Tax Court Declines to Increase Property Tax Assessments for Carteret Property

by: Matthew Erickson
14 Feb 2022

The Tax Court of New Jersey recently rendered a seventeen (17) page opinion in Carteret Holdings Urban Renewal, LLC v. Carteret Borough (hereafter “Carteret Holdings”) that affirmed the 2018 and 2019 tax assessments for a garden-style apartment complex located in Carteret Borough, Middlesex County, New Jersey. The unpublished opinion, written by the Hon. Mala Sundar, P.J.T.C., provides valuable guidance into what the level of detail the Tax Court employs when it reviews expert testimony.  Specifically, the decision provides examples of what is examined when the court evaluates the municipality’s argument for raising property tax assessments outside of the normal assessment process.

In Carteret Holdings, the subject property was improved with 101 garden-style apartments, one of which was used as an office, and ninety of which were used as Section 8 housing.  The remaining ten apartments were conventional, market-rate units.  These apartments sat on a 5-acre lot located in a residential multi-family zone situated amongst other multi-family apartments, small family dwellings, and some industrial properties.

The property owner timely filed complaints challenging the subject property’s 2018 and 2019 tax year assessments. The municipality filed answers and counterclaims for those years seeking to increase the assessments on the subject property.  Subsequent to the initial appeals, and prior to trial, the property owner withdrew their appeals for those tax years, leaving only the municipality’s counterclaims before the court.  Because tax assessments are afforded a presumption of correctness,  the municipality bore the burden of overcoming that presumption with respect to its counterclaims seeking to raise its own assessments.

The Tax Court tried the matters to conclusion and heard testimony from the municipality’s appraisal expert. The appraiser gave testimony regarding the highest and best use of the property and outlined his valuation methods for the court.  The expert used the current use of the property, predominately Section 8 housing, as the highest and best use for purposes of valuing the property.  With that highest and best use in mind, the appraiser valued the property under the income capitalization approach and the sales comparison approach.

As an initial matter, the court accepted the expert’s proposed highest and best use for valuing the subject property. Notwithstanding, the court discarded the expert’s use of the sales comparison approach by concluding that it was not appropriate for the subject income-producing property.  Rather, the court accepted the appraiser’s use of the income capitalization approach for the property.

Taking the expert’s initial results in determining value, the court concluded that the municipality produced cogent evidence sufficient to overcome the presumption of validity that attached to the initial assessments. Specifically, the opinions of the municipality’s expert, if accepted as true, raised debatable questions as to the validity of the subject property’s tax assessments.  While making the preliminary finding that the municipality had submitted sufficient evidence to overcome the presumption of validity, the burden of proof remained on the municipality/counterclaimant to demonstrate that the assessment was incorrect.

The court then proceeded to address the substantive valuation issues. The municipality’s expert relied primarily on the property owner’s income and expense reports sent into the municipality as required by N.J.S.A 54:4-34. These reports detailed income the property owner received and expenses that they incurred in operating the property.

The income and expense reports were evaluated by the expert and used by the expert to determine his value conclusion for the 2018 and 2019 tax years.  The expert relied on the 2018 income and expense statement, which the court found to be “not unreasonable”.  The expert rejected the operating expenses shown on the 2017 income and expense statement because they disagreed with the repairs and maintenance (“R&M”) expenses claimed on that particular statement.

The court took issue with the expert’s rejection of the 2017 expenses.  The expert was not able to explain whether a provision for reserves was included in the income and expense statements, or whether there was any evidence that the 2017 expenses were atypical compared to expense statements from other years.  This lack of basic data proved fatal to the municipality’s counterclaim as the court found that it lacked sufficient information to find the correct value for the property.  Had the expert been able to verify that a provision for reserves was included in the income and expense statements and that the 2017 R&M expenses were, in fact, atypical, then the municipality might have been successful in its counterclaim to raise the subject property’s tax assessment.

This case illustrates one of the risks that taxpayers may face when filing appeals to reduce their property tax assessments – the risk that the municipality may file a counterclaim to raise the assessments.  The Carteret Holdings case also shows that even municipalities can be unsuccessful in meeting their burden in Tax Court when they have filed their own complaint or counterclaim. If a municipality files to raise your assessment, competent legal counsel can be instrumental to ensure that your property tax assessment is not raised inappropriately.  From initial intake to final resolution, an experienced tax appeal attorney can help you navigate through the specifics of each individual case.  If you have any questions concerning your property tax assessment, contact McKirdy, Riskin, Olson & DellaPelle, P.C. to speak with an experienced attorney. To view the full Carteret Holdings decision, click here.