85,257 Reasons Why Municipalities Should Pay Tax Refunds On Time

In Faber Brothers Inc. of New Jersey v. Borough of Paramus, the court considered a Motion to Enforce Settlement Agreement, Compel Payment of Refund and Interest. This motion arose in tax appeals contesting the assessments for the tax years 2009 through 2011. The parties reached a settlement agreement and filed a Stipulation of Settlement with the Tax Court on October 1, 2012. The Stipulation of Settlement provided that statutory interest would be waived provided that the refund due the taxpayer was paid by December 31, 2012. The record reflects that the waiver of statutory interest was specifically negotiated by the parties and, ultimately, both the taxpayer and the Borough agreed to provide for statutory interest in the event payment of the refund was not made by the agreed upon date. The court found that the parties “were acutely aware” of the date by which the refund was to have been issued. The record included a December 4, 2012 letter from taxpayer’s counsel to counsel for the Borough as a reminder that payment was due by December 31, 2012. When confronted with this during the argument on plaintiff’s motion, counsel for Paramus admitted that he ignored the letter “because he found it to be suspicious in nature.” The court did not elaborate on what, if any details were offered by counsel as to what specifically he found to be suspicious and why his suspicions did not allow for a response.

The Tax Court issued the judgments for all tax years by December 14, 2012. Paramus failed to issue the refunds by the agreed upon date of December 31, 2012 and on February 20, 2013, plaintiff moved to enforce the settlement. In opposition to the motion, Paramus argued that the filed Stipulation of Settlement “can hardly be viewed as completely encompassing the parties’ intent and incorporating all of the terms agreed upon by the parties.” Paramus argued that the intent was to allow the Borough more than 60 days from the date of entry of the judgment to issue the refund. The court found Paramus’ arguments to be without merit. The court also noted that the Borough took no action to work with the court or the taxpayer when it realized that the refund would not be issued by the agreed upon date. Paramus’ refusal to abide by its agreement cost the Borough an additional $85,257.21 in interest.

It is not uncommon for taxpayers to waive statutory interest on refunds provided the payment is made within 60 days of the judgment. As municipalities continue to face the crush of tax appeals, they are looking for new ways to ease the economic pain. Some municipalities are up front during settlement negotiations about their ability to pay refunds within a certain time period. Some towns are asking for anywhere from 90 days to one year to issue the refunds. But by addressing the timing of the refund up front, these municipalities are allowing the taxpayer to make an informed decision as to the merits of the settlement offer. Other municipalities unfortunately are less revealing during negotiations and take a more aggressive posture overall, which, in the long run, will prove to be more costly for taxpayers.

A copy of the written decision in Faber Brothers Inc. of New Jersey v. Borough of Paramus may be found here.

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