A commercial real estate owner's successful efforts to reduce his property taxes could cost public agencies in Philadelphia dearly.

The man, who owns parking lots, had appealed his tax bills to Philadelphia's Board of Revision of Taxes. He didn't argue about how much the property was valued, but rather the percentage of tax he should pay. The board agreed to follow Pennsylvania state guidelines instead of city guidelines, with the new value reducing his taxes by slightly more than $30,000.

He's one of the owners of nearly 1,000 properties who have appealed their taxes. And if all are successful in reducing their taxes using the same formula that the Board of Revision of Taxes applied to the parking lot, the already financially struggling city could lose millions of dollars in funding from property taxes. One estimate has said the city and school district could lose as much as $80 million in revenue.

In all, the property taxes due on about 60 percent of the non-residential properties in the city also have been appealed.

The city and the state board differ on how much a property owner should pay in taxes. The city sets its tax rates at 32 percent of the market value. The state, however, uses a complex formula to determine the value of a property and then sets the tax rate at 18.1 percent.

The city of Philadelphia does not agree with the lower tax ratio used to determine a property's value for tax rates. The city's Revenue Department will seek relief of the revenue formula in court but also hopes to sway members of the State Tax Equalization Board to change their minds.

But the effect on city and state coffers is not and should not be a real estate developer's concern. A developer or buyer trying to appeal their property tax bill should consult with an experienced attorney who knows the complexities of the law.

Source: The Inquirer, "Tax victory for parking lot could cost city elsewhere," Harold Brubaker, Jan. 20, 2012