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McMahon v. City of Newark

195 N.J. 526, 951 A.2d 185 (2008)

TAXATION; JURISDICTION — Although governmental authorities and private parties cannot agree that disputes over taxation matters are to be resolved in a court other than the Tax Court, not every controversy touching a taxation matter is bound by that rule and such parties are free to agree that their dispute is to be heard in a different forum.

An urban renewal association entered into a financial agreement with a municipality to construct an office building. As an incentive, the association was to be exempt from taxation on improvements for a period of 20 years. Instead it would pay an annual service charge. The parties agreed that any breach of the agreement could be litigated in the New Jersey Superior Court or by way of arbitration. They agreed that the sale or other disposition of the project would terminate the tax abatement unless the municipality consented to the transfer or if the transfer was in form only.

After the project began, the association encountered financial difficulties. It sought bankruptcy protection and pursuant to a reorganization plan, the association transferred ownership to a trust. Although the municipality was not a party to that order, it was present through counsel at both the hearing at which that order was entered, as well as the closing where the title transfer took place. It did not object to the transfer or warn that the tax abatement was now in jeopardy. After the transfer, the municipality revoked the tax abatement status based upon lack of its approval. It then issued tax assessments. The receiver for the protected project filed for relief in the Superior Court. The case was transferred to Tax Court where that court ultimately held that the parties could not divest by agreement the statutory role of the Tax Court to review the actions of a tax assessor that impact upon the tax liability of a taxpayer. The Court held the statute of limitations barred the complaint under its jurisdiction. The Appellate Division affirmed, concluding that the proper procedural avenue the receiver should have pursued was a tax appeal and that the initial complaint was filed more than a after the tax appeal filing deadline. The receiver appealed to the New Jersey Supreme Court.

The Supreme Court held that the parties had agreed in a detailed arm’s length writing that disputes under the agreement were to be resolved in a forum other than the Tax Court. It held the controversy involved did not invoke the Tax Court at all; the complaint did not challenge the amounts or the determination of the tax assessments, but rather the unilateral determination by the municipality that by transferring the project to the trust, the financial agreement between the parties had been breached. Therefore, the Court found the matter to be a breach of contract action rather than a matter that spoke to issues unique within a tax appeal process.

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