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Bordentown Real Estate Associates, LLC v. Director, Division of Taxation

24 N.J. Tax 561 (2009)

TAXATION; MANSION TAX; APPEALS; STATUTE OF LIMITATIONS — The time limit for an appeal of property classification when used to determine the applicability of the Mansion Tax is ninety days after the Director of the Division of Taxation denies a refund.

At the time of closing of a sale to real property, the buyer and seller discovered that the property was classified as a “Class 4A” commercial property and not as a “Class 4B” industrial property. As a result, a one-percent commercial mansion tax was imposed on the buyer at the time of recording the deed. The buyer and seller agreed to each pay one-half of the commercial mansion tax and then apply for a refund from the Division of Taxation. After closing, the buyer and seller sent a request to the municipal tax assessor to have the property reclassified as industrial property, but the tax assessor did not respond. The buyer and seller then applied to the Director, Division of Taxation for a refund of the commercial mansion tax based on their claim that the property had been improperly classified as commercial property subject to the mansion tax instead of being classified as industrial property not subject to the tax. The Director denied their claim for a refund, finding that no refund was due because the municipal tax assessor classified the property as commercial not industrial. The notice of denial advised the buyer and seller that they had the right to appeal within 90 days. The buyer and seller filed their appeal within the 90 days. The Director filed a motion for summary judgment seeking to dismiss the appeal. The Director contended that the mansion tax was properly applied because the property was classified as commercial, not industrial, property. Further, the Director argued that the appeal was not timely because it was filed too late. The Director claimed that the buyer and seller were appealing the assessment of their property as commercial property. Under that argument, the appeal was required to be filed on or before April 1 or 45 days from the date the bulk mailing of notifications of assessment were completed in the tax district.

The buyer and seller argued that the April 1 deadline applied for appeals of the assessed property value and not its classification. They also argued that the Director could not accept the tax assessor’s classification without considering the possibility that the municipal tax assessor made a mistake and without inquiring as to the actual use of the property at the time it was classified. They further claimed that the property had been used as a warehouse for at least eleven years before the sale and was in active use as a warehouse at the time of sale. Therefore, it should have been classified as industrial property.

The Tax Court noted that there are two filing deadlines to consider: (a) the April 1 deadline imposed for challenging the assessment of real property; and (b) the 90-day deadline to challenge a decision by the Director. According to the Court, deciding which deadline was applicable depends on whether the commercial mansion tax is part of the tax assessment. If it is, then the April 1 deadline would be applicable. If not, then the 90-day deadline following the Director’s decision would apply. Applying those principles, the Court rejected the Director’s contention that a property’s classification is part of the assessment and therefore the April 1 deadline applied. The Director pointed to farmland assessments, where the property’s classification as farmland impacts its tax assessment. However, the Court found that farmland assessments are governed by a different, inapplicable statute. In this case, there was no impact on the amount of the tax assessment whether the property was zoned commercial or industrial. The property’s classification did not impact the local taxes, only the mansion tax imposed by the State of New Jersey. In addition, the Court noted that there was no specific statute or case law dealing with the deadline to appeal the classification of real property in the context of the commercial mansion tax. Therefore, the Court concluded that the proper deadline was 90 days after the Director’s denial of a refund.

The Court also found that the buyer and seller were not given proper notice as to the method of appealing the property’s classification as commercial property. The Court noted that the legislature enacted the Taxpayers’ Bill of Rights to assure fair and equitable treatment for all taxpayers. The notice of assessment provided to the seller did not inform the seller of the classification of the property as “Class 4A” commercial, nor did it advise the seller how to appeal anything other than the property’s assessed value. The Court found that it is critical for a taxpayer to be given notice of any determination that affects its tax obligations as well as instructions as to how to challenge that determination before imposing a statute limiting the time to challenge it. Since the property assessment card did not advise the seller of the property’s classification or method of appealing it, the April 1 deadline could not be applied to prevent a challenge of that determination. On the other hand, when the Director denied a refund of the mansion tax, the notice provided the buyer and seller with a 90-day deadline as well as specific instructions on how to appeal the determination. Therefore, the Court concluded that the appropriate deadline for the buyer’s and seller’s appeal was 90 days after the Director’s denial of the refund .

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