A Real Property Tax Appeal Primer
Carlin, Ward, Ash & Heiart, LLC
By Michael J. Ash, Esq., CRE
In late January, early February, property owners around the State will be receiving notices of their 2023 real property tax assessment. This article is a primer on understanding the notice of assessment, determining the value at which property is being assessed, determining the fair market value that must be proved in order to achieve a reduction in the assessment, and how to file an appeal if one may be warranted.
Notice of Assessment.
By February 1 of each year, municipal assessors are required to notify send each property owner/taxpayer a notice of their property’s current year’s assessment and the amount of taxes billed against the property in the preceding year. N.J.S.A. 54:4-38.1. If you do not receive a notice of assessment by mid-February, you should call the assessor and obtain the assessment information for your property. Subject to certain exceptions, the assessment should reflect the fair market value of all interests in the property as of October 1 of the preceding tax year. Therefore, a property’s 2023 assessment should reflect the fair market value of all interests in the property as of October 1, 2022. N.J.S.A. 54:4-23.
Each assessment is broken down into a land value and building value. Although these separate values are reported, only the total assessment is of consequence when ascertaining the property’s correct assessment.
Determining Value at Which Property is Assessed.
Although assessments are to reflect fair market value as of October 1, they generally do not equal fair market. Assessments throughout an entire taxing district are initially established by a revaluation. To complete a revaluation, a taxing district retains the services of a revaluation company approved by the Division of Taxation to inspect each property and determine its fair market value. Revaluations are very costly and time consuming. As a result, taxing districts typically perform revaluations only once every seven to ten years.
Between revaluations, assessors generally carry forward each property’s previous year’s assessment. In some cases, assessors may adjust certain assessments based on changes made to the individual properties; reviews of certain types of properties such as vacant land which it believes may have had unusual fluctuations in value, or because of tax appeals or other corrections. Otherwise, the assessments remain unchanged.
Although assessments may remain unchanged from year-to-year; market values are constantly changing. To account for those changes, the Director of the Division of Taxation performs an annual study for each taxing district which compares the prices sold property sold to its assessed value. Based on this study, the Division of Taxation establishes an “Equalization Ratio” for each municipality. N.J.S.A. 54:1-35a et seq. For example, in Westfield the 2023 Equalization Ratio is 64.86% whereas in Cranford, the Equalization Ratio is 87.42%. In municipalities that have conducted revaluations, the Equalization Ratios are 100%. The Equalization Ratios for specific taxing districts can be obtained from the assessor or County Board of Taxation.
With knowledge of a property’s assessment and the municipal equalization ratio the true assessed value or “Equalized Value” of a property can be calculated. This is done by dividing the total assessed value by the municipal Equalization Ratio. For example, a $250,000 assessment in Westfield reflects an Equalized Value of $385,445.58 ($250,000/64.86%). A $250,000 assessment in Cranford reflects an Equalized Value of $285,975.75 ($250,000/87.42%). A $250,000 assessment in Morristown, which performed a revaluation in 2023, would reflect an Equalized Value of $250,000 ($250,000/100%).
Determining whether to file an appeal.
With an understanding of the property’s Equalized Value and fair market value, a property owner can determine whether an appeal may be warranted. Although this article has addressed the determination of Equalized Value, the methods to determine a property’s fair market value go beyond the scope of this article.
It would be impractical to expect assessors to get each assessment exactly correct. Some assessments may be too high and some too low. Therefore, to avoid a multitude of appeals for de minimus variances in equalized assessed value to fair market value, the New Jersey’s real property taxation laws were written to provide assessors some room for error. Assessments are valid where the property’s fair market value falls in a corridor which ranges between 85% of the property’s Equalized Value and 115% of the property’s Equalized Value. In no case, however, can the actual assessment exceed the property’s fair market value.
For example, in Westfield, the assessment on a house that has a fair market value of $250,000 will be sustained if the assessment is between $186,475 ($250,000*(64.86%*115%)) and $137,825 ($250,000*(64.86%*85%). An assessment above $186,475 would be reduced to $162,150 ($250,000 * 64.86%). Likewise an assessment below $137,825 would be increased to $162,150.
In Cranford, the result would be slightly different. The assessment on a house that has a fair market value of $250,000 will be sustained if the assessment is between $250,000 and $185,775 ($250,000*(87.42%*85%). Because 115% of the Township’s 87.42% equalization ratio exceeds 100%, the upper limit of the assessment is its fair market value which in this example is $250,000.
Appeals may be warranted where the assessment is above the upper limit of assessment. Be cautious, however, when deciding whether to take an appeal. It is not uncommon for certain assessors to file counter-appeals seeking an increase in assessment. In those cases, property owners who took a chance at seeking a reduction in assessment may get hit with an increase instead. Therefore, it is important to do some homework before filing an appeal to determine whether there is a risk of an increase in assessment.
Potential situations where an appeal could be warranted.
In this time of generally rising real estate prices, there are not many substantial opportunities for real property tax appeals. The following are some situations where there may be an opportunity for appeal:
- The assessor has overvalued new construction or renovation
- There has been a revaluation or other change in assessment by the assessor
- There has been a partial taking of property through eminent domain
- There was a denial of an application to the planning board or board of adjustment
- There had been a partial destruction of property
- The property is experiencing functional obsolescence
Filing an appeal.
Appeals of 2023 assessments must be filed on or before April 1, 2023. Appeals of assessments below $1,000,000 must be made to the County Tax Board. Appeals of assessments which equal or exceed $1,000,000 may be filed with the State Tax Court in Trenton or County Tax Board.
Begin to gather information and seek legal and other professional assistance as early as possible to determine if an appeal is warranted. Opportunities to reduce taxes do exist and should be pursued in a prudent and timely manner. Take steps to perform the necessary research and consult an attorney with a concentration in Real Estate Tax Appeals well before the April 1 deadline.