Township Punts, Loses at Trial and on Appeal

In Tomorrow 35 Davidson LP v. Township of Franklin, the Appellate Division upheld the New Jersey Tax Court’s significant reduction in the assessed value of the subject property – a four-story office building – for tax years 2009 (from $22,092,000 to $9,625,000), 2010 (from $19,127,000 to $7,075,000), and 2011 (from $19,127,000 to $5,958,000).

At first blush, the most interesting aspect of this case might appear to be the eye-popping reductions that ranged from 56% in 2009 to just shy of 70% in 2011. And for those intrigued on how the Tax Court may approach vacancy rates, collection loss factors and brokerage commissions in the context of a real estate tax appeal, then this case will provide useful insight.

What we found most interesting about this case is that the defendant, Township, presented no affirmative proofs. The only expert witness presented at trial was that of plaintiffs’ expert. Of course, a municipality may choose to rely upon the presumption of validity (also referred to as the presumption of correctness) that accompanies a property tax assessment under appeal. The taxpayer bears the burden of rebutting this presumption by presenting evidence sufficient to raise a debatable question as to the validity of the assessment. If the taxpayer fails to overcome its burden, the court need not proceed to the next phase of the case which is to independently determine true value.

There is risk to a municipality in relying solely on the presumption. As in this case, where a subsequent appeal is brought, the appellate court’s scope of review is limited to determining whether the findings of fact by the Tax Court are supported by substantial credible evidence in the record. Not having presented a case before the Tax Court, the record in this case was limited to that which was presented by the taxpayer alone. Compounding the disadvantage to the Township was the deference accorded the Tax Court due to its special expertise in tax appeals.

As noted above, the assessments under appeal were significant. The reductions sought by the plaintiffs were substantial. This begs the question, why did the Township opt not to present a case at trial?

Perhaps the Township saw the handwriting on the wall and realized that it could not defend the assessment. Such a realization did not preclude it from offering proofs as to value in an attempt to limit the amount of the reduction in the assessed value and the accompanying refund liability. Here it appears that the Township’s strategy was simply to see if it could discredit plaintiffs’ proofs in the hope of having the assessment affirmed. Keep in mind that a taxpayer must clear two hurdles in a tax appeal. First, it must overcome the presumption of validity. If successful, the taxpayer still has the burden of proof to establish true value of the subject property.   In other words, even if the court determines that the presumption has been overcome, it may still decline to accept taxpayer’s proofs as to value and in such case, the assessment would be affirmed.

Certainly, to rely solely on the presumption of validity presents a high-risk, high-reward scenario for a municipality. In this case, the risk did not pay off and in addition to substantial refund liability the Township is looking at a steep interest bill as well.

A copy of Tomorrow 35 v. Township of Franklin may be found here.

 

Related Articles:

Appeal Involving Apartment Complex Reaffirms Presumptions

Tax Appeal Plaintiff “Snake-Bitten”

A Taxpayer’s Burden

Taxpayer Clears One Hurdle But Trips Over Another

 

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Tax Appeal Bill Introduced to Change Filing Deadlines Statewide

Two New Jersey assemblymen have introduced Assembly Bill A-3313 which would make a Monmouth County tax appeal pilot program applicable statewide.  The program would permanently modify the timing of the appeal season and filing requirements in an attempt to settle assessment disputes prior to municipalities enacting their annual budgets.  Although no feedback has been provided that the pilot program actually accomplished this goal in the one year that the pilot program was active, the law would revise the relevant statutory dates for assessing real property, and then appealing those assessments, in the following ways:

  • Notification of Assessment postcards must be sent by the municipality to property owners by November 15 of the pretax year, as opposed to the current deadline of February 1 of the tax year;
  • Appeals of assessments to the county tax board must be filed by January 15 of the tax year, instead of the current April 1st deadline;
  • The deadline for filing appeals of assessments that exceed $1 million made directly to the Tax Court remains April 1 of the tax year.

What’s unclear is why the April 1st deadline remains for appeals filed directly to the Tax Court if the intended goal is to settle disputes before municipal budgets are finalized throughout the summer.  As we had previously reported, tax appeal practitioners around New Jersey have questioned whether this program will achieve its intended goals, and are concerned that the implementation of the program on a piecemeal basis may instead complicate the ability of the County Tax Boards and the New Jersey Tax Court to administer and resolve the significant caseload of appeals already pending and which is likely to continue into the future.

A copy of the bill may be found by clicking here.   The bill was introduced earlier this summer and has been referred to the Assembly State and Local Government Committee, where it awaits review.

For more discussion on this topic, please see the following blog posts:

Legislative Reform For Tax Assessments On The Way?

Senate Passes Tax Appeal Reform for Monmouth County

Tax Appeal Pilot Program Signed Into Law

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Princeton Ballet Society tripped up in the Tax Court

This past January we wrote about the denial of a property owner’s motion to dismiss a complaint filed by a municipality in Twp. of Cranbury v. Princeton Ballet Society, which alleged a property was not exempt from local property taxation.  Defendant, Princeton Ballet Society (“PBS”), moved to dismiss the complaint filed by Cranbury, claiming that it was filed out of time.  The court denied PBS’ motion.  A copy of that post may be found here.

In an opinion handed down last week, the Tax Court again tripped up PBS when it reversed the judgment of the Middlesex County Board of Taxation that had granted PBS a property tax exemption.

PBS, which operates a dance school, claimed that it is tax exempt because its programs are for the “moral and mental improvement of men, women, and children” as provided under the exemption statute, N.J.S.A. 54:4-3.6. PBS claimed also that because it teaches ballet, which standing alone, is an activity entitled to an education exemption under the statute.

The court rejected PBS’ claims and found that the subject property is not actually used for any theater or community entertainment/educational activities which may qualify it for an exemption under the moral and mental improvement clause of the statute. Simply put, the school is not serving the general public. The courted noted that the “general public” as envisioned under the statute “was never meant to be parents dropping children to and from their dance lessons.” In dismissing PBS’ education claim the court found to accept such an argument would provide eligibility for a property tax exemption to “any learning center or entity which offers instruction in any particular discipline (such as, for instance, gymnastics, tennis, soccer, lacrosse, martial arts, tango, cheerleading….).”

The court found that the subject property is a dance studio, used and operated by PBS “in a commercially competitive manner, no different from any other commercially run for profit non-academic learning/training/teaching school or center.”

We understand that in ballet, there are five basic positions of the feet, numbered one through five. So far, PBS has taken three out of five possible steps in an effort to secure a property tax exemption. While it was successful with step one before the County Tax Board, it was tripped up on steps two and three in the Tax Court. Step four could be a performance in the Appellate Division, with a command performance before the Supreme Court as Step five. But given the facts of this case, perhaps PBS should stick with dance and stay out of the court room.

A copy of the tax Court’s opinion may be found here.

Other exemptions posts:

Princeton University Wants Out of Morristown Courtroom

Sisters Get Only Some Mercy From Tax Court on Exemption Claim

Country Club’s Exemption Claim Lands In The Rough

Millburn Synagogue Retains Property Tax Exemption

Bergen County Hospital: Exemption Safe or on Thin Ice?

Holiday House in Cape May enjoys property tax holiday as exemption is granted.

 

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Tax Appeal Plaintiff “Snake-Bitten”

In this appeal, Jaylin Holdings LLC v. Manchester Township, challenging the local property assessments for tax years 2009 through 2012, the court was confronted not only with lawyers and appraisers, but snakes!

This appeal involved five parcels located in the Townships of Toms River and Manchester and subject to regulation by the New Jersey Department of Environmental Protection (“DEP”)  under the Coastal Area Facility Review Act (“CAFRA”).

Prior to the tax appeal, plaintiff had filed a development application with DEP at which time it was discovered that plaintiff’s property could be a suitable habitat for the Northern Pine Snake (pine snake), a threatened and endangered wildlife.

While the court found that plaintiff produced sufficient evidence to overcome the presumption of validity that attaches to the assessment, it held that plaintiff failed to sustain its burden of proof and affirmed the assessments.

Taking center stage in this appeal, other than the snakes, was the highest and best use analysis. There was no dispute among the appraisal experts that the “legally permissible” use of the subject property was commercial development. However the appraisers did not agree on what was “physically possible.”

Plaintiff’s expert concluded that the subject property being a known habitat for threatened and endangered species imposed limitations on development for any use.”

The defendant’s appraiser concluded that commercial development was possible, notwithstanding the environmental constraints and the presence of a threatened and endangered wildlife species. The defendant’s expert relied on comparable sales that had similar environmental constraints but were developed into commercial uses.

The court found that “[w]hile the identification of the existence of the pine snake habitat on the subject property most certainly impacted the extent of the development . . . it in no way prohibited all development as maintained by plaintiff’s appraiser.” The court found that the defendants’ experts’ conclusions as to the highest and best use of the subject property was persuasive and, more importantly, that plaintiff had failed to sustain its burden of proof to alter the assessments.

A copy of the court’s decision may be found here.

 

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Princeton University Wants Out of Morristown Courtroom

The Times of Trenton reported this week that Princeton University is seeking a change of venue in a challenge to the University’s local property tax exemption.

In the underlying matter the plaintiffs, a group of Princeton residents, argue that because the University is earning hundreds of millions of dollars in patent royalty income and distributing some of that income to faculty, that the school is involved in commercial enterprise and should no longer be entitled to property tax exemptions.  The challenge includes also a claim that some campus buildings, such as the Frist Campus Center and McCarter Theatre, host extensive commercial activity open to the general public.

The matter is currently pending before the Honorable Vito Bianco, a Tax Court Judge who sits in Morristown, New Jersey.  The University filed a motion last week seeking to move the case before the Tax Court in Trenton.  While the case, filed in April of 2011, was originally assigned to Judge Gail Menyuk in Trenton, it was transferred to Judge Bianco in Morristown after the retirement of Judge Menyuk in January 2013.

What makes this change a venue motion interesting is the timing.  Judge Menyuk retired in January of 2013.  After the matter was assigned to Judge Bianco, the University filed a motion to dismiss the challenge, which was denied by Judge Bianco in June of 2013.  Now, more than one year after losing that motion, the University wants out of Judge Bianco’s Morristown courtroom.

In support of its most recent motion, Princeton University argues that it is simply a matter of convenience as the parties, including the Borough of Princeton, are located in Mercer County as is the property that is the subject of the appeal, as well as three of the four attorneys involved in the case.  The plaintiff’s argue that the University is “judge shopping.”

We’ll have to wait and see whether Judge Bianco keeps Princeton in Morristown or sends it packing to Trenton.

A copy of yesterday’s Trenton Times article may be found here.

 

For more on this matter see:

Lawsuit challenging Princeton University’s tax-exempt status won’t be dismissed, Trenton Times, June 29, 2013

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Tax Court Prefers Quantitative, Not Qualitative Adjustments

Another County Tax Board judgment was affirmed after the property owner and the municipality both failed to overcome the presumption of correctness of the assessment with evidence that was “definite, positive and certain in quality and quantity. . . .” MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax Ct. 1998). The Middlesex County Board of Taxation reduced the assessment on two multi-family homes following evidence presented by the parties. Appeals were filed to the Tax Court, and both parties presented expert witnesses.

At trial, plaintiff’s expert presented three comparable sales that were in the same neighborhood as the subject properties. The expert testified that did not provide adjustments in dollar amounts to any comparables for various elements of comparison on grounds that this was not required when using qualitative adjustments, an accepted appraisal methodology, so that the Subject/comparables will mirror the market. The Township’s assessor utilized the comparable sales approach, also without making any adjustments to the comparables on the grounds that none were required. The Tax Court rejected the methodology applied here, and stated that “what is amorphous to the court is how the expert concluded that $250,000 is that amount. Was it based on his experience and expertise? But courts require an expert’s opinion be based on more than this.” Because the experts failed to provide the “whys and wherefores” of their opinions, the Tax Court affirmed the assessment since there was no credible objective evidence in the record.

A copy of the Tax Court’s unpublished opinion in Ganjoin (34 Highland Avenue) v.Township of Woodbridge can be found here.

A copy of the Tax Court’s unpublished opinion in Ganjoin (308 Avenel Street) v.Township of Woodbridge can be found here.

For more on overcoming the presumption of correctness, please see the following blog posts:

Unreliable Testimony Dooms Taxpayer’s Appeal

Taxpayer Fails to Overcome “Presumption of Correctness”

Appraiser’s Subjective Adjustments Rejected; Owner Loses Appeal

Limited sales data and lack of reasonable adjustments does not doom plaintiff’s appeal

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Rent Receiver Has Standing to Prosecute Tax Appeal

The New Jersey Tax Court this week held that a court-appointed rent receiver has a sufficient interest in a commercial property to prosecute a property tax appeal.  The property, a 90,000 square foot commercial building located in Evesham Township, Burlington County, was assessed at approximately $12,000,000 for 2014.  The owners had failed to make mortgage payments, triggering a loan default and prompting a foreclosure action on the property.  During the foreclosure action, the Court appointed the rent receiver to “take charge of” the property, and the Order appointing the receiver vested broad powers in the receiver with respect to operating the property and responsibility for its income and expenses.

Shortly after the receiver filed a Complaint in the Tax Court challenging the 2014 assessment, the township moved to dismiss the Complaint for lack of standing.  The township argued that the receiver was not a “taxpayer” aggrieved by the assessment within the meaning of N.J.S.A. 54:3-21, and therefore was not entitled to prosecute the appeal.

The Tax Court disagreed with the township’s argument.  It noted that “taxpayers” within the meaning of the statute are not limited to owners of the property in question.  In fact, tenants, mortgagee, the holders of tax sale certificates, and a non-owner spouse have all been held to have standing to file property tax appeals pursuant to N.J.S.A. 54:3-21.  With this in mind, the Court compared the receiver in the case at hand to the mortgagee, and reasoned that while the receiver does not own a property interest in the property under appeal, it does have a fiduciary obligation to protect the property and the Order appointing the receiver was broad enough to conclude that the receiver had a sufficient stake in the property’s assessment to challenge it in the pending appeal.  Accordingly, the township’s motion to dismiss was denied and the appeal was allowed to continue.

A copy of the Tax Court’s opinion in NNN Lake Center, LLC v. Tp. of Evesham is available here.

 

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