Many Trenton business owners received an unwanted lesson in the mechanics of property taxes this year when, following a state-ordered reevaluation, some saw their tax bills skyrocket. One shopkeeper saw his tab go from $262 to more than $2,200.
Tim Duggan, a real estate attorney for Stark & Stark, is representing several Trenton residents and business owners who are going to court to try to get their bills lowered. He says that unfortunately, by the time many people get a sky-high tax bill, it’s already too late to do anything about it. That’s because tax increases don’t show up on actual bills until the third quarter, in August, which is long past the deadline to file a tax appeal for any given year.
“That’s when people see how much their taxes are going up,” Duggan says. “There was almost a mini riot down in City Hall in Trenton when that happened.”
The City of Trenton will hold a community forum in the council chambers at City Hall on Thursday, August 31, from 6 to 8 p.m. The forum is a venue for commercial and residential property owners to ask questions. To schedule one-on-one meetings with the tax assessor’s office, call 609-989-3083.
The savvy taxpayer will not let property tax assessments get to that point, and make sure to examine the green card that comes in the mail every year long before the April 1 deadline to file tax appeals. Unfortunately, reading that card is not always easy, Duggan says.
First, there is the seemingly straightforward “assessed value” figure of the property — how much the taxman thinks your home or business is worth. You multiply the tax rate by this assessed value to get your bill. However, that assessed value may be only a fraction of what your property is really worth.
For example, Duggan says, in Scotch Plains, the average ratio of a home is at 24.29 percent, meaning that every assessment in town should be about a quarter of the property’s fair market value. This magic number is nowhere on the green card, but it has huge implications for whether you should file a tax appeal. Suppose you have a home worth $1 million, and the value of the home on your tax bill is assessed at $600,000. The average homeowner might not think to file a tax appeal under those circumstances, since the assessed value of the home is far less than its fair market value. But if the ratio is at 24 percent, they would actually be paying taxes as if their property were worth $2.4 million.
“When you get the card and have to make the decision of whether or not to make an appeal, you must first determine the average ratio and divide it into the assessment,” Duggan says. The State of New Jersey’s department of taxation keeps track of the ratio, also known as equalized valuations, on its website at www.state.nj.us/treasury/taxation/lpt/lptvalue.shtml
When a town’s average ratio gets too low, courts will sometimes order the town to do a reevaluation in which they send assessors to every property to determine its true value. This process is not supposed to increase tax revenue for the town, but rather to distribute the burden more fairly among the taxpayers. The process leaves very few people happy, which is perhaps why some towns have gone decades without doing one. “When you do a reevaluation, what we find is usually a third of the properties stay the same, a third go up, and a third go down.”
The people whose taxes go up are unhappy for obvious reasons, but the ones whose taxes go down also have reason to be upset because it means they have been overpaying for years.
For residents who feel stiffed, there is the option of filing a tax appeal, in which they can try to get a judge to change the assessed value of their property. Duggan, who has seen a multitude of these cases in his 20 years as a tax attorney, says there are three major mistakes that people make when going to court.
Arguing the taxes are too high. This is a losing argument because the tax rate is not up for debate, only the assessed value of a property. Having a tax rate that’s too high only puts you in the same boat as everyone else in town.
Duggan says the way to win a tax appeal case is to show the court that other properties comparable to yours have recently sold for less than what your property is valued at. While many appellants do understand this, they often make mistake number two:
Using sales that are not comparable to the property being appealed. Duggan says that the gold standard for a tax appeal argument are homes that sold in the last year. Ideally, comparison properties will have the same features and be in just as desirable a location as your property. Considerations include things like how many bathrooms, bedrooms, and amenities the home has, as well as whether it is located on a busy street or a cul-de-sac.
However, even if good “comps” are found, they are usually not identical to yours, so you have to make adjustments. Unfortunately, some home or business owners make mistake number 3 in this case.
Not doing proper analysis on comparative sales to make adjustments. Duggan says you have to be prepared to answer detailed questions about the comparable sales you have found. “You need good information,” Duggan says. Complicating matters further, it’s often impossible to see inside comparable properties.
The key to the entire process is finding good comps. Duggan says this information is not available by a simple internet search, so wise property owners find real estate agents to help them. They can use the Multiple Listing Service database to find good comps. Duggan says many agents will do this as a favor in hopes of getting your business if you sell your home.
Duggan grew up in Union County where his mother was a nurse and his father was an executive in a metal manufacturing business. He went to the University of Delaware for college, then went to Seton Hall for law school. He has worked as a real estate attorney for 20 years, and is head of Stark & Stark’s eminent domain and real estate tax appeal group out of its Lenox Drive office.
The most important thing a property owner can do, Duggan says, is to do a good analysis of the tax assessment and determine whether to file an appeal early, hiring a professional if necessary. A small investment in doing this can save thousands in property taxes, he says. “Seeking out an appraiser is money well spent.”