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Pan Chemical Corp. v. Hawthorne Borough

404 N.J. Super. 401, 961 A.2d 1219 (App. Div. 2009)

TAXATION; ASSESSMENTS; ENVIRONMENTAL LIABILITY — A property owner who attempts to argue that it is unable to make full use of its property because of environmental contamination and therefore is entitled to a reduction in tax assessment, cannot also argue that it is still using the property so as to avoid necessity to commence an immediate environmental cleanup.

By order of the New Jersey Department of Environmental Protection, a company that manufactured paints, inks, and nail polish began using monitoring wells after it was discovered that underground storage tanks had been leaking chemicals in the soil and groundwater. The company moved most of its operations out of the municipality, but did not completely shut down operations at its original location. The property was later sold. The buyer agreed to assume the cost of all environmental cleanup costs. The seller appealed the real estate taxes for the year of sale and for the previous five years. The Tax Court decided in favor of the seller and reduced the tax assessment for those six years.

In its appeal, the municipality acknowledged that the resale value of the property had been negatively affected by the soil and groundwater contamination, but argued that the contamination never stopped the company from making full use of its property. The Appellate Division pointed out that cleanup costs burdening a landowner’s financial gain do not automatically justify a reduction in tax assessments. It also pointed to testimony by the property owner’s president at trial acknowledging that his company had continued operations at the property to avoid the costly and extensive environmental clean-up that would have been required had the company sold the property or ceased operations. Based on the president’s testimony, the Court concluded that the company was attempting to have it both ways by considering the property in use during the tax years in question for the purpose of avoiding the environmental cleanup, and then arguing that it was not in use so that its real property tax liability could be reduced. According to the Court, allowing the company to do so would have resulted in a windfall tax break for the company, while allowing it to avoid the cost of the environmental damage for which it was responsible. In disagreement with the Tax Court, the Appellate Division found that although there was no specific statutory definition for determining exactly when a property is considered no longer in use, based on the company president’s admission, the property was in use during the years in question. Based on its findings and conclusions, the Court reversed the Tax Court’s reduced tax assessment and remanded the matter for a determination consistent with its opinion.


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