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.