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Southland Corporation v. Dover Township

2004 WL 3029842 (N.J. Tax Ct. 2004) (Unpublished)

TAXATION; INCOME PRODUCING PROPERTY—If any part of a fee, such as a franchise fee, is attributable to, or paid for, the continuous and exclusive use of a specific portion or land, the subject property is income producing and the property owner is obligated to report such as rental income when a report of rental income is requested by a tax assessor.

Borough and township tax assessors mailed, by certified mail, requests to a company for income and expense information relating to its property. Neither assessor received a response. In neither case did the company object to the request by claiming that it was not required to file an answer or that it was not required to file a complete or partial response. In both cases, the company filed timely appeals of its tax assessment to the local board of taxation, which affirmed the municipalities’ assessments. The company then appealed to the Tax Court. The municipalities filed motions to dismiss the company’s complaint for failure to comply with Chapter 91. The company opposed both motions, claiming that the subject properties were owner-occupied and were not income-producing property for the purposes of Chapter 91. The company contended that its franchisee, who occupied the property, did not pay rent, but rather paid it a percentage of the franchisee’s gross profits and certain other fees pursuant to a Franchising Agreement. The municipalities argued that at least a portion of the payments made by the franchisee to the property owner had to be allocated to rent and therefore, the properties were income-producing; and that the failure to respond in any fashion to the assessors’ Chapter 91 requests precluded the company’s appeal of the board of taxation’s judgments.

Chapter 91 provides that a municipal assessor may make annual demands for income and expense information from taxpayers with income-producing properties. Such a demand must include a copy of the text of the statute; it must be sent by certified mail to the owner of the property; and, it must spell out the consequences of failure to comply with the assessor’s demand, namely a bar to the taxpayer’s appealing its assessment. Generally, when a request is defective on its face, taxpayers may be excused from responding to the request. However, a taxpayer may not ignore or refuse to respond to a request which is in conformity with the statute and then wait to raise its defense that the assessed property was not income producing until a motion to dismiss is filed in the Tax Court. Even if the taxpayer is justified in not providing income and expense information to the municipality, it must raise the objection within the statutory time.

The Appellate Division held that even if the property owner had complied with each assessor’s Chapter 91 requests, it would have still granted the taxing authorities’ motions because the subject property was “income producing.” In return for its franchise, the franchisee was given a right to occupy the franchisor’s property. Although no separate lease payment was made, the franchisee made other payments to the franchisor. Furthermore, the Franchise Agreement stated that the franchisee had to lease the store’s land, building, and equipment under the Franchise Agreement. Thus, the Court concluded that the franchisor-property owner did not, itself, occupy the individual stores. Thus the stores were not owner-occupied.

The Court noted that the question presented in defining income-producing property for the purposes of Chapter 91 is whether the fee paid to the owner of land by tenants is for the continuous and exclusive use of a specific portion of the land, in the traditional sense of a tenancy, or for the brief right to enter the land on a non-exclusive basis, more akin to a license. If the owner is paid for access to a property to which others have access, courts have found such property not to be income-producing. In this case, the property owner received money from its franchisee for the continuous and exclusive use of its real estate. A tenancy was created and the money received was, at least in part, rental income. Therefore, the property was income producing for the purposes of Chapter 91.
Consequently, the Appellate Division concluded that the property owner’s failure to respond or object to the assessors’ initial requests within the statutory time barred its defense that the properties were not income producing for the purposes of Chapter 91. For this reason, the Appellate Division granted the taxing authorities’ motions for summary judgment.


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