Throughout the United States, taxpayers can expect to bear the burden of proof in property tax appeals. Standards vary by jurisdiction, but owners who seek to change a municipality’s assessment must convince a board or court that the property owner is correct in challenging the assessor’s conclusion. If they fail in that argument, the assessment remains unchanged.

Commercial taxpayers and their tax professionals often review decisions by local courts to glean direction and weigh prospects of a favorable outcome in their own cases. These stakeholders tend to only view complex commercial property cases for insight, ignoring residential and small commercial cases. But seemingly insignificant residential and small commercial cases are rich in detail that may aid taxpayers with a more sophisticated case when preparing to meet the standard of proof.

Some of these smaller cases shine a light on changing expectations of the court. For example, courts may begin to deem evidence that once would have been acceptable to meet the court’s threshold is no longer adequate. Thus, while the court does not change the law or create new standards, its interpretation of “sufficient competent evidence” may well move the goal post. The education obtained from these cases is not a guiding light to win a case, but rather a reminder of how not to lose one.

In New Jersey, law presumes that any property assessment is correct. Based on this presumption, any taxpayer appealing that valuation has the burden of proving the assessment is erroneous. The presumption is more than an allocation of which party carries the burden of proof. Rather, it expresses that in tax matters, the law presumes that the assessor correctly exercised their governmental authority. In a 1998 decision, MSGW Real Estate Fund vs. the Borough of Mountain Lak, the court stated that the presumption of correctness stands until sufficient competent evidence to the contrary is presented.

Courts must decide whether the evidence presented is sufficient to counter the assessor’s conclusion. To meet that standard, the evidence presented must be sufficient to determine the value of the property under appeal, thereby establishing the existence of a debatable question as to the correctness of the assessment.

This language is common in most jurisdictions. In New Jersey, it is also increasingly more common to see a change in the trial court’s interpretation of what meets the level of proof to question the assessor’s assumptions. The danger to taxpayers occurs when a court of special expertise establishes case law that, in effect, raises the standard of proof by simply increasing the evidence barrier to attain a reduction.

For example, in January of this year a New Jersey tax court decided Arteaga vs. Township of Wyckoff, where the taxpayer challenged the assessment of a single-family home assessed at approximately $900,000. The property owner offered an expert and an appraisal report for the years under appeal, while the municipality did not complete an appraisal, instead relying on the presumption of correctness.

The taxpayer’s expert cited three sales in a sales comparison and concluded a value of approximately $775,000. In a 10-page opinion, the court rejected the expert’s conclusions, finding fault with his adjustments to the comparable sales.

The court stated that an expert’s testimony must have a proper foundation to be of any value in an appeal. Citing earlier cases, the court stated that an expert must offer specific underlying reasons for their opinions, not mere conclusions. An expert witness is required to “give the why and wherefore of his expert opinion, not just a mere conclusion.” In this case, the court found that the plaintiff’s expert provided no substantive factual evidence to support the adjustments made.

The trend toward requiring a higher level of evidence has been growing over a number of years. As the court noted in a 1996 case, Hull function Holding Corp. vs. Princeton Borough, expert opinion unsupported by adequate facts has consistently been rejected by the tax court. Other rulings have stated that while the court has an obligation to apply its own judgment to valuation data submitted by experts in order to arrive at a true value and find an assessment for the years in question, the court must receive credible and competent evidence to make an independent finding of true value.

In the recent case, the court stated it was not provided with credible and competent evidence. As a result, the court had insufficient information from which to determine valuation. The court concluded that in general the expert provided no market analysis for any of the adjustments he made to his comparable sales.

The lesson to be learned: be aware of the potential of a new, heightened level of proof to establish a reduction. The case law has not been changed or altered. However, while most jurisdictions have case law suggesting that a court be mindful of the expense and reasonableness of data it should expect from a taxpayer to prove its case, trends have started to appear that swing the decisions toward a more difficult and expensive standard.

A number of recently decided residential tax appeals have followed this path to a find of no-change to the assessment. While the courts may be correct in the conclusions that evidence was lacking, they set a disturbing tone as to the level of expectation required for data to prove a value reduction.

The answer for taxpayers seeking a solution to this issue cannot be detailed so as to follow a definitive path to victory. For taxpayers seeking reductions in assessments, they must be aware and wary of not only the law, but the court’s most recent expectations.

Philip Giannuario is a partner at the Montclair, N.J. law firm Garippa, Lotz & Giannuario, the New Jersey and Eastern Pennsylvania member of American Property Taxc Counsel (APTC), the national affiliation of property tax attorneys.  Contact Philip at Ryan at RHild@taxcert.com or Jason at JPenighetti@taxcert.com. 

Municipalities and school districts increasingly file lawsuits to increase property tax assessments.

As property owners increasingly participate in transactions across multiple states and countries, they could be shocked to find themselves defending against a lawsuit filed to increase their real estate taxes.

A minority of states allow the local real estate tax assessing body or school district to appeal a tax assessment, arguing that the property's value and resulting taxes should be higher.  States where these types of appeals are allowed include Ohio, Pennsylvania and New Jersey.  Property owners in those states should  be aware that someone may be filing a lawsuit to increase their property taxes.

Method to the madness

Taxpayers cannot prevent a school district or assessing body from appealing a property tax assessment in states that allow them to do so.  Property owners should be especially watchful in the following situations where it is more likely to occur:

Sales – In Ohio, if a recorded sales price is higher than the current assessment, it is almost guaranteed that the local school district will file a complaint to increase an assessment, particularly in large markets around urban areas.

School district attorneys routinely review recorded sales for comparison to the current assessment.  Although recent legislative changes have increased assessors' ability to consider all relevant facts of a sale, a recorded sales price is still a formidable challenge to overcome.

In Pennsylvania, and particularly in Western Pennsylvania, sales are the most common trigger for an appeal to increase a tax assessment.  In states where chasing sales price may run afoul of constitutional protections, the local taxing authority may wait until a few years after the sale closes before filing the appeal.

Mortgages – In response to lower sales prices and increased sales volume resulting from foreclosure or bankruptcy during the Great Recession, taxing bodies also file appeals to increase taxes based on recorded mortgages.

Similar to the tracking of recorded sales, attorneys for the taxing authority will review the amounts of recorded mortgages and compare them to the current assessment.

When the mortgages are secured by collateral that includes other assets in addition to the real estate, this practice can lead to inaccurate and inflated real estate tax assessments.

Other available filings – A recent case in Ohio shows the spread of this practice from recorded mortgages and deeds to Securities and Exchange Commission (SEC) filings.

The local school district filed an appeal to increase the assessment of an apartment in Athens from approximately $12.6 million to $48.98 million, based on an SEC filing by a mortgage lender.

The property owner's attorney has stated that the SEC filing includes the total value of the business purchased, which includes other assets in addition to the real estate.

The local county board of revision granted the revision at the first level of review and the case is currently on appeal.

Outside consultants – In Pennsylvania, taxing authorities filing complaints to increase assessments are on the rise, particularly in counties that have riot undergone a reassessment in some time, based on the recommendations of outside consultants.

These consultants contract with a particular taxing body, typically the school district, to review assessments and recommend appeals on properties they identify as under assessed.

Although this consultant activity seems most prevalent in the eastern part of the state, the regular practice of school districts filing appeals is spreading across Pennsylvania.

Meanwhile, in Ohio certain school districts have even begun to file complaints to increase values in cases that have previously been tried in court.

Practical pointers

Because sales trigger so many of these cases, it is important to get pre-closing advice on the property tax consequences affecting your specific property.  There may be measures the taxpayer can take in structuring the transaction to avoid or minimize an increase in taxes.

Be aware of the tax consequences of recorded and publicly available documents, including SEC filings, particularly with portfolio asset purchases across multiple states.

Filially, attorneys for the taxing body may use procedural tactics to fish for non-public documents that could help them argue that a property is under assessed.  For example, school districts in Ohio have used the discovery process to subpoena financing appraisals from lenders.

Local expertise is key

Because real estate taxing schemes vary greatly, owners should consult local tax professionals to determine the best strategy to defend against an appeal that seeks to increase the property owner's taxes, or to minimize the potential that such an appeal will be filed in the first place.

Procedural, jurisdictional and evidentiary traps abound for those not well-versed in the local law.

For example, in Ohio, property taxes are levied and paid one year behind, meaning that taxes for the 2016 tax year are paid in calendar year 2017.  Similarly, appeals to reduce or increase the tax assessment are filed one year behind.

If a taxpayer purchases a property and the sale closes on Dec. 31, 2016, for a recorded price that is higher than the current tax assessment, the school district will be aware of that sales price and can contest the 2016 assessment any time from Jan. 1 through March 2017.

If the school district appeals the assessment based on the sales price and is successful, the assessment will be increased to the sales price, effective at the beginning of the 2016 tax year.

That means the buyer could be on the hook for increased taxes for a period of time when he did not own the property.

Local taxing bodies have been filing appeals now more frequently to increase property tax assessments, attempting to generate revenue after property values and sales prices dropped during the economic downturn.

Even though the market has improved, these taxing authorities are unlikely to now abandon the practice.

Consult with professionals who have local experience to defend against these suits in order to maintain fair real estate assessments and taxes.

Cecilia Hyun is an attorney at the law firm Siegel Jennings Co, L.P.A., which has offices in Cleveland and Pittsburgh.  The firm is the Ohio and Western Pennsylvania member of American Property Tax Counsel. She can be reached at chyun@siegeltax.com.

"While the case law and appraisal science continue to evolve, the framework for valuing properties subject to environmental contamination remains relatively unchanged..."

The legal and appraisal communities have embraced the notion that environmental contamination can impair real estate value. After all, a property's potential uses or limitations on those uses have a direct bearing on the asset's marketability and profit potential.

An investor seeking to rein-in the tax burden on a contaminated property must navigate a legislative and regulatory framework that imposes liability on the property owner for environmental cleanup costs and remediation. In addition to the value lost when a property is directly contaminated, properties in proximity to the contaminated site can also lose value because they are subject to contamination.The devil is in the details, however, and uantifying the direct or proximate impact on value can prove problematic.

The State of New Jersey is a leader in attempting to define the impact of contamination on property value, and its highest court discussed this perplexing problem in the 1980s case of Inmar Associates Inc. vs. Carlstadt.

The New Jersey Supreme Court recognized that the costs associated with cleaning up environmentally contaminated properties would have a depreciating effect upon the properties' true value. The court also noted that deducting those costs dollar-for-dollar from the true value of the property is an unacceptable methodology, and deferred to the appraisal community to arrive at an appropriate valuation method.

Years later, in the case of Metuchen vs. Borough of Metuchen, the court identified a procedure it found acceptable. Without question, uncontaminated land is worth more than contaminated land, the court reasoned. Therefore, as contaminated land is cleaned up, its value increases. The legal question is, how should this capitalization of the cleanup costs affect the market value of the subject property?

In Metuchen, the tax court used the principles established in Inmar to form a foundation or core principles for assessing the value of unused, contaminated property that is subject to mandatory cleanup at the owner's expense, at an estimated but undetermined cost. Those are: cleanup cost, the effect on market value, calculating the impact and treating the cost of cleanup as a depreciable capital improvement.

Taking the lead from the New Jersey Supreme Court's ruling in Inmar, the tax court in Metuchen deferred to the appraisers to determine the costs of cleanup and appropriate capitalization time period. The parties essentially agreed upon the unimpaired value of the property and the court easily reconciled the difference in opinion on cleanup costs.

While the case law and appraisal science continue to evolve, the framework for valuing properties subject to environmental contamination remains relatively unchanged since Metuchen. That formula entails discounting the present value of cleanup costs and subtracting that from the property's clean value.
Most recently, the tax court used the Metuchen formula to find value in an unreported decision.

While courts, property owners and assessors use the Metuchen formula to determine the value of contaminated land, this method fails to deal with other factors associated with contaminated sites. One of those factors is environmental stigma, a term the appraisal community uses in attempting to quantify the adverse effect on property value produced by the market's perception of increased risk. Even after environmental cleanup and remediation, environmental stigma may still lower the otherwise unimpaired property's value.

Philip J. Giannuario is a partner in the Montclair, NJ law firm Garippa, Lotz & Giannuario, the New Jersey and Eastern Pennsylvania member of American Property Tax Counsel. He may be contacted at phil@taxappeal.com.

One useful aid in arguing a property owner's appeal is often overlooked because it comes right out of the appraiser's tool box. The Uniform Standards of Professional Appraisal Practice (USPAP) can help to level the playing field for the property owner.

By John E. Garippa, as published in National Real Estate Investor Online, June 2012.

Property owners throughout New Jersey have observed that more tax appeals are headed to trial. More than ever, cases that would have been settled had they occurred a few years ago are now routinely in the litigation track.

What's behind this trend? The most significant reason is that government is under increasing pressure to preserve the municipal treasury. And as the drive for tax revenue brings more taxpayers to court, many of those property owners find an uneven playing field during litigation. The assessment is presumed to be correct until it is overcome by the preponderance of the evidence. The level of proof the taxpayer must provide to reach this standard has become increasingly more difficult to attain.

One useful aid in arguing a property owner's appeal is often overlooked because it comes right out of the appraiser's tool box. The Uniform Standards of Professional Appraisal Practice (USPAP) can help to level the playing field for the property owner. Taxpayers need to understand this set of regulations because it affords opportunities to attack the credibility of the taxing jurisdiction's presentation.

Any licensed appraiser in the state of New Jersey is subject to USPAP, which mandates that an "appraiser shall ensure that all appraisals shall, at a minimum, conform to the Uniform Standards of Professional Appraisal Practice." An appraiser's failure to comply with the provisions of USPAP may be construed to be professional misconduct in violation of New Jersey tax law.

For example, USPAP sets minimal standards for the retention of records, referred to as the "recordkeeping rule." An appraiser must prepare a work file for each appraisal, appraisal review or appraisal consulting assignment. A work file must exist prior to the issuance of any report, and a written summary of any oral report must be added to the work file within a reasonable time after the issuance of the oral report. Such a work file must include the report as well as the information used in creating the report.

The standards set time requirements as well. The work file must be retained for at least five years after preparation or at least two years after final disposition of any judicial proceeding in which the appraiser provided testimony related to the assignment, whichever period expires last. Any appraiser who willfully or knowingly fails to comply with the obligations of this recordkeeping rule is in violation of the state's ethics rule.

In further clarifying the recordkeeping rule, USPAP states that it applies to "appraisals and mass appraisal, performed for ad valorem taxation assignments."

USPAP is adopted by statute, so a violation of its standards may leave a violating appraiser susceptible to sanctions imposed by the governing professional association. In addition, New Jersey's tax statute provides explicitly that for engaging in an act of professional misconduct, the professional licensing board may penalize the offender by suspending or revoking any certificate, registration or license.

It is not unusual to find situations where appraisers are brought in to assist tax assessors in setting assessments. This is certainly understandable when complicated properties are being appraised. Now, however, as the appraiser advises the assessor as to value in setting an assessment, that advice and conclusion is now discoverable by the taxpayer. This presents a significant opportunity for taxpayers to discern the machinations behind the setting of an assessment.

Under USPAP, the appraiser must have a work file demonstrating all of the evidence relied upon to determine that value. It does not matter whether the advice given the assessor is written or oral; the work file must contain written evidence supporting the advice and conclusions given to the assessor. This now becomes a potential gold mine of information that can be used to damage the presumption of correctness of the assessment.

In another common scenario, taxing jurisdictions that rely on outside appraisers to assist the assessor in setting the assessment will typically retain those same appraisers to defend the assessments before the tax court. Because of the backlog of cases in the tax court, this means that an appraiser that originally assisted in setting an assessment could be testifying about value several years after the assessment was set.

This presents an opportunity for the taxpayer to probe the appraisal report prepared for trial and compare it to the work file prepared when the assessment was made. Was the value predetermined because of the early work in setting the assessment? Does the early work erode the conclusions of the later work?

These are all important considerations, and will significantly help to level the playing field against recalcitrant taxing jurisdictions. Appraisers who lend their licenses and credibility to taxing jurisdictions in setting assessments need to be aware that there could be a day of reckoning.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair, N.J. The firm is the New Jersey and Eastern Pennsylvania member of the American Property Tax Counsel. He can be reached at john@taxappeal.com

"In many cases, taxing jurisdictions cannot support or defend the values that are placed on those properties under appeal..."

By Philip J. Giannuario, as published by Commercial Property Executive Blog, August 2010

With real estate values down in all sectors across the nation, tax appeals are climbing to record numbers. In many cases, taxing jurisdictions cannot support or defend the values that are placed on those properties under appeal.

As municipal revenues run thin and state governments cut programs to balance their budgets, those governments understandably want to avoid returning significant amounts of money as tax refunds.

As a result, many taxing authorities are exploiting technicalities in state laws to seek dismissals of valid appeals. That makes it critically important that property owners stay abreast of all state requirements that may bear on tax appeals, and rigorously follow required procedures.

New Jersey's Chapter 91 statute provides a clear example of the kinds of technicalities state's employ. The statute requires the assessor to send a request to the owner of income-producing properties and ask for financial data related to the asset. The owner then has 45 days to respond to the demand. If the owner fails to respond in that time, he or she forfeits the right to challenge that year's assessment.

In a recent New Jersey case, a municipality moved to dismiss an appeal for a failure to respond to the income and expense request. The property owner had designated an agent to receive property tax notices and correspondence. Although the agent received the request, the agent failed to file the form with the municipality.

The owner argued that the strict words of the statute required the assessor to serve the owner directly. The court held that the only address on file was that of the agent, however, and reasoned that the owner was bound by the statute. On those grounds, the court dismissed the case.

The simple lesson to learn from this example is that a number of procedural hurdles exist in each state's tax law. Taxpayers must become knowledgeable about all applicable procedural rules and create failsafe, redundant systems to guard against the needless loss of their tax appeal rights.

Philip J. Giannuario is a partner in the Montclair, New Jersey law firm Garippa Lotz & Giannuario, the New Jersey and eastern Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. Phil Giannuario can be reached at phil@taxappeal.com.

"An urgent need exists for better forensic appraisal methods to support property valuations in this time of declining values."

By John E. Garippa., as published by Real Estate New Jersey, November/December 2009

Over the past 18 months, property values have declined significantly for all asset types in New Jersey. While this resulted in record numbers of property tax appeals, actual transactions between buyers and sellers demonstrating this erosion of value are limited. This can be problematic when dealing with the finite valuation dates demanded by the New Jersey Tax Court.

Tax Court judges won't accept opinions of expert witnesses unless they provide supporting evidence that a property's value has declined. Despite the fact that few actual sales are available between buyers and sellers, property values can still continue to erode. The real question is: What steps can a property owner and appraiser take under such difficult conditions?

Events over the past year have proven that valuing property at a specific point in time, a necessity for tax appeals, can be almost impossible using the typical valuation parameters of comparable sales. Under New Jersey tax law, all real property must be valued for the 2009 tax year based on a valuation date of Oct. 1, 2008. But the events of last summer and fall were cataclysmic for all property types.

The entire nation watched as our financial system began a meltdown that culminated in the collapse of Lehman Brothers on Sept. 15, 2008. During this several-month period, the stock market lost almost 40% of its value. This tsunami affected real estate just as much as it did stock portfolios.

To demonstrate this point, consider a hypothetical sale where the deed was transferred on Oct. 1, 2008. In stable times, such a transaction might be the gold standard of defining what a willing buyer would pay and a willing seller would accept for a property on the very date defined by New Jersey tax laws for valuations. However, if this sale were like most others, the parties would have negotiated the terms at least three to six months before.

Looking back to the period six months prior to the Lehman Brothers collapse reveals an entirely different world, from an economic standpoint, than the one America faces today. No one would suggest that value parameters arrived at during that quieter time would reflect the disastrous conditions found on Oct. 1. Under stable market conditions, comparable sales can be relied upon to demonstrate market value. The lack of sales transactions in the past year has rendered comparable sales a limping metric for property tax purposes. Thus, an urgent need exists for better forensic appraisal methods to support property valuations in this time of declining values.

It's easy to forget that the basic laws of economics govern the real estate market. The economic base of a community revolves around businesses generating income from their activity. Therefore, the first step to take in demonstrating eroding values is an examination of the industries and businesses that generate employment and income in a community. Such a study would review changes in employment levels as well as population trends because these issues affect household income and other important factors that ultimately affect the demand for, and worth of, real estate.

In times of great price turmoil, analyze the loss in value in the various stock market indices as this may define how individuals view their wealth. Another important index to study is the Purchasing

Managers Index. The PMI represents a composite of five sub-indicators (production levels, new orders from customers, supplier deliveries, inventories and employment levels) that are extracted through surveys produced by the Institute of Supply Management. These surveys are sent to more than 400 purchasing managers around the country. While this measures only manufacturing trends, it is considered a good predictor of changes in gross domestic product and the economy as well.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. John E. Garippa is also the president of the American Property Tax Counsel. He can be reached at john@taxappeal.com.