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Metuchen I, LLC v. Metuchen Borough

A-1621-04T5 and A-1622-04T5 (N.J. Super. App. Div. 2005) (Unpublished)

TAXATION; FREEZE YEARS—Absent an internal or external change in the value of a property, a property owner is entitled to the benefit of two years of frozen taxes after a tax appeal even if it delayed an environmental remediation, the expected cost of which was a factor in setting a lower assessment.

In 1999, a developer purchased two environmentally contaminated parcels of property for $100 and assumed all costs of environmental cleanup. The municipality, for property tax purposes, assessed the properties in 2000 for about $3,000,000. In response to a challenge by the developer, the Tax Court reduced the assessment to $470,000. The process used by the Tax Court was as follows. The parties agreed that as of the valuation date for 2000 assessments, “the fair market value of the properties ‘clear of contamination’ was $1,800,000. ... The judge found that the cleanup costs totaled $1,460,177.” The Tax Court held there was no stigma value. It adjusted the value by ten percent for entrepreneurial profit. Then, the Tax Court projected the cleanup cost over a five-year period. It calculated the present value of those costs. After subtracting those costs, making the ten percent adjustment, and applying the tax ratio for the municipality, the judge reached the $470,000 assessed value.

Several years later, the developer applied to freeze the assessments for 2001 and 2002 at the amount determined by the Tax Court for 2000 and the municipality opposed the application. Its argument was “that a change in the value of the property occurred because [the developer] had not taken any action to clean up the property during the freeze years.” The Tax Court rejected the municipality’s assertion. To be successful, the municipality was required to present a prima facie case by showing: “1) a change in value resulting from an internal or external change; 2) the change materialized after the assessing date of the base year; and 3) the change substantially and meaningfully increased the value of the property.” The municipality argued that the delay in the cleanup until 2003 was an internal change, subsequent to the assessment date used for the 2000 tax assessment. It believed that this delay had “the effect of substantially and meaningfully increasing the value of the property.” It believed that had the developer cleaned the property up over five years, it value would have increased in each year following calendar year 2000. The Tax Court and the Appellate Division disagreed. The Tax Court “aptly pointed out, [that] the undisputed facts of record established that there [had] been no change to the circumstances that resulted in the reduced assessments for 2000. The situation remained as it was in the base year. Therefore, because “there was no internal or external change in respect of the property,” there was no reason not to grant the tax freeze requested by the developer.

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