Borough of Carteret v. Division of Tax Appeals in the State Department of Taxation & Finance

Citations: 40 N.J. Super. 439; 123 A.2d 559; 1956 N.J. Super. LEXIS 431

Court: New Jersey Superior Court Appellate Division; June 22, 1956; New Jersey; State Appellate Court

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The court opinion delivered by Justice Francis addresses the appeal by the Boroughs of Carteret and Sayreville and the Township of Woodbridge against the August 30, 1955 judgment from the Division of Tax Appeals. This judgment followed a hearing to revise the equalization table established by the Middlesex County Tax Board for 1955. The municipal assessors completed and filed their property assessments as mandated by N.J.S.A. 54:4-35. The county board, responsible for overseeing these assessments under N.J.S.A. 54:3.16, determined the ratio of assessed values to true values for each municipality. The assessed ratios found were 14.2% for Carteret, 17.0% for Sayreville, and 14.9% for Woodbridge, leading the board to set a uniform county-wide equalization level of 22%, derived from the range of municipal ratios. Consequently, the board adjusted the assessments to reflect this level for equalization purposes, which aimed to ensure fair tax distribution across municipalities. 

Ten out of twenty-five municipalities appealed the board's decisions, but the Division of Tax Appeals affirmed the county's ratios, with some minor changes that did not involve the current appellants. The county board maintained assessment aggregates for seven municipalities that were close to or exceeded the 22% benchmark, while adjusting others to this level for the equalization table. The Division's revised table listed all municipalities at projected 100% of true value, aligning more closely with statutory requirements. Of the twenty-five municipalities, twenty-two accepted these results; only Carteret, Sayreville, and Woodbridge contested the judgment, claiming it was arbitrary and based on insufficient data regarding assessment ratios. The principles guiding equalization are discussed in prior cases, emphasizing the county board's obligation to use its best knowledge to equitably distribute the tax burden, without a prescribed method for achieving this determination. The process is characterized as legislative or quasi-legislative in nature.

Conclusions regarding tax equalization do not need to adhere strictly to common-law evidence rules; a flexible approach is necessary for fair tax distribution among municipalities. The objective is to create reasonable approximations that reflect relative valuations, thereby mitigating unfair tax burdens resulting from varying assessment ratios. The Supreme Court allows the board to utilize various official records and reports, such as the Sixth Report of the Commission on State Tax Policy (1953), and to infer property values from real estate transaction data, including recorded deeds and mortgage amounts.

The boards are permitted to consider average assessment ratios determined by the Director of the Division of Taxation, with the stipulation that municipalities are informed and allowed to respond. If a municipality challenges the equalization table, the Division of Tax Appeals must revise it upon showing an error, but its decisions are presumed correct unless proven arbitrary or unreasonable. True parity in assessment aggregates cannot be achieved without addressing inequities in individual assessments within each municipality, highlighting that average assessment ratios are only estimates that do not reflect the actual variation among properties.

The text emphasizes that effective equalization requires initial uniform assessments, aligning with legislative intent for true value assessments. While equalization efforts may improve local assessment quality, they cannot replace the necessity for accurate local assessments. The discussion sets the stage for examining the specific equalization table in question.

The panel at the Division of Tax Appeals indicated that it would take notice of several reports and studies, including the Sixth Report of the Commission on State Tax Policy and information from the Director of Taxation's reports from 1954 and 1955, as well as relevant studies from the Passaic and Little Ferry cases. Evidence presented revealed that in summer 1952, the State Tax Division directed the county board to prepare an equalization table for 1953 using sales ratio studies to establish assessment ratios for 25 municipalities. Mrs. Ethel Yahnell was hired as a tax research analyst to conduct these studies, which involved examining 10,300 real property sales abstracts. This number was refined to 2,692 usable sales by excluding certain types of transactions deemed unrepresentative or problematic, ultimately aimed at accurately determining the relationship between assessments and true value.

In July 1954, the board instructed assessors to raise their assessments to at least 22% of true value, highlighting existing inequalities in assessments. The board provided comparative ratios for municipalities, with specific figures ranging from 14.4% to 16% for Carteret, Sayreville, and Woodbridge. The process for calculating municipal ratios involved determining the assessment-to-true-value percentage for each usable sale, averaging these ratios to establish the municipality's overall ratio. The county board members also inspected approximately 1,000 properties as part of their work related to tax appeals and assessments, contributing to the credibility and accuracy of the equalization table.

The county board conducted a thorough review of property assessments in the neighborhood, engaging with local stakeholders and referencing the Sixth Report to inform their understanding of property values in Middlesex County. They decided to adopt average municipal ratios based on a sales study, despite criticisms regarding the lack of classification or stratification of sales data, particularly for industrial properties, which are alleged to be assessed at higher percentages of true value. The absence of stratification must be proven to render the sales data inaccurate; otherwise, the county's findings should be upheld. 

In Carteret, an analysis of 156 sales, predominantly residential, led to a net assessment ratio of 14.2%, which the board adjusted to 22% for equalization. The elected assessor reported assessing major industries at 40% of value, but his figures were outdated and lacked proper adjustments for subsequent sales. His methodology relied on informal appraisals from conversations with superintendents rather than a systematic approach. Additionally, light industrial and business properties had assessments with no standardized average, and residential properties were assessed inconsistently based on their age. A local real estate broker provided testimony indicating he appraised various properties but did not utilize recognized valuation methods, instead opting for an economic approach based on subjective judgments of market value.

The realtor described a personal method for determining property value based on observation and measurement, noting a lack of experience with heavy industrial properties. The borough's testimony was deemed unreliable for establishing the true value of real property ratables or for validating the assessment ratio, which was reported as 12% for residential and 41% for commercial properties. The 41% figure was based on a limited sample of two industrial and commercial buildings. The borough criticized the application of 1953 sales data to 1954 assessments and its use in calculating 1955 ratios, citing N.J.S.A. 54:3-17, which requires the county board to determine assessment ratios annually. However, it was noted that the statute does not mandate a specific methodology for calculating these ratios, and the borough failed to demonstrate how the 1955 assessments invalidated the table ratio. A mathematical error was identified, where a sale was misreported, affecting the overall average ratio from 14.2% to 15.35%. A remand is necessary to correct this mistake and adjust other municipalities accordingly. In Sayreville, 562 abstracts from 1953 were narrowed down to 124 usable sales, leading to an average assessment-to-value ratio of 17%. The borough challenged the credibility of this data, emphasizing the predominance of industrial and commercial properties in its tax base, while the assessor indicated an overall average ratio of 21% or better for 1955 assessments, suggesting that industry was assessed slightly higher than residential properties. Thus, the borough argued against any mandated increase in the aggregate assessment.

The argument presented highlights concerns regarding the assessment methods for real property, specifically focusing on the significant proportion of industrial property (65%) assessed at only 25-26% of its true value. A total of 124 property sales were analyzed; however, only one was industrial, with the majority being residential. The borough contends that to accurately represent the industrial sector's value, it is necessary to calculate a weighted average based on total dollar values of sales compared to total assessments. In contrast, the county board's approach involved using the actual assessment-to-sale price ratio of 33.2%, contributing to an overall average ratio of 17% for the municipality.

Further, when segregating industrial and commercial sales, the unweighted average ratio was found to be 17.3%. Mrs. Yahnell, a key witness, asserted that the inclusion of these percentages resulted in fair treatment for Sayreville. Testimony indicated that the one large industrial sale, which involved a transaction to a pension trust with a lease-back arrangement, was deemed unreliable due to the nature of the sale, which complicates true market value assessments.

Additionally, five large industrial properties accounted for nearly 90% of the total industrial assessments, revealing varied assessment ratios. The average ratio for these properties stood at 30.2%. A study of 869 deeds from 1954 indicated an average assessment ratio of 20.55%, with a weighted average for both industrial and residential properties at 25.37%. This contrasts sharply with the assessor's claim of '21% or better'. Notably, the study did not verify if mortgages were involved in sales or if any sales were classified as non-usable, leading to potential inaccuracies in the assessment analysis.

The assessment of four major industrial properties raises questions about the validity of the methods used to determine their true value compared to their assessed value. The borough attorney relied on statements from company officials regarding the net book value as reported in 1955 franchise tax returns, without verifying these figures or understanding their basis. There is a significant discrepancy between book value and market value, and no evidence was provided regarding original costs or depreciation policies, which complicates the assessment process. The Division concluded that using book value to ascertain the market-to-assessment ratio is both inadequate and impractical.

Additionally, the assessment practices for improvements, such as new buildings, were criticized. The assessor lacked knowledge about the extent of improvements made since 1950 and did not review any construction contracts to verify costs. Assessments were determined through informal discussions with company heads, indicating a lack of systematic evaluation. Notably, potential conflicts of interest were identified, as members of the municipal governing body were employed by companies like DuPont and Hercules Powder.

The county's assessment ratio of 22% of true value was communicated to municipalities, with Sayreville's ratio listed at 16%. The evidence presented by Sayreville regarding the true value of its industrial properties was deemed vague and unreliable, failing to demonstrate any error in the county board's assessment method or in the average assessment ratio. Thus, there is insufficient basis to challenge the equalization table established by the county board and approved by the Division.

Appellant did not adequately demonstrate that a higher uniform assessment percentage or average ratio was applied to industrial properties compared to residential properties. The Division's conclusion that no significant difference warranted separate classification for industrial property assessments was upheld. The 1955 sales study failed to present substantial criticism of the county board's assessment ratios, and transactions were included indiscriminately without considering significant factors affecting the usability of sales data. The county board's average ratio of 16% matched the figure reported in a prior communication to assessors, and the 17% ratio was deemed not unreasonable or unfair. 

In Woodbridge, the county board analyzed 2,235 deed abstracts for 1953 sales, narrowing them down to 391 usable sales, primarily excluding vacant land and those affected by extensive residential construction. The unweighted mean method used by the board was criticized, yet evidence did not sufficiently prove that discriminatory assessment standards were regularly applied to different property types. A study of 51 selected sales suggested an average assessment of 20%, but the principal clerk acknowledged that this limited sample did not accurately represent the overall average of the 4,500 sales from that period.

A board of assessors member presented a list of 21 sales from 1954, claiming an average assessment ratio of approximately 20%. He admitted there was no systematic selection for the hearings, stating they merely checked sales ratios. Another individual, Mrs. Yahnell, conducted a spot check of 4,500 sales, withdrawing 92 at random, which revealed an average ratio of 13.9%. This finding went unchallenged, although a board member encouraged Woodbridge's counsel to raise any discrepancies. The appellant argued that a Sixth Report showed an average ratio of 17%, and a county board letter indicated a ratio of 21.5% in 1952, suggesting a significant drop in assessment ratio by nearly 7% from 1952 to 1955 despite a $10 million increase in total assessments. The board's 1952 equalization efforts were described as nascent, indicating less comprehensive sales data at that time. Additionally, there were $58 million in permits for taxable construction issued between 1950 and 1954. It was noted that the board had not yet equalized residential properties, and the county board pointed out that the value of new homes had risen without corresponding assessments. In July 1954, it informed Woodbridge that the ratio for the first half of 1954 was 14.4%. A preliminary equalization table was distributed to municipalities before a January 25, 1955 meeting, which Woodbridge representatives attended but did not utilize the opportunity to review the board’s records. The appellant was deemed sufficiently aware of the equalization outcome yet failed to conduct proper assessments of the 4,500 sales or appraisals of various property types. The evidence presented regarding 51 and subsequently 22 sales did not convincingly indicate a general average ratio of assessments to true value. Consequently, no significant error in the county board's table was established to justify overturning the legislative outcome. Two additional objections were noted: the acceptance of revenue stamps on deeds as proof of value and the board's failure to inspect the township property, despite a statute requiring such inspections "so far as possible" before making revisions.

The equalization process is viewed as directory rather than mandatory, meaning non-compliance or challenges stemming from workload should not invalidate the equalization table unless it causes prejudice. The board inspected approximately 800 properties over four years and made around 1,000 visits in 1954 to assess property values. During these assessments, they gathered evidence of the local market conditions, including 19 photographs of Woodbridge's business area. The absence of inspection during proceedings is not grounds for reversal.

Revenue stamps are recognized as prima facie evidence of property sales price, but are not conclusive indicators of true market value due to external factors affecting sales. Mrs. Yahnell carefully excluded sales influenced by conditions unrelated to market motivation, ensuring that the sales used for determining average ratios reflected typical transactions. The evidentiary weight of these stamps may be more leniently assessed in the equalization context compared to judicial proceedings.

The Division's approval of the county board's sales study method and the resulting average ratio for Woodbridge assessments is deemed reasonable. The overall goal of equalization is to reduce unfair tax burdens and address discrepancies in assessments. While minor inequities may arise, they do not undermine the overall adjustment process, which does not require precise valuation according to the Supreme Court. Continuous experience and data will help minimize these imperfections over time.

The Director of the Division of Taxation receives an abstract of all sales in the State and forwards it to the relevant municipal assessor for feedback, which aids in evaluating transactions for equalization purposes. As agencies improve their methods, judicial scrutiny of these processes is expected to increase. The necessity of fair internal equalization within municipalities, which the county board can rely on, is emphasized as vital. This understanding will simplify external equalization. Currently, the judicial perspective should exercise reasonable tolerance regarding whether the methods used are arbitrary. It is noted that adding significant amounts to municipal aggregates typically results in a modest increase in the county tax burden due to its distribution among municipalities. An example is provided where the increase in Sayreville’s assessment aggregates corresponded to an additional $5,000 in county taxes, which was not contested. Ultimately, the court concludes that the Division's judgment is not arbitrary or unreasonable; however, it remands the case to correct a computational error related to the Borough of Carteret, while affirming the judgment in all other respects.