In 2021 a Commonwealth Court said Philadelphia’s 2018 reassessment solely of commercial properties was illegal and unconstitutional. The City subsequently sought an appeal which Pennsylvania’s Supreme Court denied last week (June 2022), stating fair assessments must include both residential and commercial properties. The denial should not come as a surprise. While there have been many cases also challenging the uniformity clause in the Pennsylvania Constitution, more recently and locally in 2017 the Pennsylvania Supreme Court upheld the uniformity concept in a case involving the Upper Merion School District.
The court’s denial of the City’s appeal is a reinforcement of concepts that are long-standing in Pennsylvania:
–Taxes should be “uniform” across all types of properties, meaning there is one property tax rate for all properties, a flat tax rate.
–“Uniform” also means that a property cannot be singled out and should be within conformance with other properties in the sub-market or competitive segment.
After a three-year pause of assessments, the City revealed a few weeks ago property tax assessments for all city properties for 2023 tax bills. On the surface, the three-year gap combined with the apparent, current development boom in Philadelphia is feeding expectation that values for all property types have increased and will therefore garner a hefty increase in tax revenue.
However, while some segments of Philadelphia’s commercial real estate are on fast growth trajectories – most notably multifamily – other segments are stagnant or have declined. Office and hospitality continue to struggle to regain occupancy and revenues, with a February 2022 Tourism Economics report stating that hospitality in 2022 is expected to average 19.6% below the 2019 level. Some retail is already challenged and the lack of office workers traveling into the city further contributes to the challenges for that segment. There are also variances based on geography which significantly impact property valuations. University City and the North Broad corridor are rapidly developing while other neighborhoods struggle.
With these contradictory and far-reaching forces, we anticipate a large and wide number of appeals from commercial property owners in the coming months. Commercial property owners should plan to take a hard review of their new assessments to ensure they are true to their property type and location.
