"The complexities of transactions are causing owners
to place greater demands on their property tax counsel."

Not too long ago, taxpayers relied on property tax lawyers mostly for representation when a property tax appeal went to court. The lawyer's role was preparation for trial, given the attorney's understanding of the burden of proof necessary to reduce a tax assessment. As regulations grew dramatically, the complexities of real estate transactions increased, causing owners to place increasing demands on their property tax counsel. These new demands include due diligence prior to a tax appeal, tax budgeting for new acquisitions and dealing with the intangibles and non-real property components on property tax assessments.

First, due diligence: Today, taxpayers most often expect their property tax counsel to conduct due diligence before filing an appeal. This must begin by identifying statutory prerequisites necessary to obtain jurisdictional standing before the Tax Court. This includes making certain that all of the assessor's Chapter 91 requests for income and expense information have been answered prior to filing an appeal. Also, all real estate taxes and municipal charges need to be paid in full before proceeding. Taking these early steps ensures a case will not face certain and instantaneous dismissal.

Another aspect of pre-appeal due diligence is valuation. In New Jersey, once an appeal is filed, any taxing jurisdiction can file a counterclaim to raise an assessment if it determines that the market value of the property is too low. In these circumstances, even if the taxpayer decides to withdraw the appeal, many taxing jurisdictions insist on continuing the litigation.

To avoid this, owners now want their attorneys to review income and expense statements and apply capitalization rates that the Tax Court will use. This requires knowledge of real estate appraisal principles and market data so that appropriate valuations can be determined. While these early determinations of value do not rise to the level of appraisals, they still must be done competently in order to protect the owner from improvidently filing a tax appeal. This process becomes even more burdensome when taxpayers wait to the last minute to file tax appeals just prior to the April 1st deadline.

Prior to the passage of the Sarbanes-Oxley Act, accounting firms, acting in their capacity as auditors for corporations, often gave valuation advice, and at the same time filed tax appeals at the administrative level. Filling those dual roles is no longer allowed under Sarbanes-Oxley. Taxpayers now ask their property tax counsel to provide valuation advice.

Next, tax budgeting: Taxpayers have expanded the role of their lawyers by asking them to determine, prior to a property acquisition, the tax that might be assessed on the new acquisition. An asset manager will construct income and expense statements on a potential acquisition along with the projected acquisition price. Legal counsel then takes this information and compares it to similar properties in the tax jurisdiction.

Based on that comparison, the expected level of assessment is calculated, giving the owner a property tax budget for the proposed acquisition. Many asset managers will not approve an acquisition of property without this examination, and in some cases will not approve any acquisition when the real estate tax projection indicates significant increases.

Finally, the intangibles: With the recognition that intangibles do not represent real estate value, taxpayers increasingly call on their attorneys when complex transactions involve the purchase of assets that include significant elements of intangible property. In the case of hotels, assisted-living facilities and some regional malls, these intangibles can include significant personal property, name brand issues and significant amounts of labor and management, all of which are necessary in order to produce the property's stream of income.

In addition, owners now ask their property tax counsel to assist them in allocating the income related to non-real property assets. This role becomes critical because it determines the proper realty transfer tax applicable to the real property. It also limits the deed purchase prices in reassessing the property. Performing this exercise correctly prior to the filing of the deed often prevents significant property tax litigation.

Today, the world of property tax appeals requires a higher degree of knowledge and expertise than in times past.

John Garippa is senior partner of Garippa, Lotz and Giannuario of Montclair and Philadelphia. He is also President of American Property Tax Counsel, the national affiliation of property tax attorneys., and can be reached at john@taxappeal.com