In a recent case decided by the New Jersey Tax Court, a municipality asked for reconsideration of a decision reducing a commercial property’s assessment. The property in question was a mixed-use retail and warehouse building, with some mezzanine space in both the retail and warehouse areas. The main issue on reconsideration involved whether the Tax Court should have included the value-in-exchange of the mezzanine space value in the rent for gross leasable area, or given it a separate rent. Since there was no evidence of the value of the mezzanine, argued the municipality, the Tax Court had to affirm the assessment. The Tax Court rejected this argument, finding that the mezzanine space was properly included in the rental value of the main area.
However, this is a case where the issue isn’t really the issue. In general, reconsideration motions are a long shot, and not undertaken lightly. In this case, at the time of the trial, the town withdrew its counterclaims and rested on the assessment without presenting any affirmative evidence. This wasn’t necessarily the plan, as they had an appraiser present at trial and ready to testify to an appraisal report. Was it a good idea to rest on the assessment? With the number of tax appeals and the cost of commercial appraisals, balancing the risk of resting on the assessment or presenting affirmative evidence is a delicate decision for a town attorney that can cut both ways. Let’s explore that issue a little further; but first, let’s take a step back.
In a normal tax appeal, the burden of proof rests on the appealing party. That means it’s the party that wants to see the assessment changed (usually the taxpayer) who has to provide proof that the assessment is wrong. That proof typically comes in the form of an appraisal and the testimony of a duly accredited appraisal expert. The defending party, on the other hand (usually the municipality), can present evidence of value, but they’re not obligated to do anything. Rather, they’re entitled to rely upon a legal construct typically referred to as the “presumption of correctness” to which municipal assessments are entitled. This presumption operates on the assumption that municipal officials do their jobs correctly, and therefore the assessment should be right. The defender of the assessment also has the added protection of another hurdle to changing the assessment - a range of value in non-revaluation years where, if the Tax Court or Board of Taxation finds value in that range, the assessment is affirmed. This range of value, set by statute and commonly called the “corridor,” allows assessments to be imprecise, but still not subject to revision. Finally, the Tax Court has become increasingly demanding in recent years, making it difficult for appealing parties to carry their burden of proof to alter the assessment in question.
With these legal protections for the assessment, it’s easier to see why a defending municipality may choose not to get an appraisal. First, if they have a lot of appeals to defend, the cost of expert reports and testimony can explode, and it might even cost the town less to have a judgment entered than get an appraisal in some cases. Second, the court may not find value if there are significant gaps in the taxpayer’s proofs; it’s not unheard of for the town’s appraiser to fill those gaps with their testimony and enable the court to reach value if they testify. Finally, it’s also possible for the town’s expert to find value below the assessment. This last scenario raises some difficulty for the town; while they may want to preserve the tax revenue, the town can’t simply sit on an appraisal substantially below the assessment and push for the taxpayer’s case to be dismissed.
On the other hand, the court may find its way to value without the town’s proofs. Those proofs, if entered into the trial record, might increase the court’s value conclusion and even potentially sustain the assessment. If the town has already expended the funds for an appraisal, and that appraisal supports or exceeds the assessment, it may not be worth the risk of having the Tax Court bridge the gaps in the taxpayer’s appraisal unexpectedly and result in an adverse decision.
Of course, if the case is a residential matter, the taxpayer hasn’t retained an expert, or retained an expert unfamiliar with property tax practice in NJ, it’s not a great risk. Particularly in smaller cases, the cost of an appraisal, expert or assessor testimony and trial preparation by the attorney may vastly outweigh the cost of any judgment. However, at the end of the day, deciding whether to rest on the assessment is a litigation strategy that demands careful consideration in any case.
Read the Tax Court’s opinion here.