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Pennsylvania Property Tax Updates

UPDATED december 2018

PA APPELLATE COURT RULES BILLBOARD GROUND LEASES (BUT NOT STRUCTURES) TAXABLE

In one of its last decisions of 2018, the Pennsylvania Commonwealth Court overturned a trial court in a decision issued December 27, 2018 concerning the taxability of billboards for property tax purposes.  See Consolidated Appeals of Chester-Upland School District, 633 C.D. 2017 (Pa. Commw. Ct. 12-27-2018).

In 2011, Pennsylvania legislators passed a statute excluding billboard structures from the definition of “real estate” for purposes of property taxation.  The Chester-Upland School District case is the first case to reach Pennsylvania’s appellate courts regarding the interpretation of the statute.

For tax year 2015, two school districts in Delaware County collectively filed 26 real estate assessment appeals; each of the 26 appeals were of properties containing an outdoor advertising sign.  The school districts sought to value the properties based on revenue the property owners realized through ground leases or grants of easements to outdoor advertising companies.  The trial court consolidated all 26 appeals on the legal issue of “whether a taxing authority can use the presence of an outdoor advertising sign to increase the real property tax basis of the property.”  Citing the statute, the trial court ruled in favor of the taxpayers, concluding that the statutory exclusion of outdoor advertising signs from real estate taxation, “prevented the existence of an outdoor advertising sign on a property from being considered in any manner to raise that property’s real estate tax basis.” 

The school districts appealed to the Commonwealth Court.  The school districts argued that the sign-and-structure exclusion does not preclude the assessment of the land on which a billboard sits.  Taxpayers responded that “the amount of rent paid here by billboard operators to the property owners pursuant to leases or easements necessarily ‘reflect consideration’ of the billboards and that taxing the rent that is paid by the operators will operate as a ‘subtle-but no less real – assessment.” The Commonwealth Court ruled that the trial court erroneously interpreted the statute to foreclose any consideration of any potential income that a property owner may receive from the placement of a billboard on its property.  The Commonwealth Court interpreted prior decisions of the Pennsylvania Supreme Court in its Marple and Tech One decisions to support its holding that the appraiser must considered the “economic reality” of a long-term lease on a property that provides revenue to the property owner.  The Commonwealth Court limited its ruling to the effect of the outdoor advertising structure on the land value.  With respect to the advertising revenue itself, the Commonwealth Court held “We agree that an appraiser must not indirectly value an existing billboard on a property by, for example, considering the revenue generated from the number of advertisements that are placed on that billboard in a given year.”

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