Winning the Tax Appeal – Avoiding Seven Common Mistakes
Since 2004, our office has filed more than 1000 tax appeals before the various County Tax Boards in New Jersey. County Tax Board hearing dates are grouped according municipality, often with several dozens of hearings for a single town scheduled on the same day. The County Tax Board will then proceed by calling the list of cases, one at a time, typically “block and lot” order. Therefore, I often get to listen to other taxpayers presenting their cases, while I am waiting for my cases to be reached.
With very few exceptions, a taxpayer does not need an attorney to represent him or her at the tax appeal hearing. However, it is very important for unrepresented taxpayers to familiarize themselves with the process before their tax appeal hearings, in order to avoid mistakes that will cause them to lose their matters. The following is a list of common mistakes we routinely hear taxpayers make during their hearings, along with some of our suggestions of how to avoid them:1. Attempting to use other assessments as evidence.
Sometimes, taxpayers want to tell the Tax Board Commissioners about their neighbor’s houses, which are inevitably nicer and bigger than their houses, but with lower assessments. The commissioner(s) presiding over the hearing, however, will not allow any discussion of other assessments in the tax appeal hearing. A lower assessment on a better house may possibly be evidence that the better house was under-assessed. But is certainly not evidence of what the subject property is worth. Accordingly, testimony and evidence about other people’s assessment will not be allowed in the tax appeal hearing. In order to prove an over-assessment, the taxpayer should be prepared to discuss the prices of comparable properties that sold during the appropriate time period, or preferably, have an appraiser present, who can testify not only about the comparable properties, but also about mathematical adjustments used in their analysis.2. Making adjustments to comparable sales
For tax appeal purposes, the date of valuation is October 1 of the pretax year (i.e.; the year prior to the year when the appeal was filed). The Tax Board will generally consider sales that occurred up to twelve months prior to the date of valuation, and will generally even consider sales that occurred in October through December of the pretax year, under the theory that the comparable property was probably under contract as of October 1. There are also a lot of sales that are designated in the tax book with an “NU Code,” which is very often indicative of the assessor’s presumption that the sale price does not reflect the real market value of the property, and hence is “unusable.” Examples of unusable deed transactions include estate sales, bank sales, and sales to members of the family. In all, there are 33 different NU Codes, but not all of them will exclude a comparable from being admitted into evidence.
In some cases, there just are not a lot of usable comparable sales upon which the taxpayer can rely, so we sometimes see a taxpayer attempting to testify about the sale of a somewhat different property and trying to explain adjustments for size and location. Unfortunately, however, in cases where the property being offered into evidence is not comparable to the subject property, the taxpayer is precluded from offering an opinion as to monetary adjustments that might need to be made to the “comparable” sale in order to prove value. That type of testimony would require an appraisal and a licensed appraiser who is present to testify before the Tax Board as to the differences between the properties and the adjustments that were made. Please also note that only appraisals that were prepared for “tax appeal” purposes, and bearing the aforementioned October 1 date of valuation will be allowed as evidence.3. Late Evidence
Evidence used in property tax appeals can include a variety of documents, including appraisals, photographs, comparable sales reports, environmental reports, income and expense statements, and a myriad of other items that a taxpayer may use to prove that his or her property is over-assessed. All evidence before the Tax Board must be submitted at least 7 days prior to the date of the hearing. Please note that counties that use the electronic filing system for tax appeals (Burlington, Hudson, Monmouth and Union) interpret the 7-day time frame to mean “8 days.” In all cases, evidence that was not submitted during this time frame will be rejected. We routinely see taxpayers who want to talk about comparable sales that were not submitted. Please be assured that the Tax Board will not allow any discussion regarding any evidence that was submitted late. Occasionally, we even see assessors show up with late evidence. In the interests of fairness, that evidence should also be rejected. Please note that one possible exception exists for photographs, which are generally considered “demonstrative evidence.” We routinely see Tax Boards allowing taxpayers and assessors to show photographs in tax appeal hearings, even if they were not previously submitted.4. Discussing the increase in assessment
It is a common issue, especially in towns that have recently undergone a re-assessment or revaluation, that taxpayers want to talk about their increases in assessments. In some cases, where the municipality had only been assessing its properties based on a very small percentage of true value, the tax rates had been inflated to compensate for the low assessments. The assumption that some taxpayers make is that the drastic increase in assessments will result in drastic increases in their property taxes. This generally is not the case. Usually, an increase in everyone’s assessment will result in a decrease of the overall tax rate; therefore netting only minimal changes to the overall tax revenue for the town. More importantly, taxpayers should be forewarned that the Commissioners will ignore any discussion of the increase in assessments. The only salient fact that the Commissioners will consider is whether the current assessment exceeds the value of the property. The amount of the prior assessment or the increase in assessment will not be considered.5. Discussing the allocation of Land and Improvement
Some taxpayers have noticed that there are two numbers listed above their assessments. These are the land assessment and the improvement (i.e.; building) assessment. This breakdown serves an administrative function for the tax assessor, but it is not admissible in a tax appeal proceeding. Therefore, if a taxpayer, whose land assessment is $300,000, wants to discuss the vacant lot that just sold next door for $200,000 for purposes of proving that the land component of his or her assessment was too high, that discussion would be disregarded by the Commissioners. The sale of the vacant lot may be significant, however, for an appraiser in supporting a cost approach to valuation.6. Talking about taxes
Taxpayers in New Jersey love to talk about how much taxes they are paying. They sometimes state that they cannot afford the real estate taxes for their homes. Unfortunately, that is very often true. Even more unfortunately, however, the amount of taxes being paid for a property is not admissible in a tax appeal hearing. It is a foregone conclusion that your real estate taxes will be high in New Jersey due to high tax rates. The real estate taxes you are paying are computed by multiplying the tax rate by the assessment. The tax rate cannot be appealed, but the assessment can be. When a tax appeal is presented to the tax board, the taxpayer will attempt to reduce taxes by showing that his or her assessment (or equalized assessment) exceeds the value of the property. If that is done successfully, it should result in the reduction of real estate taxes. But any discussion of the actual amount of taxes that the taxpayer is paying will be rejected.7. Criticizing the Municipality’s Evidence
In a tax appeal hearing, the taxpayer bears the burden of proving that his or her property is over-assessed. Similarly, the municipality is afforded the “presumption of correctness.” After the taxpayer presents his or her evidence to the Tax Board, the municipality will generally present its evidence. The municipality’s evidence will invariably include some high priced sales for properties that are seemingly very similar to the subject property. In the event that the assessor’s comparable sales are for properties that are superior to the subject property, the taxpayer (or the attorney for the taxpayer) should point out those differences. However, too many taxpayers rely too heavily on finding flaws with the assessor’s evidence, and lose sight of the fact that it is the taxpayer who still needs to prove a case. Therefore, while it may be a good idea to demonstrate to the Commissioner that the Tax Assessor’s evidence is flawed, the taxpayer still cannot win his or her matter unless the taxpayer can prove to the Commissioner that the taxpayer’s evidence is better.
For questions regarding tax appeals, please contact our office. Please keep in mind that Monmouth County Tax Appeals are generally due by January 15, and appeals for the remainder of counties are generally due by April 1. For appeals of added/omitted tax assessments, the deadline is generally December 1.