Beam as the lowest ceiling component – a new judgment by the SAC

In the SAC's view, when determining the clear height of a storey for the purpose of calculating the usable floor area, one should measure it from the ground to the lowest permanent structural component of the ceiling. Based on this standpoint, taxpayers may revise the way they have measured their properties so far, file amended tax returns and eventually reclaim overpaid tax. 

The above judgment was issued in a dispute over the interpretation of the Local Taxes and Fees Act (“LTFA”) [2] According to the LTFA, the usable area of a building or its part is measured based on the length of internal walls on each storey, except staircases and lift shafts. The term “storey” also includes underground car parks, cellars, basement rooms, and lofts.

The LTFA also says that a building’s usable floor area counts only as 50% of the area of rooms or their sections or storey sections if a clear height is between 1.40 m and 2.20 m, and their area is ignored if the height is lower than 1.40 m.

The SAC issued its judgment after considering a cassation appeal of a taxpayer who originally filed for confirmation of real property tax overpayment of more than 280 thousand zloty. The taxpayer had an underground production hall with rooms where beams ran across various ceiling sections. The room height below the beams was less than 2.20 m, which, in the taxpayer’s opinion, entitled him to include 50% of the usable floor area of the entire room in the taxable base. 

In the opinion of revenue authorities of the first and second instance, the taxpayer wrongly:

The first-instance revenue authority claimed that the laws expressly allowed a section of a room (storey) to be included in the usable area. Consequently, it was possible to calculate separately the area covered with a ceiling only and the area whose height was limited by beams. Thus, the beams (and other structural components of the ceiling) did not reduce the clear height of the room (storey) as a whole.

The taxpayer appealed against that ruling to the Provincial Administrative Court (PAC). 

The PAC decided that according to the literal wording of the laws clear height should be determined for the individual storey sections rather than for the entire storey. In this context, individual storey sections are those with a height: up to 1.40 m, from 1.40 m to 2.20 m, and over 2.20 m. The areas of the storey sections are then added up to make up the usable floor area based on which the real property tax is calculated. In the court's opinion, beams do not prevent using a room according to its intended purpose.

The PAC found that when determining the usable floor area of a storey based on the length of internal walls, except staircases and lift shafts, revenue authorities should take into account the clear height of individual storey sections rather than of the entire storey.

Therefore, both revenue authorities and the PAC were of the opinion that 50% the area below the beams and 100% of the remaining area should be taxed.

The SAC ruled clearly that dividing a storey into such sections was contrary to the Tax Act. In the SAC’s opinion, the term “clear height from 1.40 m to 2.20 m” is crucial for the measurement of the usable floor area of rooms, their parts, and storey sections. 

In the SAC's view, when determining the clear height of a storey, one should measure it from the ground to the lowest permanent structural element of the ceiling. Consequently, the SAC agreed with the taxpayer, who contended that the clear height of the entire room where ceiling beams were located was less than 2.20 m. Therefore, in such a case, only 50% of the room area should be included in the taxable usable area. 

In the SAC’s opinion, the legislator used the expression “the clear height of a storey section” intentionally and its meaning may not be narrowed down by determining the height by reference to the word “storey” alone.

There are no doubts that taxpayers may use the SAC’s ruling to revise the usable floor area disclosed so far and consider taxation on more favourable principles. Re-measuring the areas and determining the correct taxable base may encourage taxpayers to amend their tax returns and apply for a refund of overpaid real property tax. 

However, the SAC’s ruling only very generally refers to the term “permanent structural component of the ceiling”. The SAC did not specify how this term should be understood. Nor does this follow from the tax laws.

Thus, it is not certain whether this judgement will be applicable to every building with a lowered ceiling, for example, if the ceiling has been lowered for decorative purposes.