Should Tax Assessments be Admissible in Condemnation Cases?

When courts seek to establish a property’s fair market value in condemnation cases, they generally disregard property tax assessments. Courts tend to find that tax assessments are poor indicators of value and instead rely on other valuation methods. However, some courts have begun to question this notion and, on some occasions, have allowed assessments into evidence. This raises an important question: should tax assessments be admissible in condemnation cases?

Tax Assessments

Before going further, we need to understand what a tax assessment is and the purpose it serves. Essentially, a tax assessment is the value a municipality attributes to real property. This value, which is determined by a property tax assessor, is used to calculate property taxes. Tax assessments aim to promote fairness by ensuring that properties are taxed based on their value. Our post further discussing the taxation of real estate can be found here.

Tax Appeals vs Condemnation

Property owners in condemnation proceedings usually advocate for higher property values in order to maximize the amount they receive in compensation. In contrast, those appealing property taxes advocate for lower property values to reduce tax payments. Although these contrary strategies are used in tax appeals and condemnation, courts have the same task: finding the correct fair market value. When successful, courts ensure that property owners receive just compensation in condemnation cases and fair assessments in property tax cases.

Reliability of Tax Assessments

Tax assessments are generally considered unreliable to prove fair market value. This is due to four main reasons:

Limited Information: Tax assessors often have access to limited information when completing assessments. For instance, property owners frequently prevent assessors from entering their property. When assessors cannot perform in-person inspections, they must rely on other sources of information. This can significantly impact the accuracy of assessments.

Fluctuating Markets: The real estate market is constantly changing. Although market prices can change frequently, tax assessments can remain the same for several years. As such, many assessments will fail to account for current market conditions.

Opinion vs Fact: Although tax assessments are generally supported by quantitative data, they are opinions of value and may not accurately reflect what a willing buyer would pay a willing seller on the open market. In contrast, actual sales of properties reveal what willing buyers have paid on the open market. Since opinions do not carry the same weight as sales, many find that assessments are not the best indicators of fair market value.

Hearsay: Finally, tax assessors are non-parties in condemnation cases and do not testify regarding tax assessments. For this reason, admitting tax assessments into evidence would essentially be admitting hearsay, or out of court statements without live testimony. This is a problem for litigants because they cannot cross examine the foundations of these assessments.

When Tax Assessments Are Admitted into Evidence

Despite the above concerns, courts have recognized circumstances where tax assessments should be taken into consideration. This has led to favorable and unfavorable outcomes for property owners as can be seen by the following two cases:

Kansas City Mall Associates. Inc. v. Unified Government of Wyandotte County

In this condemnation matter out of Kansas, the property owner appealed a commissioner’s award of just compensation. At trial, the condemnor introduced the property owner’s statements in a prior tax appeal to show that it previously advocated for a lower fair market value. After considering this evidence, the court reduced the commissioner’s award from $7.5 million to $6.95 million. On appeal, the Kansas Supreme Court upheld the decision based on the rule of evidence allowing statements against interest. You can find our blog post discussing the case here. This is a perfect example of how a tax appeal can affect a property owner’s just compensation award in condemnation cases. The full decision can be found here.

City of North Canton v. Brown

This condemnation case from Ohio also involved the admissibility of tax appeal evidence. In this matter, the property owner challenged the condemnor’s claim that certain buildings were worthless by offering tax assessments. However, the trial court determined that the assessments were inadmissible. In a victory for the property owner, the appellate court reversed and found that prior case law did not support the conclusion that tax assessments are inadmissible. Although the condemnor argued that tax assessments are unreliable and should not be admitted into evidence, the Court found that those arguments went to their weight rather than their admissibility. Click here to read the full decision.

Final Thoughts

As the above two cases demonstrate, admitting property tax assessments in condemnation cases can lead to different outcomes for property owners. Depending on the circumstances, assessments may provide courts with helpful context. Yet courts should consider the risk of undue prejudice before assessments are admitted at trial.

New Jersey law does not allow tax assessments to come into evidence for the purpose of proving fair market value. Bergen County Sewer Auth., 28 N.J. Super. 43, 53 (App. Div. 1951), aff’d, 9 N.J. 536 (1952); Brick Assoc. v. Brick Township, 4 N.J. Tax 510 (Tax Ct. 1982). This could possibly be used against property owners when seeking to prove a higher property value in other contexts. But as we noted in our Kansas City Mall Associates blog post, such evidence may be admissible under New Jersey Rule of Evidence 803(b)(2) as admissions against interest. This means that property owners should use caution when deciding to appeal their property taxes.

How We Can Help

If you are facing condemnation or wish to appeal your property taxes, consider hiring the experienced attorneys at McKirdy, Riskin, Olson & DellaPelle, P.C. We have the knowledge and skills to navigate the complex legal landscape and effectively represent your property interests.