Are your property taxes too high? If you live in New Jersey, probably the answer is yes and you can’t do anything about it. But if your home or business is being unfairly taxed compared to comparably valuable properties, you might just be able to file a tax appeal and reap the benefits of a reduced tax bill for years to come.
The deadline for filing tax appeals is April 1 (May 1 if it’s a revaluation year in your township.) The key to understanding whether fighting the tax man is worth it is to understand how property taxes work, which is different for residential and commercial properties. It’s a complicated subject. So complicated, in fact, that lawyers like Tim Duggan have made entire careers understanding and advising people about it.
Duggan, an attorney for Stark and Stark on Lenox Drive, specializes in real estate tax law, and has filed appeals himself for his own home.
Duggan says the most important thing to understand about tax valuations is that they are designed to spread the tax burden fairly across the owners of properties in a municipality based on property value. The biggest factor is not the absolute assessed value of your home, but its assessment compared to the other properties where you live.
For example, a home might be worth around $400,000, but assessed at $300,000 for tax purposes at a certain tax rate resulting in an annual tax bill of $10,000. Over time property values in the township may rise, but the tax bill for property owners should remain the same (unless the town changes the tax rate.) So the next year the home may actually be worth $450,000, but the tax burden will remain the same at $10,000.
As time passes, the home may come to be worth around $600,000 but still be assessed at $300,000. (The comparison between the real value and assessed value of all the homes in a town is called the “average ratio.”) Duggan says that when homes are assessed at about half their real value, most townships will do a revaluation to ensure that the tax burden is spread fairly. Last year, Duggan says, the ratio in Elizabeth, New Jersey, was at a deeply out-of-whack 13.4 percent.
Municipalities hire outside firms to do the job of examining tax records and determining the true value of everyone’s home. The homeowners in the above example would get a letter in the mail saying that their $600,000 home was now being assessed at $600,000. Time to have a heart attack? Not quite. If the township did everything right, the taxes would remain just where they were before: $10,000.
“When they do a re-evaluation, it’s not the municipality trying to get more money,” Duggan said. “It’s just a way of reallocating the tax burden.”
However, there are winners and losers in every revaluation. Duggan has found that with every round, about a third of people will see reduced property taxes, a third will see their taxes rise, and another third will stay about the same.
Tax appeals come into play if the homeowner believes that a property is overvalued in the tax assessment. In that case, it’s time to file a tax appeal. In the tax appeal process the homeowner goes to the local tax board or the tax court to persuade them to change the assessment to reflect the home’s true value.
However, Duggan says not everyone should file a tax appeal. “It’s very important to screen an appeal to determine whether or not it has merit,” he said. “The municipality can counter appeal and seek to increase the assessment.”
That’s right: filing a tax appeal could backfire, resulting in higher property taxes as well as the court fees and legal fees that come from the battle. Duggan says to make sure to check local property sales for truly comparable homes to make your case. In tax appeal cases the property owner has the burden of proof to show the assessment is wrong.
So say the owner of the $600,000 house thought the home was really worth $500,000. He or she should look at recent property sales to make the case, but make sure to use homes that have the same number of bedrooms and bathrooms, similar amounts of acreage, and are in similar neighborhoods. The circumstances of the sales should not be short sales, non-brokered sales, or sales where the home was on the market for a very short time. Duggan says courts will see through that kind of chicanery. “If you’re cherry picking sales with problems, often times the tax assessor will know about those problems,” Duggan said.
Commercial properties are even more complicated, especially when it comes to the idea of fairness. Suppose two people, Sam and Pat, owned identical office buildings across the street from each other in a town where the average commercial occupancy is 80 percent. Sam is a terrible landlord and only fills 15 percent of the available office space, while Pat does a terrific job and fills the building to 100 percent capacity. The two buildings would be taxed as though they were each 80 percent occupied, resulting in an equal tax burden despite Pat’s higher income, the idea being not to penalize successful management.
Issues of occupancy rates often form the basis for tax appeals in the commercial sector.
The nitty gritty of these tax issues may be daunting, but Duggan has always loved it. “I just enjoy litigating property valuation cases,” he said. He grew up in Berkeley Heights, one of seven children, where his father was an executive and his mother was a nurse.
Duggan said that aside from being prepared, the most important piece of advice he can give about tax appeals is to file them as soon as possible because tax courts are reluctant to “go back in time” and lower taxes based on past mistakes.