New Jersey property with environmental contamination still has value but under what circumstances may an appraiser take into account that contamination when preparing an appraisal to be used in a New Jersey tax appeal? The New Jersey Supreme Court answered this question in 1988 in the seminal case of Inmar Associates v. Carlstadt, 112 NJ 592 (1988),. The Inmar court held that when a property is in use, “normal assessment techniques will remain an appropriate tool in the appraisal process” (ie. no reduction). However, when a property is no longer in use, the cost to cure the contamination may be taken into account by an appraiser, but not by a dollar-for-dollar deduction.
Recently, the Appellate Division of the Superior Court of New Jersey had an opportunity to define “in use” in the context of a tax appeal case. Pan Chemical Corp. v. Hawthorne Borough, 404 N.J.Super. 401 (App.Div. 2009). In Pan Chemical, the property owner moved its business to a new location, but kept a small crew on site to avoid triggering environmental clean-up obligations under the Industrial Site Remediation Act (“ISRA”). The property owner argued that despite the fact that it did not trigger ISRA, it was still entitled to take into account the contamination when valuing the property. The Appellate Division disagreed.
The Pan Chemical court concluded that a bright line test was necessary for determining when a property was “in use” for purposes of applying the Inmar standard in a tax appeal case. After reviewing various case law and statutes, the court adopted the definition of closing of an operation under ISRA which is “the cessation of operations resulting in at least a 90 percent reduction in the total value of the production output . . or, for industrial establishments for which the product output is undefined, a 90 percent reduction in the number of employees.” See N.J.S.A. 13:1K-8(1)). Since the property owner was still operating at about a 15 percent level, it was not entitled to any reduction in the assessment based upon the contamination.
Although a bright line test is easy to apply, the result does not seem fair to a property owner whose property is being assessed significantly above its true value merely because ISRA has not been triggered. However, this appears to be the law since the New Jersey Supreme Court refused to accept the case for review. In addition, the New Jersey legislature is reviewing a new bill which may further complicate matters for property owners.