New Jersey Real Estate Attorney Blog

For more than 80 years, Fort Monmouth had been a vital component of Monmouth County's economic base. It had provided thousands of residents with jobs and housing, and has provided indirect benefits to thousands of businesses, including those in the retail sector. In April of 2005, the Pentagon recommended that Fort Monmouth be permanently closed. During the years that followed, some of the Fort Monmouth jobs were relocated to other bases within the State of New Jersey, others were relocated out of state, and some jobs were phased out of existence. On September 15, 2011, the Fort Monmouth Army Base was retired.

The sudden loss of jobs has resulted in a downturn in the economy throughout Monmouth County. Some of the towns that bordered or neighbored Fort Monmouth have felt the most serious impact. In particular, Eatontown, Oceanport, Tinton Falls, Shrewsbury and West Long Branch have seen major downturns in their housing markets. As with all deflationary markets, some of the diminution in value is directly attributable to the loss of demand and some of the deflation is attributable to a distorted the supply and demand quotient created by a surplus of sellers and a deficiency of buyers amidst concerns that the area will not make a speedy recovery.

The unfortunate result is that some towns, like Shrewsbury and West Long Branch, are now assessed at more than 100% of value. Other over-assessed towns in Monmouth County include Brielle, Englishtown, Farmingdale, Loch Arbour, and Red Bank. While assessors strive to create assessment models that will minimize their coefficients of deviation, it is an inevitability of basic arithmetic that a ratio of greater than 100% must yield several line items that are over-assessed. During the course of the past 5 years, during the downturn of the real estate market, towns have raced against time to perform re-assessments or revaluations to avoid this problem. Not coincidentally, during this same time period, our firm has enjoyed great success at reducing the assessments for several hundred taxpayers in towns whose assessments have not kept pace with the deflation of the market.

If you have a question about tax appeals, please call our office. Please also remember that in most cases, the deadline to file your Tax Appeal is April 1.

In the State of New Jersey, the amount of real estate tax you must pay is based in part on the municipality's "assessment" or assigned value of your property. As property values have declined over recent years, some towns have reduced their assessments in order to keep up with the changes in value. They have then raised their assessments to make sure their budgets can continue to grow. The net result is that, even though the assessments have gone down, the taxes still have gone up.

Other municipalities have kept their assessments high, and have then been forced to defend a deluge of tax appeals from property owners and their attorneys. Unfortunately, these towns have relied on various unscrupulous methods to defend otherwise indefensible property tax assessments. One method employed is the use of the "N.U." or "Non-usable" code. Here's how it works:

In most cases, the taxpayer will attempt to prove his assessment is too high by offering evidence of comparable sales. The goal, when choosing a comparable sale, is to pick the properties that are most similar to your property, while also confining your search to sales that occurred soon before October 1 of the pre-tax year, or in some cases, within a month or two after October 1. The other requirement that had been imposed upon the taxpayer is that the sales must be "usable." N.J.A.C. 18:12-1.1 sets forth several categories of sales that may be considered non-usable by the tax assessor. Historically, the designation of non-usable or "NU" meant that the Tax Board or Tax Court did not need to consider the sale reliable in their determination of value of the subject property. The only sales that would be considered would be "arms length sales." With the surge of "distress sales" including foreclosures and short sales, it is becoming increasingly prevalent that the distress sales are defining the market. Put simply, the price that a buyer is willing to pay will be substantially affected by the abundance of bank sales.

For several years, objections to the use of "non-usable" sales have plagued tax appeal practitioners due to this fact that a large number of otherwise perfect sales data were eliminated, based solely on an administrative code. However, earlier this year, we received some great news when the Tax Court decided the Matter of Greenblatt v. Englewood City. In that matter, the Court concluded that "As it is the Defendant [the municipality] that is putting the issue of the reliability of sales [comparables]... it is the Defendant's burden to prove that the sales do not reflect market value. Simply saying that a sale was determined by the assessor to be non-usable for purposes of the Director's sales ratio study does not render the sale non-usable for valuation purposes. One opposing the sale must demonstrate with competent credible evidence that the sale does not reflect true market value." While we have continued to receive objections from Municipal attorneys who disagree with our use of non-usable sales, we now can state with confidence that the municipality that has the burden of proving that these sales do not accurately reflect value.

As real estate values continue to drop, municipalities are once again scrambling to budget for reimbursements to taxpayers who win their appeals. While real estate tax appeals are typically filed by April 1, they are often not heard until July or August. In some cases, the County Tax Board will then take as long as 4 to 6 weeks to render a decision. Since Real Estate Tax payments are due in February, May, August and November of each year, taxpayers who have filed appeals very often will have paid at least three quarters of real estate taxes prior to the County Board of Taxation rendering a decision as to whether they are entitled to a reduction. For the majority of our clients, who do obtain reductions in their assessments, the question then asked is when are they going to see an adjustment or credit on their tax bills. Under N.J.S.A. 54:3-27.2, the Tax Collector of the municipality shall refund any excess paid within 60 days of the date of judgment. Should the matter proceed to Tax Court, it is very possible that a Judgment would not be rendered until a couple of years after the Tax year for which the appeal is sought. In those cases, where the municipality is forced to give back overpayments for multiple years, it is not unusual for the municipality to delay reimbursement and pay the taxpayer a 5% interest penalty as per statute until the overpayment can be fully reimbursed.

The Current Problem
Each year, New Jersey municipalities have suffered substantial shortfalls as the result of Tax Appeals being filed after the municipal budgets have been adopted. Under the current law, each municipality must adopt its budget by March 31 and the deadline to file a tax appeal is generally April 1. In some cases, tax appeals do not get heard until several months after they are filed. The judgments resulting from those Tax Appeal applications are then mailed out several weeks later. The result for most municipalities is a major budget shortfall. Furthermore, the school system, which usually accounts for the majority of a municipal budget, is not bound to return any of the funds previously guaranteed under the March 31 budget.

The solution that many municipalities have employed is the same solution that any governmental entity employs when it has a budget shortfall. They have sold bonds, which they must pay back with interest at a later date. This solution, however, only forestalls the impact of the tax appeals. Another solution, employed by assessors is to offer to settle a matter with the stipulation that the lower assessment will not become effective until the following year. This solution allows a municipality to account for an adjustment in some of their line items prior to a budget being adopted. Nevertheless, this solution is used relatively rarely, and can only be used for settled matters.

The Proposed Solution
In light of the current issues, a bill has been proposed that would attempt to fix these problems by simply changing the taxation calendar. Under the proposed calendar, taxpayers would receive their assessment postcards by November 15. Tax Appeal applications would be due by January 15, and decisions would be mailed no later than April 30. The final piece of the proposed bill is that the municipal budget would not be due until May 15, and the tax rates would not be set until May 31, after the municipality already has an accurate picture of what the total tax base would be.

Of course, it is not realistic to expect that appeals filed before the State Tax Court will be handled with the same alacrity of the County Tax Boards. But the State Tax Court Appeals make up a small percentage of the total number of appeals, and accordingly will not, in most cases, substantially affect the budgets to the same degree as the County Appeals.

The bill entitled S2234-A3227 has not yet been adopted, but is scheduled for a "pilot run" in Monmouth County, possibly as early as this fall. The Monmouth County Board of Taxation is already on the cutting edge of technological of innovation by becoming the first County to introduce electronic filing of tax appeals in 2010. If the proposed plan goes into effect this year as planned, Monmouth County taxpayers will need to remember that their 2012 tax appeals filed no later than January 15, 2012.

According to some experts, New Jersey's real estate market reached its peak in the summer of 2006. Since then, real estate values have consistently dropped. Among the properties that have seen the most dramatic decreases in values are New Jersey apartment buildings. As the real estate values have continued to plummet, tax assessors have scrambled to try to ensure that their assessments do not exceed the values. In some cases when a reassessment or revaluation has not been performed to reflect the diminution in values, owners of apartment buildings have enjoyed success in their tax appeals.

While apartment buildings were historically valued based upon the income streams that investors could expect to receive, the prospect of condominium conversions from 2003 through 2008 forced apartment building values to increase far beyond what could normally be justified if the investor were only looking at rental income. In fact, in many cases, the expenses for the recently sold buildings far exceeded the rent rolls. The belief among investors was that their profits would be realized once the buildings were converted into condominiums and their units were sold off to individual owners. When these prospects did not come to fruition, the unfortunate result was a high inventory of vacant condominium and apartment units and a substantial depreciation in residential rents. These factors have all contributed to a decrease in the values of apartment buildings, and an increased number of tax appeals.

To further complicate matters, New Jersey municipalities that conducted their most recent revaluations or re-assessments at or near the height of the real estate market are now substantially over-assessed for most properties. In these instances, filing a Tax Appeal is essential. However, in some towns, properties are valued at as little as 20% of their true value. The reason for this is that conducting revaluations or re-assessments is an expensive process for municipalities to undertake. Some towns have not conducted revaluations in several years. Those under-assessed municipalities will therefore operate under the sometimes faulty assumption that all of their properties are under assessed by the same ratio and will increase their tax rates accordingly.

In cases where your property is located in an under-assessed municipality, you still may have a good case for a Tax Appeal if your "true value assessment" exceeds the value of your property. The True Value Assessment can be easily derived by taking your assessment and dividing it by the equalization ratio for your municipality. Your town's equalization ratio can be obtained by either calling your assessor or the County Board of Taxation. If you feel that your True Value Assessment exceeds the actual value of your property by more than 15%, then a Tax Appeal may be justified.

The tax appeal procedure begins with an application which is generally due on April 1st. Filing fees for the application range between $5 and $150 depending upon the assessed value of the property. In cases where an attorney is retained, the attorney will often handle the appeal on a contingency fee basis. While property owners who are not corporations or limited liability companies may represent themselves in the tax appeal proceeding, the applicant should have an appraiser at the hearing in all cases where a discrepancy in valuation is at issue.

In this week's article, we will examine the subject of cumulative taxation. The case involved the Geoffrey Corporation, which owns Toys R Us and Babies R Us. The State of South Carolina had levied a tax upon said corporation in the amount of 5% of its net income. Said tax is unconstitutional for two reasons. First, it discriminates against interstate commerce, and second, the regulation will leave the petitioner subject to unfair cumulative taxation.

Discrimination Against Interstate Commerce
State regulations which discriminate interstate commerce are unconstitutional unless three requirement are satisfied. First, the regulation must pursue a legitimate state end; second, the regulation must be rationally related to that legitimate end; and finally, the regulatory burden imposed by the state on interstate commerce, and any discrimination against interstate commerce, must be outweighed by the state's interest in enforcing its regulation. With respect to the first requirement, Courts generally differentiate between regulations that seek to promote health, safety and welfare from regulations whose only objective is the furtherance of an economic interest. Regulations that seek to promote health, safety and welfare are encouraged under the Police Power rationale. See Wilson v. The Black Bird Creek Marsh Co., 27 US 244 (1829). On the contrary, regulations where the state's objective is to promote the economic interest of its own residents is not generally permissible. Taxes upon non-resident businesses, such as the petitioner, clearly fall into this category. It is apparent that levying such a tax upon the petitioner will act to partially offset taxes, which would have ordinarily been collected from the citizens of South Carolina. By collecting such taxes from the petitioner, South Carolina has in effect, helped the economic interests of its citizens. Protection of a state's economic interests is generally not considered to be a legitimate state objective, where pursuit of that objective materially affects interstate commerce.

Continue reading "State Tax Ruled to Be Cumulative and Unconstitutional" »

As real estate taxes skyrocket, many taxpayers have begun to look for ways to reduce their tax payments. One common method of accomplishing this is filing a tax appeal. However, since tax appeal procedure affords relief to very few taxpayers, the decision of whether to file an appeal will require a cursory understanding of how the process works.

Real Estate Taxes are calculated by multiplying your municipality's tax rate by your property's assessment. Your tax rate cannot be appealed; however, your assessment can be. Your tax appeal must, therefore, be based upon proofs that the municipality has over-assessed your property. In most cases, the taxpayer's opinion should be supported by an independent appraisal. For appeals filed in 2011, the date of valuation should be October 1, 2010. In most cases, your appraiser's report should be restricted to comparable sales that occurred in your municipality during the year 2010.

With property values decreasing over the past few years, over-assessment is most likely to occur in a municipality that conducted its last revaluation of its properties at or near the height of the real estate market. According to some experts, the New Jersey Real Estate Market reached its peak during September of 2006. Since then, property values have plummeted. Over-assessment of your property will result in higher real taxes. In these cases, a tax appeal is crucial.

In many municipalities, however, the assessments are still much lower than the actual property values. This is in part due to the fact that some municipalities infrequently conduct revaluations. Those under-assessed municipalities will therefore operate under the sometimes faulty assumption that all of their properties are under assessed by the same ratio and will increase their tax rates accordingly.

However, there are cases when a property is assessed at a much higher ratio than the other properties in town. When this occurs, the aggrieved taxpayer can also file an appeal, but the rules are slightly different. When a taxpayer argues that his property is assessed at a higher ratio than the rest of the municipality, the rules require that the property owner furnish evidence that his or her assessment exceeds the average ratio by at least 15%.

The tax appeal procedure begins with an application which is generally due on April 1st. Filing fees for the application range between $5 and $150 depending upon the assessed value of the property. While property owners may represent themselves in the tax appeal proceeding, the applicant must have an appraiser at the hearing in all cases where an appraisal will be offered as evidence.

Continue reading "New Jersey Tax Appeals - Procedure and Practicality" »