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A new twist on tax fights: Businesses learn towns can seek reassessments

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The 120-unit apartment complex in South Brunswick changed hands in fall 2010. By spring 2011, the new owner was headed to tax court for a case that's still in litigation today.

For anyone who knows New Jersey's property tax appeal system, that's no surprise.

Here's what may surprise you: It was the township that filed the appeal.

South Brunswick is not alone. The township and a handful of other municipalities in the state are now filing appeals against owners whose properties they feel are underassessed, experts say, effectively turning the tables on a longstanding process that normally starts with property owners.

Such “reverse appeals” were more or less unheard of a few years ago, said A. Paul Genato, a Princeton-based property tax attorney with Archer & Greiner. But towns and cities may be reconsidering their options after years of dipping into their coffers to settle appeals.

“I think for a lot of these towns, there's been a lot of erosion in the ratable base,” said Genato, whose firm represents a property owner in South Brunswick and two in Elizabeth that have been sued by the municipal government. “Maybe this is some way for them to potentially neutralize some of that effect.”

He noted municipalities routinely file counterclaims when property owners challenge their assessments. But it's been rare for local governments to initiate the case.

There's no conclusive data available for the number of reverse property tax appeals that have been filed in New Jersey, only figures that reaffirm New Jersey's massive backlog of cases — 44,000 through last June, not counting cases that have been filed since then.

But experts say the practice still appears to be limited to just a handful of municipalities around the state.

Chief among them is Elizabeth, which filed about 100 this year against commercial properties ranging from vacant sites to the land under the Jersey Gardens Mall, according to Robert Blau, the city's attorney.

“We're realizing that there are a lot of properties that are underassessed, just as there are quite a few that are overassessed,” said Blau, of Springfield-based Blau & Blau. He noted that the city settles many tax appeals every year that result in refunds to property owners.

“We're just trying to recoup some of the losses,” he added.

Blau said the same statute that allows property owners to appeal their tax assessment “permits the city, if it feels discriminated against by the assessment, to file a tax appeal to increase the assessment.”

That has the city turning its attention to dozens of commercial sites, but no residential properties, Blau said. Aside from vacant land and retail buildings around Broad Street, Elizabeth is challenging industrial properties assessed at roughly less than $50 per square foot, a number that stems from “our perception of the market,” he said.

The city also has appealed the $6.4 million assessment on the land on which Jersey Gardens was built — the structure is covered under a separate tax abatement. Blau said the true value of the land is $46 million based on “equalization ratios” issued by the state, which say property in Elizabeth is currently assessed at just 14 percent of its true value.

Blau also represents West Orange, which he said has filed a handful of tax appeals in recent years and could file more going forward.

It wasn't immediately clear how many other towns have filed reverse appeals, a practice that has become prevalent in Pennsylvania in recent years. But Bill Dressel, executive director of the New Jersey State League of Municipalities, said it's a logical option as towns discover properties whose values have rebounded.

“Everything has to be assessed at fair market value,” Dressel said. “So the assessor, as part of doing their due diligence, obviously is looking at the values. And that may very well be an option, as a policy matter, that they want to pursue.”

But municipalities that pursue reverse appeals could face legal challenges beyond the typical litigation in tax court, said David Wolfe, a Livingston-based attorney. The cases will begin to work through the system, “but if towns use this as an end-run around performing revaluations, that would clearly, from our perspective, be unconstitutional.”

Some experts say towns and cities are reluctant to conduct revaluations, explaining why many have gone years or decades without doing so. The process is often controversial and expensive, and can lead to jarring hikes in property tax bills for commercial and larger multifamily property owners.

So Wolfe, a member of Skoloff & Wolfe P.C., said it's worth watching how towns and cities decide which properties to challenge.

“If you only are increasing the commercial and multifamily properties, and leaving the residential properties alone — even if some of them are underassessed — that raises serious constitutional questions,” Wolfe said. “The New Jersey constitution requires uniformity of treatment.”

E-mail to: joshb@njbiz.com
On Twitter: @joshburdnj

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