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DSC of Newark Enterprises, Inc. v. South Plainfield Borough

25 N.J. Tax 120 (2009)

TAXATION — Even though a taxpayer may have a tax credit from a municipality on account of other properties, it still must pay its real estate taxes with respect to any property whose assessment it wishes to appeal.

A property owner filed tax appeals on five properties for tax years 2002 through 2006. The owner and municipality then entered into a settlement agreement. Had the owner paid the taxes in full for the tax years in dispute, the settlement would have resulted in a tax refund of approximately $200,000. However, the owner did not pay the 2006 taxes, claiming it had reached an agreement with the municipality’s attorney to suspend the requirement to pay those taxes because the refund for prior years would exceed the tax obligation for 2006. As a result of the owner’s failure to pay 2006 taxes, the municipality sold a tax sale certificate for one of the lots to a third-party. Since there were no bidders for the remaining certificates, they were issued to the municipality. In connection with the settlement discussions, the municipality redeemed the tax sale certificate in order to prevent the continuing accrual of interest. The municipality offered to pay the owner the total amount of the refund, less the cost to redeem the tax sale certificate issued to the third-party. The municipality claimed that there was no agreement regarding the 2006 taxes and that it was required to put the property on the tax sale list when the taxes were not paid. While a hearing was pending, the municipality issued a check to the owner but placed it in escrow.

The Tax Court ruled that the owner was required to pay taxes while its tax appeals were pending. It found that there was no evidence that the municipality authorized an agreement to suspend payment of the 2006 taxes and that, in any event, the municipality would not be bound by its attorney’s letter unless the municipality specifically authorized the agreement. Consequently, the owner was required to pay at least the first quarter taxes for 2006 in order to appeal the 2006 taxes. The Tax Court noted that the municipality could have sought to enforce that requirement by moving to dismiss the tax appeal for 2006. Even though it didn’t do so, the unpaid taxes still became a lien on the property. According to the Court, there is no exemption from tax liens for taxpayers appealing their assessments.

The Court also rejected the owner’s claim that the tax sale certificates should be void ab initio because the tax assessment in the settlement for tax year 2006 was substantially less than the original tax assessment upon which the lien was based. The Court found that voiding the tax sale certificate because ultimately the agreed-upon taxes were less than those initially assessed would undermine the statutory scheme by which municipalities collect tax revenue. As a result, it held that following the owner’s successful tax appeal, the municipality was entitled to deduct from the refund any tax delinquencies, as well as the amount it paid to redeem the tax sale certificate issued to the third party. However, the Court noted that there is a statute requiring a municipality to pay the refund within 60 days after a Tax Court judgment. Here, the municipality directed the check to be held in escrow while the dispute was resolved, thus depriving the owner of the use of the funds. Therefore, the municipality was ordered to pay interest on what was left of the refund from the date of judgment to the date it paid the owner.

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