In this case the Pennsylvania Supreme Court provided more clarity as to what may be considered in the valuation of a property with environmental damage for tax purposes. Specifically, the court held that the hypothetical ways a property can be used by potential buyers is a permissible consideration, as are any environmental remediation agreements and the environmental stigma associated with the property due to the damage.

Harley-Davidson (HD) operated a manufacturing plant on a 230 acre parcel of land that had previously been used for weapons manufacturing by the US Navy. The prior use had caused significant environmental damage to the property. HD and the US government executed a settlement agreement in 1995 under which they would share all remediation expenses and HD would restrict the use of the property to commercial and industrial purposes.

In 2003 the Assessment Office of York County notified HD that it planned to increase the parcel’s property tax assessment.  HD appealed to the Court of Common Pleas of York County, the School District intervened, and a bench trial was held. Both sides presented expert testimony about the value of the parcel. HD’s expert was rejected by the trial court as not creditable. The School District’s expert testified that the highest and best use of the parcel was for warehousing and office use, and repeatedly said his evaluation was based on the property in its current state; not as if it were already subdivided or developed. The expert further testified that he had considered the parcel’s environmental contamination, but that it did not change his valuation because his contemplated use was not precluded by it and the agreement between the government and HD made them jointly responsible for all remediation. Finally, he made an across-the-board 5% reduction to his appraisal based on the environmental stigma that would be attached to the land.

The Trial court found for the School District and HD appealed.  On appeal, the Commonwealth Court reversed. It determined that the District’s expert had improperly valued the parcel as if it had already been subdivided and developed. Further, it concluded that the School District’s expert failed to consider the impact of environmental damage on the property’s value and alienability, and that the 5% environmental stigma devaluation was essentially arbitrary and unsupported by substantial evidence. The School District was then granted appeal by the Supreme Court.

The Supreme Court rejected the lower court’s determination that the District’s expert had valued the property as though it had already been subdivided. The Court characterized the lower court’s determination as essentially forbidding virtually any reference to a parcel’s hypothetical future use even where necessary to determine market value. It concluded that hypothetical ways in which a property could be used by potential buyers can be considered when evaluating fair market value and that the District’s expert had properly considered them in his valuation.  Additionally, the court stated that the potential effect of agreements concerning possible environmental remediation liability and ongoing environmental restrictions and maintenance were also proper factors to consider, as was any potential environmental stigma. The court affirmed the Commonwealth Court’s determination that the District’s valuation had not properly considered the effect of the agreement on the property value, and reversed its decision on the environmental stigma.

Click here to read: Harley-Davidson Motor Co. v. Springettsbury Twp., 82 MAP 2014 (Pa. Sep. 29, 2015).