Municipal Property Tax Appeals: It Must Be On Your Financial Planning Radar Each & Every Year

If you were to make a pie chart of your fixed expenses, municipal real estate taxes would more than likely encompass a sizable portion of that pie. However, with State and Federal governmental grants to the municipality on the decline, local government has no choice but to turn to its municipal property tax assessment to keep its police, fire, schools and essential municipal services running, so taxes are likely going up.
There is, however, help. The mechanism is the filing of a municipal tax appeal. A municipal tax appeal is a legal proceeding in which property owner(s) challenge their respective property valuation and thereby, the resulting real estate tax payment obligation due. Even though your real estate tax payment is made to the municipality, the municipality must distribute those funds to the local school board, County, and even State in some instances. Thus, the tax assessment challenge is solely defended by the local municipality.

Uniformity

The New Jersey State Constitution mandates that properties be assessed uniformly. In fact, New Jersey case law uses the term that properties must be assessed at “fair market value.” The challenge is that fair market value, candidly, can change quickly. For example, the value of a home in 2005 or 2006 would be different from that of the value in 2010 or 2011. New Jersey, as most states, addresses the changing annual values by permitting the property owner to file a tax appeal each and every year. The magic valuation date in New Jersey is October 1st of the pre-tax year. For example, the value of your property as of October 1, 2010 sets the value for the 2011 tax year. A property owner thereafter has until April 1st to challenge that annual assessment. It is wise for any New Jersey property owner, whether they be a residential, commercial or industrial owner, to review their property assessment on an annual basis.

How Do I Know If I Have The Basis For A Municipal Tax Appeal?

The simplest way to determine whether you have the basis for a municipal tax appeal is to look at your property assessment and make a candid analysis of whether or not you could sell your property for that municipality assessed value. There are other factors involved, such as the State equalized ratio, burden of proof and municipality’s assessment presumption of validity, but the fair market value opinion is a good quick and dirty approach. Thus, for example, if your property is assessed at $1,000,000 and in this economically challenged market, you feel you would be able to sell your property for $800,000, you have the basis for a municipal tax appeal. The best way to conclusively determine whether you have a basis for a tax appeal is to retain a licensed appraiser to determine the value of your property as of October 1st of the pre-tax year. An appraiser would use such tools as comparable sales analysis, income approach, and/or cost to-build approach in determining the fair market value of your property.

When Should I Get Started?

After October 1st of the pre-tax year, it is timely to evaluate whether or not a tax appeal exists. Our firm would provide a free preliminary analysis of your municipal tax assessment to determine whether there is a basis to file an appeal. The property owner should be aware that the municipality cannot unilaterally change your municipal assessment, unless the municipality conducts a town-wide revaluation or a neighborhood reassessment. The purpose of a revaluation/ reassessment is to create uniform assessments based upon recent sales data with appropriate property inspections. A revaluation/ reassessment is generally disfavored by municipalities because of the cost to conduct same and the reality of offending taxpayers’ status quo tax payments. Taxpayers tend to balk whenever their municipal tax obligation changes. The exception, to prohibit selective spot assessing, however, is if a property owner files a municipal tax appeal. The municipality may thereafter file a counter-claim against the property owner’s municipal assessment challenge. The municipal counter-claim would seek to increase the challenged property tax assessment as according to the municipality, the assessment is currently too low. Therefore, property owners need to be aware, that you should not file a municipal tax appeal, just for the sake of filing an appeal.

Sound Financial Planning

In closing, it is sound financial planning and strategy to analyze your municipal property tax assessment on an annual basis. As noted above, the valuation date for property in New Jersey is October 1st of the pre-tax year, and property owners have until April 1st to file a challenge to their municipal tax assessment. Our firm, as a courtesy to clients, performs a free preliminary analysis to determine whether there is a basis to file an appeal, setting reasonable expectations in an extremely volatile real estate market.

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