Articles Posted in Taxation

We are in a difficult and uncertain time and I hope everyone is staying safely at home.  In the meantime, our office has been receiving daily updates from the New Jersey Supreme Court and the Legislature, concerning delays in Court dates and filing deadlines.  We have been trying to forward this information to our clients as it becomes available.  On March 19, 2020, Chief Justice Rabner signed an Order delaying the filing deadline for local property tax appeals from April 1 to a new date, which will be scheduled for 30 days following the determination that the state of emergency declared by Governor Murphy has ended.

Accordingly, if you believe your property is substantially over-assessed, and you are concerned that you may miss the April 1 filing deadline, you may still have plenty of time to file your appeal.  However, please note that the delay of the filing deadline will only apply to Tax Appeal filings where the filing deadline would have been April 1 or later.  It will not apply to those matters in which the due date for the filing was before the signing of the Court’s Order.   For instance, if your property is in Monmouth County, where the County Tax Board’s filing deadline was changed to January 15, you will not be able to file an appeal with the County Tax Board at that time.  However, if your property’s assessment exceeds $1 Million, we can still appeal the assessment directly to the Tax Court.

Coronavirus Related Valuation Arguments Will Not Be Successful In 2020 Tax Appeals

dollar_sign-150x150Several years ago, our office published an article examining the subject of cumulative taxation. Under the Due Process Clause of the 14th Amendment, state taxes must not subject a taxpayer to an unfair cumulative tax burden.  We reported about the landmark decision involved the Geoffrey Corporation, and the South Carolina regulation that left it subject to double taxation. In the matter of Container Corporation of America v. Franchise Tax Board 463 U.S. 159 (1983), the petitioner successfully persuaded the Court that double taxation is unconstitutional. In ruling in favor of the petitioner, the Court noted that “the principles enunciated in that case should be controlling here: a state tax is unconstitutional if it … creates a substantial risk of international multiple taxation…” Citing Japan Line, Ltd. v. County of Los Angeles, 441 U. S. 434 (1979).

With these cases in mind, we now need to revisit the rules regarding cumulative taxation as they may relate to Public Law 115-97 (Also known as the 2017 Tax Bill).  In the wake of the revised tax code, some taxpayers are asking us why there was a need to revise the tax structure, which had ostensibly worked for more than 30 years. While avoiding partisan politics as much as possible, we explain that eight years of reckless government spending under the Obama administration has left our nation with an insurmountable amount of public and foreign debt. On the day that President Obama took office, the national debt was $10.6 Trillion. By the day President Obama left office, the national debt had increased by nearly 70% to $18 Trillion!

Unfortunately, we are all responsible for repaying this debt (along with interest). In an effort to reduce this debt, the Trump Administration and members of the legislature went to work on revising the Tax Code. The new tax bill contained several controversial provisions. One of the most unpopular aspects of the new Tax Code was a reduction to the corporate tax rate, which was inserted in order to ensure that American businesses would continue to thrive and keep Americans employed.  We offer no opinion or prognostication as to whether this strategy will work. Rather, our focus in this article is only on the portion of the bill that relates to deductions for State and local taxes.

dollar-sign-1317230-m-150x150In 2018, many towns in Bergen County, New Jersey will undergo re-assessments. The municipalities affected include Carlstadt, Closter, Cresskill, East Rutherford, Hackensack, Hasbrouck Heights, Little Ferry, Moonachie, North Arlington, Oradell, Saddle Brook, South Hackensack, Teterboro, Westwood, and Woodcliff Lake. Additionally, the town of Saddle River will be conducting a revaluation. Revaluations and re-assessments differ only in that revaluations require the services of an outside company, whereas re-assessments are conducted by the assessor’s office. In both cases, however, the new assessments cause a great deal of confusion for some taxpayers, who mistakenly believe that the sudden increases in their assessments will result in a large increase in their tax bills. However, this notion is usually not correct.

Towns that have not been revalued or re-assessed in several years generally have assessments that are based on a small portion of their true market values. As a result of the under-assessments, the municipality annually increases its tax rates in order to satisfy the demands of the municipal budget. Due to the time and expense of conducting a revaluation, a town will generally wait several years before doing so. Then, when a revaluation or re-assessment occurs, one of the goals is to raise assessments up to close to 100% of the true market values of the properties. Consequently, the tax rates will drop commensurately so that, aside from some modest budget increases, the total tax revenue for the town is about the same as it was prior to the revaluation. Therefore, the average taxpayer will not experience any positive or negative effect from the revaluation.

Notwithstanding the arithmetic of the process, there are some taxpayers whose tax burden may change dramatically due to market trends in specific neighborhoods of a town that may result in the assessments of some properties increasing more than others. Therefore, while the net effect of a revaluation or re-assessment is ostensibly “tax neutral,” there will usually be a few taxpayers who will benefit from the revaluation or re-assessment while others are negatively impacted.

For the past 16 years, our office has been concentrating on just two areas of law – Evictions and Tax Appeals. Our eviction practice, which now spans most of New Jersey, has helped residential and commercial landlords with the removal of more than 10,000 tenants. Our tax appeal practice has been successful in the reductions of assessments by more than $67,000,000. With our county tax appeals concluding by July of each year, and the new assessments not being released yet, we have fielded numerous calls from our clients over the past 4 months, inquiring about tax appeals for 2018. The following information pertains to the release of new assessments and filing deadlines.

Monmouth County

We note that most municipalities in Monmouth County are still subject to the Assessment Demonstration Program (ADP), which often requires re-inspection of houses and buildings, and inevitably leads to yearly adjustments in assessments for the majority of Monmouth County residents. Therefore, even taxpayers who previously had their assessments reduced may find that their assessments for 2018 have been raised again. Accordingly, we have been advising all taxpayers affected by ADP to wait until their 2018 assessments are released before considering whether a Tax Appeal would be recommended. During the next few weeks, all Monmouth County residents should receive their new assessments for 2018. If you feel that your 2018 assessment exceeds the fair market value of your property, please contact us to discuss whether a tax appeal would be worthwhile pursuing. Please keep in mind that the Appeal Calendar for Monmouth County starts on November 18 and ends on January 17. Some towns, including Belmar and Spring Lake have received extensions until February 23. For information on any specific filing deadlines, please contact the Monmouth County Tax Board at (732) 431-7404.

Each year, our office files more than a hundred tax appeals with the Monmouth County Tax Board and the  Ocean County Tax Board. We also file dozens of appeals for taxpayers in other counties. In the past, we were proud to report that we had obtained reductions in assessments for the majority of taxpayers we represented. However, as the attorney who personally appeared before the County Tax Boards for nearly all of the matters that proceeded to a hearing, I became concerned about the small percentage of matters that we did not win. While we have tried to pre-screen all matters to determine the likelihood of success, there were certain matters where the evidence at trial simply did not support a reduction of assessment. Yet there were other “borderline” matters, where it was likely that the properties were over-assessed, but being able to prove the over-assessments was extremely difficult due to a lack of supporting evidence. These matters were particularly distressing to me, because knowing that a property is over-assessed is sometimes easier than being able to prove it, and yet I have always believed that no one should be forced to pay more than his or her fair share of property taxes. Accordingly, I decided to modify the paradigm in which I prepare and present the data that we use in our tax appeal hearings.

Historically, we have always advised our clients that retaining an appraiser to prepare an appraisal report and testify at the tax appeal hearing always gives the taxpayer the best chance of winning a tax appeal. But we also understand that there are cases where the cost of an appraisal report cannot be justified by the anticipated tax savings of the tax appeal. This may be especially true in Monmouth County, where the majority of towns are mandated to conduct annual revaluations as the result of the Assessment Demonstration Program. So long as the annual revaluations continue, the benefit of a successful tax appeal is only guaranteed for one year, and hence, the single year reduction in taxes must be significant in order to make the cost of an appraisal worthwhile.

For matters where an appraisal is not practical, we have recommended using comparable sales. But in order to maximize the benefit of using comparable sales, we knew we had to improve the way that data was gathered and presented to the Tax Board. When preparing comparable sales data, we check a variety of sources, including data from MLS, as well as lists of closed deed transactions, which can be found by reviewing SR1a records that are filed with the County Tax Board as well as the assessor. We have tried to compare the subject property to similar properties, with houses of similar size and in similar neighborhoods. Most importantly, the properties that we are using as comparable sales must have closed within a year before or within a couple months after the October 1 assessing date. From the data obtained, we have used the most similar comparable sales to demonstrate that the assessment of the subject property must be reduced. But in 2017, in order to improve the paradigm, I started to go to the properties that I am using as comparable sales data and determine whether there are any factors that are not readily apparent in the MLS data or the assessor’s records. At times, I have even found that the information contained in either MLS or the assessor’s records was wrong, and perhaps a factor in the improper assessment of the subject property. One of the most common sources of an improper tax assessment is an error in assessor’s records. This year, we have exposed several of those errors and we have made sure that the assessments were properly adjusted to reflect the actual size and condition of the properties that we were working on.

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]