"When the taxpayer rejects the protection of the Freeze Act, they must file a tax appeal and prosecute it in the normal course of events. More often than not, a taxpayer thinks twice, or maybe more, about rejecting the Freeze Act's protection, since filing tax appeals requires significant expenditures of time and capital."
New Jersey taxpayers have long struggled against high tax assessments and property taxes imposed by the tax authorities. Historically, even when taxpayers successfully reduced high assessments, there were taxing jurisdictions that filed appeals year after year to increase those reduced assessments. Despite the fact that a taxpayer successfully reduced his assessment in a court proceeding, there was nothing to prevent an increase in assessment for the following tax year.
As a result of this abuse of the system, the Legislature passed New Jersey Statute 54:51A-8, a law commonly referred to as the Freeze Act. The single greatest defensive tool any taxpayer in New Jersey can employ, it was passed to protect taxpayers from the need to file and prosecute annual tax appeals. Now more than ever, it has become crucial that taxpayers have a clear understanding of how the Freeze Act works and under what conditions it may not work.
For the Freeze Act to apply, a final judgment by the Tax Court must have been rendered regarding a real property tax assessment, and that judgment must be binding and conclusive on all parties, including the taxing district and municipal assessor. Generally, the Act makes that final judgment of the Tax Court binding for the next two successive assessment years.
However, exceptions exist to this general rule. If the taxpayer's property increased in value more than the general rate of increase in value of all other property in that taxing jurisdiction, the jurisdiction must file an appeal to void the Freeze. For the most part, the Tax Court has strictly interpreted this change in value standard in a manner that protects taxpayers.
The appeal process requires the tax authority to take two steps. In the first, they have to prove an increase in value more than other properties in the area. Second, they still bear the burden of proof in substantiating the correctness of their valuation of the property.
Some unusual external changes have precipitated the voiding of the Freeze Act protection. For instance, the increase in value of property in close proximity to the proposed casino district in Atlantic City gave rise to an increase in property value that voided the Freeze Act protection.
Another example of how the Freeze act was voided involved the development of a super regional mall near a commercial property that was protected under the Freeze Act. The court concluded that the construction of the super-regional mall and the development of the casino district in Atlantic City, in each instance, caused a substantial change in property values to commercial property in those vicinities.
The following four other conditions cause the Freeze Act to be voided: A complete reassessment or revaluation of all property in the taxing jurisdiction, the subdivision of a property, a zoning change to the property and any construction change to the property that results in an added assessment. In each of these conditions, the taxing jurisdiction merely asserts that one of these is met at the subject property. No need then exists for the court to determine if a change in value has occurred.
In certain circumstances, the taxpayer may determine that it is in their best interests to waive the protection of the Freeze and seek an even lower assessment. This situation may take place where real estate values continue to deflate. When the taxpayer rejects the protection of the Freeze Act, they must file a tax appeal and prosecute it in the normal course of events. More often than not, a taxpayer thinks twice, or maybe more, about rejecting the Freeze Act's protection, since filing tax appeals requires significant expenditures of time and capital.
The use of the Freeze Act and the decision to waive its protection requires an exercise of professional due diligence, which calls for the taxpayer to appraise the property to determine whether continued erosion in the value of the property or a change in the ratio of assessment to value in that taxing jurisdiction has been experienced. If a review of either of these determinants indicates that the property continues to be over assessed, it might be prudent to forsake the protection of the Freeze Act and proceed in filing an appeal.
However, this is not a step to be taken lightly because, in dealing with New Jersey property taxes, prudence is often the better part of valor.