Tax Court Sides with Municipality in Pursuing Tax Appeal to Increase Assessment

The last few years have brought a dramatic escalation in tax appeals filed by municipalities against commercial property owners seeking to increase assessments and, of course, property taxes.  Municipalities, especially larger cities such as Newark, Jersey City, and Elizabeth have aggressively pursued such actions, sometimes referred to a “reverse appeals.”  But it was an appeal by a suburban municipality, Cherry Hill, where the Tax Court most recently confirmed that such actions are permissible.

In Cherry Hill v. The Center at Cherry Hill, LLC , the Tax Court denied the taxpayer’s motion to dismiss the Township’s appeal against the owner of a commercial property.  There, the taxpayer argued that because the assessor decided to pursue the appeals without any discussions with the Township’s governing body the real plaintiff was the assessor and not the Township.  The gist of the taxpayer’s argument was that the assessor knew at the time he submitted his tax list that the assessment did not reflect the “full and fair value” contrary to his statutory duties set forth in N.J.S.A. 54:4-23 (to determine the “full and fair value” of each property and after examination and inquiry and make a judgment of the “fair and bona fide” value as of October 1 of the prior tax year).  The taxpayer argued also that it was then improper for the assessor to – in the name of the municipality – file an appeal.

The Township’s position was that in addition to the subject property, the assessor recommended appeals on several other properties after reviewing income and expense records.  Not mentioned in the opinion is that the subject property, assessed for just over $11.4 million, had sold about two months before the first complaint was filed for more than $22.1 million.  The Township argued that the assessor believed that he could not simply increase the assessment because to do so would constate an unlawful “spot assessment” under West Milford Tp. v. Van Decker, 120 N.J. 354 (1990).

Coincidentally, reverse appeals have been attacked as being the same as a spot assessment.  That issue was before the Tax Court in Borough of Freehold v. WNY Properties L.P., 20 N.J. Tax 588 (Tax 2003) cited extensively in the unreported Cherry Hill case.  In WNY Properties, the court distinguished an assessment as a “unilateral determination” and judgment of the assessor, as compared to an appeal by a municipality that is “a claim” of under-assessment which requires the court to “apply its own judgment” to the evidence presented and determine the property’s true value.  There the court concluded that an assessment determined by the court, notwithstanding having been brought by the municipality, “effectuates the” underpinnings of the Uniformity Clause in our State Constitution (requiring property to be “assessed for taxation under general laws and by uniform rules”) and our State statutes implementing that provision.  The Tax Court reached this same conclusion more recently in another unreported decision, JOVSIM L.L.C. v. City of New Brunswick, holding that an assessment set in a reverse appeal would result from the independent determination of the Tax Court or County Board of Taxation based on the proffered evidence.

Perhaps it was the clear rejection of the spot assessment claim in WNY Properties that lead the defendant in Cherry Hill to pursue its line of attack of an improper assessment and subsequent appeal by the assessor.  But as was the case in the WNY Properties, the court rejected the taxpayer’s argument and concluded that “the Assessor did not appeal his own assessment” and that the “ultimate decision to appeal was that of the municipality which is the plaintiff in this matter.”

The court noted also N.J.S.A. 54:3-21(a) which permits a municipality to file an appeal when if believes it is “discriminated against by the assessed valuation of property in the taxing district, or by the assessed valuation of property in another taxing district in the county, may ‘file an appeal.”  But notwithstanding the statutory language, the court acknowledged the “well-settled” law that the statute applies to municipal appeals based on the assertion that the assessment is too low.  Citing Short Hills Associates/Taubaum Co. v. Twp. of Millburn, 20 N.J. Tax 352, 355 (Tax 2002); F.M.C. Stores Co. v. Bor. of Morris Plains, 195 N.J. Super. 373, 380 (App. Div. 1984), aff’d 100 N.J. 418 (1985).

In this case, the Township alleged the appeal on the subject and other properties resulted from a review of income and expense records.  What spawned that review is not clear, although it was likely the recent sale of the property for nearly twice the assessed value.  We have seen also refinancing trigger such reviews and reverse appeals. While it may not seem unfair to seek an increase on a property that is obviously under assessed, the concern is whether this process ensures uniformity and fairness for all property owners.  In other words, who decides which properties are targeted and which properties will escape the reverse appeal.

Many tax appeal attorneys and property owners question the propriety and fairness of reverse appeals.  In fact, one property owner in Jersey City recently filed an action in Superior Court to bar reverse appeals.  That matter, City of Jersey City v. Avenir LP, remains pending so there may be more to come on this issue.  Although, the property at issue there has a combined assessed value of just over $16 million and sold last year for $48 million.

Unless the Superior Court steps into the pending Jersey City matter, potential buyers and owners of commercial properties should be mindful of assessed values and the impact of a purchase price or refinancing that may trigger a review by the assessor leading to a reverse appeal and, of course, a higher tax burden.