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Township of Jefferson v. Director, Division of Taxation

26 N.J. Tax 1 (2011)

TAXATION — For purposes of the Director of the Division of Taxation promulgating an Equalization Table, the term “standard of value” does not mean the same as the term “market value” and the Director is not obligated to use equalized true value, as opposed to average true value, to calculate equalization ratios.

Three municipalities underwent full property tax reassessment. The Director of the Division of Taxation then promulgated an Equalization Table in compliance with state law. The municipalities then challenged the Director’s methodology in promulgating the Equalization Table as it related to each of them. Specifically, the municipalities contended that the Director was obligated to use equalized true value and not average true value to calculate the equalization ratio because the result of the averaging step used by the Director yielded an average true value that was greater than the equalized true value.

According to the municipalities, using the average true value when it exceeds equalized true value caused the calculation to lower the equalization ratio for each of the municipalities, and ultimately they receive less school aid. Furthermore, the municipalities asserted that the use of average true value in excess of equalized true value overstated the value of each real property, and therefore increased each municipality’s share of the tax burden. The municipality argued that such a result was unjust and contrary to both the Uniformity Clause of New Jersey’s Constitution and statutory law.

State law requires the Director to promulgate a table of equalized valuations to be used in the calculation and apportionment of distributions pursuant to the State School Aid Act. The Equalization Table calculates the average ratio of assessed value to true value of real property in every taxing district in New Jersey. During the process, the Director employs averaging to avoid abrupt changes in the average ratio of taxing districts from year to year, providing stability and predictability. The municipalities argued that state law prohibits real property, even for purposes of equalization, from being valued above 100% of market value.

State law requires that all real property subject to assessment and taxation for local use be assessed according to the same standard of value, which is to be true value of such real property, expressed in terms of the taxable value of such property established by each County Board of taxation. The Tax Court noted that neither the Director nor the Equalization Table is mentioned in those laws, and to bind the Director’s legislative or quasi-legislative function to the same rules was contrary to the broad discretion reposed in the Director.

The Tax Court also rejected the municipality’s contention that equalized true value is statutorily defined as 100% of market value. Unlike individual real property appeals where the true value for a specific property can be determined through examination, analysis, appraisal, and comparison to like-sales, a taxing district’s equalized true value is merely a hypothetically true value.

The New Jersey Constitution requires that real property be assessed for taxation under general laws and by uniform rules, and that all real property be assessed and taxed locally, or by the State for allotment and payment to taxing district, with all assessments done according to the same standard of value. The municipalities argued that the term “standard of value” meant “market value” for purposes of equalization. The Court rejected that argument, instead finding that averaging provides a more accurate calculation of assessed to true value by avoiding errors that could result from bad sampling periods. According to the Court, the Director’s calculations were uniform because they applied substantially similar data and a common standard consistently to all taxing districts in the state.

In dismissing the suits, the Court noted that the municipalities failed to demonstrate that the Director’s methodology in promulgating the Equalization Table could not be reasonably justified.

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