Summary: The Allegheny Institute has published several Policy Briefs in recent years analyzing and discussing the increasingly large gaps in the inequities in property tax assessments in Allegheny County. The last reassessment was carried out under court order in 2012. Now, after 12 years, the gap between assessed values and market values has grown substantially as indicated by the Common Level Ratio (CLR) that is reported annually.
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The CLR is calculated yearly by the State Tax Equalization Board based on sales reported by each county for the preceding year. The county report includes sales price and assessed value of each property sold. After removing the outlier high and low assessment to market-value ratios, the CLR is then determined by finding the median value of assessment to sales value ratios. Thus, half of the reported assessment to sales price ratios is above the CLR and half are below.
Allegheny County uses the CLR to determine the outcome of property tax appeals. If an owner believes their property is over assessed and has an assessed value to market-value ratio above the CLR, the owner is entitled to relief if he/she can demonstrate to the appeals panel their assessed value to market value is above the CLR. The process is tedious and can be expensive.
But the fact remains that owners with assessed values to market values under the CLR are getting a break on taxes relative to those with ratios above the CLR. There is perennial controversy about the inequities created by the fact that property values are not kept up to date through regular reassessments in Pennsylvania. The state is one of only five states that does not reassess on a regularly scheduled basis. Some counties have not reassessed in many decades. Obviously, the longer the period between reassessments, the more inequities can arise.
And beyond the problem created by using the CLR to adjust assessments, there is the problem of equity associated with the size of tax advantage based on the differences in property values.
A straightforward and simple example will illustrate the potential for inequity: Assume there are two properties assessed at 75 percent of market and the CLR is 0.80 so that neither owner could use the appeal process to get their assessment lowered. One property has a market value of $1,000,000. The other has a market value of $200,000. The $1 million property would be taxed on $750,000—a tax break resulting from the combined school, county and municipality millage rates of, say, 35 mills times $250,000 or $8,750 per annum. The lower-priced property in the same municipality would get a break of 35 mills times $50,000 or $1,750—a $7,000 difference.
Obviously, the higher the combined tax rate the greater the gap would be for the tax break. Likewise, the greater the percentage of the tax break (100 percent minus the assessed to market-value ratio in percentage terms), the larger the gap in the dollar value of the tax break between the two properties. If, for example, the two properties were each assessed at 50 percent of market value, the $1 million property would get a tax break of $17,500 each year while the $200,000 property would get a tax break of $3,500. The tax break difference would double to $14,000 per year.
Under the current assessment appeal procedures, with both properties having assessment to market value below the CLR, the inequity created by the tax break cannot be alleviated. Only with updated assessments that are very close to market value and with all properties in each municipality (and school district) paying the same total tax rates can real equity be established.
Thus, it is extremely incumbent on county officials to keep property values as up to date as possible which means regular countywide reassessments, preferably every three years.
In short, beyond the problems of inequity created in terms of variability in assessment to market-value ratios and relying on the CLR for appeals, there is also a problem of equity in terms of the tax-break effect owing to large differences in market value as illustrated above.
