LLC Hit with Increased Assessment After Failing to Appear in Court

An LLC got an unlucky break after failing to defend a reverse tax appeal brought by Jersey City. As a result, its property’s assessment increased nearly 150%. Here’s what happened and what property owners in NJ can learn from this case.

Overview

RM Holdings owns a property in Jersey City used as a skilled nursing facility. In 2023, the assessment was just under $17 million. Seeking to increase the assessment, Jersey City initiated a reverse tax appeal.

Reverse appeals allow municipalities to challenge property owner’s assessments. Similar to standard tax appeals, the appellant must provide evidence to prove that an assessment is incorrect. In the case of reverse appeals, however, municipalities attempt to increase rather than decrease assessments.

The matter was first brought before the Hudson County Board of Taxation. When the Board affirmed the assessment, Jersey City appealed to the Tax Court of New Jersey. The property owner was served with a copy of the complaint by certified and ordinary mail, a valid method of service under R. 8:5-4(3). NJ court rules required RM Holdings to be represented by an attorney because it is an LLC. However, the company never filed a response nor made an appearance in court.

The Court’s Analysis

With the LLC failing to appear, the court had to decide whether it could grant default judgment. After determining that RM Holdings was validly served, it considered the statutory guidelines for default judgments and reviewed the evidence. The court found that, based on the circumstances, it could grant default judgment.

The next step for the court was to consider the proper method of valuation for the subject property. It relied on a certified expert who opined that the property was a special-purpose facility and couldn’t be valued using comparable sales or the income approach. Instead, it determined that the cost approach was the most appropriate valuation method. This resulted in an estimated fair market value of $50.62 million.

Decision

The court found that Jersey City proved that the subject property was under-assessed. After considering the evidence, the judge determined that the property’s assessed value was $41,967,000, nearly two and a half times the original assessment.

Takeaway

Property owners should be aware of the advantages and disadvantages of owning property through an LLC. While LLCs offer liability protection, the law recognizes them as distinct “people” requiring attorney representation in court. If a non-attorney were to represent an LLC in court, it would be deemed unauthorized practice of law!

If you own property through an LLC and need to defend an inverse tax appeal or want to file an appeal to reduce an assessment, consider the experienced attorneys at McKirdy, Riskin, Olson & DellaPelle. We have secured millions in tax savings for property owners across New Jersey. Contact us for a free consultation.

To read the full Jersey City v. RM Holdings decision, click here.