February 24, 2011

Written By: Ronald L. Perl and Ryan P. Kennedy

It has often been said that the only two constants in this world are death and taxes. Hill Wallack LLP may be able to help with the latter.

If it has not already arrived, property owners in New Jersey should soon be receiving their property tax assessments for 2011, meaning that now is the time to determine whether it is in your best interests to appeal these assessments and potentially reduce your 2011 tax bill. Generally, the deadline for real estate tax appeals in New Jersey is April 1 (in Pennsylvania, the deadline is August 1).

Annual real estate taxes are the direct product of the assessed valuation of the property, so it is important to review these assessments to determine whether they are accurate and fair. Reviewing the assessment is particularly crucial when, as now, property values have suffered deep declines in value. In these tough economic times, tax assessments may not reflect this decrease in property value and often are too high. While a taxpayer cannot challenge a municipality’s tax rate, a property owner can appeal an unfair property assessment.

If successful, the value of the assessment will be reduced for the year under appeal–and potentially for as many as two years following the year of the appeal under New Jersey’s so-called Freeze Act. Because property taxes are based on the local tax rate and the tax assessment, lowering the assessment will result in reduced property tax payments.

If you believe your property may be over-assessed, we recommend acting immediately upon receiving notification of your assessment to determine whether or not you have a tax appeal worth pursuing.

Full and Fair Value

Under New Jersey law, the tax assessor in every municipality is required each year to determine the full and fair value of all real estate in the municipality, as of October 1st of the pre-tax year. This amount then is used by the assessor to determine and establish the municipality’s assessed valuation of the property for the tax year.

The tax assessor is required to notify every taxpayer in the municipality of their assessment prior to February 1st. The property assessment amount set forth in the “Notice of Assessment” can be somewhat misleading because it typically represents a certain portion of the actual value determined by the assessor unless the town has just conducted a full revaluation of all property in the municipality.

This is due to an “average tax ratio” for your municipality that is applied to the actual value claimed by the assessor in all tax years that do not involve a revaluation or reassessment. The “average tax ratio” is also sometimes referred to simply as the “equalization ratio.” For example, a home that has been assessed at $825,000 by a township with an equalization ratio of 75 percent has been given a value of more than $1.3 million by the municipal assessor, and a home that has been assessed at $900,000 by township with an equalization ratio of 115 percent has been given a value of around $780,000.

In years where there is no revaluation, the assessor has the “common level range” as a margin of error in making the assessment. The “common level range” for the municipality (which is plus or minus 15 percent of the average ratio) must also be taken into consideration when attempting to determine whether a parcel of property is assessed accurately and fairly.

Thus, a taxpayer should not assume the assessment amount set forth in the Notice of Assessment is the actual value determined by the assessor in any tax year that does not involve a revaluation or reassessment. Rather, the taxpayer must apply the average tax ratio as well as the “common level range” to the assessed value to judge whether the actual value determined by the assessor is excessive and whether an appeal could be successful.

Other Factors

Even when the assessment set forth in the Notice of Assessment is based upon a just-completed revaluation of all parcels in the municipality, you should not assume the assessment amount accurately reflects true value of your property.

New Jersey law requires property to be both valued and assessed at 100 percent of its full and fair value as of October 1 of the pre-tax year (without any application of the average tax ratio or the common level range) when a revaluation occurs. Nonetheless, the assessment amount set forth in the Notice of Assessment still may be inaccurate or unfair for a number of reasons, meaning that even in the case of a revaluation year, we advise clients to have their assessments reviewed to determine whether they are accurate and fair.

For up-to-date information concerning real estate tax appeals, please visit the New Jersey Real Estate Tax Appeals blog at http://www.propertytaxesnj.com/.

For assistance with tax appeals, please contact one of the attorneys on Hill Wallack LLP’s Tax Appeals Team, which assists clients with tax appeal matters in New Jersey and Pennsylvania.

About Hill Wallack LLP

Hill Wallack LLP has built a reputation for comprehensive problem-solving and aggressive advocacy. With offices in Princeton and Atlantic City, N.J., and Yardley, Pa., the firm has broad-based commercial capabilities and deep experience in a number of industry sectors. Our attorneys have extensive government experience, and the firm represents businesses and public entities in many areas in which public and private interests intersect.

Hill Wallack LLP attorneys are called upon to tackle some of the toughest legal and business challenges. We work to do more than advise on the law − we craft real-world solutions.

For more information, contact one of the attorneys who work in this area: Ronald L. Perl, Esq.,  Ryan Kennedy, Esq., Brian J. McIntyre, Esq. or Jeffrey G. DiAmico, Esq.

This article provides information of general interest and is not intended, and should not be used, as a substitute for consultation with legal counsel. Any questions regarding the specific issues raised in this article should be directed to the authors or to your contacts at Hill Wallack LLP.