Articles Posted in Taxation

As real estate values continue to drop, municipalities are once again scrambling to budget for reimbursements to taxpayers who win their appeals. While real estate tax appeals are typically filed by April 1, they are often not heard until July or August. In some cases, the County Tax Board will then take as long as 4 to 6 weeks to render a decision. Since Real Estate Tax payments are due in February, May, August and November of each year, taxpayers who have filed appeals very often will have paid at least three quarters of real estate taxes prior to the County Board of Taxation rendering a decision as to whether they are entitled to a reduction. For the majority of our clients, who do obtain reductions in their assessments, the question then asked is when are they going to see an adjustment or credit on their tax bills. Under N.J.S.A. 54:3-27.2, the Tax Collector of the municipality shall refund any excess paid within 60 days of the date of judgment. Should the matter proceed to Tax Court, it is very possible that a Judgment would not be rendered until a couple of years after the Tax year for which the appeal is sought. In those cases, where the municipality is forced to give back overpayments for multiple years, it is not unusual for the municipality to delay reimbursement and pay the taxpayer a 5% interest penalty as per statute until the overpayment can be fully reimbursed.

The Current Problem

Each year, New Jersey municipalities have suffered substantial shortfalls as the result of Tax Appeals being filed after the municipal budgets have been adopted. Under the current law, each municipality must adopt its budget by March 31 and the deadline to file a tax appeal is generally April 1. In some cases, tax appeals do not get heard until several months after they are filed. The judgments resulting from those Tax Appeal applications are then mailed out several weeks later. The result for most municipalities is a major budget shortfall. Furthermore, the school system, which usually accounts for the majority of a municipal budget, is not bound to return any of the funds previously guaranteed under the March 31 budget.

The solution that many municipalities have employed is the same solution that any governmental entity employs when it has a budget shortfall. They have sold bonds, which they must pay back with interest at a later date. This solution, however, only forestalls the impact of the tax appeals. Another solution, employed by assessors is to offer to settle a matter with the stipulation that the lower assessment will not become effective until the following year. This solution allows a municipality to account for an adjustment in some of their line items prior to a budget being adopted. Nevertheless, this solution is used relatively rarely, and can only be used for settled matters.

According to some experts, New Jersey’s real estate market reached its peak in the summer of 2006. Since then, real estate values have consistently dropped. Among the properties that have seen the most dramatic decreases in values are New Jersey apartment buildings. As the real estate values have continued to plummet, tax assessors have scrambled to try to ensure that their assessments do not exceed the values. In some cases when a reassessment or revaluation has not been performed to reflect the diminution in values, owners of apartment buildings have enjoyed success in their tax appeals.

While apartment buildings were historically valued based upon the income streams that investors could expect to receive, the prospect of condominium conversions from 2003 through 2008 forced apartment building values to increase far beyond what could normally be justified if the investor were only looking at rental income. In fact, in many cases, the expenses for the recently sold buildings far exceeded the rent rolls. The belief among investors was that their profits would be realized once the buildings were converted into condominiums and their units were sold off to individual owners. When these prospects did not come to fruition, the unfortunate result was a high inventory of vacant condominium and apartment units and a substantial depreciation in residential rents. These factors have all contributed to a decrease in the values of apartment buildings, and an increased number of tax appeals.

To further complicate matters, New Jersey municipalities that conducted their most recent revaluations or re-assessments at or near the height of the real estate market are now substantially over-assessed for most properties. In these instances, filing a Tax Appeal is essential. However, in some towns, properties are valued at as little as 20% of their true value. The reason for this is that conducting revaluations or re-assessments is an expensive process for municipalities to undertake. Some towns have not conducted revaluations in several years. Those under-assessed municipalities will therefore operate under the sometimes faulty assumption that all of their properties are under assessed by the same ratio and will increase their tax rates accordingly.

As real estate taxes skyrocket, many taxpayers have begun to look for ways to reduce their tax payments. One common method of accomplishing this is filing a tax appeal. However, since tax appeal procedure affords relief to very few taxpayers, the decision of whether to file an appeal will require a cursory understanding of how the process works.

Real Estate Taxes are calculated by multiplying your municipality’s tax rate by your property’s assessment. Your tax rate cannot be appealed; however, your assessment can be. Your tax appeal must, therefore, be based upon proofs that the municipality has over-assessed your property. In most cases, the taxpayer’s opinion should be supported by an independent appraisal. For appeals filed in 2011, the date of valuation should be October 1, 2010. In most cases, your appraiser’s report should be restricted to comparable sales that occurred in your municipality during the year 2010.

With property values decreasing over the past few years, over-assessment is most likely to occur in a municipality that conducted its last revaluation of its properties at or near the height of the real estate market. According to some experts, the New Jersey Real Estate Market reached its peak during September of 2006. Since then, property values have plummeted. Over-assessment of your property will result in higher real taxes. In these cases, a tax appeal is crucial.

In many municipalities, however, the assessments are still much lower than the actual property values. This is in part due to the fact that some municipalities infrequently conduct revaluations. Those under-assessed municipalities will therefore operate under the sometimes faulty assumption that all of their properties are under assessed by the same ratio and will increase their tax rates accordingly.

However, there are cases when a property is assessed at a much higher ratio than the other properties in town. When this occurs, the aggrieved taxpayer can also file an appeal, but the rules are slightly different. When a taxpayer argues that his property is assessed at a higher ratio than the rest of the municipality, the rules require that the property owner furnish evidence that his or her assessment exceeds the average ratio by at least 15%.

The tax appeal procedure begins with an application which is generally due on April 1st. Filing fees for the application range between $5 and $150 depending upon the assessed value of the property. While property owners may represent themselves in the tax appeal proceeding, the applicant must have an appraiser at the hearing in all cases where an appraisal will be offered as evidence.
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