The Pennsylvania Commonwealth Court recently decided a tax assessment appeal involving a 486,086 square foot industrial facility in Erie County. The Court considered a number of important issues including:

  1. Whether the taxpayer’s appraiser utilized a “value-in-use” methodology?
  2. Whether the Court was entitled to split the difference between the appraiser’s values?
  3. Whether the lower court was entitled to establish a value for tax year 2010 when the taxpayer’s appraiser did not offer an opinion of value for that year?

First, the Commonwealth Court found that the taxpayer’s appraiser did not improperly utilize a “value-in-use” methodology in valuing the property. The court reaffirmed the law in Pennsylvania that “an appraiser applies the improper value-in-use methodology when he or she develops a valuation based on the productivity of a business located on the real estate.” The Commonwealth Court found that the taxpayer’s appraiser did not utilize a “value-in-use” methodology when he considered the property’s actual rents under the income approach. It found that the lower court erred in finding that the utilization of actual rents was “value-in-use” methodology since the appraiser was utilizing income that was generated from the real estate as compared to income that was generated from the business.

Second, the Commonwealth Court affirmed the right of a lower court to “split the baby.” In this case, the lower court was entitled to disregard the final value conclusions of the experts and it was proper for the trial court to exercise its discretion and “to select a value for the property in the mid-range of the experts’ appraisals.”

Finally, the Commonwealth Court found that the trial court did not err when it set a value for the 2010 tax year despite the fact that the taxpayer’s appraiser did not offer an opinion of value for that year. The court indicated “here, the trial court had extensive expert testimony regarding the value of the property over the course of many years, and we conclude that the trial court properly relied upon that evidence to determine a value for 2010.”