Taxpayer Clears One Hurdle But Trips Over Another
In Keen v. Township of Pennsville, which involved a challenge to the 2011 tax assessment on a commercial property, the New Jersey Tax Court recently held that plaintiff proffered sufficient evidence to overcome the “presumption of validity” that attached to the $808,600 assessment on the property under appeal. However, because plaintiff’s expert made no adjustments to the comparable leases upon which he relied, the court found that the expert’s opinion of value lacked credibility. A copy of the Keen decision is available here.
Under New Jersey law, it has been long held that property tax assessments and judgments of county boards of taxation are entitled to a presumption of validity, also referred to as the presumption of correctness. In the face of this presumption, a taxpayer bears the burden to prove that an assessment is erroneous. To overcome the presumption, the taxpayer must proffer cogent evidence that is definite, positive and certain in quality and quantity. If a taxpayer fails to overcome the presumption, the assessment is affirmed and the court need not make an independent determination of value.
In Keen, the taxpayer introduced expert testimony from a licensed real estate appraiser who gave an opinion of value of $490,000 using the income approach and sale comparison approach. The municipality did not produce expert testimony, but instead relied on its counsel’s cross-examination of the taxpayer’s appraisal expert and the presumption of validity. The court found that the taxpayer proffered sufficient evidence to overcome the presumption. However, a determination that the presumption has been overcome does not end the court’s inquiry. The court is then obligated to determine the true market value of the property.
The Tax Court in Keen declined to adopt the sales comparison approach because plaintiff’s expert conceded that two of the sales were distressed and that he had not verified the remaining sales in his analysis. Moreover, the court found that given the income producing history and potential of the subject, the income approach was the most appropriate valuation method. But because the taxpayer’s appraiser made no adjustments to the comparable leases upon which he relied, the court found that his opinion lacked credibility and provided no evidence on which it could meaningfully compare those properties to the subject. Instead, the court relied on a lease at the subject property that was negotiated shortly after the assessing date as the best evidence of market rent. The court then accepted the vacancy and collection loss rate offered by plaintiff’s appraiser and a slightly lower capitalization rate in reaching its own conclusion of market value of $793,700 which provided a modest reduction in the assessment.
This case is another reminder of the challenges confronting a taxpayer in overcoming the many hurdles to achieve a reduced assessment. At the end of the day, in order to obtain the best result possible – whether by settlement or trial – the taxpayer’s counsel and appraiser must not only present credible evidence of value, they must identify and address the potential strengths and flaws in the market data the appraiser is relying upon; the appraiser’s analysis of that data; and ultimately, the appraisers conclusion of value.
Related articles:
Assessment Presumed Valid – Another Taxpayer Bites the Dust
Expert’s Mistake Sinks Valuation Case
Appeal Involving Apartment Complex Reaffirms Presumptions
For more on the presumption of validity/correctness see:
Pantasote Co. v. City Of Passaic, 100 N.J. 408 (1985)
MSGW Real Estate Fund, LLC v. Mt. Lakes, 18 N.J. Tax 364 (Tax 1998)
