REAL PROPERTY TAX APPEALS
By: John B. Newman
Every owner of real property in the State of New Jersey has the right to appeal the assessment of his property. However, most people misunderstand the nature of this appeal process or even what is actually being appealed.
Each year the assessor of each municipality must set forth the assessment of every property in the municipality as of October 1. This assessed value will be the basis for the levying of taxes in the following tax year. This assessed value may have little relationship to the fair market value. However, the assessed value is the basis for the taxation of that property because once the municipality determines the tax rate for the year, it multiplies that rate times the assessed value of each property and sends out tax bills accordingly. For example, if a property is assessed at $300,000.00 and, after adopting the budget, the town strikes a tax rate of $3.50 per hundred dollars evaluation, then the total taxes for this property would be $10,500.00 per year, payable in quarterly installments due on February 1, May 1, August 1 and November 1. While the budget process in each town will determine the tax rate and the amount of taxes paid by each property owner, a property owner does not have a right to appeal his taxes but only his assessment.
In an ideal world, every property would be assessed at its fair value every year and each property owner would pay his fair share of taxes accordingly. However, it is not an ideal world and there are generally significant variances between assessed values and fair market values. Particularly in an inflationary market, as fair values increase, unless the assessments are revised, they will become a smaller and smaller percentage of the fair values.
In order to take into account these changes, each year what is called an average ratio or equalization ratio is determined for each town. It is the ratio of the total of all assessed values of property in the town to the total of all fair values. This is calculated based upon the sales of properties in the town during the prior year. As will be discussed below, this ratio must be factored into computing a tax appeal.
Each year the assessor in each town sends out a postcard to each property owner with the assessed value of the property and the estimated taxes. The card will indicate the deadline for filing an appeal which is generally April 1. This may be extended in certain cases where the town or the county has been delinquent in setting the tax rate, or the town has gone through a town-wide tax reassessment.
If the assessment is $750,000.00 or less, then appeal must be taken first to the County Board of Taxation in the county in which the property is located. If the assessment exceeds $750,000.00, then appeal may be taken either to the County Board of Taxation or to the State Tax Court. In either case, the deadline must be met.
Regardless of the forum, the issue in the appeal will be what should be the correct assessment of the property given its fair value on the valuation date, the prior October 1, and the equalization ratio. Thus, for example, if the true value of the property on October 1, 2016 based upon an appraisal is $300,000.00 and the average ratio in that town for the 2017 is 80%, then the property should be assessed for $240,000.00. If the property is assessed for more than $240,000.00, then it is over assessed, but there may or may not be a meritorious appeal.
The major caveat is the effect of what is known as the “common level range.” That is a corridor of 15% above and below the average ratio for the town for the year in question. Thus, if the average ratio of assessed values to true values was 80%, the common level range would be from 65% to 95%. The effect of the common level range is that if the ratio for the particular property’s assessed valuation to its fair valuation (as determined by the county tax board or the State Tax Court) exceeds the upper limit (95%), then the taxpayer will be entitled to relief by applying the average ratio (80%) to the true value to compute the assessed value. However, if the ratio of the assessed value to the fair value is within the common level range (less than 95%), then the property owner cannot obtain any relief at all.
Using our example, if the fair value were $260,000, then the ratio of assessed value ($240,000) to fair value would be 92%, which is within the common level range and the property owner would obtain no reduction at all. However, if the fair value were $250,000, the ratio of assessed value to fair value would be 96% which is outside the common level range. This would entitle the property owner to a reduction in his assessment by multiplying the fair value ($250,000) by the average ratio (80%), yielding a new assessment of $200,000.
To compute the financial effects of the reduction one must apply the tax rate. Using our example, if the assessed value were reduced from $240,000.00 to $200,000.00, a $40,000.00 reduction, you multiply $40,000 times the tax rate of $3.50 per hundred (in our example), yielding a tax savings of $1,400.00 per year. If this is a result of a judgment as opposed to a settlement, then interest will be paid. In a settlement, interest is generally waived and often the payment owed the property owner is applied to future installments of taxes as part of the bargain.
Practically speaking, it is very rare to try a case in either the County Board of Taxation or the State Tax Court. Almost all cases are settled and, often within the common level range. However, the taxpayer must make out a potential case that meets the statutory requirement of 15% over assessment or else there will be no settlement. In addition, the taxpayer must be aware that once a tax payer files an appeal, the town may cross-appeal claiming that the assessment should be increased, and not decreased; however, this is very safe.
Whether the real property is held as an investment, an operating business property or a residence, the assessment should be reviewed annually to determine if it warrants appeal. For a business, this is the cost of doing business which is a part of managing a business properly. For a homeowner, it is just sensible planning.
This publication is intended for general information purposes only and does not constitute legal advice. The reader should consult legal counsel to determine how the law may apply to specific situations.