City of Philadelphia v. Lerner
2016 Pa. LEXIS 2675
| Pa. | 2016Background
- In 2004 an anonymous tip led Philadelphia to investigate Nathan Lerner and his business connections with Lester Goldstein; Lerner ignored the City's requests for tax returns.
- The City issued a delinquent tax bill based on a $150,000 annual net income estimate and later sought collection; Lerner did not timely appeal the administrative assessment to the Philadelphia Tax Review Board.
- The City obtained a default judgment after Lerner initially failed to answer; the trial court later opened the default and the collection action proceeded.
- At bench trial the City’s witness admitted the City had no factual basis for the $150,000 figure and that supervisors "made up" high jeopardy/assessment numbers to elicit compliance.
- The trial court characterized the assessment as arbitrary but granted the City judgment because Lerner had failed to exhaust administrative remedies (citing Krug).
- Lerner appealed to the Commonwealth Court and then to the Pennsylvania Supreme Court, arguing the City’s assessment was unsupported and that exhaustion should not bar review where the City’s own evidence shows no basis for the assessment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a taxpayer who failed to appeal an administrative tax assessment may nonetheless challenge the assessment in a later collection action when the taxing authority’s evidence shows the assessment has no factual basis | Lerner: exhaustion should not bar judicial review where the City’s own trial evidence proves the assessment was fabricated and lacks any evidentiary basis | City: Krug and related precedent require exhaustion before the Tax Review Board; defenses to the assessment are waived if not raised administratively | The court held the issue was waived on appellate review; affirmed judgment because taxpayer failed to preserve the jurisdictional/exhaustion challenge and, independently, exhaustion bars such collateral attacks under precedent |
Key Cases Cited
- Krug v. City of Philadelphia, 620 A.2d 46 (Pa. Cmwlth. 1993) (taxpayer who failed to appeal assessment to Tax Review Board waives defenses in subsequent collection action)
- Commonwealth v. Hill, 16 A.3d 484 (Pa. 2011) (strict enforcement of Rule 1925(b); issues not raised below are waived)
- Commonwealth v. Lentz, 44 A.2d 291 (Pa. 1945) (taxpayer who does not exhaust administrative remedy cannot later challenge assessment in court)
- Canonsburg Gen. Hosp. v. Dep’t of Health, 422 A.2d 141 (Pa. 1980) (administrative remedies must be exhausted before judicial review)
- Cherry v. City of Philadelphia, 692 A.2d 1082 (Pa. 1997) (Philadelphia Tax Review Board has exclusive original jurisdiction over tax assessment challenges)