Subpoenaed Appraisals Quashed by Attorney-Client Privilege

During discovery in these tax appeals, the defendant municipality became aware of appraisals prepared by a licensed real estate appraiser on the subject properties close in time to the valuation dates for the then pending appeals for tax years 2012 through 2014.  Plaintiff’s refused to produce the appraisals.  The defendant served a subpoena to produce copies of the appraisal reports.  Plaintiffs moved to quash the subpoena.

The court granted plaintiff’s motion to quash finding that the appraisals were protected by the attorney-client privilege.

The appraisals at issue were prepared for an individual, who is a member of the LLC plaintiffs.  The appraisals were ordered by and delivered to this individual’s attorney to assist the attorney in rendering estate planning advice to his client.  The court found that the appraiser was a “necessary intermediary” for the attorney to provide the requested advice and that it was intended by the client that such advice remain confidential.

The appraisal reports either showed a market value less than that indicated by the assessment or supported the assessment.  If the former, why not turn them over?  Unless of course the indicated value was less than the assessed value, but more that plaintiff’s position asserted in the tax appeal.  Certainly, if the reports supported the assessment, you could understand the plaintiff’s reluctance to disclose them.  Defendant’s attorney seized upon this and argued that it was possible that a review of the reports would confirm that the appeals were frivolous possibly subjecting plaintiffs to sanctions.

It appears that in response to defendant’s concerns, the court ordered in camera review of the reports.  Without addressing the defendants concerns directly, the court concluded simply that while the appraisals were within the scope of permissible discovery, the reports were protected from disclosure by the attorney-client privilege doctrine.

A copy of the court’s opinion in The Bedford Falls Land Co. v. Township of Raritan, may be found here.

For more on municipalities seeking information beyond that required per the court rules, see:

Bad penmanship not “good cause” to compel production of tax returns

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Taxpayer Foiled Despite Overcoming Presumption of Validity

In Michaud v. South Orange Village Township, the taxpayers challenged the $414,000 assessment on their single family home in Essex County.  Despite overcoming the presumption of correctness which attaches to all New Jersey local property tax assessments, Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985), the taxpayers failed to convince New Jersey Tax Court Judge Joshua Novin that the assessment on their home was, in fact, erroneous.  The Court’s opinion contains useful summaries of the relevant legal precedent concerning the presumption of validity, of the relevance of the sales comparison approach to valuation, and regarding the import of using adjustments supported by objective evidence in that approach.  See Greenblatt v. Englewood (26 N.J. Tax 41, 55 (Tax Ct. 2011)(appraiser’s adjustments “must have foundation obtained from the market and, where appropriate, supported by cost manuals”).

In Michaud, the taxpayers appraiser made adjustments to his comparable sales for location (without market data), but made no adjustments for time, lot size or building design based upon unsubstantiated opinions that they were unnecessary, even though there were marked differences between the comparable sales and the subject property in these categories.  The town’s appraiser adjusted (a) for lot size, without data to support his conclusion; (b) for building size without proper references to the cost manuals he relied upon; and (c) for location, also without any market data.  The Court concluded that neither expert provided “meaningful data” to assist it in determining the true value of the subject property.

The lack of factual, statistical and analytical support for the adjustments made by both sides’ appraisers led the court to conclude that there was insufficient evidence to overturn the assessment, even though the presumption of validity had been overcome.  Accordingly, the court dismissed the complaint.

While this case does not tread any new ground, it serves as a useful reminder that appraisers need to make sure that they do not rely upon net opinions in litigation appraisals, and that each aspect of their opinions must be supported by credible evidence from the market or from recognized authorities.  Otherwise the report and opinions based thereon run the risk of being excluded or just being given little weight in a court proceeding.

A copy of the Tax Court’s opinion in Michaud v. South Orange is available here.

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Now playing: The Property Tax Appeal, starring Robert De Niro

When I first read about Robert De Niro’s pending tax appeal on his estate in the Hudson Valley, I thought of the endless possibilities for our tax appeal blog.  I mean, this is the great Robert De Niro; Bobby D!  He is an American film icon who has starred in dozens of great movies, including Raging Bull, The Godfather: Part II, The Deer Hunter, Goodfellas, Casino and even showed us his comedic side in Analyze This and Meet the Parents.  Now, here he is starring in his own property tax appeal.  I thought, finally, property tax appeals hit the big time.  Maybe he will make a movie about the exciting life of a tax appeal attorney.

After the initial excitement wore off I realized that De Niro’s appearance on the property tax appeal stage will not make tax appeals sexy.  My wife has assured me that nothing can make property tax appeals sexy.  But that should not stop us from trying to have some fun with this story.

An article in the New York Times described this is a simple challenge to a $6 million property assessment.  Or, like De Niro’s Michael Vronsky in The Deer Hunter, might say: “This is this. This ain’t something else. This is this.”  But, there is nothing simple about this story and there is something else to it.

The De Niro property, owned by a trust, is nearly 100 acres, with 2,700 feet of frontage along the Hudson River in Gardiner, New York.  The property includes an 18th-century farmhouse that has been renovated and expanded to now include a total of six bedrooms and seven bathrooms.  There is also a barn that houses a 14,000-square-foot recreation center with a game room, gym, basketball court, swimming pool, steam room, sauna and small film studio.   Another barn was converted into a workshop and another was built as an office. Rounding out the improvements on the property are two guesthouses, a tennis court and a small ski slope.  As De Niro’s character in Midnight Run, Jack Walsh, said: “That’s a, that’s a very respectable neighborhood.”  Of course, there the character was only talking about a few hundred thousand dollars.  I wonder how Jack Walsh might describe De Niro’s real-life, multi-million dollar estate on the Hudson.

To offer the privacy one would expect for this type of property, an estimated $1 million in landscaping blocks the view of De Niro’s estate from the road.   I guess you cannot be too careful these days, especially if you are a famous movie star.  Privacy and security are paramount.  It appears that De Niro took the advice of his character Jack Byrnes in Meet the Parents:  “Trust me … when you start having little Fockers running around, you’ll feel the need for this type of security.”

It is plain to see that the De Niro property is not your typical weekend getaway place. But then again, we are not talking about a regular guy who leads a regular life.  It reminds me of the movie Heat when Vincent Hanna (played by Al Pacino) asked De Niro’s character, Neil McCauley, whether he wanted a “regular type life.” De Niro’s character responded: “What the f–k is that? Barbeques and ballgames?” As an interesting side note, Heat was the first time De Niro and Pacino were in a scene together in their illustrious careers.  Now, back to our tax appeal saga.

What is a 100 acre estate on the Hudson River in Gardiner New York worth? The appraiser for De Niro’s trust says the property is worth $4 million while the town’s appraiser claims that the assessment had actually undervalued the property, which he says is worth $8.985 million.

The trial court agreed with the Town. In an effort to resolve the matter and avoid an appeal, the town offered a settlement for slightly less than the $6 million assessment.  The De Niro trust rejected the offer. Perhaps the town should have followed the advice of De Niro’s character, the young, pre-Don, Vito Corleone, in Godfather: Part II who said:  “I make him an offer he don’ refuse.”

But the town failed to present such an offer and De Niro appealed the trial court’s ruling.  Upon hearing of this, one might think that the real life De Niro shares something in common with his character, Ace Rothstein, in the movie Casino, who said:  “There are three ways of doing things around here: the right way, the wrong way and the way that I do it.”

So, what is at stake? The $6 million assessment carries an annual tax bill of $170,000.  Should the trust prevail, it stands to save $57,000 annually.  Not surprisingly, some in town are not happy with Mr. De Niro continuing the fight on appeal.

One resident took umbrage with De Niro’s appearance in a New York State tourism television advertisement in which the actor claims that his favorite place is the Hudson Valley.  That resident, Bill Hess said: “If he loves it so much … maybe he should help pay to maintain it.”

While I do not know Mr. De Niro, I do want to believe that he loves New York and the Hudson Valley.  I do hope that his decision to pursue his appeal came only after careful and thoughtful consideration.  After all, he did play a mob boss, Paul Vitti, in the movie Analyze This who told his psychiatrist, played by Billy Crystal, “I wasn’t really gonna whack you.…  Okay, I was gonna whack you.  But I was real conflicted about it.”  Maybe the folks in Gardiner can take solace in the fact that even though De Niro is pursuing the appeal he might be conflicted.

After I started writing this, I had to find out for myself why De Niro is pursuing the tax appeal. So I jumped in my car and headed up Route 287 North to the New York State Thruway to Gardiner.  When I arrived at the gate of the De Niro estate I pushed the button on the intercom and man’s voice came over and said “yes.”  I explained who I was and that I was writing a piece for our blog about the pending tax appeal and I wanted to speak with the great actor.  After a long pause the voice on the other end of the intercom said, “Are you talkin’ to me? Are you talkin’ to me?” With that, I jumped in my car, turned around and drove home when in my rearview mirror I saw following me some guy with mohawk who was driving a taxi (yes, one final reference to another De Niro classic, Taxi Driver).*

*DISCLAIMER:  Although inspired in part by the desire of this writer to know just what Mr. De Niro thinks about his tax appeal and the reaction of Gardiner residents, the events described in the preceding paragraph are purely fictional and do not depict any actual event.  They are nothing more than the ramblings of a tax appeal attorney who has seen too many De Niro movies and had trouble sleeping last night.

Well, I realize that I may have gone a bit off our usual topic here.  Being a fan of Robert De Niro I should appreciate the danger of taking a good thing too far.  Not that he has done so often, but when he did, it was bad.  Did you see his third stint as Jack Byrnes, the angry and overly suspicious father-in-law in Little Fockers?

That said, I will close with this.  The people of Gardiner may never know what is motivating De Niro in his tax appeal.  Perhaps it is simply that he wants to make sure that he is taxed based on the market value of his property, just like any other resident of Gardiner.  And, for what it’s worth, his ability to pay — and that of any property owner — should have no bearing on the amount taxed.  If It did, what would stop any other person from refusing to pay, claiming it is too much for them to do so.

A copy of the New York Times article, De Niro, in Tax Fight, Wins Little Sympathy From His Neighbors, may be found here.




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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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