Believe it or not, April 1st is right around the corner. And in New Jersey, that means it is time for filing real estate tax appeals for the current tax year.
New Jersey companies and property owners face some of the highest property tax burdens in the nation, thus driving up the cost of doing business in the Garden State. Making matters worse, the federal tax changes set to take effect in 2018 are expected to affect office, retail, industrial, hospitality and multi-family property values in a significant way.
Furthermore, as the economy continues to shift away from traditional brick and mortar retail and vast corporate campuses in suburban areas, many properties have decreased in value and may need to be repurposed and reassessed for property tax purposes. Of course, the converse is also true—in that many areas historically considered blighted or in need of redevelopment have welcomed new construction and development projects in recent years that will soon face increased property tax assessments. In light of these issues, it is incumbent upon property owners and business tenants to review their tax bills to identify potential savings as well as possible risks of future tax increases.
The deadline for filing a property tax appeal is April 1, with the exception of Monmouth County. (The Monmouth County deadline was January 15, 2018 in light of its participation in a fairly recent property assessment demonstration program.) The deadline is extended to May 1 for an appeal in any taxing district that has implemented a municipal-wide reassessment. For properties with assessments that are equal to or less than $1 million, appeals must be filed with the pertinent County Board of Taxation. For properties with assessments exceeding $1 million, an appeal can be filed directly with the New Jersey Tax Court. All amounts due to the municipality, through the first quarter of the current year, must be paid in full prior to filing an appeal.
Can a Tenant File?
An important question that arises in real estate tax appeals is whether or not a tenant can file an appeal to contest an assessment. The applicable statute authorizes any aggrieved taxpayer to file an appeal and there is case law which provides that a tenant can file an appeal if its lease covers an entire tax year and provides that the tenant is responsible for payment of the real estate taxes. Accordingly, many tenants, especially those that have signed triple net leases, should generally be allowed to file an appeal. A more complex question concerns appeal rights associated with a property with multiple tenants. In this case, the case law points to an analysis which looks to the economic interests and arrangement of the parties, the provisions of the lease and actual tax burden, as well as whether the tenant(s) in question can adequately represent the interests of the landlord and other tenants.
Accordingly, any tenant that wishes to file an appeal should first consult the lease agreement itself as to whether the right to file an appeal is provided for in the agreement. If the lease is silent, it is recommended that a tenant discuss the real estate tax situation with the owner and see whether the owner would like to proceed with an appeal or participate/manage the process. This can help with avoiding coordination issues in the future that can ultimately harm the prospects for a successful appeal. Additionally, a tenant filing an appeal must provide the owner of the property with adequate notice.
Establishing the True Value of a Property
When filing an appeal, an aggrieved taxpayer is not contesting the tax imposed, but is rather contesting the value of the property as assessed by the municipality. Under state law, property must be assessed based on its true value. True value or market value can be derived from a number of different approaches based on: comparable sales; cost; or income capitalization from the property in the case of an income-producing property. True value is determined as of October 1 of the previous year for a given tax year.
Once true value is established, a rather mechanical test is applied, referred to as the Chapter 123 test, to determine the fairness of an assessment. When property is assessed by a municipality, it may or may not be assessed at 100 percent of the market value for a host of reasons. Accordingly, each year, the municipality computes and certifies with the Division of Taxation the common level or average ratio for assessed value to true value of all properties in the taxing jurisdiction.
To test the assessed value of the property in question, the applicable ratio for the property is computed by dividing the assessment amount by the true value arrived at using one of the methods mentioned above. The acceptable range for a given property’s ratio is 15 percent below or above the average ratio certified with the Division of Taxation. If the ratio computed for the property in question is above the upper limit, the true value of the property will be multiplied by the average ratio for the municipality to arrive at the revised assessment amount. In the event the ratio computed for the property is below the lower limit, there is a risk that the true value of the property will be multiplied by the average ratio for the municipality to arrive at an increased assessment amount, so be careful.
Other Common Issues
Finally, some other common issues that come up in the context of New Jersey property tax appeals include the effect of any recent sale or refinancing and recent improvements, upgrades, and retrofitting undertaken on the property. While a recent sale may be instructive in helping to determine market value, an assessor is not allowed to reassess property based solely on the property’s recent sale.
When it comes to improvements and upgrades of a property, the statute allows for added assessments for any building or other structure which has been erected, added to or improved after October 1 and completed between January 1 and October 1 of the tax year in question. Mere retrofitting, upgrading, or remediation of deferred maintenance should not constitute an improvement to warrant an added assessment. The same can generally be said for painting, carpeting and other cosmetic improvements. However, even if these items would not justify an added assessment, they could be part of an assessor’s future assessment increase that is part of a municipal-wide reevaluation plan.
Commercial property owners and tenants may have an opportunity to reduce their overall cost of doing business in the Garden State by filing a property tax appeal. The issues discussed above only shed light on the basis for an appeal. Therefore, it is incumbent on property owners and tenants to do their diligence and discuss their options with a property tax expert.
Jaime Reichardt, Esq., is Chair of the Sills Cummis & Gross State and Local Tax Practice Group and can be reached at firstname.lastname@example.org. The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis & Gross P.C.
Have questions? Call the NJBIA Legal Hotline for Business Operations and Transactions at 833-704-8206. This is an exclusive benefit for NJBIA members.