Tax Trends:  Planning for Next Year

By:  John Garippa, as published in Real Estate New Jersey, April 2001

The filing deadline for tax appeals has just passed in New Jersey.  Nonetheless, a review of the significant issues in filing a tax appeal is still a worthwhile exercise -- it's never too early to plan for next year.

All tax appeals must be filed by April 1 for each tax year under review.  Owners of commercial and industrial property should really take a serious look at their assessments every year to see if appeals are warranted.  The general increase in the value of properties over the past several years has stabilized in the last six months, making such a review even more worthwhile.

In determining whether an assessment is proper, most owners of property in New Jersey fail to understand that the stated assessment in a tax bill is only half the story.  The other half of the story is called the Chapter 123 ratio.  The director of the Division of Taxation determines, for each tax year, the average ratio of assessed value to the true value of all property in each municipality.  That determination is known as the Chapter 123 ratio.

Upon request, the tax assessor can provide the appropriate ratio for each municipality in question.  Unless there has been a revaluation or reassessment in the municipality, the Chapter 123 ratio is used to determine what the proper assessment of a property ought to be once the fair market value has been determined.

As property values have increased dramatically in many communities, Chapter 123 ratios have similarly declined.  This ratio, which changes every year, is based on the review of all useable sales in a municipality.  It attempts to measure the level of assessment and provides a tool to aid in achieving uniform assessments.  By way of example, if a property is worth $100,000 and the Chapter 123 ratio is 80%, the assessment of that property should be $80,000.

Another hurdle that taxpayers must be aware of in order to file a successful tax appeal is the Chapter 91 law.  Under this provision, the assessor has the right to make a demand on owners of property for the income and expenses associated with that property for each tax year.  That demand is made prior to the tax year in question so that the assessor can properly value the property.  Under this law, if a taxpayer fails to properly respond to this request in a timely period, any tax appeal so filed will be subject to dismissal.

Historically, many legitimate tax appeals on substantially over assessed property have been dismissed under this provision.  It is crucial for owners of large portfolios of property to be aware of this provision, since experience has shown that these notices can easily be ignored by on-site management.  In addition, all property managers should be put on notice that these requests by the assessor's office must be addressed in a timely fashion.

Another hurdle that the legislature has placed in front of taxpayers is the law that compels payment in full of all taxes due and owing on a property in order to file an appeal.  This provision seems somewhat harsh, because taxpayers on over assessed property are often in distress.  However, the application of this law is strict - the only known exception to this statutory provision has been a bankruptcy filing.

Once these preliminary hurdles have been properly addressed, the ultimate issue of value comes into play.  Under New Jersey law, property must be assessed at fair market value, or what a willing buyer would pay a willing seller.  In terms of income-producing property, the real test is the value of the income stream.  Whether it's an office building, apartment complex or hotel, the paramount question is, what is the value of that stream of income?

At this point, it's critical to have a professional appraisal report prepared by a competent appraiser.  In New Jersey, the burden of proof is on the taxpayer, which means that unless the taxpayer proves by competent evidence that the assessment is incorrect, no change in that assessment will take place.

It is clear that there are a number of hurdles that must be successfully negotiated in order to obtain assessment relief in New Jersey.  By being aware of these potential problems and issues, owners of property will be on notice as to the rules of the game and will be better prepared for the challenge.

John Garippa is the senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair, NJ and Philadelphia.  He is also president of the American Property Tax Counsel, the national affiliation of property tax attorneys.