Articles Posted in Taxation

dollar-sign-1317230-m-150x150The Law Office of Michael D. Mirne, L.L.C. appreciates all the calls we get each year to file tax appeals. However, some of these calls, especially the ones we receive each year in July and August, may be premature. After fielding nearly 100 tax appeal inquiries over the past two weeks, we decided that it was about time that we explained in this month’s bulletin why it is too early to call us for your tax appeal.

Many New Jersey residents do not find out about their current year’s tax assessments until late July or early August, when they receive their preliminary tax bills. In cases where the property is situated in a town that has recently been re-assessed, or revalued (which includes most Monmouth County towns, due to the Assessment Demonstration Program), the current year’s tax assessment may be substantially higher than it was the year before. By this point, it is of course too late to file a tax appeal for 2017. That appeal would have been due by April 1 (or by January 15 for properties in Monmouth County). However, since many taxpayer’s do not pay attention to the postcards they received several months earlier, informing them of their new assessments for the year, they erroneously assume that the tax bills that they have received in late July or early August contain some new information about a tax assessment which can still be appealed. This belief is unfortunately not accurate, and therefore, during the months of July and August, we find ourselves having to explain to dozens of taxpayers each week that we cannot appeal their assessments for this year. We also inform the taxpayers that their only recourse is to wait until the 2018 assessments are released and file an appeal for 2018.

In most New Jersey Counties, assessments are finalized in January of 2018 and appeals must be filed no later than April 1, 2018. In Monmouth County, the 2018 assessments are finalized in November, and appeals must be filed no later than January 15, 2018. Since most Monmouth County towns still participate in the Assessment Demonstration Program, which requires annual revaluations, there is a substantial likelihood that an assessment for 2018 will be substantially different than the assessment for 2017 (just as the 2017 assessment is substantially different than the assessment for 2016). Therefore, it would be pointless to evaluate in July or August whether or not a particular property would be a good candidate for a tax appeal when we do not even know what the 2018 assessment will be. Additionally, regardless of whether a town is being re-assessed, since we know that the assessments should reflect the values as of October 1 of the pre-tax year, we cannot properly evaluate the fair market value of a property without reviewing all the sales that have occurred though October 1 (and perhaps a few months beyond October 1).

dollar-sign-1317230-m-150x150As the April 1 tax appeal filing deadline quickly approaches, we would like to take a moment to remind our readers and our clients that some municipalities in New Jersey may have extended tax appeal filing deadlines as the result of a revaluations or re-assessments. In the towns that have been revalued or re-assessed, the filing deadlines are often extended to May 1.  In Middlesex County, the affected towns are New Brunswick and Carteret. In Ocean County, the towns of Lakewood, Beach Haven and Ship Bottom will all be revalued or re-assessed.

What is a Revaluation or Re-Assessment?

In New Jersey, the real estate tax that you pay based upon how much your assessor thinks your house or property is worth. However, real estate values are continuously changing and it would not be practical for the assessor to re-compute the values of every property in town every year. Therefore, after assigning assessments to every property in a town, the assessor may wait several years before deciding to repeat that process. In the meantime, the town will simply increase the tax rate each year in order to accommodate the increases in budget. Since real estate values are generally increasing (and not decreasing), towns that have waited several years to conduct a revaluation or re-assessment may have assessments that eventually represent only a small fraction of the properties’ actual values. [You may click here to see your town’s equalization ratio] When this occurs, the County Tax Board may compel the municipality to conduct a revaluation or re-assessment. This may also occur in cases where, due to shifts in the economy of the municipality, the assessments are no longer fairly distributed.

dollar_sign-150x150Each year, our office fields phone calls from taxpayers who are interested in appealing their tax assessments. Many taxpayers who are eligible for our services ask us what the best evidence is to prove that their properties are over-assessed. For these inquiries, we generally note that an appraisal report, estimating the value of the property as of October 1 of the pre-tax year is usually the best evidence.

There are several reasons why appraisal reports are great evidence in tax appeal hearings.  One of the reasons for this is that the appraiser can apply adjustments to sale prices to account for differences in location, size, quality of construction, and amenities, just to name a few factors.  The appraiser will usually start by looking for the sales that require the fewest monetary adjustments. But sometimes, sales of properties that are really comparable are not available, and therefore, adjustments are applied. The other significant reason why appraisal reports are so helpful is that the appraisers who prepare them are generally very skilled at presenting their data in a way that the County Tax Board or the Tax Court will understand, no matter how complicated the adjustments tend to be.

While there are many advantages of getting an appraisal for a tax appeal, there are a lot of cases where it may not make sense to do so. These cases include matters where there are several identical comparable sales. The best example is an appeal of the assessment of a condominium, in a community where several other identical condominiums have recently sold. Another example of a matter where the taxpayer would not necessarily want to order an appraisal is a property where the anticipated tax savings will not be sufficient to justify the cost of an appraisal. Unlike our firm, which offers tax appeal representation on a contingent fee basis, the appraiser who is retained as the expert witness is prohibited from doing so under the Uniform Standards of Professional Appraisal Practice (USPAP), which sets forth that an appraiser should not have any financial interest in the outcome of the appraisal report that he or she is preparing. Therefore, an appraiser will charge the same flat fee, regardless of whether the case is successful.

gavelA few months ago, during one of our tax appeal hearings before the County Tax Board, a tax assessor began her testimony by telling the Tax Board Commissioner about sales supporting her assessment. During her testimony, she mentioned discussions that she had with a real estate broker relating to the sales. The Tax Board Commissioner then looked at me and asked me if I had an objection to the testimony. I noted, to the Commissioner’s surprise, that the testimony that the tax assessor was presenting, while it was technically Hearsay, was actually permissible under the New Jersey’s laws. My reason for volunteering this information was quite simply because I was going to have my witnesses present similar testimony that day, and an objection at that juncture may have vitiated my ability to do so. More importantly, however, was the fact that this type of hearsay is routinely admissible in Tax Appeal hearings. In today’s article, we will discuss the reasons for this exception.

One of the most misunderstood and misinterpreted rules of evidence is the prohibition against hearsay. Hearsay evidence is generally defined as any out of court statement that is being offered for purposes of proving the truth of the matter asserted. The reason for this restriction is ostensibly to prevent a litigant from testifying about statements made by another party, who is not in Court, and therefore, cannot be cross-examined about the statements. But like most laws, the rules on hearsay have numerous exceptions and exemptions, and in some cases, even the most scholarly judges may differ in their opinions as to which conditions would trigger an exception.

In a tax appeal hearing, an appraiser, when testifying about comparable sales, will very often need to discuss details, not only pertaining to the property, but also to details pertaining to the transaction in which the property was purchased. For instance, an appraiser for a taxpayer might be questioned about the motivations of the parties to a transaction, which may have factored into the purchase price. Undoubtedly, when an appraiser for a taxpayer presents a comparable property that sold for substantially less than the assessment of the subject property, the municipality or the tax board may question whether the sale price of the comparable property truly reflects market value. The appraiser will then begin to testify about discussions that he or she had with the seller, or the real estate broker to demonstrate that the sale was, in fact, an arms-length transaction. These statements, by persons who are not at the Tax Board or Tax Court, are clearly hearsay. However, in Tax Appeal matters, they will still be admissible.

Tax BillTax appeal season will be starting again in just a few short weeks. By November 15, Monmouth County property owners will be able to view their 2017 tax assessments and file appeals on those assessments. By February 1, property owners in other counties will be able to view and appeal their assessments. With these deadlines in mind we need to deal with the subject of revaluations (and in particular, Monmouth County revaluations) and how they should affect your decision as to whether to file a new appeal for 2017.

As many Monmouth County taxpayers are aware, the county has adopted the Assessment Demonstration Program, which encourages its towns to perform annual revaluations or re-assessments of all properties on a continual basis. Only a few towns in Monmouth County have, thus far, opted out of this program.   Since properties that have been revaluated or re-assessed are not subject to the limitations of the Freeze Act[1], the following information may apply if you have filed a tax appeal during a prior year:

  1. If you currently have a Tax Appeal pending in Tax Court for a prior tax year, please be advised that the reduction in assessment that you may receive when that appeal is finally heard or settled might only be applicable to the tax year for which the appeal was filed. In order for you to preserve your rights with regard to your 2017 assessment, you will need to file a separate appeal for 2017. Please note that in cases where the original assessment of the property is under $1,000,000, the 2017 appeal must originate as a filing in the County Tax Board, before it can be “affirmed” and then appealed to the Tax Court.[2]

As another Tax Appeal season is upon us, we would like to thank our clients and our appraisers for a great season of tax appeals. For the 2016 tax year, we saved our clients more than $12 Million in tax assessments.  Starting on October 5, 2016, our office will begin accepting tax appeals for the 2017 tax year.  Since all final judgments in Monmouth County are under the cloud of the new Assessment Demonstration Program, the following information is essential for all Monmouth County residents.

Monmouth County’s Assessment Demonstration Program was implemented in 2014, ostensibly as a means of ensuring that all taxpayers are paying their fair share of property taxes. Under the new program, property tax assessments are revised annually to bring every assessment to 100% of true market value, as established as of October 1 of the pretax year.   The program also includes provisions to allow for a 5-Year Data Collection Cycle, thereby increasing the frequency at which property data would be collected or verified.

By conducting annual revaluations, the County will effectively remove “fractional assessments.” All properties in Monmouth County will now be assessed at 100% of true market value.  The old system of dividing an assessment by the town’s equalization ration to determine the true value assessment would, therefore, no longer be necessary in Monmouth County.  Similarly, the arithmetic process of adding 15% to the equalization ratio to determine whether the assessment is within the “Chapter 123 corridor” is also not necessary.   However, with annual revaluations comes a consequence for all taxpayers who had previously filed appeals.

dollar-sign-1317230-mOur 2016 Monmouth County Tax Board hearings are now completed. As we prepare for another batch of hearings in the remainder of the County Tax Boards, we will discuss four of the more common errors that taxpayers make that have resulted in dismissals of their matters.

  1. Refusal to Allow Access to Premises

When conducting re-assessments or revaluations, tax assessors or employees of the revaluation company may request access inspect houses. Sometimes, even in non-revaluation years, a taxpayer may receive such a request if a tax appeal is pending and the assessor needs to verify his or her information. While you certainly have the right, under the Fourth Amendment to the United States Constitution, to refuse access to government employees, you should expect that the refusal to grant access to the assessor will likely be construed as your affirmation that the assessor’s predetermined information is correct. In other words, if you want to tell the Tax Board that the property information provided by the assessor is not accurate, you should not expect too much sympathy from the Commissioners, once the assessor mentions that you refused access. Notwithstanding the Fourth Amendment, it would not be reasonable to refuse access and then show up at a tax appeal hearing to contest the findings of the assessor.

NickelDuring the past five months, our office has responded to several hundred inquiries regarding real estate tax appeals for the 2016 tax year.   The initial inquiries mostly concerned Monmouth County properties, where the filing deadline was January 15. A single exception exists for Wall Township properties, where the filing deadline has been extended to April 1, due to the municipal-wide revaluation. Wall Township is the only town in Monmouth County that had not previously undertaken a revaluation since the pilot program was instituted in Monmouth County in 2013.

The revaluation in Wall Township has, however, caused a great deal of confusion among taxpayers, many of whom have the erroneous belief that the drastic increase in their assessments would result in a significant increase in their tax bills. Fortunately, this is not the case. The tax rate for each town is calculated by dividing the municipal budget by total of all assessments. The former assessments, which had been equalized at about 60% of true value, necessitated a very high tax rate. Put simply, when all the properties in town were under-assessed, a higher tax rate was required to ensure that the tax revenue still matched the municipal budget.

Now that Wall Township has undertaken the task of bringing all the assessments back to 100% of true value, the tax rate would need to drop commensurately in order to make the arithmetic work. Of course, any time there is a municipal revaluation, there will be a few property owners who will become over-assessed. While a drastic increase in assessment is not sufficient cause to file a tax appeal, an over-assessment is a very good cause to file a tax appeal. During the next few weeks, our office will continue to field phone calls and emails to answer any questions that taxpayers may have regarding their assessments.

NickelA few years ago, I was attending a conference for the New Jersey Chapter of the International Association of Assessing Officers. The moderator introduced the Monmouth County Tax Administrator, Matthew Clark, to discuss a new program he was implementing.  Mr. Clark discussed his new website to enable the electronic filing of all tax appeals.  He also spoke about changes to the tax appeal calendar to ensure that tax appeals were filed and decided before the date that the municipalities were required to finalize their budgets.  These all seemed like good ideas.  Then Mr. Clark spoke about making data more available to assessors to create a group of “super-assessors,” who could annually perform revaluations.  Since one of the exceptions to the Freeze Act is a revaluation, it is clear that the process of annual revaluations would substantially vitiate the benefits of a tax appeal.  Later that day, I approached Mr. Clark with a request that he reconsider his position on annual revaluations.  That request did not draw much response other than an acknowledgement that the plan was already a fait accompli.

Annual revaluations are commonplace in many towns in Somerset County, although they are not specifically legislated like they are in Monmouth County. Since revaluations are time consuming and expensive, New Jersey towns have historically avoided performing them until they have been compelled to do so by the County Tax Board.  Instead, towns have opted to make adjustments only to the tax rates, which are not appealable.  The arithmetic works out the same, of course.  Either way, the town satisfies its budget, although avoiding revaluations can produce some unfair results in cases where there is a substantial deviation in the changes in real estate values in different parts of the town.

A recent series of newspaper articles heavily insinuated that the annual revaluation program was a ploy to line the pockets of one of the former Tax Board Commissioners, who is now employed by the company that does many of the revaluations. The articles are certainly eye-catching, but they unfortunately lack merit, and they fail to produce any evidence of any actual misfeasance.  Other than a common link between the Tax Board and the revaluation company, there is no substance to support the allegations.

gavel.jpgFor taxpayers in Mercer, Middlesex and Monmouth Counties, who have matters pending before the New Jersey Tax Court, our job just got even easier (and faster). Historically, a property tax matter filed in the New Jersey Tax Court would require the two attorneys to make several appearances in Court before the matter would finally be scheduled for trial. The first appearance, which would be scheduled anywhere between 8 and 18 months after the original filing, would usually not yield much in the way of productive results. The second appearance, which may have been scheduled about two months later, would generally lead to the parties being instructed by the Court to complete discovery and discuss settlement. On the third appearance, the Judge would tell the parties to go get appraisals and continue discussing settlement. If the matter did not settle by the fifth appearance, we could usually ask the Court to schedule a trial. While each case was unique, we never got to a trial without at least 4 prior Court appearances.

With 60,000 property tax cases pending before the Tax Court and only 6 Judges to hear all of them, the case management process has not only been burdensome for the attorneys, but it has also exhausted the Court’s limited resources. For those of you who have not had the pleasure of showing up to Tax Court on a Wednesday morning, when there are 400 cases scheduled for case management, you have unfortunately missed out on a miraculous event, that has apparently been phased out of the process, at least by one out of the six Judges who hear Real Estate Tax Appeals.

Judge Sundar, who presides over Tax Appeals for Mercer, Middlesex and Monmouth County properties, has implemented a new plan to speed up the Tax Appeal process. The plan involves having the two attorneys work out the details of the case management process on their own and reporting the status to the Judge via email. This will eventually lead to the Court being able to increase the number of cases it can clear, rather than dealing with an issue that can usually be resolved by the two attorneys on a case. As much as I enjoyed spending my Wednesday mornings in downtown Trenton chatting with my colleagues about capitalization rates, equalization ratios and external obsolescence, while waiting for my cases to be called, it will be nice to be able to devote the 3 hours to more productive pursuits.