In a case that establishes a new bright line rule in New Jersey, the Appellate Division in Society of the Holy Child Jesus v. City of Summit held that a tax exemption granted pursuant to N.J.S.A. 54:4-3.6 may not be revoked due to a failure to comply with a local municipal zoning ordinance.

The case was an appeal of a decision by the Tax Court which determined that a failure to comply with the local municipal zoning ordinance warranted the denial of a tax exemption for the property in question.

The Plaintiff was a non-profit entity affiliated with the Catholic Church which operated the Oak Knoll School of the Holy Child. The Plaintiff owned both the property that the school was situated on, and an adjacent property with a single family residence which it used for school purposes (i.e. – school board meetings, parties and assemblies and as office space). The dispute was over whether the lot with the single family residence was entitled to a tax exemption pursuant to N.J.S.A. 54:4-3.6.

According to N.J.S.A. 54:4-3.6, all buildings “actually used for schools” and all buildings “actually used in the work of associations and corporations organized exclusively for religious purposes” are entitled to a tax exemption provided that the entity claiming the exemption owns the property and is “authorized to carry out the purposes on account of which the exemption is claimed.”

The City did not question the Plaintiff’s compliance with the requirements of the exemption statute. Instead the City argued that since the Plaintiff had not applied for a conditional use variance from the Zoning Board of Adjustment, the property which was located in a single family residential zone and was being used for school purposes was not in compliance with the municipal zoning ordinance. The City claimed that there was a “vital nexus between zoning and taxation” and Plaintiff’s non-compliance with the zoning ordinance prevented it from receiving the preferential treatment afforded by the tax exemption statute.

In reversing the Tax Court’s decision, the Appellate Division held that “if the taxpayer complies with the requirements of the [tax exemption] Statute, it is entitled to the exemption from real property taxes even if the use of the property does not comply with the municipal zoning ordinance.” This decision was a clear rejection of the argument raised by the City that the situation was analogous to the denial of Farmland Assessment for non-compliance with local municipal zoning ordinances.

The Appellate Division noted that the exemption statute clearly and unambiguously contains no requirement that the “property be a lawful use under the municipality’s zoning ordinance in order to qualify for tax exemption.” In rejecting the precedent developed in the case of a denial of Farmland Assessment for violation of a zoning ordinance the Court recognized that while there is a “vital nexus” between zoning and taxation with respect to the Farmland Assessment Act the same logic does not hold true for the case of tax exemption.

The key distinction for the Court appeared to be the notion that when considering whether to provide preferential tax treatment there is a real difference between a statute where the underlying public policy is to achieve land use objectives as is the case with the Farmland Assessment Act and the exemption statute which is “recognized as [a] concession…due as quid pro quo for the performance of a service essentially public, and which the state thereby is relieved…from the necessity of performing.”

The Court’s decision is interesting on two levels, the first being the notion that even in these trying economic times where municipal resources are being pushed to their limits the Court is willing to interpret the exemption statute in a way which ultimately causes a loss of tax revenue for the municipality but serves “to compensate the taxpayer for the contribution of the exempt facility to the public good.”

In a related fashion, unlike the treatment afforded an exempt facility being used for the public good, the Court’s continued support of a strict interpretation of the Farmland Assessment Act could be seen as a nod to the view held in some circles that the Farmland Assessment Act provides a benefit to private entities beyond the spirit of the original legislation. Critics of the Farmland Assessment Act argue that the legislation was designed to preserve the family farm in New Jersey and that ancillary benefits such as the open space provided by qualifying property owners who are not using the land for traditional farming, are just that, ancillary to the real purpose. While the Appellate Division is not specifically espousing this belief, in its discussion of the jurisprudence on the subject it is very clearly maintaining that the preferential tax treatment provided by the Farmland Assessment Act will only be afforded to those property owners that unquestionably comply with both the explicit and implicit requirements of the Act.
 

A number of municipalities will be completing a revaluation/reassessment for 2011. Typically revaluations/reassessments are undertaken when the properties in any given municipality are not being assessed at the same rate of true value. The goal of a revaluation/reassessment program is to bring the valuation of all properties to 100% of market value.

According to the Handbook for New Jersey Assessors, "A revaluation program seeks to spread the tax burden equitably within a taxing district by appraising each property according to its true value and assessing it based on such value. This is accomplished by the mass appraisal of all real property in the taxing district by an outside professional appraisal or revaluation firm.”

Like a revaluation, a municipality will undergo a reassessment when it appears that the properties in the municipality are no longer being assessed at a uniform rate of true value. In contrast to a revaluation, however, a reassessment is an adjustment of the current assessments in a taxing district made under the supervision of the tax assessor in compliance with a plan submitted to and approved by the county board of taxation.

It is imperative that property owners review their assessments annually to confirm that their current assessment is representative of the true market value of the property. A revaluation/reassessment could result in a severe change in a property's assessment and have a significant impact on the new annual tax bill for the property. However, since the tax bill will not change until after the April 1 filing deadline when the 3rd quarter tax bill is adjusted to account for the new assessment and tax rate for the current year, it is especially important for property owners to review the notice of assessment that they receive following a revaluation/reassessment.

Following a revaluation/reassessment the property should be assessed at 100% of market value. Therefore, in order to obtain a reduction of the assessment a property owner only needs to prove a value less than the new assessment as opposed to a value less than the upper limit value based on the Common Level Ratio (i.e., outside the 15% corridor).

In the event an appeal is warranted, the filing deadline is extended for revaluation/reassessment municipalities until May 1, 2011.

Click here for a tentative list of municipalities conducting revaluations/reassessments in 2011.

N.J.S.A. 54:4-38.1 requires municipalities to provide notice by mail to each property owner of the current assessment of their property and the preceding year’s taxes prior to February 1. These notices are typically in the form of a notice of assessment postcard, and if a municipality has not already sent the postcard, it will do so shortly. Click here for an example of the notice of assessment postcard.

In most cases, the assessment will not have changed from 2010, but since the 2011 Common Level Ratio for the municipality (the ratio of assessed values to true market values) likely has, receipt of the notice of assessment should serve as an annual reminder to review the property for the purpose of determining if a tax appeal is warranted.

A careful professional review of the notification of assessment is especially important in a revalued or reassessed municipality. In revalued/reassessed towns, the new assessment will be reflected on the notification of assessment along with the prior year’s tax, but the property owner will not know their new annual tax bill until after the tax appeal filing deadline has expired and the municipal budget is struck the following summer. Due to the strict statutory April 1 filing deadline pursuant to N.J.S.A. 54:3-21, at the time the new tax becomes known, the property owner will be left with no recourse to challenge the assessment and new tax until the next year.

Similarly, in the case of recently improved property, municipalities can make an administrative adjustment to the property's assessment following completion of the improvements (in lieu of utilizing an added/omitted assessment pursuant to N.J.S.A. 54:4-63.3 and 54:4-63.31). The notice of assessment postcard could be a property owner's first opportunity to review the new assessment of their property as improved and file an appeal if warranted. Again, if the notice of assessment is not carefully reviewed and the necessary action taken before the April 1 filing deadline, in the case of recently improved property, when the tax becomes known the property owner will have no recourse to challenge the new tax until the following year.

Provided the municipality followed its typical business routine and customs in the mailing of the notice of assessment, a presumption of receipt by the taxpayer is established. Therefore, in the event a property owner does not receive the notice of assessment postcard by February 1, 2011, it is advisable that they contact their municipal tax assessor to confirm the 2011 assessment and to provide ample time to review the property in advance of the April 1 filing deadline.

If you feel that you are being assessed at a value in excess of the fair market value that your assessment represents, the State of New Jersey provides you with an opportunity to address that concern through filing a real property tax appeal. Provided you are an owner, tenant, contract purchaser or mortgagee in possession, you may have standing to file an appeal of your property tax assessment.

While many property owners are initially concerned about pursuing a tax appeal out of a fear of repercussions in seeking a lower assessment for their property, it is important to note that:

(1) all towns have a high expectation of tax appeals;

(2) the vast majority of tax appeals settle with the towns prior to being litigated;

(3) many towns have included reserves in their municipal budget for tax appeals; and

(4) tax appeals brought in good faith rarely raise the ire of the local authorities.

Bear in mind that when filing a tax appeal, you are appealing the fair market value of your property as of October 1 of the pre-tax year as represented by the assessment; you are not appealing the fact that your taxes are too high. You should also bear in mind that the actual assessed value may or may not represent the market value of your property. This will depend on the overall ratio of assessed values to fair market values for all properties in the town. For instance, if your town is generally assessing properties at 50% of their fair market value and you receive an assessment of $1,000,000, that assessment represents a fair market value of $2,000,000 for your property.

Since property owners only have until April 1, 2011 (or May 1, 2011 in municipalities which are conducing revaluations/reassessments in 2011) to file a tax appeal to challenge their property’s assessment, if you have any questions regarding whether your property is being fairly assessed, it is vital to contact an attorney with experience in this area to discuss the merits of filing an appeal.