A victory for a Philadelphia parking lot owner seeking to slash his property-tax bill could set a costly precedent for the city and school district.
Philadelphia's Board of Revision of Taxes on Thursday effectively cut Race Street Parking Associates' property taxes 44 percent, more than $30,000, by applying a controversial ruling by a state board that regulates local property-tax systems.
The ruling has significant implications for the budgets of the city and the school district because owners of nearly 1,000 properties - representing 60 percent of the city's nonresidential property base - have filed similar appeals.
Based on those pending nonresidential appeals, the city and struggling school district could lose as much as $80 million. City officials have not released an estimate, but they said they expected the loss to be much less.
The city will appeal to the Court of Common Pleas, said Frances R. Beckley, chief counsel to the city's Revenue Department.
The city also has not given up on getting relief from the State Tax Equalization Board and is taking extraordinary measures, outside court, to do so. The Equalization Board published the tax ratio last summer that opened the door to appeals based exclusively on what portion of a property's certified market value should be taxed.
In a new set of data sent to the state board Friday, the city's Office of Property Assessment increased assessed values on properties sold in 2010 by 41 percent, citing a 2004 city ordinance that acknowledged that market values certified by the city are not actual market values - a symptom of the city's historically flawed property-tax system.
When told of the city's move in sending the new set of data, which could nullify most pending tax appeals, several real estate professionals were stunned.
Lawyer Carl S. Primavera's reaction: "How can they do that? I don't get it."
"I think it's astonishing," said Joseph C. Bright, another real estate lawyer.
"I'm flabbergasted," said David Glancey, former chairman of the old Board of Revision of Taxes, which was split into a new, independent BRT and the Office of Property Assessment, which is part of the city's Department of Revenue.
"What the city is doing is literally a crime. They are cheating. They are stealing from people," said Brett Mandel, a tax-policy activist.
The Office of Property Assessment website still shows assessed values certified for the current year, but the data sent to Harrisburg differ.
For example, the certified assessment for Three Logan Square, at 1717 Arch St., is $40.64 million. That's the value set and used by the city in calculating property taxes. The assessed value sent to the state board Friday is $57.24 million.
That translates into a $179 million market value, which is 39 percent more than Brandywine Realty Trust paid in 2010.
The city provided no explanation. "We are not making any comment on what we've sent to STEB until after the entire case is resolved," Mayor Nutter's spokesman Mark McDonald said, using the acronym for the state tax board.
Renee Reynolds, the state tax board's executive director, said Thursday that it would take a few days to arrive at a ratio - called the common level ratio - for the city using the new data.
A public hearing will take place before the three-member state tax board approves a new ratio, but the date has not been set, Reynolds said.
For now, the city's Board of Revision of Taxes, asserting its independence from the Nutter administration, is using the 18.1 percent ratio published by the state tax board.
The state board, using data sent by each county, calculates the common level ratio - which is used to ensure the accuracy of assessments - by comparing actual sales prices each year to assessment values.
In some counties, including Philadelphia, property tax is calculated on a percentage of the official market value. That percentage is 32 percent in Philadelphia.
If the common level ratio differs by more than 15 percent from a county's own ratio, then the state board's ratio must be used when a taxpayer appeals.
That is what the BRT did Thursday in a case argued by Bright, of Cozen O'Connor, agreeing to apply 18.1 percent to five parking lots with a total certified market value of $2.4 million to establish the assessed value. Bright was not disputing the certified market value - simply the assessed value used to calculate the property taxes.
The Philadelphia School District, represented by a city attorney, wanted to appeal the market value of those parking lots, as it did in every other case where the property owner wanted the 18.1 percent ratio applied.
The BRT rejected that effort in Bright's case.
Board of Revision of Taxes Chairman Alan Silberstein said the board was simply following the law. "We feel it's our duty as a board to protect the citizens of Philadelphia, so everyone pays a fair share," Silberstein said.
In the scheme of the city and school budgets, little money was at risk in the parking lots case, just $30,363 in reduced taxes.
But the significance of the ruling was quickly apparent.
In a second case involving the common level ratio, the property owner had initially appealed the market value of the former DisneyQuest site in the 800 block of Market Street and had asked for the application of the 18.1 percent common level ratio to the new market value.
Silberstein, a former Municipal Court Judge, gave the attorney, Primavera, the opportunity to withdraw his appeal of the market value and simply accept the 18.1 percent common level ratio.
That will reduce the property tax on the parcel, now a parking lot, by $159,733.