New Jersey Real Estate Tax Appeals: Practical Considerations of the Freeze Act
NJSA 54:3-26 sets forth the provisions of New Jersey’s “Freeze Act.” In relevant part, the Freeze Act applies to final Judgments entered by the County Board of Taxation, and provides that the new assessment, resulting from the appeal, may not be raised by the Tax Assessor during the year of the appeal, or during each of the following two years. The notable exceptions to the Freeze Act are:
- Either party appeals the Judgment of the County Tax Board to the Tax Court. In these cases, the Freeze Act shall apply to the final judgment of the Tax Court.
- A municipal wide revaluation or re-assessment is conducted during either of the two years following the successful tax appeal.
We will focus on the second exception, since it is the one that adversely affects the taxpayers. The term “revaluation” refers to the process of re-examination of all the properties in a taxing district to formulate a new set of values for those properties. In most taxing districts, special mass-appraisal techniques are used to avoid the necessity of performing individual appraisals on each property.
Since revaluations typically require the services of an outside contractor, at substantial expense to the municipality, towns usually try to stave off conducting revaluations for as long as possible by simply adjusting the tax rates instead of the values. However, this technique only works in the historical situation in which the property values had risen beyond their assessed values. Conversely, the technique of adjusting tax rates to avoid the necessity for a revaluation does not work in the modern scenario in which the property values have dropped below their assessed values. In those cases where all or most of the properties in the taxing district are over-assessed, the taxing districts districts are generally bombarded with massive quantities of tax appeals. In one notable year, our firm handled 200 tax appeals for the taxpayers of one municipality.
A third scenario, which sometimes triggers a revaluation, is an increase in what is referred to as the “coefficient of deviation.” Without a detailed explanation of the statistical formula as to how this is calculated, a high coefficient of deviation means that there is simply no uniformity of assessments. It may occur in towns where one part of town had undergone resurgence while another part of town became blighted, resulting in some of the properties in town being under-assessed and others becoming over-assessed. To address this problem, some taxing districts have availed themselves of a procedure called a compliance plan. Under NJSA 54:4-23 compliance plans may be implemented under certain circumstances in which no more than 50% of the “line items” (taxable properties) are affected.
The frustration that arises among some taxpayers is the fact that they are not aware of the municipality’s plan to conduct a revaluation at the time they file their appeals. The taxpayers may spend money on filing fees, appraisals, and attorney’s fees, only to find out that their town will be conducting a revaluation the following year. Since the three year freeze will not apply under this circumstance, the concern is either that the town will attempt to raise the assessment the following year, or that the town lowers the assessments of all the properties, thus vitiating the purpose of the tax appeal that had been previously filed. In cases where our client has prevailed in an appeal, and then a revaluation causes a substantial increase in the assessment the following year, our office will typically meet with the assessor of the municipality to attempt negotiate terms so our client may continue to receive the benefits from the previously filed tax appeal.