Opinion
Appellate Division Docket No.: 004094-2008 Appellate Division Docket No.: 004819-2009 Appellate Division Docket No.: 007554-2010 Appellate Division Docket No.: 001636-2011
11-07-2013
Re: Bank of America v. Hoboken City
Hon. , J.T.C.
JUDGE
Appellate Division Clerk's Office - via e-mail and regular mail
Joseph H. Orlando, Clerk
Hughes Justice Complex
25 Market Street
P.O. Box 006
Trenton, New Jersey 08625-006
Dear Mr. Orlando:
Pursuant to R. 2:5-1(b), please accept this letter as a supplement to the court's opinion issued on the record with respect to defendant's Motion to Strike Plaintiff's Expert's trial testimony and report as net opinion and motion to dismiss Plaintiff's Complaints. For the reasons explained more fully below, defendant's motion was granted and an Order of Dismissal was entered on August 9, 2013.
I. FINDINGS OF FACT AND PROCEDURAL HISTORY
This letter opinion supplements the court's findings of fact and conclusions of law on defendant's motion. R. 1:6-2(f). The findings of fact are based on a review of the trial testimony of plaintiff's expert, Anthony Kamand Jr., as well as his expert report admitted into evidence at trial, and upon the briefs and certifications submitted by the parties on the motion, as well as the statements made by counsel at oral argument.
Bank of America ("Taxpayer") contests the 2008, 2009, 2010 and 2011 real property tax assessment pursuant to N.J.S A. 54:3-21. The property at issue is located in the City of Hoboken ("City") at 126-134 Hudson Street and shown as Block 212.01, Lots 12, 13, 14, 15.1 and 15.2 on the tax map ("Subject Property"). The Subject Property is composed of land (0.285 acres) and improvement - a 6,355 square foot one level office structure built in 1970 and operated as a bank branch. It consists of five lots with a land to building ratio of 2.95, is located in the Central Business District, and has 125 feet of frontage along Hudson Street and 100 feet of frontage on Second Street. The location is mixed use with residence, parking lots, limited retail stores, and offices.
The assessment for all four tax years is:
| Land | $ 915,000 |
| Improvements | $ 185,000 |
| Total | $ 1,100,000 |
The Chapter 123 ratios for the City were 29.79% for 2008, 29.25% for 2009, 27.16% for 2010 and 29.63% for 2011. The actual tax rate was $4.29 per $100 of assessed value for 2008, $4.49 for 2009, $4.75 for 2010 and $4.62 for 2011.
$4.293
$4.489
$4.745
$4.621
The Taxpayer timely appealed the assessments directly to the Tax Court pursuant to N.J.S.A. 54:3-21. To assist the court in this appeal, both the Taxpayer and the City engaged the services of professional real estate appraisers to provide opinions of value of the Subject Property for the tax years in dispute.
Trial commenced on April 25' 2013 and continued into April 26, 2013. At the close of the Taxpayer's case, the City moved to dismiss the taxpayer's complaints asserting that the testimony and report of taxpayer's expert, which were the sole proofs submitted, were not supported by sufficient data to rise to the level of "substantial evidence" necessary to overcome the presumption of correctness. The City argues that the expert rendered a net opinion that the court should deem inadmissible under Evidence Rule 703 as the report and testimony was devoid of a market analysis sufficient for the court to conclude that the opinion was based on sound theory and objective data.
Evidence Rule 703 states as follows:
The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence.
Rule 703 contemplates that an expert's opinion will be based upon facts or data. An expert must rely on something, and bare conclusions unsupported by factual evidence or other data are inadmissible as a mere net opinion. Furthermore, an expert's testimony may be termed a net opinion when the data upon which it is based is perceived as insufficient, unreliable, or contrary to the proponent's theory of the case.
The court requested that both parties prepare briefs on these issues and the motions were scheduled for oral argument.
At trial, the court accepted the Taxpayer's appraiser, without objection, to testify as an expert witness and prepared a valuation report that was admitted into evidence pursuant to R. 8:6-1(b). Consistent with page 43 of his report, the expert testified that the highest and best use of the Subject Property as vacant, is an office and as improved, is its current use.
The expert based his opinion regarding highest and best use on the fact that the bank is in a high residential area, that it has been there for over 40 years, that there are no other bank branches in close proximity, and that it has served the residents of the neighborhood well over the years. No market analysis or data research was performed.
This testimony constitutes a net opinion and is inadmissible under Rule 703.
First, it should be pointed out that the expert's testimony that there were no other bank branches in close proximity was contradicted by his own testimony to the contrary on cross examination, wherein he admitted to the existence of multiple bank branches within walking distance of the Subject Property. Further, he testified on cross examination that each lot could be developed with four residential condominium units in four stories over one floor of parking and there was a demand for such use.
The expert's report also sets forth multiple facts that would require analysis on the issue of highest and best use.
As to Hudson County generally, page 22 of the expert's report notes a sharp increase in residential housing for the period 1999 to 2009 as compared to the prior ten years. On pages 14 and 15 he
Although the county is very urbanized and most urban areas of the state have seen a decrease in population over the past decade Hudson County has experienced the opposite. Over the past decade the county as per the US Census the population has increased by almost 10%. This is in contrast of the 1970's when the population decreased by 0.24% and in the 1980's. A concentrated effort to redevelop many parts of the county has brought people back to this area. The population is expected to grow into the near future...The report indicates that 76.82% of the land use is residential, 9.755% is commercial and only 7.13% is vacant.
The county has a current (2011) population of 598,142 persons which reflects a slight decrease of about 1.79% over the 2000 figure. The population is now fairly stable. This translates
into 40,225 persons per square mile, making Hudson County the most densely populated county in New Jersey.
The majority of housing is renter occupied as opposed to owner occupied. It is noted that the county has a good location as it is situated close to major highways and employment centers. The Hoboken terminal is NJ transit's only station on the New Jersey Waterfront and provides convenient and frequent direct or connecting destinations served by the New Jersey Transit rail system. NJ Transit currently runs seven separate direct routes to and from the Hoboken terminal. NJ Transit, in conjunction with 21st Century Rail Corporation, has begun work on a 20.5 mile thirty-three station light rail system...from southern Bayonne north through Jersey City, Hoboken, and Weehawken to the NJ Turnpike's Vince Lombardi service area in Bergen County.
As to Hoboken specifically, page 27 of the expert's report notes that the current population (2011) of 40,567 indicates an increase of 5.16% from the 2000 census figures. The population had a decrease in the 1980's but the population has begun to increase since 1990 and it is expected to continue in the near future. On page 28 it states that the number of households, 20,671 in Hoboken indicates an increase of 6.45% from the 2000 census figures. According to the New Jersey Municipal Data Book, Land Use within Hoboken is 3.15% vacant land, 15.71% commercial, and 74.40% residential.
Despite all of this information and data, no market analysis was conducted or provided to establish market demand or to support a conclusion of current use as the highest and best use as improved.
After determining highest and best use, Taxpayer's expert determined value relying upon the income approach and sales comparison approach, with the greater emphasis on the income approach.
II. THE INCOME APPROACH
In search of value through the income approach, the witness stated that he went out into the market and looked at other bank branches, what they rented for, and then applied a market rent to the Subject Property. He gave no basis for his limitation of a market consisting solely of bank branches.
The expert identified and presented the following in support of his income comparison approach:
1. As to the 2007 valuation date four leases - one in Bayonne, Hudson County, one in Nutley, Essex County, one in Roxbury, Morris County and one in Hoboken;Without supporting data or analysis, the witness made adjustments for the size of the building, the date of the lease, the location of the property, and so forth. The leases were not introduced as evidence or attached to the report. Potential gross income was determined on a square foot basis and vacancy and collection losses were chosen without any foundation. Even in the absence of a highest and best use defect, based upon this testimony of the expert, the presumption of correctness could not possibly be overcome.
2. For the 2008 valuation date the witness used the 2007 leases;
3. For the 2009 valuation date - one from the 2007 leases, one from Summit, Union County, one from Raritan, Somerset County, and one from Hoboken. Four sales for the 2010 valuation date - the first three sales listed in the 2008 valuation and a fourth one in Franklin Lakes, Bergen County;
4. For the 2010 valuation date the witness used the 2009 leases.
III. THE SALES COMPARISON APPROACH
As to the sales comparison approach, the expert identified and presented the following in support of his sales comparison approach:
5. Three sales for the 2007 valuation date - one in Parsippany, Union County, one in Union, Union County and one in Cranford, Union County;
6. Four sales for the 2008 valuation date - one in Carteret, Union County, one in Cranford, Union County, one in Wood-Ridge, Bergen County, and the Union sale listed in the 2007 comparison;
7. Four sales for the 2009 valuation date - the first three sales listed in the 2008 valuation and a fourth one in Linden, Union County';
8. Four sales for the 2010 valuation date - the first three sales listed in the 2008 valuation and a fourth in Franklin Lakes, Bergen County.
Without the benefit of data, the expert then adjusted each sale based on location, land to building ratio, downward market trends, and conditions of the building. Again, even if highest and best use was not an issue, there is no foundation for limiting the market to bank branches and the presumption of correctness cannot be overcome.
IV. CONCLUSIONS OF LAW
It is well established that all real property must be "assessed according to the same standard of value...." N.J.S.A. Const. Art. 8, § 1, ¶ 1. The standard of value is true value, N.J.S.A. 54:4-2.25, which has been defined by our Supreme Court as "the consideration of the market value of the property at a fair and bona fide sale at private contract. True value of property of any kind is in essence the value it has in exchange for money." City of Newark v. Township of West Milford, 9 N.J. 295, 303 (1952) (citing Hackensack Water Co. v. Division of Tax Appeals, 2 N.J. 157, 163 (1949)). The assessor is statutorily required to "determine the full and fair value of each parcel of real property situate in the taxing district at such price as, in his judgment, it would sell for at a fair and bona fide sale by private contract...." N.J.S.A. 54:4-23.
On appeal, a municipality's original tax assessment is entitled to a presumption of validity. E.g., Pantasote Co. v. City of Passaic, supra, 100 N.J. at 412; Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 104-105 (1952). In Pantasote Co. v. City of Passaic, supra, our Supreme Court stated:
The presumption attaches to the quantum of the tax assessment. Based on this presumption, the appealing taxpayer has the burden of proving that the assessment is erroneous. The presumption in favor of the taxing authority can be rebutted only by cogent evidence, a proposition that has been long settled. The strength of the presumption is exemplified by the nature of the evidence that is required to overcome it. That evidence must be "definite, positive and certain in quality and quantity to overcome the presumption."
[100 N.J. at 413 (citations omitted).]
In Aetna Life Insurance Co., supra, the Supreme Court explained the presumption in favor of an assessment and set forth the standard of review for tax assessments:
The settled rule is that there is a presumption that an assessment made by the proper authority is correct and the burden of proof is on the taxpayer to show otherwise. And the taxpayer has not met
this burden unless he has presented ... sufficient competent evidence to overcome the presumption, that is, to establish a true valuation of the property at variance with the assessment. In other words, it is not sufficient for the taxpayer merely to introduce evidence: the presumption stands until sufficient competent evidence is adduced to prove a true valuation different from the assessment. Such evidence must be definite, positive and certain in quality and quantity to overcome the presumption.
[10 N.J. at 105 (citations omitted).]
This presumption does not only serve as a means to allocate the burden of proof. It is "a construct that expresses the view that in tax matters it is to be presumed that governmental authority has been exercised correctly and in accordance with law." Pantasote, supra, 100 N.J. at 413 (citation omitted).
"The presumption of correctness ... stands, until sufficient competent evidence to the contrary is adduced." Township of Little Egg Harbor v. Bonsangue, 316 N.J. Super. 271, 285-286 (App. Div. 1998) (citation omitted). When examining whether the presumption has been overcome, the evidence should be analyzed "as if a motion for judgment at the close of all the evidence had been made pursuant to R. 4:40-1 (whether or not the defendant or plaintiff actually so moves), employing the evidentiary standard applicable to such a motion." MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 377 (Tax 1998). To overcome the presumption, the evidence presented "must be 'sufficient to determine the value of the property under appeal, thereby establishing the existence of a debatable question as to the correctness of the assessment.'" West Colonial Enters., LLC v. City of East Orange, 20 N.J. Tax 576, 579 (Tax 2003) (quoting Lenal Props., Inc. v. City of Jersey City, 18 N.J. Tax 405, 408 (Tax 1999), aff'd, 18 N.J. Tax 658 (App. Div.), certif. denied, 165 N.J. 488 (2000)), aff'd, 21 N.J. Tax 590 (App. Div. 2004).
For property tax assessment purposes, property must be valued at its highest and best use. Ford Motor Co. v. Township of Edison, 127 N.J. 290, 300-01 (1992). "Any parcel of land should be examined for all possible uses and that use which will yield the highest return should be selected." Inmar Associates Inc. v. Township of Edison, 2 N.J. Tax 59, 64 (Tax 1980). Accordingly, the first step in the valuation process is the determination of the highest and best use of the subject property. American Cyanamid Co. v. Township of Wayne, 17 N.J. Tax 542, 550 (Tax 1998), aff'd, 19 N.J. Tax 46 (App. Div. 2000). "The concept of highest and best use is not only fundamental to valuation but is a crucial determination of market value. This is why it is the first and most important step in the valuation process." Ford Motor Co. v. Township of Edison, 10 N.J. Tax 153, 161 (Tax 1988), aff'd o.b. per curiam, 12 N.J. Tax 244 (App Div. 1990), aff'd, 127 N.J. 290 (1992); see also Gen. Motors Corp. v. City of Linden, 22 N.J. Tax 95, 107 (2005).
The definition of highest and best use contained in The Appraisal of Real Estate, a text frequently used by this court as a source of basic appraisal principles, has remained relatively constant for all of the years under appeal. Highest and best use is defined as:
The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value.The highest and best use analysis requires sequential consideration of the following four criteria, determining whether the use of the subject property is: 1) legally permissible; 2) physically possible; 3) financially feasible; and 4) maximally productive. Ford Motor Co., supra, 10 N.J. Tax at 161 ; see also The Appraisal of Real Estate at 279. Implicit in this analysis is the assumption that the proposed use is market-driven; in other words, that it is determined in a value-in-exchange context and that there is a market for such use. WCI-Westinghouse v. Township of Edison, 7 N.J. Tax 610, 616-17 (Tax 1985), aff'd o.b. per curiam, 9 N.J. Tax 86 (App Div. 1986). A highest and best use determination is not based on value-in-use because the determination is a function of property use and not a function of a particular owner's use or subjective judgment as to how a property should be used. See Entenmann's Inc. v. Borough of Totowa, 18 N.J. Tax 540, 545 (Tax 2000). The highest and best use of an improved property is the "use that maximizes an investment property's value, consistent with the rate of return and associated risk." Ford Motor Co., supra, 127 N.J. at 301. While it is true that the "actual use is a strong consideration" in the analysis, an analysis still must occur. Ford Motor Co., supra, 10 N.J. Tax at 167.
[Appraisal Institute, The Appraisal of Real Estate, 22 (13th ed. 2008).]
"Highest and best use often comprises more than one use for a parcel of land or an improved property." The Appraisal of Real Estate at 293. One parcel of land may serve many functions. Id. A single building can have multiple uses as well. Id. The appraiser is guided: "if the highest and best use of a property is for more than one use on the same parcel or in the same building, the appraiser must estimate the contributory value of each use." Id. at 293-94. The highest and best use conclusion should specify the optimal use (or uses), when the property will be put to this use or achieve stabilized occupancy, and who would be the most likely purchaser or user of the property. Id. at 139.
Implied in the definition of highest and best use is that the "determination results from the appraiser's judgment and analytical skill, i.e. that the use determined from analysis represents an opinion, not a fact to be found." Linwood Properties, Inc. v. Borough of Fort Lee, 7 N.J. Tax 320, 327 (Tax 1985). "However, that is not to say that a mere opinion of highest and best use is acceptable." Id. "[A]n expert's opinion is only as good as the data upon which the expert relied." Greenblatt v. City of Englewood, 26 N.J. Tax 41, 54-55 (Tax 2010); see also Dworman v. Borough of Tinton Falls, 1 N.J. Tax 445, 458 (Tax 1980) (An expert's opinion "depends upon the facts and reasoning which form the basis of the opinion. Without explanation as to the basis, the opinion of the expert is entitled to little weight in that regard."). As explained in the Appraisal of Real Estate, various legally permissible uses must be tested to determine which produces the highest value. The Appraisal of Real Estate at 279.
It is not the mere opinion of appraisers as to highest and best use that is important, but rather the activities of buyers and sellers in the market place." Linwood Properties, Inc., supra, 7 N.J. Tax at 327. As explained earlier, a proper highest and best use analysis requires a comprehensive market analysis to ascertain the supply and demand characteristics of alternative uses. See Six Cherry Hill, Inc., supra, 7 N.J. Tax at 131. In order to constitute a particular use as the property's highest and best use, the selected use in value in exchange context must be a probable use for which there must be a demand in the relevant market. WCI-Westinghouse v. Township of Edison, 7 N.J. Tax 610, 616 (Tax 1985). However, plaintiff's expert provided no market study or estimate of market demand. The court cannot accept plaintiff's expert's opinion without any explanation as to the basis of the testimony that the current use as a one story bank branch with four lots used for parking.
While other facts testified to during the trial (such as the failure to obtain lease information from other bank branches or similar structures in Hoboken) may go to the given to the opinion, the failure to obtain and analyze market data goes to whether the expert's opinion has any value at all.
The expert's income and sales approach is guided by the conclusion of the highest and best use, which this court has found to be without merit. The Appraisal of Real Estate cautions:
To determine highest and best use, the appraiser must analyze data, not just compile it... It is critical that a careful highest and best use analysis precede the application of the approaches to value. Otherwise, there is a high likelihood that serious errors will be made in the valuation process.All of plaintiff's expert's comparables are one-story bank branch buildings the majority of which were in other municipalities and counties.
[Appraisal Institute, The Appraisal of Real Estate, 277 (13th ed. 2008).]
The first reason to analyze the highest and best use of the subject property as improved is to help identify potentially comparable properties. The Appraisal of Real Estate at 139. "Potentially comparable properties that do not have the same highest and best use are usually eliminated from further analysis." Id. Although the textbook refers to comparables in the sales-comparison approach, the same logic and analysis applies to the income approach comparables utilized to determine market rent.
An appraiser must recognize the difference between the highest and best use of a comparable and the subject, and determine whether the sale is an appropriate comparable. See General Motors Corp. v. City of Linden, 22 N.J. Tax 95, 102 (Tax 2005) (citations omitted). In fact, a "judge may reject a property as a comparable solely because it has a different highest and best use." City of Atlantic City v. Boarwalk Regency Corp, 19 N.J. Tax 164, 189 (App. Div. 2000); See also Newport Center v. City of Jersey City, 17 N.J. Tax 405, 418-25 (Tax 1998) (excluding from evidence sales having highest and best uses so dissimilar to the highest and best use of the subject property as to render the sales of no assistance to the court in valuing the subject property).
The comparable leases and sales chosen by plaintiff's expert are insufficient and unreliable because they were selected in the absence of a proper highest and best use analysis.
For the reasons set forth above, the court finds that the testimony and report of Taxpayer's expert is both insufficient and incompetent and does not assist in the determination of the true value of the property under appeal. The court dismisses the taxpayer's appeals and affirms the City's assessment of $1,100.000 for tax years 2008-2011.
Judgment shall be entered consistent with this opinion.
Plaintiff, Faber Brothers, Inc. ("Faber"), is the owner of real property located in defendant's Borough of Paramus ("Paramus"). The property is designated in the records of the municipality as Block 3207, Lot 20 and is commonly known as 230 and 240 Route 17. At all times, Faber has paid its real property taxes in accordance with the property's assessed value.
The 2009 original assessment of the property is $86,313,600. The original assessment for tax years 2010, 2011 and 2012 is $70,000,000.
On October 1, 2012, Faber's attorney forwarded to the court a fully executed Stipulation of Settlement pursuant to R. 8:9-5, which was recorded as filed on October 5, 2012. The Stipulation of Settlement requests a reduction in the assessed value of the property to $60,000,000 for tax year 2009, $65,000,000 for tax years 2010 and 2011 and maintains an assessed value of $70,000,000 for tax year 2012. The Stipulation of Settlement states that a monetary refund is due for those years. Paragraph Four of the agreement states that "statutory interest, pursuant to N.J.S.A. 54:3-27.2, having been waived by taxpayer, shall not be paid provided the tax refund is paid by December 31, 2012."
The Stipulation of Settlement was drafted by Faber's attorney and was based upon terms that had been negotiated in November 2011, when agreement regarding the reduction in the assessed values was reached. Specifically, the waiver of statutory interest was the subject of negotiations throughout the first half of 2012. For example, by letter dated April 12, 2012, Paramus proposed the following language be incorporated into the Stipulation of Settlement:
1. Pre-judgment and post-judgment interest are hereby waived as a condition of settlement.
...
4. Notwithstanding any foregoing provision, if payment is not rendered in accordance with the foregoing paragraphs 1, 2 and 3, then Plaintiff shall be entitled to receive statutory interest, but said statutory interest shall be calculated from December 31, 2012 until the date of payment.
By letter dated April 24, 2012, Faber rejected these proposed provisions and countered with a proposed payment date of October 1, 2012. The parties continued to negotiate the terms of the refund payment and on July 16, 2012, Paramus confirmed that it was in agreement with the terms of settlement and directed Faber's attorney to prepare and forward a Stipulation of Settlement. Faber sent a proposed form of Stipulation of Settlement by letter dated July 24, 2012 and a revised Stipulation of Settlement on August 2, 2012. The attorney for Paramus executed the revised Stipulation of Settlement nearly two months later on September 27, 2012.
The court received the fully executed Stipulation of Settlement on October 5, 2012 and it was forwarded to the Tax Court Management Office for entry of Judgments in the normal course of business. No request for an expedited issuance of the entry of Judgments was made to the court or to the Tax Court Management Office by either party.
Both Faber and Paramus were acutely aware that pursuant to their agreement, the waiver of statutory interest was conditioned upon the monetary refund due to Faber being paid by December 31, 2012. In fact, a reminder letter to this effect was transmitted by Faber's counsel to Paramus on December 4, 2012. Upon his own admission at oral argument, Paramus's counsel ignored this letter and did not respond because he found it to be suspicious in nature.
Judgments were entered on December 7, 2012 and December 14, 2012. The Tax Court Management Office sent copies of the Judgments to Faber's attorney and to the attorney and assessor of Paramus. Paramus received the Judgments no later than December 21, 2012. Although not prohibited from doing so, Paramus did not act on its receipt of the Judgments prior to December 31, 2012 and no monetary refund was paid to Faber by that date.
Correspondence dated December 20, 2012 from Faber's attorney demonstrates that his office was in receipt of the Judgments and that he sent by e-mail and regular mail copies of the Judgments to Paramus's assessor and defense counsel at that time, although he had no obligation to do so.
On February 20, 2013, Faber moved to enforce the Stipulation of Settlement and requested that the court compel payment of the monetary refund and statutory interest and to enter judgment to that effect against Paramus.
Paramus timely opposed this motion, arguing that Faber was seeking to disavow the parties' intent in entering into the settlement agreement at issue and recover public funds to which it has no entitlement. Furthermore, Paramus claims that the executed Stipulation of Settlement "can hardly be viewed as completely encompassing the parties' intent and incorporating all of the terms agreed to by the parties." Although language customarily used by Paramus providing for the waiver of statutory interest if payment is made within sixty days of judgment was not incorporated into the agreement, Paramus claims that it was the parties' intent that Paramus be provided more than sixty days from the entry of Judgment to provide the refund of the overpaid taxes.
Oral argument was heard on March 22, 2013. At the conclusion of argument, the court decided that time was of the essence for the issuance of a decision and consequently the motion was decided in favor of Faber for the reasons set forth on the record and without a written opinion. At Paramus's request, a further hearing was conducted by telephone to determine the amount of statutory interest due.
A. Jurisdiction
Although not raised by the parties, the court first determines whether it has jurisdiction to decide Faber's motion.
The Tax Court is a court of limited jurisdiction. McMahon v. City of Newark, 195 N.J. 526, 546 (2008). The Tax Court was created by statute in 1978, in accordance with the Legislature's constitutional authority to establish, alter or abolish by law courts of limited jurisdiction. N.J. Const. art. VI, § 1, ¶ 1; N.J.S.A. 2B:13-1. The language of its enabling statutes constricts the Tax Court's jurisdiction. Prime Accounting Dept. v. Township of Carney's Point, 212 N.J. 493, 505 (2013).
N.J.S.A. 2B:13-2 establishes the Tax Court's jurisdiction as follows:
a. The Tax Court shall have jurisdiction to review actions or regulations with respect to a tax matter of the following:
(1) Any State agency or official;b. The Tax Court shall have jurisdiction over actions cognizable in the Superior Court which raise issues as to which expertise in matters involving taxation is desirable, and which have been transferred to the Tax Court pursuant to the Rules of the Supreme Court.
(2) A county board of taxation;
(3) A county or municipal official.
c. The Tax Court shall have jurisdiction over any other matters as may be provided by statute.
d. The Tax Court jurisdiction shall include any powers that may be necessary to effectuate its decisions, judgments and orders.
The Tax Court may "grant legal and equitable relief so that all matters in controversy between the parties may be completely determined." N.J.S.A. 2B:13-3(a). The Tax Court's Judgments may be appealed as of right to the Appellate Division. N.J.S.A. 2B:13-4.
In McMahon v. City of Newark, supra, the plaintiff filed a declaratory judgment action in the Superior Court, Law Division against Newark, requesting that the court declare the city's cancellation of a tax abatement null and void and for an order to restore the tax abatement. 195 N.J. at 536. The tax abatement in question was created pursuant to a written agreement entered into by the parties, which also contained a provision requiring disputes be heard in the Superior Court or, if it lacked jurisdiction, through arbitration with the American Arbitration Association. Id. at 531. The matter was transferred by the Superior Court to the Tax Court, which granted the city's summary judgment motion based upon the statute of limitations created in the tax statutes. Id. at 536-537. Plaintiff then appealed to the Appellate Division. Id. at 538. When the Appellate Division affirmed, plaintiff appealed to the Supreme Court, which granted certification. Id. at 538-539.
In reviewing the case, the Supreme Court recognized that the action was not a tax appeal but rather was a contract and estoppel case. Id. at 544. At its core, plaintiff's complaint did not deal with issues "uniquely cognizable within the tax appeal process" but to the more fundamental question of whether the city breached its financial agreement with the plaintiff. Id. at 544-545. The Supreme Court held that the matter was therefore not cognizable within the context of a tax appeal, but constituted a breach of the financial agreement entered into by the parties, requiring resolution in the agreed upon forum of the Superior Court or under the rules of the American Arbitration Association. Ibid.
Although Faber's motion requests that the court enforce the terms of the Stipulation of Settlement, the court views this request equally as the enforcement of the statutory interest provided by N.J.S.A. 54:3-27.2. Factually, this matter originated as a series of tax appeals and the determination of whether statutory interest was due. The court's jurisdiction to resolve issues involving statutory interest is contemplated by both N.J.S.A. 2B:13-2 and N.J.S.A. 2B:13-3(a). The Stipulation of Settlement at issue was filed in accordance with the court rules and was the document upon which the Tax Court and the Tax Court Management Office relied upon in entering Judgments in resolution of Faber's tax appeals.
The Tax Court has jurisdiction over this matter as it is derived from and deals exclusively with issues originating in tax statutes. Having found that this court has jurisdiction, it now proceeds to the merits of Faber's motion.
B. Statutory Interest on Monetary Refunds
Taxpayers are entitled to statutory interest when they are refunded excess taxes paid. N.J.S.A. 54:3-27.2.
Except as required in paragraph (2) of subsection a. of section 2 of P.L. 1983, c. 137 (C, 54:4-134), in the event that a taxpayer is successful in an appeal from an assessment on real property, the respective taxing district shall refund any excess taxes paid, together with interest thereon from the date of payment at a rate of 5% per annum, less any amount of taxes, interest, or both, which may be applied against delinquencies pursuant to section 2 of P.L. 1983, c. 137 (c. 54:4-134), within 60 days of the date of final judgment.
[Ibid.]
Taxpayers are entitled to this interest on their tax refund regardless of whether the Judgment resulted from a trial or a settlement. Petrie Retail, Inc. v. Town of Secaucus, 19 N.J. Tax 356, 362-363 (Tax 2001), aff'd, 363 N.J. Super. 74 (App. Div.), certif. denied, 177 N.J. 223 (2003).
New Jersey has a "strong public policy toward settling litigation and enforcing settlements." Petrie Retail, supra, 19 N.J. Tax at 363 (citing Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1961)). The Tax Court typically views settlements as binding contracts. Petrie Retail, supra, 19 N.J. Tax at 363 (citing Nolan v. Lee Ho, 120 N.J. 465, 472 (1990)).
In Petrie Retail, supra, the settlement agreement contained a provision that waived the statutory interest set forth in N.J.S.A. 54:3-27.2, provided the refund was paid within sixty days of the date of Judgment. 19 N.J. Tax at 359. Although the refund check was printed within the sixty day period after the Judgment was entered, it was not received by the taxpayer until sixty-six days after the Judgment had been entered. Id. at 359-360. In awarding statutory interest to the taxpayer, the court stated that the interest provision within the Stipulation of Settlement was a "significant part of the stipulation of settlement and must be honored as written." Id. at 363. The court found the argument that the language is boilerplate as unconvincing because the taxpayer is "giving up a significant right of interest it would otherwise be entitled to receive under the statute, in the hope that payment will be made in prompt fashion." Ibid.
In a footnote of its decision, the court in Petrie Retail, supra, stated that interest "begins to accrue when the taxpayer initially pays the tax, not at the commencement of the sixty-day period. Thus, where an appeal consists of several years, with interest accruing the entire time, it is not uncommon for the total amount of interest to be a substantial figure." Id. at 360, n.4 (citing New York Life Ins. Co. v. Lyndhurst Township, 280 N.J. Super. 387 (App. Div.), certif. denied, 142 N.J. 457 (1995)).
The Supreme Court in McMahon, supra, emphasized that municipalities would be bound by the contracts they made and specifically stated the following:
It has long been the rule in New Jersey that "court[s] cannot relieve municipalities from hard bargains[.]" It has been emphasized that "[m]unicipal contracts stand on the same footing as contracts between natural persons and courts will not inquire into the reasonableness of the terms of such contracts in the absence of bad faith, fraud or capricious action."
Also, this Court repeatedly has hewed to the maxim that "[c]ourts cannot make contracts for parties. They can only enforce the contracts which the parties themselves have made." In other words, "[w]hen the terms of [a] contract are clear, it is the function of a court to enforce it as written and not to make a better contract for either of the parties [because t]he parties are entitled to make
their own contracts." Thus, "[a]s a general rule, courts should enforce contracts as the parties intended." In doing so, the judicial task is clear: the "court must discern and implement the common intention of the parties [and its] role is to consider what is written in the context of the circumstances at the time of drafting and to apply a rational meaning in keeping with the expressed general purpose."
[195 N.J. at 545-546 (citations omitted).]
Paramus seeks to avoid payment of statutory interest on the agreed upon monetary refund by arguing that the Stipulation of Settlement meant something different from what it states and that it contemplated matters outside the parties' control.
This court finds that Paramus's argument is without merit. The agreement between the parties is clear and precise: Faber only waived its statutory right to interest if it received the monetary refund prior to December 31, 2012. Furthermore, the court rejects any argument that Paramus lacked control regarding the timing of the entry of Judgments. Paramus's attorney did not contact the court or the Tax Court Management Office to request that the entry of the Judgments be expedited or to inquire when the Judgments could be expected. Additionally, the Judgments were received prior to the December 31, 2012 deadline and Paramus's attorney chose not to take any steps necessary to ensure payment of the monetary refund by the end of the year. During oral argument, counsel for Paramus stated that in similar situations in the past he had reached out to opposing counsel when he knew a refund would not be payable by the agreed upon deadline. He conceded that he did not reach out to Faber's counsel to request an extension in light of "prior contact with the firm" and fear that his actions would be misconstrued by Faber's attorney. Counsel for Paramus, therefore, did not take any action whatsoever to work with the court or opposing counsel when it appeared he may be unable to meet the December 31, 2012 deadline.
C. Calculation of Interest
Having found that the statutory interest was due to Faber in addition to the monetary refund, the court requested that the parties calculate the amount of said interest at five percent from the date of overpayment until March 22, 2013.
The parties could not agree on the interest calculations and the court was asked to resolve the dispute concerning the method of calculation.
Faber argues that the interest should be calculated from the date of each payment until March 22, 2013 and applying five percent simple interest. Utilizing software provided by Skinder-Strauss Associates, Faber determined that the amount of interest due is $93,607.71. Faber points out that this is the same approach used to calculate pre-Judgment and post-Judgment interest pursuant to R. 4:42-11.
Paramus argues that the accepted method of calculating tax refund interest is by following guidelines circulated by the New Jersey Department of Community Affairs. In her certification, Paramus's tax collector stated that she has been taught to follow the method documented in a Local Finance Notice dated January 5, 1996, which is issued by the New Jersey Department of Community Affairs, Division of Local Government Services. The guidelines provide that when calculating a Judgment of the Tax Court, all credits are applied to the fourth quarter. If the fourth quarter taxes are less than the refund due, the balance is applied to the third quarter. The date used for determining overpayment is the date that taxes are due (i.e. November 1 for fourth quarter taxes), not the date that the taxpayer renders payment. The tax collector also calculates taxes on 360 days and not 365, although she does not state her reasons for this adjustment in calendar days.
The court assumes that the 360-day calculation is based upon a financial accounting principle used to divide a year into four even quarters.
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Using this method, Paramus has calculated the amount of interest due under the court's ruling to be $85,257.21.
The court finds and accepts the method of calculation proffered by Paramus. Unlike the interest awarded pursuant to R. 4:42-11, the tax refund interest is not adjusted on an annual basis to reflect the true value of money. Rather, the Legislature allowed for a flat five percent interest on the monetary refund. Additionally, the court accepts as logical that overpayment of taxes is to be determined on an annual basis with uniformity among all municipalities in calculating and remitting refunds to taxpayers.
The court therefore finds that the amount of statutory interest Paramus owes Faber to be $85,257.21.
______________________
Hon. Mary Siobhan Brennan, J.T.C.
cc: Antimo A. Del Vecchio, Esq., via e-mail only
Marc A. Raso, Esq., via e-mail only.