and classified the case as “abandoned” because no appraisal was submitted with the appeal, said Carla Pagan, the board’s executive director. Casnoff insists no appraisal was necessary because he was appealing the action of issuing a new assessment rather than the assessment itself.

Legally, the case could hinge on how to define an error under the law prohibiting spot assessments.

“Is there any liability to government for making errors to the disadvantage of its voting and taxpaying citizens?” asked Strauss, the Carnegie Mellon professor. “Is there culpability?”