Appeal from the Judgment of the Court of Common Pleas of Allegheny County, entered July 25, 2007 at No. GD-05-Appellees. Appeal from the Judgment of the Court of Common Pleas of Allegheny County entered July 25, 2007 at No GD-05-: 028355.
The opinion of the court was delivered by: Mr. Chief Justice Castille
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
ARGUED: September 10, 2008
"Controversies growing out of the assessment and collection of taxes are as old as civilization. To question the assessment, to doubt the levy, and to delay the collector may be classed among those inalienable rights of mankind not guaranteed by any Constitution, but very generally asserted under the law of human nature." Delaware, L.&W.R. Co.'s Tax Assessment, 73 A. 429, 430 (Pa. 1909). The present appeals call for us to consider the constitutionality of Pennsylvania's property assessment laws.*fn1 Presently, the assessment laws of the Commonwealth neither require nor do they prohibit periodic property reassessments, and thus they permit real estate taxes to be levied on property values that are based upon a stagnant "base year market value" for an indefinite period of time. Allegheny County has adopted such a base year system. In a thorough opinion and order, the Court of Common Pleas of Allegheny County, per the Honorable R. Stanton Wettick, Jr., found that, because a base year assessment method that does not require periodic reassessments inherently causes significant disparities in the ratio of assessed value to fair market value, the Commonwealth's property assessment laws were facially unconstitutional as they violate the Uniformity Clause of the Pennsylvania Constitution, PA. CONST. art. VIII, § 1, which requires equality of taxation. In Judge Wettick's view, the only option for the County was an annual reassessment. For the reasons that follow, we disagree with the trial court's holding that the statutes are unconstitutional on their face. Nevertheless, for many of the same reasons cited by the trial court, we hold that the base year method of property valuation, as applied in Allegheny County, violates the Uniformity Clause. We therefore agree that a countywide reassessment is required and we remand this matter to the trial court for implementation of that mandate consistent with this Opinion.
Initially measured by a tract of land's agricultural productivity, property taxes were regularly administered in ancient Egypt, Babylon, and Persia. Richard Henry Carlson, A Brief History of Property Tax, FAIR & EQUITABLE, Feb. 2005, at 3-4.*fn2 In medieval England, each parcel of land was measured and had its value estimated, with the resulting property assessment and tax liability entered into the town's Domesday Book. In the Seventeenth Century, a hearth tax was administered in England and some of its colonies, which estimated a building's value according to the number and size of its hearths. In colonial America, revenue was raised by many colonies through a general property tax, which assessed the value of land, buildings, animals, and personal property; and while the tax rate was generally higher than it is today, properties were routinely under-assessed. Id. at 5-6. In the early United States, national property taxes such as the "window tax," which, in addition to a land tax, assessed real estate according to the number and size of a building's windows and doors, caused unrest and, at times, rebellion.*fn3 With the development of a mercantile economy, and later an industrial economy, the property tax was supplanted, first by the excise tax, and later by the income tax. Id. at 5-8.*fn4 Nevertheless, through the Nineteenth Century, property tax was the primary form of taxation at the state and local level. John Joseph Wallis, A History of the Property Tax in America, in PROPERTY TAXATION AND LOCAL GOVERNMENT FINANCE 127 (Wallace E. Oates ed. 2001); see also John A. Miller, Rationalizing Injustice: The Supreme Court and the Property Tax, 22 HOFSTRA L. REV. 79, 83 n.8 (1993) (describing origin of property tax in United States). While its primacy has faded with the implementation of local income taxes and sales taxes, the property tax has remained a primary provider of local tax revenues for, among other things, public schools, police and fire departments, and sanitation services. Wallis, supra, at 127-28; Miller, supra, at 83 n.8; Stewart E. Sterk & Mitchell L. Engler, Property Tax Reassessment: Who Needs It?, 81 NOTRE DAME L. REV. 1037, 1037 (2006). For example, when the first comprehensive census of governments was completed in 1902, property taxes comprised 73% of all revenue collected by local governments. In 1992, the percentage was 40. Wallis, supra, at 123.
Today in Pennsylvania, property taxation is primarily used to raise revenue for the maintenance of the counties' public school systems, and is administered through a number of statutory provisions. See Pennsylvanians Against Gambling Expansion Fund, Inc. v. Commonwealth, 877 A.2d 383, 413 (Pa. 2005) (citing Mikell v. Phila. Sch. Dist., 58 A.2d 339 (Pa. 1948)). Relevant to the present appeal, Pennsylvania's property assessment laws are governed by both the General County Assessment Law, 72 P.S. §§ 5020-1 to -602, which contains provisions applying to all sixty-seven counties, and by statutes applicable to specific categories of counties, e.g., first-class counties, second-class counties, etc. Under this statutory regime, as with those preceding it, a county conducts property assessments in order to value a property and arrive at a basis for property taxation. Although based on a property's "actual value,"*fn5 the value established by the tax assessors is referred to as a property's "assessed value." See BLACK'S LAW DICTIONARY 1586 (8th ed. 2004) (defining assessed valuation as "[t]he value that a taxing authority gives to property and to which the tax rate is applied").*fn6 Under the Uniformity Clause, countywide assessments must be uniform so that all property in each county is uniformly assessed. See PA. CONST. art. VIII, § 1. Such uniformity is more easily achievable in counties where all real property is assessed at 100 percent of market value, resulting in assessed values that are the same as actual values. Disparities in uniformity often occur where a property is assessed at a higher percentage of fair market value than other properties in the taxing district, causing assessed values and actual, fair market values to differ, often dramatically.
Prior to 1982, Pennsylvania's assessment laws required that each county assess real property every year based on its current fair market value -- no doubt in order to avoid the disparity described above. Allegheny County was the only county then permitted to conduct triennial assessments. In practice, however, most counties did not comply with the annual assessment requirement. In 1982, the assessment laws governing the different counties were amended so as to allow counties to utilize either a current market value method or to adopt a base year market value method in arriving at the assessed value of each property in the county. 72 P.S. § 5020-402. A "base year" is defined as:
[t]he year upon which real property market values are based for the most recent countywide revision of assessment of real property or other prior year upon which the market value of all real property of the county is based. Real property market values shall be equalized within the county and any changes by the board of assessment appeals shall be expressed in terms of such base year values.
72 P.S. §§ 5020-102, 5342.1.
Under a base year system of valuation, a county performs a countywide reassessment of all real property in the base year, and then uses each property's base year assessment as that property's basis for taxation in the base year, as well as its basis (i.e., assessed value) in subsequent years. Downingtown Area Sch. Dist. v. Chester County Bd. of Assessment Appeals, 913 A.2d 194, 202-03 (Pa. 2006). In the base year, a property's assessed value may be 100% of its actual value, and thus, assessments of all real estate in the county are based on actual, fair market value for the base year. Each year thereafter, however, a given property's market value may change, but its assessment ordinarily remains static, fixed at its base year level until the next countywide reassessment. Id. at 203-04. This is so because a county utilizing a base year method of valuation typically does not consider market fluctuations subsequent to the base year when assessing "current value," or factor in variables such as improvements to a property that may increase its assessed value. If a building is constructed on a lot that was vacant during the base year, the property's assessed value is determined by using either sales of comparable properties in the base year or base year construction schedules.*fn7
The present litigation is the latest in a long line of cases challenging Allegheny County's method of property assessment. Prior to 2002, Allegheny County did not use a base year for calculating assessments. In the 1980s and 1990s, the County purportedly assessed property at its actual value in the current taxable year, but, in fact, did not conduct annual countywide reassessments. Instead, the County used a property's assessed value from the prior year when assessing value in the current year, sometimes with a slight increase in neighborhoods where property values were increasing, and a slight decrease in neighborhoods where values were perceived as declining. Periodically, an entire area was reassessed, though the area may only have comprised a portion of a school district. When such a reassessment occurred, the reassessed property owners were paying more taxes proportionately than owners of properties in the school district that were not reassessed. Trial Ct. Op. at 2-3.
On January 1, 1996, a newly elected Board of County Commissioners in Allegheny County adopted a resolution freezing assessments except for physical changes to a property. The next day, the Allegheny County Board of Property Assessment, Appeals and Review ("Assessment Board") -- which, under the Second Class County Assessment Law, is responsible for establishing assessments -- adopted a resolution freezing assessments, with the exception of new buildings, construction, improvements, and subdivisions. A year later, in January 1997, the Assessment Board extended the freeze to the 1997 tax year, intending the freeze to remain in effect for five years, or until such time when a countywide reassessment was conducted. Trial Ct. Op. at 3.
Allegheny County property owners brought a lawsuit challenging the assessment freeze, and Judge Wettick ruled that the freeze violated the Second Class County Code, 16 P.S. §§ 3101-5106-A, which imposes an obligation on the Assessment Board to revise and equalize assessments on an annual basis. Miller v. Bd. of Property Assessment, Appeals & Review of Allegheny County, 145 P.L.J. 501 (Pa. Com. Pl. Allegheny 1997).*fn8 Judge Wettick's order directed the Assessment Board to make appropriate adjustments and revisions during 1997 for the 1998 tax year. Thereafter, the Assessment Board and the County informed Judge Wettick that the assessment system could not be repaired. At the County's request, Judge Wettick entered a consented-to court order modifying his prior orders setting timetables for making adjustments and modifications, and ordering that a comprehensive countywide assessment be completed by 2000 for use in the 2001 tax year. Trial Ct. Op. at 3-4.
In 2000, Allegheny County became a home-rule entity and the County's new legislative branch, the County Council, adopted a comprehensive ordinance to govern assessments, which required, among other things, annual reassessments. See 302 Pa. Code §§ 1.1-101 to 51.24-2411. The assessment ordered by Judge Wettick was completed and used for the 2001 tax year, though several lawsuits were filed alleging that the new assessments were invalid because they had not been properly certified, and approximately 90,000 taxpayers filed appeals with the Board of Assessments contesting their 2001 valuations. Trial Ct. Op. at 3-4.
Thereafter, pursuant to the Allegheny County Administrative Code's requirement of annual reassessments, the County Assessment Office performed an annual reassessment for use in tax year 2002.*fn9 In 2002, however, the Allegheny County Assessment Ordinance was amended to provide that the 2002 assessment would serve as the base year for years 2003, 2004, and 2005, and provided that the assessments for 2006 would be completed and provided to property owners, with an immediate right of appeal. Thus, in early 2005, the County's Chief Assessment Officer completed a computer-assisted reassessment for use in the 2006 tax year. Pursuant to the County Administrative Code, the Chief Assessment Officer obtained independent verification that the reassessment met the standards of the International Association of Assessing Officers ("IAAO") and presented the reassessment to County officials. The 2005 assessment, however, was never formally certified by County officials. Trial Ct. Op. at 4.
On March 15, 2005, the County Council enacted Ordinance 15, which provided for the Chief Assessment Officer to: (1) determine the actual value of each property; (2) perform an analysis of the increase or decrease in valuations in different neighborhoods; and (3) assign a specific value limitation for each neighborhood -- either decrease, no change, one percent, two percent, three percent, or four percent. Thus, under Ordinance 15, the assessed value of a property could not increase by more than four percent.*fn10
Taxpayers challenged the validity of Ordinance 15, and in Sto-Rox School District v. Allegheny County, 153 P.L.J. 193 (Pa. Com. Pl. Allegheny 2005), Judge Wettick found that Ordinance 15 improperly required the Chief Assessment Officer to determine the taxable values of certain properties by reducing their actual values by different percentages. Judge Wettick ruled that Ordinance 15 violated the Home Rule Charter of Allegheny County, the Second Class County Charter Law, Pennsylvania's laws governing property assessments, and the Uniformity Clause of the Pennsylvania Constitution. However, because the uncertified 2005 assessment was subject to lingering questions and criticism, Judge Wettick denied the plaintiffs' request to direct that the 2005 assessment be certified for use in the 2006 tax year. Trial Ct. Op. at 5.
On October 18, 2005, County Council enacted Ordinance 45, which amended the County Administrative Code to provide for the continued use of the 2002 assessment as a base year. Thus, assessments for 2006 and subsequent years would be based on a property's value as of 2002. Ordinance 45 did not set forth any date by which a reassessment should be completed, though it required that, in 2009, a qualified expert conduct a detailed study of the existing property assessment system in Allegheny County. Ordinance 45 also removed the County Administrative Code's requirement that the Chief Assessment Officer complete ratio studies to determine whether the assessed values met IAAO uniformity and equality standards. Trial Ct. Op. at 6.
The present litigation arises out of two lawsuits challenging the validity of Ordinance 45: one filed by appellees Kenneth Pierce and Stephanie Beechaum ("the Pierce complaint"), and another by appellees James C. Clifton, Charles and Lorrie Cranor (husband and wife), and Roy Simmons and Mary Lisa Meier (husband and wife) ("the Clifton complaint").*fn11 The individual complaints were based on the following facts.
The Pierce property, located in Braddock, was assessed by the County at $27,900 in 2002. Under Ordinance 45, the property will continue to be assessed at that value indefinitely, unless challenged through appeal. The uncertified value of the property for tax year 2006, based on the 2005 uncertified reassessment, was listed at $14,200 on the County's Real Estate Website. The trial court found this value to be far closer to the property's actual value and concluded that the property was over-assessed. Trial Ct. Op. at 6.
The Beechaum property, located in the Hill District of Pittsburgh, was assessed at $29,000 based on the 2002 base year assessment. The uncertified value of the property based on the 2005 reassessment was $15,500. The trial court also found that this value was far closer to the property's actual value and concluded that the property was over-assessed. Id. at 7.
The Clifton property is located in Wexford and was purchased by Clifton for $532,000 on June 11, 2004. The 2004, 2005, and 2006 assessed values of the property were $508,000, though its 2002 assessed value was $425,400. Id.*fn12
The Cranor property is located in Pittsburgh and was purchased on December 8, 2003 for $730,000. In 2005 and 2006, its value was assessed at $730,000. In 2002 and 2003, it was assessed at $466,000. Id.
The Meier-Simmons property in Mt. Lebanon was purchased on April 6, 2004 for $412,500. The property's 2005 and 2006 assessed value was $412,500, though it was assessed for $233,700 in 2002 and 2004. Id. at 7-8.*fn13
Appellees initially challenged the legality of Ordinance 45 and sought a court order that would: (1) declare that the use of 2002 property values as the fair market values of properties for the 2006 tax year violated state assessment laws; and (2) direct the Chief Assessment Officer to certify the 2006 assessment values based on the 2005 reassessment.*fn14 Although the original complaints referred to violations of the Uniformity Clause of the Pennsylvania Constitution, the focus of the complaints was whether Pennsylvania assessment laws permitted Allegheny County to use 2002 actual values (the base year values) for a 2006 assessment.*fn15
The County filed preliminary objections seeking dismissal for failure to state grounds for relief. The trial court sustained the County's preliminary objections that sought the dismissal of the claims alleging that Ordinance 45 violates state assessment laws. The trial court rejected appellees' argument that provisions of the assessment laws that permitted a county to adopt a base year value method of assessment were intended only to permit a county to express current values as base year values. The court concluded that the plain language of the assessment laws permitted assessments in future years to be based on actual values in the base year.*fn16 In any event, the trial court permitted appellees to file amended complaints raising constitutional challenges to the state assessment laws. Thereafter, appellees filed amended complaints in both lawsuits, alleging that Pennsylvania's base year method for assessing property values violates the Uniformity Clause of the Pennsylvania Constitution. Answers were filed and a non-jury trial was held on December 11, 13, and 14, 2006.
After thorough consideration of the history of the uniformity requirement in real estate taxation in Pennsylvania, as well as the assessment procedures of other states, the trial court determined that the provisions of the General County Assessment Law and the Second Class County Assessment Law, which allow a county to arrive at actual value through use of a base year method, violate the Uniformity Clause. Specifically, the trial court found that Section 502-402(a) of the General County Assessment Law, 72 P.S. § 5020-402(a), and Section 5452.4(a.2) of the Second Class County Assessment Law, 72 P.S. § 5452.4(a.2) violate the Uniformity Clause. The trial court found that the base year method of assessment is invalid on its face because it inevitably produces arbitrary, unjust, and unreasonably discriminatory results. The court also found that, in most counties, base year assessments have, in fact, produced substantial levels of inequities in the ratio of assessed values to market values, which could easily be reduced through periodic reassessments.
The trial court faulted the base year system, as employed in Allegheny County, for failing to consider market fluctuations between the 2002 base year and the current tax year. To illustrate, the trial court offered the following example: the Woodland Hills School District, which includes Edgewood and Braddock, used 2002 fair market values to calculate the 2007 school taxes paid by property owners even though overall property values in Edgewood increased by 35.87% between 2002 and 2005, while property values in Braddock declined by 16.09%. Trial Ct. Op. at i (opinion summary). In conclusion, the trial court determined that assessment laws allowing use of a base year assessment without requiring reassessments violate the Uniformity Clause because:
(1) base year assessments are not intended to assess all properties at the same percentage of assessed value to actual value, (2) base year assessments inherently cause significant disparities in the ratio of assessed value to fair market value, and (3) base year assessments inevitably discriminate against owners of properties in lower-value neighborhoods.
Id. at iv (opinion summary).
The trial court recognized that, given its ruling that the base year system of property assessment is unconstitutional, "the only remaining option for Allegheny County under [the] General County Assessment Law is an annual reassessment based on the current market value." Trial Ct. Op. at 91. Aware of the statewide implications of its decision, however, the trial court did not follow appellees' recommendation and compel a reassessment for the 2008 tax year, stating that:
For two reasons, I am not entering a court order directing Allegheny County to complete a reassessment (similar to the 2005 reassessment) in 2007 for use in 2008.
First, . . . . [m]y ruling concerns a statewide rather than an Allegheny County issue because Allegheny County's use of a 2002 base year is permitted under the state assessment laws and every county in the state uses a base year method of assessment. Allegheny County's assessments are more uniform than the assessments of most other counties. Under these circumstances, the interests of justice are served by permitting Allegheny County to continue to assess property in the same manner as all other counties assess property during the pendency of an appeal of my ruling to ...