New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

On May 28, 2008, I discussed the HJ Bailey Company v. Neptune case where the Appellate Division held that the appeal preclusion provision under Chapter 91 does not apply to non-income producing properties.  In the HJ Bailey case, the property in question was owner-occupied and did not generate any income over the preceding years.  Although the decision is sound, it must be read in conjunction with a recent New Jersey Tax Court case which held that the Chapter 91 appeal preclusion remedy may apply to certain types of non-income producing properties.  Specifically, the New Jersey Tax Court recently held that when an income producing property stops producing income, the taxpayer is obligated to respond to the Chapter 91 request and advise the local assessor that the property was no longer producing income.  Trinity Matzel, LLC v. City of East Orange (January 16, 2009).
   

Trinity Matzel owned an apartment building in East Orange which produced rental income for many years prior to 2006.  During 2006, the property owner performed major renovations at which time the tenants vacated the apartment building.  As a result, no income was received in 2006.  The following year, the tax assessor sent a Chapter 91 request to the property owner seeking annual income and expense information for the property.  The property owner did not respond to the Chapter 91 request.
   

The following year, the property owner filed a tax appeal seeking to appeal the assessment.  The municipality moved to dismiss the complaint arguing that the property owner failed to respond to the Chapter 91 request and, as a result, the complaint must be dismissed. [See New Jersey Law Journal for discussion on Chapter 91] The property owner, relying in part upon the HJ Bailey case, argued that since the property did not produce any income in 2006, it was not required to respond to the Chapter 91 request seeking information for that particular year.  The municipality, relying primarily upon an prior Appellate Division case captioned Alfred Conhagen v. Borough of South Plainfield, 16 N.J. Tax 470 (App. Div. 1997), argued that the complaint should be dismissed even though the property did not produce income in the year of question, because in prior years, the property did produce income and the property owner failed to notify the assessor of the change to a non-incoming producing property.
   

The Tax Court reviewed the Conhagen and HJ Bailey cases and found that the Conhagen case was more similar to the case at bar and dismissed the taxpayer’s complaint.  The Tax Court followed Conhagen’s holding that a property owner “had a mandatory duty to respond to the tax assessor and a duty to demonstrate that its property ceased to be income-producing as of May 1994.” (emphasis added).
   

The definition of “non-incoming producing” is not as clear as one would think.  If the property generated income at one time and subsequently becomes owner occupied or vacant, the property owner should respond to the Chapter 91 request and advise the assessor of the status of the property.   In light of the continued uncertainty in this area of the law, prudent property owners should respond to the annual Chapter 91 request even if the property does not generate any income.  The response is easy to complete and will provide you with protection in the event a motion to dismiss your complaint is filed.

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This blog continues the discussion on the draconian remedy under Chapter 91 of the New Jersey statutes which allows a municipality to dismiss a tax appeal in the event a property owner fails to respond to a request for income and expense information for a particular property.  We also provided several updates, including some recent decisions concerning the obligation of a property owner to respond to a Chapter 91 request when the property in question does not produce any income.  Despite the best efforts of property managers, sometimes the Chapter 91 request slips through the cracks and does not get answered.  When this happens and a municipality moves to dismiss the complaint, the property owner is left with one remedy: To request a reasonableness hearing pursuant to Ocean Pines Ltd. v. Borough of Point Pleasant, 112 N.J. 1 (1988).  Recently, the New Jersey Tax Court had an opportunity to review the reasonableness hearing standard for a large parcel of property located in Berkeley Heights, New Jersey.  See Lucent Technologies v. Berkeley Heights Township, (December2, 2008).
   

In the case in question, the property owner failed to respond to the Chapter 91 request and was limited to the remedy of a “reasonableness hearing.”  A reasonableness hearing is not a hearing to determine the value of the property, but rather a hearing to determine the “reasonableness of the assessment imposed by the assessor.”  The New Jersey Supreme Court has described such a hearing as:
 

 “The inquire will focus solely on whether the valuation could reasonably been arrived at in light of the data available to the assessor at the time of the valuation.  Encompassed within this inquiry are (1) the reasonableness of the underlying data used by the assessor and (2) the reasonableness of the methodology used by the assessor in arriving at the valuation.”
 

To no surprise, the property owner was not successful in challenging the reasonableness of the assessment.  The primary obstacle in a reasonableness hearing is not only its limited scope, but the legal problem arising from the “presumption of validity”  of the original assessment.   What this means in lay terms is that the data upon which the assessor relied and the assessor’s methodology are “presumed to have been reasonable.”  In light of the presumption, the property owner is required to overcome the presumption by producing evidence that is “definite, positive and certain in quality and quantity.”  Put another way, the property owner must establish that the “assessor acted arbitrary or capriciously in setting the assessments.” 
   

Although the property owner proved that the assessor’s methodology did not include a physical inspection of the subject property, did not include any effort to determine the fair market value of the property, and did not include any accumulation or thorough investigation or current data from the market place, the property owner nevertheless lost his case.  The Court found that the assessor was permitted to rely upon data appearing in the file produced or accumulated by his predecessor assessors without verifying or updating the data, and is entitled to rely upon information and recommendation from the municipal appraisal expert without inquiring as to the basis for the information and recommendations.
   

Although a reasonableness hearing is not impossible to win, the standard is extremely high.  Keep your eyes open for the annual Chapter 91 request and respond in a timely manner.

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As a general rule, the common property of a condominium or homeowner association should not be separately assessed by your municipality. However, many associations are paying property taxes on common property as a matter of course, not realizing the property should be assessed at a minimum or no value.  Now is the time to review your tax assessment and determine whether a tax appeal is merited. 

We suggest the following audit procedure:

1. Look Back at 2008:   Was the community being separately assessed for any common property or area in 2008?  Look for any payments to your local tax assessor and determine why the payments were made.  If no payments were made and the Association has not received any tax assessment notices, the Association is most likely being treated fairly.  However, if payments were made, determine which lot and block were subject to the taxes, who owns the lot, and what the lot is being used for.  This information is necessary to determine if the property can be assessed.
2. Be Prepared For 2009:  In late January or early February 2009, you should receive an assessment notice which is generally sent on a small card advising you of your assessment for 2009.   If you do not receive your tax card by the end of February 2009, call your tax assessor and ask for a copy.  You will need to know the tax lot and block for the common property when you call your assessor.  If the notice shows an assessment for common property, you need to do the following: A. Review your governing documents to confirm that the common property is specifically identified as common property or common element, subject to restrictions on use and transfers. B. Confirm your type of association - condominium association or home owners association (HOA).  The basis to challenge the assessment varies depending upon the type of association.   Condominiums have the benefit of a separate New Jersey law that prohibits the taxing of common elements, while HOA’s do not have the benefit of a separate law.  HOA’s must rely upon case law that has been developed over the years. C. If your common property is specifically identified as common property and subject to restrictions, you most likely should not be assessed. D.    Calendar the appeal deadline.  The deadline to file your tax appeal is April 1, 2009. If your town sent out the tax cards late, the deadline may be extended.  You can call your tax assessor to confirm the appeal deadline.   
3. Prepare Your Case Now.  Although April 1, 2009 seems far off, it will sneak up on you quickly.  If your common property was assessed in 2008, it most likely will be assessed in 2009.  Copy your most recent tax bill and send it to your counsel with a copy of the governing documents and a detailed description of the property in question. 

Now is the time to make certain your homeowner associations are only paying their fair share of the tax burden and not being subject to the whim of an aggressive tax assessor.  If you need assistance with a tax appeal, call Timothy P. Duggan, Esquire at 609-895-7353, or email him at tduggan@stark-stark.com.  Mr. Duggan is a shareholder of Stark & Stark and specializes in property tax appeals.

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Real Estate Tax Appeal Shareholder, Timothy P. Duggan, was quoted in the November 22, 2008 Star Ledger and Trenton Times article Reducing property taxes is possible, but not likely. The article discusses the recent rise in the number of homeowners filing for property tax appeals in New Jersey in the wake of the declining housing market and recent economic downturn. Mr. Duggan advises homeowners to take the necessary preliminary steps in understanding the tax appeal process in order to increase the chances that their appeal is heard and granted.

You can read the full article here. (PDF)

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Tax Appeals attorney, Timothy P. Duggan, and Green Building attorney, Vincent J. Mangini, co-authored the below post:

Imagine the situation where a conscientious property owner decides to install solar panels in an effort to reduce his or her energy costs and help the environment.  Then, imagine further, that once the work is completed, the local tax assessor increases the property’s tax assessment arguing that solar panels are an improvement to the property, which causes the property’s fair market value to appreciate.  The resulting taxes from this higher assessment could end up off-setting all or most of the energy savings generated by the solar panels, thereby discouraging property owners from making investment in green building technologies and processes.  Clearly, this is not an acceptable outcome for the property owner or the general public and, apparently, our state government agrees.  In June, 2008, the New Jersey State Legislature overwhelmingly passed a bill, which Governor Jon Corzine recently signed into law on October 1, 2008 (P.L. 2008, ch. 90; codified at N.J.S.A. 54:4-3-113a, et seq.), that provides a tax exemption for the increase in value to real property attributable to the installation of renewable energy systems - and the new law does not just benefit homeowners.
   

Under the new law, a “renewable energy system” is “[a]ny equipment that is part of, or added to, a residential, commercial, industrial, or mixed use building as an accessory use, and that produces renewable energy onsite to provide all or a portion of the electrical, heating, cooling, or general energy needs of that building.”  The term “renewable energy” is defined broadly to include, among other things, “(1) electric energy produced from solar technologies, photovoltaic technologies, wind energy, fuel cells, geothermal technologies, wave or tidal action, . . .; and (2) energy produced from solar thermal or geothermal technologies.”
   

In order to obtain a renewable energy systems exemption, a property owner must make a written application for certification to the local enforcing agency (i.e. building inspector) under oath and once the application is received, the local enforcing agency must review it for compliance with all legal requirements.  If a property owner is denied the certification and wants to appeal, an appeal may be filed with the local construction board of appeals.  In the event a property owner’s work is certified, but the local tax assessor imposes an unreasonable tax assessment on the property, the aggrieved property owner may file an appeal with the county tax board or State Tax Court in accordance with the court rules.
   

It also be noted that the exemption from taxation for the renewable energy system shall not become effective until the tax year following the year in which certification has been granted.
   

In conclusion, the aforesaid enactment is a good law.  It will prevent property owners, who “go green,” from being penalized by local taxing authorities with higher real property taxes.  However, property owners seeking to take advantage of this new benefit should familiarize themselves with the entirety of the new law and all applicable forms and regulations, as may be adopted by state agencies. The procedures to obtaining the certification must be followed in order to take advantage of the exemption.

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The New Jersey Farmland Assessment Act of 1964 was enacted by the State Legislature to reduce property taxes for farmland and woodland to encourage property owners to keep land in agricultural or horticultural use, rather than develop it.  To qualify for this reduction in land taxes, the area of land involved must be not less than 5 adjoining acres and the land must be actively devoted to agricultural or horticultural use for at least 2 years prior to the tax year for which the lower valuation is requested.  Gross sales of products from the land must average at least $500 per year for the first 5 acres, with other requirements for any acreage over 5 acres.  Land used for boarding, training or rehabilitation of livestock and for forestlands under a woodlot management program have additional requirements.  If the municipal tax assessor approves the land for farmland assessment, the land will be assessed in accordance with its value for agricultural or horticultural use, and not for its value as developed property.

Under the roll back provision, if the use of the property is changed from agricultural/horticultural to another use, or if the land fails to qualify under the act, the municipal tax assessor will impose an additional tax.  This tax, called a “roll back” tax, is an amount equal to the difference, if any, between the taxes paid or payable on the basis of the farmland assessment and the taxes that would have been paid if the property had been assessed for non-agricultural purposes.  This “roll back” is effective not only for the current year but also for the two immediately preceding tax years.  The two prior years are reassessed and the property bears the full burden of the additional assessment.

The tax assessor for each municipality determines if a property qualifies for farmland assessment for the year.  This determination is based on an application for farmland assessment for the year, which must be completed and returned to the tax assessor’s office by the property owner on or before August 1 of the prior year, e.g., applications filed by August 1, 2008 are to qualify land for farmland assessment in 2009.  The tax assessor’s office will make a determination as to whether the property qualifies for farmland assessment for the year.  If the property no longer qualifies for farmland assessment and if there has been a change in use, roll back taxes will be instituted for the current year and the prior two (2) years.

When purchasing property which is assessed as farmland, a Buyer should confirm that an application for farmland assessment has been submitted and approved.  The Buyer should also be prepared to continue the farming use to take advantage of the reduced taxes resulting from the farmland assessment.  An unaware Buyer who ceases to use the property for farming may find the property subject to significant roll back taxes.

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Recently, the Appellate Division of the Superior Court of New Jersey affirmed a Tax Court decision finding that a day care center a with before- and after-care program was exempt from paying real property taxes under New Jersey law.  Wee Love, Inc. v. Township of Maple Shade, Docket No. A-0290-07T2 (July 7, 2008). This case not only reaffirms a series of prior rulings decided when such facilities were referred to as nursery schools, but also discusses how before - and after - care programs impact the exemption analysis.

   
Wee Love is a New Jersey non-profit corporation licensed by the New Jersey Department of Human Services, Division of Youth and Family Services, as a child care center.  The facility is opened between 6:30 a.m. and 6:30 p.m., and includes a before- and after-care program.  Wee Love provides structured educational services suitable to the age of the children enrolled in the center, including singing, crafts and story time.  However, the before- and after-school program “lacked any indicia of being educational and was purely child care” raising a question over the entitlement to an educational exemption.

   
Under New Jersey, if a portion of property is not used for exempt purposes, that portion of the property can be assessed.  In this case, since there was such an overlap in the use of the property, the court decided to use the “predominant use” test to determine if an apportionment of the tax assessment was feasible.  Under this test, if the predominant use of the property is for the exempt purpose (ie., school use), the entire property will be exempt.  The court ultimately found that virtually all of the building was being used by the pre- school children, and although at times some portion was occupied by the before- and after-school participants, the predominate use of the building was as a school.  As a result, the entire property was exempt from real property taxes.

   
Day care centers which conduct educational programs should be exempt from paying property taxes, providing the predominate use of the property is for educational programs.  The fact that the day care also provides some services that may be considered “mere baby sitting” should not jeopardize the exemption.  This assumes that all other requirements for exemption are in place (ie., certificate of incorporation properly identifies the purpose).   In order to maintain the exempt status, it is advisable for day care centers to prepare formal lesson plans (albeit basic) in order to document what educational activities are being conducted at the center.

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When a property owner and municipality each have their own expert appraiser, the New Jersey Tax Court has the daunting task of determining (1) whether the property owner has overcome the presumption of correctness, and (2) assuming the presumption is overcome, which appraiser is the more credible expert.  Recently, in a decision involving property located in Franklin Lakes, New Jersey, the New Jersey Tax Court performed a thorough analysis of two appraisers’ selection and adjustments to comparable sales in a residential tax appeal.  See Elrabi v. Borough of Franklin Lakes, New Jersey Tax Court, July 11, 2008. The property owner’s appraiser believed the property was worth $1.8 million, and the municipality’s appraiser believed the property was worth $2.6 million.  In the end, the court determined a value of $2.6 million. The case provides an overview of the law governing the presumption of correctness and provides a good analysis of how to analyze an appraisal of residential property.

   
In terms of the comparable sales selected by the two appraisers, the two appraisers used different approaches.  The property owner’s expert focused primarily on finding homes of a similar age to the subject with standard finishes, regardless of the size of the homes.  The property owners’ appraiser justified this approach because of the condition of the property under appeal was allegedly out dated and not comparable to other high end homes in the area.  The appraiser then adjusted the properties for size. The municipality’s appraiser focused on homes of similar size, even if they were newer and had higher quality amenities.  The appraiser then adjusted the values for the quality of the amenities  (ie, quality of the kitchen, landscaping, finishes in the bathroom, etc.).  The adjustments are described in detail in the court’s opinion and beyond the scope of this blog, but essential reading for those seeking to litigate a tax appeal.

   
The Franklin Lakes case provides a good road map for a property owner deciding whether or not to file a tax appeal.  After overcoming the initial hurdle of the presumption of correctness, the property owner must still have solid proof to demonstrate the true value of the property. When it comes to the battle of the experts, it is very important to retain an appraiser with experience in the New Jersey Tax Courts.  The Tax Court Judges are experts in this area and often times will ask their own questions of the competing experts.

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On January 28, 2008, I wrote an article for the New Jersey Law Journal discussing the consequences of a property owner’s failure to respond to a Tax Assessor’s Chapter 91 request. The article discussed the conflicting case law in this area, including the obligation of the owner of non-incoming producing property to respond to a Chapter 91 request. The cases went both ways, with some property owners experiencing the draconian remedy of the dismissal of their appeals for failure to provide income and expense information for owner-occupied properties.


On April 9, 2008, the Appellate Division of the Superior Court of New Jersey clarified the issue and held that Chapter 91's appeal-preclusion provision solely applies to income-producing properties. H.J. Bailey Company v. Neptune Township, 399 N.J. Super. 381 (App. Div. 2008). In this case, the tax assessor of Neptune sent the property owner a Chapter 91 request. The property owner failed to respond to the request within the statutory 45 day time period. When the property owner filed a tax appeal, the tax assessor moved to dismiss the appeal based upon the property owner’s failure to reply to the Chapter 91 request, relying principally upon Southland Corp. v. Dover Tp., 21 N.J.Tax 573 (Tax Ct. 2004) (discussed in NJ Law Journal Article). The property owner opposed the motion arguing that the property was owner-occupied and, under the applicable law, it had no obligation to respond to the Chapter 91 request. The Tax Court sided with the property owner and the Appellate Division affirmed holding that the appeal-preclusion provision of Chapter 91 does not apply to non-income producing property.


It is now clear that under New Jersey law, a owner of non-income producing properties is permitted to file a tax appeal even if it does not respond to the Chapter 91 request. Property owners must be aware of this decision since many assessors will seek to knock out appeals based upon a property owner’s failure to respond to a Chapter 91 Request, even if the property is owner-occupied.


It is important to note that this decision is limited to non-income producing properties. If a property owner receives any type of income from any source, it risks being found to be a “income producing property.” This is often problematic when an owner forms a separate company to hold title to a property, and enters into a lease with another company he or she owns. This will be found to be an income producing property. Often times it is beneficial to respond to a Chapter 91 request even if you are an owner-occupied property to avoid the potential of a tax court judge finding some type of income attributable to the property.

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While property taxes always seem to be rising, there are some property owners who are entitled to reductions in their real property taxes due to deductions which are authorized by State law.

   
Senior citizens who are residents of the State and are of the age of 65 or more years and meet certain income requirements are entitled to a deduction of $250.00 (N.J.S.A. 54:4-8.41).

   
Citizens and residents of the State who are less than 65 years of age and are permanently and totally disabled, and meet certain income limitations are also entitled to a reduction of $250.00 in their real estate taxes.  (N.J.S.A. 54:4-8.41).

   
The surviving spouse/civil union partner of a deceased citizen and resident of this State who had been entitled to a deduction as a senior citizen or due to a permanent and total disability shall also receive the real property tax deduction so long as he or she shall remain unmarried (or has not entered into another civil union) and reside in the same dwelling for which the deduction had been granted, upon the same conditions.  This is so even if the spouse/civil union partner is under the age of 65 and not permanently and totally disabled, provided, however, the surviving spouse/civil union partner is 55 years of age or older at the time of death of his/her originally qualifying spouse/civil union partner.  (N.J.S.A. 54:4-841a).

   
Citizens and residents granted a deduction as a senior citizen, or for being permanently and totally disabled, as referred to above, are entitled to receive any homestead rebate or credit if they meet the compliance requirements.

 
In order to obtain the deductions referred to above, a qualifying resident must file a written application requesting the deductions. (N.J.S.A. 54:4-8.42).  Forms for this may be obtained from the local tax assessor.  Once obtained, the person who has been allowed a deduction is required to file an annual statement of his/her income on forms obtainable from their local tax assessor.

   
Citizens and residents of this State who are honorably discharged as war veterans, and their surviving spouses/civil union partners, (provided they have not remarried or entered into another civil union) are also entitled to a $250.00 deduction in their real property taxes. (N.J.S.A. 54:4-8.11).  This deduction does not have any income limitation requirements.  Written application must be submitted on forms provided by the local tax assessor to obtain this deduction.  Once a claim has been filed with and allowed by the tax assessor, the deduction shall continue in force from year to year without the need to file any further claim forms unless so required by the tax assessor.  (N.J.S.A. 54:4-8.16).  In certain cases, New Jersey state law provides for a total exemption from real property taxation for honorably discharged veterans suffering certain disabilities and their qualifying spouses/civil union partners. (N.J.S.A. 54:4-3.30).

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