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Fifth Roc Jersey Associates, L.L.C. v. Town of Morristown

2011 WL 7101244 (N.J. Tax 2011)

TAXATION; FREEZE ACT — Even in the absence of a direct tax appeal, the Tax Court can determine the validity of an added assessment imposed in a freeze year.

A property owner sued a municipality to invalidate an added assessment through an application of the Freeze Act, N.J.S.A. 54:51A-8. The Freeze Act applies to final judgments in real property tax appeals and provides that the assessment is binding on the municipality for the assessment year and the next two assessment years, except as to changes in the value of the property occurring after the assessment date. The valuation date for added assessments for a tax year is October 1 of the prior year. Added assessments for a “freeze year” are only permitted when the improvements are completed during the tax year for which the assessment was made. The Tax Court had held previously that retrofitting, upgrading or remediation of deferred maintenance does not constitute an improvement.

In this case, the property owner owned a hotel property. It won a tax appeal for tax year 2007. In 2009, it moved to apply the Freeze Act to tax years 2008 and 2009. It argued that a 2008 added assessment was not properly imposed on its property because the work underlying that added assessment was not completed during the time frame for levying added assessments. The municipality argued that the property owner should have appealed its 2008 tax assessment, but the Tax Court disagreed, finding that even though the owner did not appeal the assessment it could still challenge the imposition through the Freeze Act. A hearing was heard to determine when the work underlying the 2008 assessment was completed.

In a bench opinion, the Tax Court invalidated the 2008 assessment based on the certification of the municipal tax assessor who stated that the work forming the basis of the added assessment was completed during a September 2007 inspection. As a result, the Tax Court applied the Freeze Act to tax years 2008 and 2009. The Appellate Division affirmed and the Supreme Court declined to hear it. The property owner then filed a motion to invalidate the 2008 added assessment, also based on the Freeze Act.

The owner argued that even though it did not appeal the tax assessment, the Tax Court could still determine the validity of the tax assessment through its Freeze Act application. The owner also argued that since it raised the issue through the Freeze Act, the burden of proof shifted to the municipality to prove that the 2009 added assessment was properly imposed. The municipality argued that the owner’s failure to appeal the 2009 assessment deprived the Tax Court of jurisdiction, and that the owner had the burden of proof and not the municipality. The Tax Court disagreed and found in favor of the owner.

The Tax Court found that, even in the absence of a direct tax appeal, the Tax Court can determine the validity of an added assessment imposed in a freeze year. It also found that, unlike in the case of direct tax appeals where the taxpayer has the burden of proof, in a Freeze Year application the municipality has the burden to demonstrate that there was a change in value that supported the increase in the tax assessment. In this case, the valuation date for the added assessment for tax year 2009 was October 1, 2008. The evidence showed that the only renovations that were completed during the applicable time frame were replacement work done on the elevators, as well as the installation of eighteen smoke detectors and six heat detectors. Other renovations were either completed in 2006 (too late to be included in an added assessment for tax year 2009) or were completed in January 2010 (also too late, since they would have needed to be completed by October 1, 2008. The Tax Court found that the elevator work was de minimis and that the addition of smoke and heat detectors did not qualify as improvements. Therefore, the Tax Court found that the 2009 added assessment was improper.

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