Notices of Increased Real Estate Tax Assessments in the City of Philadelphia The Office of Property Assessment, starting in April, has sent owners of commercial and industrial properties in Philadelphia notices of reassessment of property values. This involved a thorough analysis of some of Philadelphia’s most complex and high-valued parcels, including hotels, office buildings, and apartment buildings.  Also reassessed were all retail properties, warehouses, commercially-zoned vacant land, and properties with multiple uses. The new property values take effect for Tax Year 2018, with property taxes due on February 28, 2018.  Written notices of the new values are being mailed and, for comparison, can be seen at http://www.phila.gov/OPA/Pages/PropertyInformation.aspx . Beginning in Fiscal Year 2018, the OPA will conduct annual reassessments of all 579,000 properties in the city, including residential and commercial. Condo units have been considered undervalued for assessment purposes and most are being increased substantially. Also, residential and commercial properties enjoying the benefit of the 10 year tax abatement will be affected. The abatements apply only to new improvements and there is no abatement on the tax on the land value. OPA has announced that it believes that land in the City is under assessed and these assessments will increase. Whether or not this will be matched by a decrease in assessed values of the buildings and improvements remains to be seen. We at Astor Weiss are staying on top of this situation and are in the process of filing appeals for clients.  Please ask your questions and discuss the 2018 substantial increases in real estate taxes and the City Use and Occupancy Tax by calling Ron Glazer, David Mandel or Therese Allison at 215-790-0100. You may have us request a First Level Review (FLR) by filing no later than May 26, 2017.   If you are not satisfied with the outcome of the review or decide to skip the FLR process altogether, you may have us file a Formal Appeal with the Board of Revision of Taxes (BRT). Formal appeals are due to the BRT by the first Monday in October (October 2, 2017).      

In a recent Pennsylvania Supreme Court case, the court upheld the Commonwealth court’s decision that nonresident limited partners, in a partnership with the sole purpose of investing in property located in Pennsylvania, are responsible for Pennsylvania income taxes on their share of income from a discharge of debt as a result of a foreclosure. Wirth v. Commonwealth of Pennsylvania, PA Supreme Court, Nos. 82 MAP 2012, 83 MAP 2012, 84 MAP 2012, 85 MAP 2012, June 17, 2014. Facts In 1985, a partnership was formed pursuant to Connecticut law (the “Partnership”) for the sole purpose of purchasing and managing the property located in Pittsburgh, Pennsylvania (the “Property”). In total there were 735 limited partners; only 25 were Pennsylvania residents. All of the limited partners were passive investors and did not take part in the active management of the Property.   The Partnership purchased the Property in 1985 for $360 million; $52 million was paid in cash and the Property was pledged as collateral to obtain a nonrecourse note for the balance of $308 million. In 2005, the Property was foreclosed on and the Partnership reported a gain equal to the unpaid balance and the accrued, compounded interest, totaling $2,628,491,551. The Pennsylvania Department of Revenue subsequently assessed an income tax against each of the limited partner’s share of the $2,628,491,551 gain. In real estate terms, a foreclosure is a home that belongs to the bank, which once belonged to a homeowner. If you would like to learn more about buying a foreclosed home, you can head to Auction.com. Analysis/Holdings The court first determined that the Commonwealth of Pennsylvania had the legal authority to impose an income tax on the nonresident limited partners because the limited partners had enough “contacts” with the Commonwealth. Next, the court held that the discharge of the nonrecourse debt associated with the foreclosure was a taxable event and subject to Pennsylvania income tax. Therefore, the nonresident limited partners were subject to Pennsylvania income tax on their share of the $2,628,491,551 gain. Lastly, the court held that the nonresident limited partners could not “off-set” their Pennsylvania income with losses from their partnership interests because those losses technically occurred in the state where the limited partner was domiciled. * * * The above case emphasizes the need for an investor in a “flow through” entity, such as a partnership, to stay abreast of the changing tax landscape in Pennsylvania. The income tax, real estate and partnership attorneys located at Astor Weiss Kaplan & Mandel, LLP have over 50 years of experience in assisting our clients navigate through the complex and evolving laws that affect all investors doing business in the Commonwealth of Pennsylvania. Please call David Workman or Daniel R. Levine of our Tax practice group if you would like to discuss how Astor Weiss Kaplan & Mandel, LLP can counsel your business.