Princeton University Unable to Shift the Burden

1112-princeton-630x420Rarely do taxpayers file tax appeals challenging an exemption claim of someone else’s property.  It is even rarer when that challenge is brought against a private university.  In Kenneth Fields, et al v. Trustees of Princeton University, property owners of Princeton Borough filed complaints challenging the property tax exemptions that have been granted by the Tax Assessor for properties owned by Princeton University (“Princeton”).  Before deciding the actual merits of the case, however, Princeton filed a motion in an attempt to shift the burden of proof upon the plaintiffs/taxpayers.

Princeton’s argument was three-fold.  First, Princeton argued that if the burden of proof was not place upon the taxpayers, it would undermine the long-standing principle that determinations of the assessor are afforded a presumption of validity.  Second, Princeton insisted that when third-parties challenge an assessor’s exemption determination, those third parties are the claimants and thus must bear the burden of proof.  Lastly, Princeton argued that if the burden is not placed with the taxpayers it would result in poor public policy that would “allow every citizen to overturn the tax assessor’s exemption determinations.”

The Tax Court rejected all of Princeton’s arguments.  The Court drew a dichotomy between the assessor’s determinations as to the assessed value of the property and exemption determinations.  Unlike the process for valuation assessments, an exemption determination is based “significantly on the reliability of representations made by the applicant in the paperwork submitted in support of the application for exemption, and of actual use of the property.”  Furthermore, the Court reasoned that the “determination of an exemption is more properly one of statutory and case law interpretation than one requiring any special expertise possessed of an assessor.”  Therefore, the presumption of validity attaches to an assessor’s determination as to the assessed value of the property but does not extend to exemption determinations.

The Tax Court also rejected Princeton’s second point by reiterating the long-standing principle that the party seeking exemption always bears the burden of established the asserted right to exemption.  The party asserting the exemption is thus the claimant, not the party challenging an exemption.  The Court also found Princeton’s public policy argument unpersuasive.  The Court declared that it “finds no foreseeable danger that there will be a mass citizen uprising to usurp every tax exemption granted. . .”  If anything, the Court found more compelling public policy concerns for the rights of taxpayers’ to challenge the exemption, and for Princeton to prove that it actually met all the statutory criteria for the exemption.

In light of this decision, Princeton will have to move forward with evidence establishing that it meets all the statutory criteria for tax exempt status.  Under N.J.S.A. 54:4-3.6, the owner of the property must be organized exclusively for a tax exempt purpose, the property is actually and exclusively used for the tax-exempt purpose, and its operation and use of its property must not be conducted for profit.  Will other private universities and educational institutions currently enjoying tax exemptions in New Jersey face similar challenges from taxpayers?  Interestingly, the Tax Court judge presiding over the Princeton matter is the same judge that recently denied Morristown Memorial’s claim for exemption.

A copy of the Tax Court’s published opinion can be found here.  We will follow the case and provide any updates as they come along.

For media coverage, see links below.

Princeton University Loses Another Round in State Tax Court

Princeton: Judge Deals University Another Procedural Setback in Property Tax Exemption Case

Burden of Proof Falls to Princeton University in Tax-Exemption Lawsuit

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Avon Borough to Challenge Monmouth County Tax Process

The Borough of Avon reportedly will file suit to challenge the relatively new “pilot” program for real estate tax appeals filed before the Monmouth County Tax Board.   The Borough Council recently voted unanimously to ask the New Jersey Department of the Treasury to intervene and stop the pilot program, which officials say has created uncertainty in the assessment process and has caused residents to be unsure how their annual property tax bills will change from year to year.

According to an article in the Asbury Park Press, the town’s future lawsuit will be unnecessary if the State or Monmouth County Tax Board suspend the program, but Avon is not counting on that to happen, and thus intends to file suit soon.

The program accelerates the timing of the assessment and appeal process by moving up deadlines from the April 1st filing deadline which applies in other counties.  Critics say that this shortened time frame makes it difficult or impossible to plan municipal budgets and creates uncertainties in the assessment process from year to year.  The pilot prgram was signed into law in 2013, but these latest issues call into question whether it is working.

We’ll be watching what happens on this one, as quick action could have an impact upon the pilot program’s filing deadline for 2016 appeals, which is currently January 15, 2016.

Our prior blog posts explain the pilot program in more detail:

Tax Appeal Pilot Program Signed Into Law

Tax Appeal Bill Introduced to Change Filing Deadlines Statewide

Senate Passes Tax Appeal Reform for Monmouth County

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Lacking Credibility, Taxpayer Loses Fight Against Ch. 91 Motion

An intriguing set of facts unfolded in a fight against the Township’s Chapter 91 motion in R&M Manufacturing v. Twp. of Monroe.  Normally, Ch. 91 requests by municipalities are composed of a cover letter, an income and expense statement (I&E statement), a “Schedule A” with instructions on how to fill them out, and a copy of the statute.  The property for which the information is requested is identified on either the cover letter or I&E statement, or often on both.  When motions are filed in Tax Court, these documents are attached to the Ch. 91 motion in order to provide evidence of compliance with all requirements of the statute.

In R&M Manufacturing v. Twp. of Monroe, the Township filed a Ch. 91 motion accompanied by a “sample” transmittal letter, I&E statement, and Schedule A.  Plaintiff and plaintiff’s property was not identified anywhere on the attached sample transmittal letter, I&E statement, or the Schedule A.  Instead, a different property in the Township and a different owner was identified.  The Township purposely attached a “sample” transmittal letter because the assessor did not retain copies of every Ch. 91 request mailed to income-producing properties given the volume of such requests.  The Township’s assessor certified that R&M’s name and property would have been identified in the original request, and it was mailed to its mailing address in Parsippany.  In its opposition to the motion, R&M’s property manager argued that no such request was ever received and even if he had received such a request, he would still not have responded because the forms did not identify a property owned by R&M.

Given the fact that the request was sent via certified mail, and the mailing receipt as well as the “green card” both indicated receipt by the plaintiff, the Tax Court did not find plaintiff’s argument credible.  Furthermore, plaintiff’s property in Monroe was the only property with an out-of-town mailing address in Parsippany, and R&M’s property manager confirmed that mail pertaining to the subject property is received at the Parsippany address.   In light of all the facts before the court, greater credence was given to the Township’s assessor, and the court granted the Township’s Ch. 91 motion.

Plaintiff’s main contention rested on the premise that it had never received the Township’s request.  Once plaintiff’s credibility was cast in doubt by the evidence to the contrary, the Township was given the benefit of the doubt.  The outcome may have possibly been different had the taxpayer argued that it had received a Ch. 91 request that failed to identify the subject property.  The court did in fact indicate that the use of a “sample” request in support of a Ch. 91 motion alone would not have been sufficient to dismiss the appeal.  If that were the argument made, it would have, again, come down to the credibility of the taxpayer and the Township’s assessor.  Given the fact that the Township retained no actual copies of the income and expense request sent to the plaintiff that identified the property, it may have been a stronger position.

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Taxpayers Denied a Second Bite at the Apple

Plaintiffs in Dennis P. & Mary G. Connelly v. Twp. of Galloway contested the 2014 assessment of a single family home located in an age-restricted development.  The case was tried by the Tax Court on June 5, 2015.  At trial, Mr. Connelly, a licensed real estate broker, did not submit an expert appraisal report but testified on his own behalf.  The Township called a licensed real estate appraiser as its witness.  Despite its non-compliance with court rules which require the municipality to supply the plaintiff with an appraisal report at least twenty days prior to the date of trial, plaintiffs did not object to the Township’s expert witness at trial.  After hearing both sides, the court ultimately affirmed the assessment.

Disappointed with the outcome of their trial, plaintiffs filed a motion for a new trial and to vacate the court’s prior judgment.  In their motion papers, plaintiffs urged the court to “allow for the submission of plaintiff’s expert appraisal” and for “a new trial.”  Plaintiffs argued that the appraisal submitted by the Township violated Court Rules since it was received by plaintiffs less than 20 days from the trial date.  If offered a new trial, plaintiffs contended that an appraisal report can be prepared “which will contradict, oppose and correct the mistakes submitted by the township.”

The Tax Court was not convinced that a new trial was warranted.  The court indicated that plaintiffs attempt for a new trial appeared “to be little more than an excuse to make a belated, post-trial request to obtain their own expert.”  Whether plaintiffs’ decision to forego obtaining an appraisal was by reason or oversight, the court stated that plaintiffs “had a first bite at the apple,” and “are bound by the outcome of the trial.”  Plaintiffs had an opportunity to explore all facets of the Township’s report and did in fact cross-examine the Township’s expert at length during trial.  According to the court, any of the perceived flaws or omissions raised by plaintiffs in the Township’s report is not a basis for a new trial based on newly discovered evidence.  Furthermore, the court reasoned that plaintiffs’ failure to raise the timing of the service of the Township’s report until after the judgment was entered “effectively waived any defect in the timing of the service.”

We are again reminded of the burden taxpayers carry when they challenge their assessments.  When the burden of proving the value of one’s property rests with the taxpayer, it is imperative that the value conclusion is supported by persuasive, and credible evidence.  Although not always true, but testimony from an expert witness will carry greater weight compared to that of the opinions of the owner.  After all, that is the purpose of retaining an expert.  It appears that plaintiffs in this case will not make the same mistake twice given that they intend to engage an expert witness for trial of their tax year 2015 appeal.

A copy of the Tax Court’s opinion in Dennis P. & Mary G. Connelly v. Twp. of Galloway may be found here.

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Throwin’ a dog a bone – Tax Court reduces assessment on dog kennel despite owner’s sloppy case.

No Arl Dog Kennel

Despite what the Tax Court found to be a sloppy appraisal report by the property owner’s appraiser, the court granted modest reductions on a small warehouse/truck terminal currently used as a dog kennel.

In Glow Properties v. Borough of N. Arlington, the court again reiterated its long-standing holding that the income approach is the most appropriate method to value income producing properties.  The borough’s appraiser had used both the income approach and the sales comparison approach, while the appraiser for the property owner relied on only the income approach.  Unfortunately for the owner, the court did not accept its appraiser’s valuation, taking issue with the market rent, expenses and, most of all, the capitalization rate.

The court rejected the market rent conclusions of the owner’s appraiser in part because he used a gross rent (where landlord pays expenses out of rent) when his comparable leases were on a net basis (tenant pays rent plus expenses) (citing Speigel v. Town of Harrison, 18 N.J. Tax 416, 423 (Tax 1999); aff’d 19 N.J. Tax 291 (App. Div. 2001)).  The court found that plaintiff’s expert provided no evidence that similar properties lease on a gross basis or modified gross basis.  The court noted also that plaintiff’s appraiser made inexplicable errors in rent adjustments to his comparable leases.  The court accepted the conclusions of the borough’s appraiser as to market rent on a net basis.

The gross lease versus net lease distinction not only has an impact on potential income, but also is significant in setting the capitalization rate (or “cap rate”) which is the rate used to estimate the potential return on a real estate investment, or, put another way, a tool used by investor’s to come up with a market value of an income producing property.  The higher the cap rate, the lower the indicated value and vice versa.

The owner’s appraiser derived a cap rate for each year under appeal that was significantly higher than the cap rate used by the borough’s appraiser which drove down his value estimate.  In addition, the owner’s appraiser “loaded” the cap rate with the effective tax rate to account for property taxes to be paid out of the rent under a gross lease.  This resulted in an even higher cap rate which in turn drove down the estimated market value even further.  The borough’s appraiser used a net rent so he did not have cause to “load” the cap rate which resulted in a significantly lower overall cap rate and corresponding increase in the final value estimate.  The differences in the approach to market rent and the cap rate resulted in a discrepancy of approximately $200,000 in market value for each year under appeal.  While the court determined a value lower than the assessed value, its conclusions were much closer to the values estimated by defendant’s appraiser.

We are not able to say whether either appraiser or the court took the absolute correct approach.  What is important to take away from this case is that the “inexplicable adjustments” by the owner’s appraiser and the conclusion of a market rent inconsistent with Tax Court precedent may have cost the owner in this case.  It serves as an important reminder to counsel to make sure their client’s experts receive appropriate legal instruction where appropriate and that the expert is prepared to address during testimony any potential weaknesses in his report.

A copy of the court’s decision in Glow Properties v. Borough of N. Arlington may be found here.

Comments Off on Throwin’ a dog a bone – Tax Court reduces assessment on dog kennel despite owner’s sloppy case.

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Luxury Homeowners Lose Tax Appeal at the Appellate Division

The Appellate Division yesterday affirmed the lower court’s decision affirming the 2008 property assessment of a 55,000 sq. ft. estate in Moorestown.  The subject property, known as “Villa Collina,” boasts approximately 55,542 sq. ft. of improvements, and 29,236 sq. ft. of living space situated on approximately 7.2 acres, which is part of a larger 44 acre parcel.  The New York Times claimed that the residence is larger than Moorestown’s Town Hall, public library, and the police headquarters combined.  The Appellate Division illustrated the house in its opinion as the following:

Photo courtesy of

Photo courtesy of

“[T]he home is built in an Italianate style and boasts a Barre granite façade, granite terraces, cascading waterfalls and several reflecting pools. There are six bedrooms and eleven full bathrooms. The walls and floor of the two-story foyer are marble. A fountain of black onyx marble anchors a circular marble staircase to the second floor. The living room is topped by a large circular dome with a Venetian plaster finish. There are three kitchens (two on the first floor and a commercial kitchen in the basement), a gym, a library, two massage rooms, a hair salon, a billiards room, six storage or pantry rooms, laundry and trash rooms, a wine cellar, and two “viewing rooms” for admiring the landscape. The two-story “Lemon Room,” a sort of orangery for lemon trees, was added in 2006.”

Following a three-day trial at the Tax Court, the Tax Court judge affirmed the assessment.  On appeal, plaintiffs argued that the municipality underwent a revaluation in 2008 and thus the Tax Court should have rejected the Township’s experts “because they were contractually obligated to defend their appraised values in challenges to their 2008 revaluation.”  The Appellate Division noted that this argument “borders on the frivolous” and did not find such a factor to be a disqualifying bias.  The Appellate Division further affirmed the lower court’s application of an entrepreneurial profit in its calculation and rejection of plaintiff’s expert’s opinion of a 75% depreciation rate in the expert’s cost approach.  Plaintiff’s expert simply took his comparable sales approach value ($10,125,000), deducted the value allocated to land ($1,550,000), and compared it to the figure that he estimated to be the cost of reproducing plaintiffs’ home in 2008 ($33,850,000).  Since a hypothetical willing buyer would pay $10,125,000 for the subject property that cost $33,850,000 to build, the expert concluded that it resulted in a 75% rate of depreciation.  The Appellate Division agreed with the Tax Court that this particular methodology in calculating the depreciation rate was flawed.

To say the property is a mansion is an understatement.  For a visual of what some claim to be the largest private residence in New Jersey, please click here.

The Appellate Division’s opinion can be read here.

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Court Denies Two Motions to Dismiss Taxpayers’ Appeals

The Tax Court recently issued decisions denying Franklin Township’s motions to dismiss two taxpayers’ appeals.  In 2200 Cottontail Assocs. v. Twp. of Franklin, the Township filed a Chapter 91 motion for plaintiff’s failure to respond to the assessor’s request for income and expense information.  As mentioned previously on this blog on numerous posts, a taxpayer’s failure to respond to the assessor’s Ch. 91 request within 45-days warrants a dismissal of the taxpayer’s appeal.

2200 Cottontail Assocs. involved a tax assessor’s certified mail containing the Ch. 91 request that was returned to the assessor by the postal service stating that the recipient had “moved, left no address.”  The taxpayer disputed that they had moved, indicating that the address on the return receipt card was the correct address for delivery of tax-related mail, and that quarterly tax bills were also received at the address.  Furthermore, Ch. 91 requests from the assessor for prior tax years were received at the same address and timely responses were provided to the assessor.  In light of this contention by the plaintiff, the Tax Court denied the Township’s Ch. 91 motion stating “that it is more likely than not that the postal service erred when it marked the information request ‘moved, left no address’ and returned the request to the assessor.”

In the second case, Franklin Township filed a motion to dismiss an appeal for the taxpayer’s failure to pay taxes and municipal charges.  In Somerset Group Hospitality, LLC v. Twp. of Franklin, the taxpayer filed a timely direct appeal to the Tax Court of the 2015 assessment.  The Township however filed a motion to dismiss the complaint for plaintiff’s failure to pay local property taxes and municipal charges on the property for the first and second quarters of 2015.  Prior to the motion return date, plaintiff made a $10,000 payment towards its outstanding property taxes and satisfied plaintiff’s first quarter 2015 property tax in arrears.  Franklin Township however maintained that plaintiff must pay all taxes due for tax year 2015, including the second quarter 2015 taxes.

The Tax Court rejected the Township’s argument and ultimately denied the motion to dismiss.  The statute governing direct appeals to the Tax Court clearly states that a taxpayer is required to pay taxes “up to and including the first quarter of the taxes and municipal charges assessed. . .”  The Tax Court ruled that plaintiff had satisfied the tax payment requirement by paying its first quarter 2015 taxes and that the Township’s interpretation is contrary to the clear language of the statute.  A copy of the statute can be found here.

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