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New Jersey Apartment Association, Inc. v. Director, Division of Local Government Services

304 N.J. Super. 445, 701 A.2d 452 (App. Div. 1997)

TAX APPEALS; REBATES—The Tenants’ Property Tax Rebate Act still allows landlords to keep all of the tax savings for the years during which the appeal is pending and for the year in which the rebate is granted. A law that gives tenants 100% of the tax savings does not constitute an unconstitutional taking, and a seeming disparate treatment of equally assessed properties passes muster.

In 1990, an apartment complex was appraised at $24 million. The township tax assessor then revised the assessment (for 1990 and 1991) to $21 million. In 1991, the $21 million property tax assessment was further reduced to $19 million on appeal to the Tax Court. The assessments for 1992 and 1993 also reflected the reduced amount, and the tax collector mailed rebate notices to tenants of the complex reflecting the difference between the base year assessment of $24 million and the 1993 assessment of $19 million. An organization representing landlord interests claimed that the New Jersey Tenants’ Property Tax Rebate Act (“Rebate Act”) requires exclusion of all tax appeal judgments from tenant rebate calculations. Under that theory, the tax collector should have based the rebate notice on the drop to the $21 million assessment instead of to the $19 million assessment that resulted from the appeal. The landlords’ organization also claimed that (a) a 1991 amendment to the Rebate Act, which increased a tenant’s rebate from 65% to 100% of any refund resulting from a tax appeal, constituted an unlawful taking of property without due process, (b) the 1991 amendment which introduced a “floating” base year deprived landlords of equal protection under the law, and (c) the Rebate Act violated the section of the New Jersey Constitution requiring uniform rules for real property assessment and taxation.

As to landlords’ claim that the rebate calculations should have been based on the assessment as revised by the tax assessor and not the amount to which it was reduced on appeal, the Appellate Division stated only that such a claim had been clearly rejected by the Supreme Court in Cold Indian Springs Corp. v. Township of Ocean, 81 N.J. 502, 410 A.2d 652 (1980).

The Appellate Court then considered the validity of two Tax Division administrative rules in light of the holding in Cold Indian Springs. Specifically, the rules [N.J.A.C. 5:33-3.8 (a) and (b)] state that “the property tax reduction shall take into account judgments entered by any court of competent jurisdiction that take effect on or before the date on which the extended tax duplicate is closed for the tax year. Tax appeals from any prior year pending on or before the date on which the extended tax duplicate is closed for the tax year, shall be excluded from the calculation for the tax year.” The Tax Division, which promulgated this rule, claimed it did so in accordance with Cold Indian Springs. However, the Court noted that the language of the Rebate Act was not changed after that decision (even though other aspects of the real property taxing scheme were legislatively changed) and that the Rebate Act still stated that any calculations for property tax reductions shall exclude reductions resulting from judgments entered by an agency or court. Consequently, the Appellate Court concluded that the administrative rules were invalid. Landlords can keep the taxes saved by reason of a Court judgment to the extent that the savings affected years while the appeal was pending and the year when the rebate was granted.

Next, the Court addressed the claim that giving tenants 100% of any refund resulting from a tax appeal was an unconstitutional taking of property. Although the Court already invalidated the above regulations promulgated under the Rebate Act as being inconsistent with Cold Indian Springs, thereby making this issue moot, the Court went on to hold that the statutory provisions did not amount to an unlawful taking of property, but only required a landlord to pass on to its tenants the benefit of any rebate received.

Finally, the Court addressed the landlords’ claim that the floating base year violated their equal protection rights because two similarly-situated apartment complexes may be subjected to base years that yield different property tax reductions. The landlords felt that similar apartment complexes with identical current assessments should be treated the same, regardless of assessment history. The Court disagreed with the landlords’ position, holding that the primary purpose of the Rebate Act is to ensure that tenants receive the benefit of any reduction in taxes because the rent that they pay impliedly includes the real estate taxes. The Court also rejected landlords’ claim that, because similarly-situated properties may be assessed and taxed at different rates, the floating base year violates the uniformity clause of the New Jersey Constitution, stating that the properties are either subject to the Rebate Act or not, and those properties subject to it all receive the same treatment.


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