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Property Tax Resources

May
28

Tax Matters: Generating Future Tax Savings

"Current market conditions such as eroding rental values and escalating vacancy rates impact the current market value and will not typically be taken into consideration by the assessor."

By John E. Garippa, Esq., as published by Globest.com Commercial Real Estate News and Property Resource, May 28th, 2008

New Jersey property owners need to begin reviewing their property tax assessments that were not appealed, now that the April 1st deadline for filing a tax appeal on 2008 taxes has passed. This is an important exercise because of the rapidly changing market conditions faced by New Jersey property owners.

A proper review calls for a current market analysis on the value of the taxpayer's property. The value discovered from the market analysis should be compared to the current assessed fair market value used by the assessor. Don't forget to include the latest Chapter 123 ratio because the assessor's valuation includes this ratio.

Assessments in New Jersey do not change year-to-year. Typically, once a revaluation cycle has been completed, those assessments remain in place for a number of years. Current market conditions such as eroding rental values and escalating vacancy rates impact the current market value and will not typically be taken into consideration by the assessor. This causes a significant disparity between the current assessment and what that assessment should be if it properly reflected the current market conditions.

By performing this exercise on every property in a portfolio, the taxpayer will be in a position to meet with the assessor months before a new appeal cycle starts.

The views expressed here are those of the author and not of Real Estate Media or its publications.

GarippaJohn E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Apr
08

Surprise: Falling Real Estate Market Brings Rising Taxes

"While sophisticated owners and mangers understand these facts, they often ignore the effect when they see a fully leased building. This remains the classic mistake made by owners when dealing with property taxes."

By John E. Garippa , Esq., as published by Real Estate New Jersey, April 2008

The office market in New Jersey has softened considerably according to statistics cited in a recent Wall Street Journal article. While sales of large commercial buildings have declined nationally, the drop in Northern and Central New Jersey has been significant. The area's office vacancy factor remains at 17.8% for the 4 th Q4 of 2007. Then, too, according to Real Capital Analytics, Inc., a New York real estate research firm, the area is tied with Kansas City, Missouri and Sacramento California for the largest percentage decline in sales volume in the 50 major U.S. markets.

These facts bring into focus a key question: What will this slump do to property tax assessments? The answer depends on the level of due diligence performed by the tax mangers and owners responsible for these properties.

Historical precedent tells us that even with a long term upward trending real estate market, there will always be periods of repose, and in some instances contractions. We are currently in such a contracting period. This means owners will put considerable effort into reducing operating expenses as portfolios are devalued. And, the single biggest expense, after debt repayment, for all types of properties is property taxes.

Many owners and managers fail to realize that property taxes must be examined annually to ensure equitable treatment across time for their properties. A property may be fairly valued and assessed for years and then, suddenly, become over-assessed.

This is precisely what the current confluence of events has precipitated this year in New Jersey. First, office market vacancy rates continue to remain at high levels with no indication of reduction. Second, the meltdown in the subprime mortgage market has seriously eroded the capital markets. Banks and financial institutions are requiring significantly more capital infusion from prospective buyers. This, coupled with lender fears, has forced capitalization rates to rise. Third, the employment climate in the state continues to weaken as fears of an economic recession rise.

While sophisticated owners and mangers understand these facts, they often ignore the effect when they see a fully leased building. This remains the classic mistake made by owners when dealing with property taxes.

For property tax assessment purposes, property must be valued each year as if a snapshot of the market is taken on October 1 st of the prior year. For 2008 property tax assessments, owners must ask themselves: What would the current economic market rent, vacancy, and capitalization rate be for each property as of October 1, 2007? Because of the events previously described, any reasonable level of analysis would conclude that most commercial property must be valued below the prior year. Therefore, even if the assessment remains static year to year, the property becomes over assessed because of macroeconomic forces.

Assume the following example: A 100,000 square foot office building leases for an average rental of $25 per square foot based on leases that are several years old. The average vacancy in the building is 5%. If current economic rates indicate that as of October 1, 2007 the appropriate market rent for that building, were it exposed to the market, would be $20 per sf with a 15% vacancy rate, using this example, the building's gross income would drop by more than 29%. This alone results in a significant change in value for this property.

However, the building's market value falls even more when a change in the capitalization rate is appropriate. Based on the macro economic changes described above, an increase in the capitalization rate would be appropriate. In this example, if the capitalization rate changed from 9% to 10%, the value of the property would decrease more than 35% from its original valuation. While a buyer examining the rent roll and net income, as indicated in the example, sees no change based on contract rent, enormous changes have taken place based on economic rent and current market conditions.

Holding a commercial property for long term capital appreciation represents a sound investment policy. Operating under such a policy puts enormous pressure on owners not to ignore cyclical downturns. Even in the short term, those down drafts can dramatically affect a property's valuation for property tax purposes, costing owners untold thousands of dollars in tax expense.

GarippaJohn E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. Mr. Garippa is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Feb
22

Tax Matters: Critical Issues for Taxpayers Desiring Tax Reductions

"Many assessors routinely send Chapter 91 requests to taxpayers seeking information about income producing property."

By John E. Garippa, Esq., as published by Globest.com Commercial Real Estate News and Property Resource, February 22nd, 2008.

New Jersey taxpayers need to know about two critical issues as they consider possibilities for property tax relief.

The first issue is the filing deadline. All property tax appeals in New Jersey must be filed no later than April 1, 2008. This date requires that the appeal be received by the Tax Court on that date. Merely mailing the appeal with a postmark of April 1st will result in a dismissal. As a precaution, taxpayers would be well advised to file their appeal anytime after January 1, 2008. When the appeal is filed, all property taxes due and owing must be paid in order for the appeal to be considered by the court.

The second issue revolves around the need to timely respond to Chapter 91 requests that have been made by the assessor. Many assessors routinely send Chapter 91 requests to taxpayers seeking information about income producing property. These requests, which must be answered within 45 days of receipt, are sometimes ignored by taxpayers. That is a fatal error. If the assessor sends out such a request, it must be answered in order for the taxpayer to have the right to file a tax appeal the following year. Many valid tax appeals have been dismissed for this failure.

GarippaJohn E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Feb
08

Taxpayers Beware: New Jersey Sets Revaluation

"Over the past 18 months, the residential market has faced significant erosion and downward pricing pressure with the subprime mortgage meltdown reducing the value of most residential property. The increasing inventory of unsold housing units causes additional downward pressure."

By John E. Garippa , Esq. as published by Real Estate New Jersey, February 2008

At the start of a new year, it is vitally important for New Jersey taxpayers to understand the challenges they should expect regarding property tax assessments. For 2008, many taxing jurisdictions have completed municipal-wide revaluations. Under New Jersey law, in a revaluation all tax parcels are valued at 100% of fair market value. The revaluation set for the 2008 tax year values all property as of October 1, 2007.

The difficulty in properly completing this assignment arises because it generally takes 18 months to properly complete an accurate revaluation. Most often, in the process of their work, revaluation firms consider comparable sales data and comparable income data derived during a 12-month period prior to the October 1 st date. They place greater reliance on that data which is closest to the October 1 st date.

Problems occur with revaluations when the data relied upon does not accurately measure the true value of property at October 1, 2007. In some markets, where a significant value change takes place, accuracy is almost impossible. This year that market will almost certainly be residential revaluations.

Over the past 18 months, the residential market has faced significant erosion and downward pricing pressure with the subprime mortgage meltdown reducing the value of most residential property. The increasing inventory of unsold housing units causes additional downward pressure. Revaluations commencing in 2008 are relying upon sales dating back to 2006, still a period of strength for the residential market. Taxpayers should carefully review their tax notices to determine if these revaluation notices accurately reflect the value of their property as of October 1, 2007.

In Commercial, a continuing challenge will be the fact that now most assessors routinely send Chapter 91 requests to taxpayers every year. These requests are designed to assist the assessor in determining current information about all income-producing property within a taxing jurisdiction. A taxpayer has 45 days to respond to this inquiry.

A failure to respond results in the automatic dismissal of any tax appeal filed thereafter for that tax year. Every year, hundreds of tax appeals are dismissed by the Tax Court because taxpayers failed to properly respond to these requests. While all taxpayers should be diligent in answering Chapter 91 requests, owners with larger portfolios need to stay particularly vigilant regarding these requests.

Taxpayers owning income-producing property also face challenges. High vacancies continue to be seen in many office markets, and the prospect of a slowdown in the economy puts pressure on many commercial values as well. Likewise, with the subprime mortgage market affecting other sectors, retail properties will face price pressure.

All of this makes valuing these properties difficult during 2008. Many of these properties will be worth less in the months after October 1, 2007, than they were prior to October 1. While that fact may not assist in reducing an assessment for 2008, it can be useful in negotiating assessments for 2009.

Key Points You Need to Know: Remember, it is not unusual during the tax appeal process for a tax assessor to request a dismissal for a prior year in order to reduce the following year's tax assessment. This allows the assessor to reduce an assessment for a subsequent year prior to collecting any taxes. The ploy puts the taxing jurisdiction in a position where they will not have to pay any property tax refunds.

The law in New Jersey presumes that assessments are correct. The burden falls on the taxpayer to demonstrate through probative evidence that the value placed by the assessor isn't correct. This makes it especially difficult for taxpayers when market value changes month to month and value must be proven as of October 1, 2007.

Once the tax rolls are closed and certified, a procedure that takes place by the end of the prior tax year, only by filing a valid tax appeal can an assessment be lawfully changed. The tax appeal process can be difficult and expensive, requiring significant proofs. Each taxpayer needs to be aware of the significant difficulties involved, and the fact that these problems are even more pressing when significant economic issues come into play.

Valuing real property in normal static times is difficult enough, valuing them during times of significant change can be almost impossible. Taxpayers face significant obstacles throughout all of 2008 as they try to obtain equitable tax assessments. Bringing together the combined knowledge and expertise of your entire tax team will benefit taxpayers in this tough environment.

GarippaJohn E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. Mr. Garippa is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Dec
08

Freeze Act May Reduce Your Property Taxes

"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."

By John E. Garippa, Esq., as published by Real Estate New Jersey, December, 2007

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.

GarippaJohn E. Garippa is a senior partner of the law firm of Garippa, Lotz & Giannuario of Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Sep
11

What's Fair Market Value?

"Despite the law, there appears to be one abiding maxim that all tax assessors observe: Every high sale price represents a market value sale, and every low sale price is seen as a distress sale."

By John E. Garippa, Esq., as published by Real Estate New Jersey, September 2007

New Jersey, as in most other jurisdictions in the US., all real property must be valued and assessed based on market value. It's the law. Market value is defined as the price paid by a willing buyer to a willing seller, each acting knowledgeably, without duress.

Despite the law, there appears to be one abiding maxim that all tax assessors observe: Every high sale price represents a market value sale, and every low sale price is seen as a distress sale. Further, every high sale can be relied upon to set an assessment and every low sale must be disregarded because it took place under distress. However, the real issue revolves around: Is every sale a market event that represents fair market value for assessment purposes? The Tax Court of New Jersey has focused on this issue and determined that a category of events exists that rule out a sale as a reliable indicator of fair market value for assessment purposes.

A transaction set up as a 1031 tax-free exchange represents one such category identified by the Tax Court. Under 1031, sellers of investment-grade real estate may defer paying capital gains by using the proceeds from one sale as an investment in another similar property or properties. The seller has 180 days from the original closing date to complete the exchange. Also, within 45 days of closing, the taxpayer must provide the IRS a list of three or more potential replacement properties.

In a recent case, the Tax Court agreed with the taxpayers arguments that his 1031 sale price was significantly higher than market value. The court concluded that the sale price was motivated by tax and business issues rather than typical real estate motivations. The court also concluded that the tax free exchange laws placed enormous pressure on a seller to conclude a transaction within 180 days. Fundamentally, the sale took place primarily to defer gains from another sale.

Another category of sales rejected by the Tax Court compromise those that have not been properly marketed. For example, a Fortune 500 company sold a corporate headquarters for $16 million. The sale was conducted via sealed bids over a short period of time. The bid package included language that prohibited the bidders from changing any of the sale terms. The court determined that the bid package was not sent to all potential buyers. As a result of these perceived defects in marketing the property, the court rejected the sale price and concluded to a market value of $49 million.

In contrast to the prior set of facts, the Tax Court has also concluded that the sale of a complex property can be market value. In another case, an oil refinery was sold after it was marketed for more than 18 months. The owner hired an investment banker to market the property. The investment banker identified all of the potential buyers. Comprehensive information packages identifying the property were transmitted all over the world. At the end of this marketing period, the seller received two bids, eventually resulting in a sale. The court concluded that such a significant amounted to a valid sale that could be used to value the property for tax assessment purposes.

Some of the same arguments made with regard to 1031 property can also be advanced for high purchase prices paid by REITs. REITs offer significant tax advantages to shareholders; however, they must meet strict tax requirements in order to qualify for that status. A RElT must distribute 90% of its income to shareholders. Thus, in order for a RElT to grow, it must continually purchase properties, as it cannot grow via the normal accumulation of cash.

Growth is critical because it leads to higher stock prices and allows for more diversification in the portfolio. Additionally, REITs use capital markets to which most other buyers do not have access. These large capital markets fund REIT purchases at low interest rates that further the aims of the REIT. All of these issues would normally cloud the price paid by a "willing buyer, acting without duress."

In an era characterized by unusually high sales prices, tax payers need to remember an important caveat: Even the New Jersey Tax Court recognizes that not every sale represents fair market value for tax assessment purposes. Owners involved in transactions with high sales prices need to carefully examine their property tax assessments to determine whether a valid market price was used in levying their assessment.

GarippaJohn E. Garippa is a senior partner of the law firm of Garippa, Lotz & Giannuario of Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Mar
15

Defending Against Property Taxes

Many now believe that filing a tax appeal in the Tax Court remains their only salvation from the ever increasing property tax burden.

"The courts have given significant protection to the assessments. To offer meaningful defense against these protections, a team effort is generally required right from the inception of the appeal. This team should include the taxpayer, property tax counsel and expert witnesses."

By John E. Garippa, Esq., as published by Real Estate New Jersey, March 2007

Legislation in New Jersey inflicts an ever-increasing property tax burden on commercial and industrial property owners. Many now believe that filing a tax appeal in the Tax Court remains their only salvation. With the deadline for filing appeals approaching quickly, owners need to understand the issues and the process involved.

All tax appeals in New Jersey must be filed by April 1st of each new year. At the time of the filing, all taxes due must be paid. having filed an appeal, a chronology of events takes place that ultimately leads to the court determining the value of the property.

Within four months of filing the appeal, the taxpayer will answer interrogatories relating to substantive issues regarding the property. These interrogatories normally focus on specific aspects of the property including the income and expenses.

Since most tax appeals relate to value, the taxpayer at some point needs to retain a real estate appraiser to value the property. This step should be taken in conjunction with a tax attorney. The taxpayer should choose an appraiser who understands the court's expectations as well as the rules of evidence.

These forensic appraisals are considerably different than the garden variety appraisals used in other settings such as financing, insuring and determining value for property sale purposes. In a forensic appraisal, the property must be valued on a standard of value based on competent market evidence. This evidence should include recent comparable sales data and recent competent lease transactions.

Throughout the tax appeal, the property owner must focus on the fact that the burden of proof always remains on the taxpayer - the assessment levied by the assessor is considered presumptively correct. Only cogent and probative evidence can overcome this presumption of correctness.

Taxing jurisdictions do not rely on testimony of the assessor in tax appeals. Rather, they retain independent appraisers to complete a forensic appraisal, which they use in defense against the appeal. Often, the spread between the assessor and the tax jurisdiction's appraisal can be enormous.

For many types of ordinary income-producing property, the appeal trial can be completed in one day. As the complexity of the property increases, the time required to complete the trial also increases. It's unusual for trials involving some of the more complex commercial and industrial property to take several days or more. These more complex properties include corporate headquarters, super-regional malls and major industrial complexes.

Much of the trial's time is devoted to cross-examination of expert witnesses, where every component of the appraisal is subject to intense scrutiny. Often, prior appraisals and testimony by the appraiser comes before the court to demonstrate inconsistencies in the theories espoused by the appraiser. Anyone involved in this process on a regular basis understands that real estate appraising is an art, not a science.

At the end, the court renders a final judgment. If the taxpayer is successful, the jurisdiction will have 45 days to refund the overpayment. Also, the taxpayer receives interest at the rate of 5% a day from the date the original tax payment was made. More importantly, once the court renders final judgment, under New Jersey law, that judgment will not only cover the years appealed, but also two succeeding years. This is called the Freeze Act, and it significantly helps taxpayers in bringing stability to a property tax assessment.

Only rarely can a jurisdiction void application of the Freeze Act. One exception is when a jurisdiction completes a municipal-wide revaluation on all property. The other is if a significant change occurs in the value of the property at a rate higher than other properties in that jurisdiction.

Prevailing in a New Jersey tax appeal has become a Herculean task. The courts have given significant protection to the assessments. To offer meaningful defense against these protections, a team effort is generally required right from the inception of the appeal. This team should include the taxpayer, property tax counsel and expert witnesses. In the end, the team effort should produce a significant return, well justifying the expenditure of time and money.

The views expressed here are those of the author and not of Real Estate Media or its publications.

GarippaJohn E. Garippa is a senior partner of the law firm of Garippa, Lotz & Giannuario of Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

 

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