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HPT CW Properties Trust v. Township of Mount Laurel

3351-2010 (N.J. Tax Ct. 2011) (Unpublished)

TAXATION — The mere fact that a property owner has initiated an action to challenge a tax assessment on its property does not mean that the property owner has effectively waived its interest in protecting its tax returns from disclosure.

The owner of income-producing real property challenged its property tax assessment. In connection with the challenge, the owner “produced income and expense statements relating to [its] hotel operation for the three proceeding the tax year in question.” The tax assessor requested that the property owner produce personal income tax returns for two particular years. The property owner refused to deliver them and the assessor moved for an order that the tax returns be produced. The basis for its motion was its argument that, “[i]n reviewing the reported revenues and expenses over the years under appeal at this time, it appears to us that there is a considerable variation in those items. Our appraiser has requested that we produce the tax returns in an effort to pursue highest levels due diligence on his behalf.”

The Court denied the motion even though it recognized that there is to “be a substantial liberality in the granting of discovery in New Jersey courts.” It recognized that the New Jersey Supreme Court had overridden a party’s confidentiality interest in tax returns, but the case cited by the tax assessor was one dealing with an award of punitive damages. Basically, the rule in New Jersey is that “[d]iscovery of income tax returns ... may go too far [and] [c]ourts have recognized the discovery and inspection of income tax returns should be permitted for good cause.” To this Court, “[t]he mere fact that plaintiff initiated its action to challenge the assessment on the parts of real property that it owns does not mean that plaintiff has effectively waived its interest in protecting from disclosure its tax returns, which contain financial information regarding all of plaintiff’s income, losses and deductions, regardless of whether related to the subject property.” In addition, the property owner in this case had already produced “detailed income and expense information associated with the generation of income for the subject property.”

As to the dispute about any “suspect variation in income and expenses and in the statements produced by” the taxpayer, the Court ruled that the assessor was “free to seek the production of backup materials for the figures in those documents and take the deposition of a person with knowledge of the income and expenses associated with the property to test the veracity of the information produced by” the taxpayer. Essentially, the taxpayer’s “interest in protecting the confidentiality of its tax returns predominate[d] over [the assessor’s] asserted interest in compelling the production of those documents.”

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