New Jersey Tax Appeal Now

What Does ‘Informal’ Mean?

• The Tax Assessor can be considered to be an informal appeal agency. However, timing is a critical issue with this approach. On or before December 31 of the pre-tax year, (or approximately 10 days before filing of the complete tax list and duplicate), the assessor must give notice by advertisement when and where taxpayers may inspect their assessment for the coming year. If the taxpayer is is able to convince the assessor that the Tax List is in error, a correction can be made before the list is filed with the County Board of Taxation on January 10 of the tax year. After the tax list is filed, the assessor no longer has the ability to change the tax list. If errors are discovered after certification of the Tax List by the County Board of Taxation, most county tax boards will require filing a formal appeal to correct the error.
• Taxpayers may meet with the assessor prior to formal appeal to discuss their assessments. During the months immediately preceding the tax appeal filing deadline of April 1, assessors will typically field many calls from taxpayers to discuss their assessments. Be aware that once the Tax List has been certified by the County Board of Taxation, the formal appeal process must proceed for a taxpayer to obtain assessment reduction for the current tax year, regardless of the outcome of your informal meeting. During the informal meeting, the assessor may discuss assessment reduction in subsequent years as a trade off against the current year formal appeal. This would save a town from having to reimburse a taxpayer for monies already billed or collected. There is no procedure here or rules of evidence per se. It is ‘informal’ and open.

Informal Doesn’t Mean Sloppy

• Depending on the size of the taxing district, the assessor will have between several hundred and several thousand taxable line items and potential appeal cases to deal with. Be friendly but direct. Come prepared. Have a goal assessment in mind, but remember the time line of assessments and the latitude of the assessor relative to your meeting date.
• It never hurts to be nice. The assessor is a human being. While they may present a cold front, they are not immune to kindness and respect. That said, you must also show that you are determined to win.
• Be direct. You will probably get between 15 and 30 minutes for a scheduled meeting during high appeal season. Make them count. 
• Pre-determine your goal assessment. This is a negotiating stage for the taxing district. Their goal is to make you go away with as little a reduction, (if any) as possible. Know your lower and upper limits and define a win or loss. Weight a future year reduction against present tax year rebate.
• If you have access to an appraiser expert or need your attorney to file the appeal, consider taking them with you. Owners tend to get emotional and side tracked in meetings of this nature. The attorney and/or appraiser can help keep the pace of this meeting fluid without being confrontational.

Presenting Your Evidence

• Commercial /Industrial /Investment
• Residential
  • The presentation process will not change because property type varies. Your evidence will however change. Evidence and comparative elements by property type are addressed in a sister presentation. This slide will simply outline the meeting and help you identify realistic expectations from the assessor.
  • Commercial / Industrial / Investment is addressed followed by a residential meeting outline

15 to 30 minute Assessor Meeting

• Commercial/Industrial/Investment Property
• Meet & Greet. Be nice…for now, (5 minutes)
• Review your record card together. (10 minutes)
  • Mistakes on the assessor’s record card are common and costly.
    • Is their estimate of size correct?
    • Did they count mezzanine, or other semi functional area as fully functional square footage?
    • How did they treat any ‘shell’ condition areas or space that is under renovation for an extended period.
    • Is their lot size and site improvement, (parking) estimate correct?
    • Etc. – You and your appraiser know the key points of value on a property. Make sure they are properly recorded.
      • You may find during this process that some renovation you made was never recorded. Be aware that this process works both ways. If you see that a significant error in the record card data that works in your favor, proceed with caution. You may correct the record, but lose big on appeal. If added square footage or evidence of value is discovered, the assessor can amend the assessments upward as well

Record Card Checklist

• Mixed Use and Special Purpose Property
• Mixed use can mean anything from retail at grade with offices above to office at grade with apartments above and anything in between.
  • Always check square footage and mix of space 1st. Finish, age, condition and type of construction come next. Finally check the lot size and site improvements. Make sure they are in line with what you have. Mixed use property is very commonly misidentified on record cards.
  • Special Purpose property can mean anything from Self Storage to Hotel/Motel use. Gas Stations, Bowling Alleys, Car Washes, etc. The same cautions apply with virtually all property classes and types. Check the record for accuracy. You may be over paying for a simple error.

Presentation of Data / Comparable Sales

1. • Have your sales organized. Use a summary sheet with important details for the property type.*
   • Present the sales and discuss your property in comparison briefly. If you can’t present your data in 10 minutes clearly, concisely and convincingly, then you need to let an expert help you.
   • All data used must be ‘arms length’ in nature and classified as a ‘usable sale’ by the assessor. Recent sales with similar location, physicality and function, and which are recent to the ‘True Value’ date are ideal.

Points to Highlight

1. • Highlight the position of your property relative to the sales you present.
     • Better / Worse / Similar – Need more than opinion. Know WHY.
   • Show location advantages / disadvantages
     • Proximity to highways, (commuter and commercial links as well as mass transit access)
     • Nearby market drivers or lack thereof and their impact on your property.
   • Physicality of your property relative to the sales
     • Condition – Better / Worse / Similar to the data
     • Size – Discuss economy of scale.
   • Functionality – If there are marginal functional aspects to your property, point them out. At the minimum, some discounting should be considered to lesser space.
   • Site Conditions – Excess / Surplus land issues. Wetlands, Highlands designations and buffers. Approved land, versus build by right and non conforming areas. Environmental concerns and zoning classification or use questions.  If your property has any of these impacting conditions, you need to find out how the assessor handled them in the context of the property tax assessment.

Presentation of Data / Income Capitalization Approach

Commercial / Industrial / Investment property owners will need to present evidence of lease data, vacancy, expenses and capitalization rates. T

Critical – Remember that income producing property is analyzed as if ‘stabilized’ for tax appeal purposes and in the fee simple estate. Market rent is assigned to the GLA of the property regardless of contract rents in place.

Market Rent – Use comparable leases from the local market to prove market rent for the subject. If your property exhibits some functional issues, then split the lease rate accordingly and explain the breakout to the assessor. Use language like, ‘Can we both agree market rent is $5.25 psf Net?’ If they say no, then ask their opinion of market rent and move on. Make a mental note that this is an area you will have to fight over later if necessary at the Board level.

Vacancy – Tax Appeals utilize a ‘stabilized’ vacancy standard. The term ‘stabilized’ has no specified time frame in it. Tax Court opinions have interpreted vacancy as stabilized in a number of ways, few of which have any real meaning or relationship to actual market conditions. Tax Assessors are fully aware of this and tend to fall back to this standard. At this stage, proving vacancy is an unrealistic goal. It also isn’t necessary. Discuss vacancy in real terms with the assessor. If they shoot down your figure, at least you will find out what THEY are using. Again – take notes. You will need them later at the Tax Board level.

Expenses – Property type will dictate terms used. If using net terms, make sure to still account for management and reserves as a landlord cost. If using gross or modified gross terms, DO NOT account for taxes as a landlord expense. Taxes are omitted from the expense structure.

Net Operating Income/NOI – After expenses are applied, you have a net operating income.

Capitalization Rate – Cap Rates can be projected in a number of ways. See our break out presentation for data sources.

Critical – If using gross or modified gross terms, you will need to Load the Cap Rate, using the equalized tax rate.

Value Estimate – The bottom line. While it seems like it took a lot to get here, there is no real burden on you at this stage to formally present your case. Work your way to the NOI with the notes and data available and capitalize into a value estimate. Presenting a range is best. Get the assessor to tip their hand on the applied rate and thinking. How did THEY derive the rate? Take notes for the Board level in the case you cannot settle reasonably with the assessor.

The Cost Approach / Cost Analysis

• The Cost Approach is certainly valid to use in a host of valuation scenarios. However, tax appeal is not generally one of them. The Cost Approach is applicable in certain cases such as with a ‘special purpose’ property or one with a disproportionate underlying land value. However, realistically, you will need an appraiser or related expert to develop this approach in a logical format and present it as such to either the assessor or at the Tax Board level.

Conclusions

• Keep the meeting fluid, brief and be direct. Remember, plan for 15 to 30 minutes.
• Present your case and then tell the assessor where you feel the assessment should be. If you have an expert with you, have them put in plain terms where the assessment range should fall.
  • No appraiser expert can commit to a value or even a range of value without preparing an appraisal in conformity with USPAP.  However, they can be used to consult on market trends, and to search pertinent data for discussion with the assessor. Using the appraiser expert correctly at this stage is cost efficient and effective.
• Highlight relevant data and analysis. If you have an owner user class building, weight the sales data heavily. If you have a multi tenanted office building, concentrate on the income analysis and use sales as support data.
• Remember ‘True Value’ is determined as of October 1 in the appeal year. Data used must be current or recent to the True Value date.
• The tax appeal analysis is made under a fee simple assumption in New Jersey. Discard contract rent and plug in market rent to determine Gross Income.
• All property is analyzed for tax appeal purposes as if stabilized.
• Discard taxes as a line item cost if market terms dictate the landlord would typically pay them. (Gross – Mod. Gross Terms). For net terms, it is not necessary to consider this step.
• ‘Load’ the Capitalization Rate in the Income Approach using the equalized tax rate if using Gross – Modified Gross market terms. If Net terms are projected as the market norm, disregard the load factor.
• NEVER LEAVE YOUR PRESENTATION OR DATA ON THE TABLE. When you leave, take your data with you. Do not allow an assessor to keep your research or notes. If they want to review your notes and ‘get back to you’, make sure you it is understood that you will be back to collect your analysis and that this is NOT something you consider discoverable. (You want them to do their own analysis should this go beyond the current venue, not to simply poke holes in your data and reasoning).
• Take note of areas of agreement and disagreement expressed by the assessor. . This will help at the next stage if necessary.
• Finding and analyzing this type of data is a task. Presenting it within 15 – 30 minutes in a way that makes sense while trying to rapport the assessor and getting him or her to reveal their full case takes years of experience. This task requires a person cross trained as an assessor, appraiser, poker player, psychologist and investigator. It is strongly recommended that you confer with an appraiser on valuation issues for tax appeal.