TAX COURT OF NEW JERSEY
Joshua D. Novin Washington & Court Streets, 1st Floor Judge P.O. Box 910 Morristown, New Jersey 07960-0190 Tel: (609) 815-2922, Ext. 54680 Fax: (973) 656-4305
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS
March 22, 2018
Christopher John Stracco, Esq. 1 Day Pitney, LLP One Jefferson Road Parsippany, New Jersey 07054
Scott G. Collins, Esq. Riker Danzig Scherer Hyland Perretti, LLP Headquarters Plaza One Speedwell Avenue Morristown, New Jersey 07962
Martin Allen, Esq. DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis, Lehrer & Flaum, P.C. 15 Mountain Boulevard Warren, New Jersey 07059
Re: Alcatel-Lucent USA, Inc. v. Township of Berkeley Heights Docket Nos. 004598-2014, 007688-2014 and 003166-2015
Dear Counsel:
This letter shall constitute the court’s opinion, following: (i) the hearing on plaintiff’s
alleged “false or fraudulent account” in response to defendant’s request for income and expense
information under N.J.S.A. 54:4-34, commonly known as Chapter 91 (L. 1979, c. 91); and (ii) the
1 During the hearings Alcatel-Lucent USA, Inc. was represented by Michael James Guerriero, Esq. Subsequent to conclusion of the hearings, and prior to the court’s entry of this letter opinion, Mr. Guerriero retired from Day Pitney, LLP. hearing on the reasonableness of the 2015 tax year local property tax assessment. At issue, is
whether plaintiff’s representative, in preparing and submitting his June 13, 2013 response to
defendant’s Chapter 91 request for income and expense information, inadvertently submitted
incomplete or imperfect information, or intentionally omitted information, and thus, acted with
unclean hands. Additionally at stake, is whether the data and methodology employed by
defendant’s tax assessor, in arriving at the subject property’s 2015 local property tax assessment,
was reasonable in light of the information available on the valuation date.
For the reasons explained more fully below, the court concludes that: (i) plaintiff’s June
13, 2013 response to defendant’s Chapter 91 request was a “false or fraudulent account,” as such
phrase was contemplated by our Legislature under N.J.S.A. 54:4-34; and (ii) plaintiff failed to
satisfy its burden of proof, establishing that the subject property’s 2015 local property tax
assessment was unreasonable in light of the data and valuation methodology available to
defendant’s tax assessor.
Accordingly, the court: (i) grants defendant’s motions to dismiss plaintiff’s 2014 Tax
Appeal Complaint and 2014 Farmland Assessment Complaint, subject to plaintiff’s right to a
reasonableness hearing pursuant to Ocean Pines, Ltd. v. Borough of Point Pleasant, 112 N.J. 1
(1988); and (ii) finds that the subject property’s 2015 tax year assessment is reasonable, in light of
the information available to defendant’s tax assessor, and dismisses plaintiff’s 2015 Tax Appeal
Complaint.
I. Findings of Fact and Procedural History
Alcatel-Lucent USA, Inc. (“plaintiff”), is the owner of the real property and improvements
commonly known as 600 – 700 Mountain Avenue, in the Township of Berkeley Heights, County
of Union, and State of New Jersey. The property is designated on the Township of Berkeley
2 Heights (“defendant”), municipal tax map as Block 3701, Lot 1 (the “subject property”). The
subject property consists of approximately 1,500,000 square feet of improvements, comprising
buildings and various other structures, situate on approximately 153.4 acres of real property. The
subject property is plaintiff’s United States headquarters housing administrative offices and
research and development operations.
A. 2014 Tax Year
On June 1, 2013, defendant’s tax assessor mailed plaintiff, by certified mail, return receipt
requested, “a Chapter 91 request for income and expenses” (the “2013 Chapter 91 Request”). The
2013 Chapter 91 Request sought “the current income and expense data for the property identified
on the attached forms.” It further instructed the property owner to “submit a copy of the actual
leases, rent rolls, and expense ledger, or use the attached forms in order to provide necessary
information.” As required under N.J.S.A. 54:4-34, the 2013 Chapter 91 Request notified the
taxpayer that if the information sought was not furnished within 45 days, “you may be precluded
from filing any tax appeal challenging the assessment of this property.”
On June 13, 2013, plaintiff’s corporate counsel, Lewis M. Lefkowitz, issued a two page
written response to defendant’s tax assessor stating, in part:
I am writing in response to the letter from you to Alcatel-Lucent USA Inc. . . . dated June 1, 2013, requesting certain information regarding Block 3701, Lot 1. . . from the ‘Property Owner’ pursuant to N.J.S.A. 54:4-34.
. . . the Property was conveyed by quitclaim deed dated June 29, 2001 from Alcatel-Lucent to LTI NJ Finance LLC and long term ground leased back to Alcatel-Lucent from LTI by lease from LTI also dated June 29, 2001. Under that Lease, Alcatel-Lucent is treated as the beneficial owner having all the rights (other than title) and obligations (including payment of real estate taxes) of an owner. LTI is a single member limited liability company, whose sole
3 member and 100% owner is Alcatel-Lucent. . . We therefore consider the property to be owner-occupied.
The Property is not income producing real estate as that term is commonly understood, although very small portions of the Property, totaling less [than] 1% of the building square footage, are occupied by Sychip, OFS Fitel, Wipro, and Garden Savings Federal Credit Union. Please note that Affinity Federal Credit Union vacated the Property effective December 31, 2011 and now only maintains an ATM on site for which it pays $300 monthly to Alcatel-Lucent . . . Although the payments by those occupants are insignificant, and irrelevant and immaterial in valuing the property, a schedule of those payments entitled MURRAY HILL, NJ 2012 RENTAL INCOME is attached.
Two wireless carriers pay monthly fees pursuant to license agreements to maintain cell sites on a[n] Alcatel-Lucent tower on the Property . . . Their payments are also reflected in the attached MURRAY HILL, NJ 2012 RENTAL INCOME.
Attached to Mr. Lefkowitz’s June 13, 2013 letter was a document captioned “Alcatel-Lucent USA
Inc. Murray Hill, NJ 2012 Rental Income” (“2012 Rental Income Report”), and a separate
document captioned “Alcatel-Lucent 600 Mountain Avenue Murray Hill, NJ 2012 Operating
Expense” (“2012 Operating Expense Report”) (the June 13, 2013 letter, 2012 Rental Income
Report and 2012 Operating Expense Report shall be collectively referred to as the “June 13, 2013
Response”). The 2012 Operating Expense Report itemizes 20 categories of expenses incurred by
plaintiff for the subject property on a month-to-month basis, together with an annual reconciliation.
The 2012 Rental Income Report reflects the gross “Rental Income” received by plaintiff on an
annual basis from six “Subtenant[s].”
It is undisputed that plaintiff received defendant’s 2013 Chapter 91 Request. It is further
undisputed that defendant received plaintiff’s June 13, 2013 Response.
Defendant’s tax assessor placed a tax assessment on the subject property for the 2014 tax
year, as follows:
4 Land $31,350,000 Improvements $54,715,000 Total $86,065,000
Shortly thereafter, on July 24, 2013, plaintiff submitted an Application for Farmland
Assessment, Woodland Data Form and detailed Forest Management Plan to defendant, seeking
farmland tax assessment for the 2014 tax year on a portion of the subject property allegedly being
used for the production of tree and forest products for sale (“2014 Farmland Assessment
Application”).
By notice dated August 19, 2013, defendant’s tax assessor denied plaintiff’s 2014
Farmland Assessment Application asserting that “agricultural use is not dominant use” (“2014
Farmland Assessment Denial Notice”).
On March 13, 2014, plaintiff timely filed a Complaint with the Tax Court challenging the
2014 tax year assessment on the subject property (“2014 Tax Appeal Complaint”).
On March 28, 2014, plaintiff timely filed a Complaint with the Tax Court challenging the
2014 Farmland Assessment Denial Notice for the subject property (“2014 Farmland Assessment
Complaint”).
B. 2015 Tax Year
On June 1, 2014, defendant’s tax assessor mailed plaintiff, by certified mail, return receipt
requested, “a Chapter 91 request for income and expenses” (the “2014 Chapter 91 Request”). The
2014 Chapter 91 Request sought “income and expense data” for the subject property. It further
instructed the property owner that it may “submit a copy of the actual leases, rent rolls, and expense
ledger; or use the enclosed forms in order to provide the requested information.” As required
under N.J.S.A. 54:4-34, the 2014 Chapter 91 Request notified the property owner that if the
5 information sought was not furnished within 45 days, “you may be precluded from filing any tax
appeal challenging the assessment of this property.”
Accompanying the 2014 Chapter 91 Request, was a reproduction of N.J.S.A. 54:4-34, a
form captioned “Annual Statement of Business Income and Expenses Commercial Properties,” a
form captioned “Instructions for Completion of Schedule A” and a rental schedule form captioned
“Schedule A”.
It is undisputed that the 2014 Chapter 91 Request was received by plaintiff. It is further
undisputed that plaintiff did not furnish any response to the 2014 Chapter 91 Request, nor did it
notify defendant of any difficulties encountered in responding to the 2014 Chapter 91 Request.
Thereafter, on July 24, 2014, plaintiff submitted an Application for Farmland Assessment,
Woodland Data Form and detailed Forest Management Plan to defendant, seeking farmland tax
assessment for the 2015 tax year on a portion of the subject property allegedly being used for the
production of tree and forest products for sale (the “2015 Farmland Assessment Application”).
By notice dated August 11, 2014, defendant’s tax assessor denied plaintiff’s 2015
Farmland Assessment Application asserting that “agricultural use is not dominant use” (“2015
Accordingly, defendant’s tax assessor placed an assessment on the subject property for the
2015 tax year, as follows:
Land $31,350,000 Improvements $54,715,000 Total $86,065,000
On March 17, 2015, plaintiff timely filed a Complaint with the Tax Court challenging the
2015 tax year assessment on the subject property (“2015 Tax Appeal Complaint”).
6 On March 31, 2015, plaintiff timely filed a Complaint with the Tax Court challenging the
2015 Farmland Assessment Denial Notice for the subject property (“2015 Farmland Assessment
C. Motions to Dismiss
Defendant filed motions seeking dismissal of plaintiff’s: (i) 2014 Tax Appeal Complaint;
(ii) 2014 Farmland Assessment Complaint; (iii) 2015 Tax Appeal Complaint; and (iv) 2015
Farmland Assessment Complaint.
Defendant charged in its motions that plaintiff’s 2014 Tax Appeal Complaint and 2014
Farmland Assessment Complaint must be dismissed because plaintiff’s June 13, 2013 Response
constituted a “false or fraudulent account” in reply to the 2013 Chapter 91 Request. Specifically,
defendant asserted that, “[d]uring the course of discovery it became apparent that the subject
property is not owner occupied and that the subject property’s 2012 rental income was
substantially higher than the one provided in the Chapter 91 response.” Defendant highlighted
that in response to discovery requests, plaintiff disclosed that its 2012 rental income was
“$1,153,994.77 and not $960,639.23 as stated in their Chapter 91 response.” The approximate
$193,355.54 income discrepancy apparently arose from the omission of fees paid plaintiff by LGS
Innovations, its wholly owned subsidiary, for occupying a portion of the subject property.
Defendant further maintained that plaintiff’s June 13, 2013 Response mischaracterized the
subject property as “owner-occupied,” when “it is clear” from defendant’s “review of the leases
provided in discovery” that “the subject property is income producing.” Thus, defendant argued
that the June 13, 2013 Response was a “false or fraudulent account,” thereby precluding plaintiff
from pursuing its 2014 Tax Appeal Complaint and 2014 Farmland Assessment Complaint, subject
only to a reasonableness hearing.
7 Defendant further contended that plaintiff’s 2015 Tax Appeal Complaint and 2015
Farmland Assessment Complaint must be dismissed because plaintiff failed to respond to the 2014
Chapter 91 Request. Defendant maintained that plaintiff is precluded from advancing the causes
of action raised in the 2015 Tax Appeal Complaint and 2015 Farmland Assessment Complaint as
a result of its failure to respond to the 2014 Chapter 91 Request, subject only to a reasonableness
hearing.
On September 8, 2016, this court issued a letter opinion granting defendant’s motions to
dismiss plaintiff’s 2015 Tax Appeal Complaint and 2015 Farmland Assessment Complaint, as a
result of plaintiff’s failure to respond to defendant’s 2014 Chapter 91 Request, subject to a
reasonableness hearing pursuant to Ocean Pines Ltd., 112 N.J. 1. 2 However, the court reserved
decision on defendant’s motions to dismiss plaintiff’s 2014 Tax Appeal Complaint and 2014
Farmland Assessment Complaint pending the outcome of a hearing on whether the June 13, 2013
Response constituted a “false or fraudulent account,” as contemplated by our Legislature, under
N.J.S.A. 54:4-34. The court’s Orders directed the parties to engage in discovery and set a date for
the reasonableness hearing and “false or fraudulent account” hearing.
II. Conclusions of Law
In response to concerns that property owners were “not subject to any penalty” for refusing,
or failing to disclose economic information for income-generating properties to tax assessors prior
to setting local property tax assessments, in 1979 our Legislature amended N.J.S.A. 54:4-34 (L.
1979, c. 91). Lucent Technologies, Inc. v. Township of Berkeley Heights, 201 N.J. 237, 246
2 Plaintiff subsequently advised the court that it did not want to pursue a reasonableness hearing with respect to the 2015 Farmland Assessment Complaint. Accordingly, on October 11, 2016, the court entered a final Order dismissing plaintiff’s 2015 Farmland Assessment Complaint. A Notice of Appeal of the court’s October 11, 2016 final Order was filed with the court on October 20, 2016.
8 (2010) (quoting Senate Revenue, Finance and Appropriations Committee, Statement to Senate Bill
No. 309 (January 26, 1978)). To address what was perceived as “the shortcomings in the existing
[N.J.S.A. 54:4-34] statute,” the amendment imposed an “obligation [on property owners] to
respond within forty-five days” to requests for income and expense information. Id. at 247. Thus,
Chapter 91 was born from the notion that an assessor must be afforded reasonable access to the
economic records of an income-producing property, thereby enabling the assessor to reasonably
arrive at a fair assessment, and potentially “avoid[ing] unnecessary expense, time and effort”
which may result in any ensuing local property tax appeal litigation. Ocean Pines, Ltd., 112 N.J.
at 7 (quoting Terrace View Gardens v. Township of Dover, 5 N.J. Tax 469, 474-75 (1982)).
Accordingly, Chapter 91 exemplifies the public policy considerations “of having assessors
formulate assessments by using information from the ‘best available source,’ the property owner.”
Tower Center Associates v. Township of East Brunswick, 286 N.J. Super. 433, 438 (App. Div.
1996) (quoting Terrace View Gardens, 5 N.J. Tax 469, 472 (Tax 1982), aff'd o.b., 5 N.J. Tax 475
(App. Div. 1983)).
As amended, N.J.S.A. 54:4-34 provides:
Every owner of real property of the taxing district shall, on written request of the assessor, made by certified mail, render a full and true account of his name and real property and the income therefrom, in the case of income-producing property, and produce his title papers, and he may be examined on oath by the assessor, and if he shall fail or refuse to respond to the written request of the assessor within 45 days of such request, or to testify on oath when required, or shall render a false or fraudulent account, the assessor shall value his property at such amount as he may, from any information in his possession or available to him, reasonably determine to be the full and fair value thereof. No appeal shall be heard from the assessor’s valuation and assessment with respect to income-producing property where the owner has failed or refused to respond to such written request for information within 45 days of such request or to testify on oath when required, or shall have rendered a false or
9 fraudulent account. The county board of taxation may impose such terms and conditions for furnishing the requested information where it appears that the owner, for good cause shown, could not furnish the information within the required period of time. In making such written request for information pursuant to this section the assessor shall enclose therewith a copy of this section
[N.J.S.A. 54:4-34.]
In Ocean Pines, our Supreme Court fashioned the remedy available for income-producing
property owners who have failed to comply with requests for economic information under Chapter
91. The Court explained that a property owner is “entitled to appeal the valuation . . . , but any
such appeal is sharply limited in both its substantive and procedural aspects.” Ocean Pines, Ltd.,
112 N.J. at 11. Thus, the focus of a trial court’s substantive inquiry at such hearing centers on
“whether the [assessed] valuation could reasonably have been arrived at in light of the data
available to the assessor at the time of the valuation.” Ibid. Embodied within that inquiry is: “(1)
the reasonableness of the underlying data used by the assessor, and (2) the reasonableness of the
methodology used by the assessor in arriving at the valuation.” Ibid.
A. Reasonableness Hearing
A reasonableness hearing should “not include plenary proofs as to the value of the property
under appeal but only proofs as to whether the assessment imposed by the assessor was
reasonable.” Lucent Technologies, Inc., 24 N.J. Tax at 308. In gauging the reasonableness of a
tax assessment, “[b]oth the underlying data and the methodology used by the assessor are entitled
to [a] presumptions of correctness.” 510 Ryerson Road, Inc. v. Borough of Lincoln Park, 28 N.J.
Tax 184, 193 (Tax 2014). This standard “is less stringent than the standard applicable in the
context of a plenary valuation hearing for purposes of determining whether a presumption of
validity attaches to an assessment.” Lucent Technologies, Inc., 24 N.J. Tax at 312. This is because
10 Chapter 91 “requires only that the assessor ‘reasonably determine’ the value of a property” based
on data and information available to the assessor at the time of valuation. Id. at 297.
During a reasonableness hearing, the taxpayer must “produce evidence that is definite,
positive and certain in quality and quantity in order to overcome [the presumption of correctness].”
Ocean Pines, Ltd., 112 N.J. 12 (quoting Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105
(1952)). The taxpayer shoulders the burden of proving that “the methodology utilized in [arriving
at] the original assessment manifested an arbitrary or capricious discharge of the assessor’s
responsibilities” and “provide[d] no reliable indication that the quantum of the assessment [was]
itself reasonable.” Transcontinental Gas Pipeline Corp. v. Bernards Township, 111 N.J. 507, 538
(1988). It is not enough for the taxpayer to merely show that the methodology employed by the
tax assessor was flawed or imperfect, the taxpayer must demonstrate that the manner in which the
assessment was arrived at was arbitrary and capricious. Pantasote Co. v. Passaic, 100 N.J. 408,
417 (1985).
Here, plaintiff charges that the 2015 local property tax assessment was arbitrary, capricious
and unreasonable, because: (1) defendant’s tax assessor violated the Handbook for New Jersey
Assessors, by failing to have an appraisal report commissioned that offered an opinion of the true
market value the subject property, as of the October 1, 2014 valuation date; (2) defendant’s
assessor failed to determine the true market value of the subject property, as of the October 1, 2014
valuation date by engaging in either the sales comparison, replacement reproduction, or income
capitalization approaches to value; and (3) the subject property’s 2014 local property tax
assessment was erroneous therefore; carrying forward the 2014 tax year assessment to the 2015
tax year, was arbitrary and capricious.
11 In support of these arguments, plaintiff presented the testimony of Thomas Welsh, a State
of New Jersey certified general real estate appraiser, who was accepted by the court as an expert
in the field of real estate appraising. 3 In Mr. Welsh’s opinion, the defendant’s assessor acted in an
unreasonable manner in the following respects:
1. The assessor failed to undertake an independent investigation of the subject property to verify the accuracy of the information contained in the assessor's files;
2. The assessor failed to determine the full and fair value of the subject property by commissioning an appraisal report, or using one of the three generally accepted approaches to value;
3. The subject property’s 2014 local property tax assessment was erroneous therefore; the 2015 local property tax assessment was erroneous.
Voir dire disclosed that Mr. Welsh is a certified general real estate appraiser, has served as
an appraisal expert in court, and has instructed courses regarding the appraisal of real property.
However, Mr. Welsh readily acknowledged that, he is not a certified tax assessor, has never served
as municipal tax assessor, and during his career has never been employed in a municipal tax
assessor’s office. Therefore, his opinions as to reasonableness of the procedures employed by
defendant’s assessor in setting the subject property’s 2015 local property tax assessment, and
defendant’s assessor’s reliance upon data and information contained in his files, were based solely
on his experience as an appraiser, and not as a certified tax assessor.
Mr. Welsh’s testimony primarily focused on concerns regarding calculation of the subject
property’s 2014 local property tax assessment, including the analysis performed by defendant’s
appraisal expert. In Mr. Welsh’s opinion, the November 5, 2013 analysis prepared by defendant’s
appraiser, and relied on by defendant’s assessor to assist him in establishing the subject property’s
3 The court declined to accept Mr. Welsh as an expert Certified Tax Assessor, or as an expert in the field of real estate assessing practices and procedures, and placed a statement of reasons on the record.
12 2014 local property tax assessment, was flawed. Mr. Welsh believed that the areas of the building
demolished in late 2013 were lab space, and therefore should have been attributed a greater value,
resulting in a lower tax assessment for the 2014 tax year. In Mr. Welsh’s opinion, in order to
“determine the value” of real property, under N.J.S.A. 54:4-35.1, an appraisal report is required.
Moreover, Mr. Welsh’s testimony highlighted that the Uniform Standards of Professional
Appraisal Practice, applicable to appraisers and the preparation of appraisal reports, requires an
appraiser to independently verify the square footage of an improvement existing on a property,
and not rely upon unqualified third-party information.
However, Mr. Welsh was not qualified to offer any fact or opinion testimony regarding
municipal tax assessing practices, or why defendant’s assessing practices, as applied to the subject
property, resulted in an arbitrary or capricious discharge of the assessor’s responsibilities.
Moreover, Mr. Welsh did not offer any testimony regarding significant marketplace changes
between the 2014 valuation date and 2015 valuation date that were not considered by defendant’s
assessor in establishing the subject property’s 2015 local property tax assessment. Mr. Welsh did
not present any evidence that material alterations were made to the improvements on the subject
property between the 2014 valuation date and 2015 valuation date. In sum, Mr. Welsh could not
offer any testimony or evidence that it was unreasonable to have arrived at the subject property’s
2015 local property tax assessment in light of the data available to defendant’s assessor at the time
of the valuation.
Our courts have recognized the practical limitations faced by tax assessors in re-measuring,
re-appraising, and personally inspecting each property in a municipality, every year to determine
its full and fair value, under N.J.S.A. 54:4-23. These limitations “preclude most assessors [from]
reviewing every assessment line item every year. . . .” Tri-Terminal Corp. v. Borough of
13 Edgewater, 68 N.J. 405 (1975)). However, assessors must nonetheless be sensitive and “alert[] to
changed valuation factors peculiarly affecting individual properties in years between revaluations
and requiring prompt revision of such assessments in fairness to the particular taxpayer or to the
taxing district.” Ibid. Thus, the focus of the court’s inquiry centers on whether the valuation of
the property, and determination of the tax assessment, was reasonably related to sound assessment
practices, based on reasonable data and information, was sensitive to changing market conditions,
considered physical factors uniquely applicable to the property, or did it “manifest[] an arbitrary
or capricious discharge of the assessor’s responsibilities.” Transcontinental Gas Pipeline Corp.,
111 N.J. at 538.
A taxpayer has failed to meet the requisite burden of proof by relying upon the assessor’s
continuation of a prior years assessment, or the failure of an assessor to re-inspect, “re-measure
and re-appraise each property. . . for purposes of determining the proper assessment.” Lucent
Technologies, Inc., 24 N.J. Tax at 312. Although these type of flaws would likely render the trial
testimony of an appraiser inadequate, the role of an assessor “is different and distinguishable from
the role of the appraiser,” and does not serve as prima facie evidence that a tax assessment is
arbitrary or capricious. Ibid. See also 510 Ryerson Rd., Inc., 28 N.J. Tax at 196 (local property
assessment is not unreasonable even if assessor did not “independently verify” information on
rents and did not personally inspect the property, and adopted the values recommended by the
revaluation company based on an income approach); Waterside Villas Holdings, LLC v. Monroe
Township, 2012 N.J. Tax Unpub. LEXIS 22 (Tax 2012) (rejecting the taxpayer’s argument that
“an assessment based on a valuation using the income approach is unreasonable and arbitrary if
the assessor cannot demonstrate that he reviewed market rents at the time of the assessment”),
aff’d, 434 N.J. Super. 275, 279 (App. Div. 2014).
14 Thus, employing an imperfect assessment methodology, failing to personally inspect a
property, or declining to obtain an appraisal report does not result in a tax assessment being per se
arbitrary and capricious. Provided that the tax assessor has “reasonably determine[d]. . . the full
and fair value” of a property based upon “any information in [the assessor’s] possession or
available to [the assessor],” the local property tax assessment will generally withstand judicial
scrutiny under the content of a reasonableness hearing. N.J.S.A. 54:4-34.
Here, the record discloses that Robert J. Edgar, CTA began serving as defendant’s
municipal tax assessor in 2009. Mr. Edgar is a Certified Tax Assessor (“CTA”), and earned his
CTA designation in 1974. Mr. Edgar credibly testified that, in his role as municipal assessor, he
has become familiar with the subject property, and personally inspected the subject property in
2013, and again in January 2014.
Mr. Edgar’s testimony further revealed that on or about December 23, 2013, his office
received a letter from plaintiff’s counsel advising that subsequent to the October 1, 2013 valuation
date “the subject property and/or improvements have undergone significant alteration and
demolition, thereby reducing the usable square footage of the subject property.” Thus, pursuant
to N.J.S.A. 54:4-35.1, and prior to finalizing his 2014 tax year assessment roll, on or about
February 1, 2014, he reduced the subject property’s 2014 local property tax assessment by
approximately 14% to account for a corresponding reduction in the building area. According to
Mr. Edgar, in determining the subject property’s 2014 local property tax assessment he relied on
a November 5, 2013 analysis prepared by defendant’s appraiser. The appraiser’s analysis
considered the impact of demolition of portions of the improvements on the subject property
during the 2013 tax year.
15 Moreover, Mr. Edgar testified that the subject property’s 2015 tax year assessment was
ostensibly “a carryover from the 2014 [tax] assessment.” He credibly offered that based on his
review of his files and records, “there was no significant change in the property for which I would
need to change the assessment” from the 2014 to 2015 tax years. He further offered that
defendant’s building department provides his office with copies of building permits and
certificates of occupancy that are issued in the municipality during the preceding year. However,
he received no documents from the building department or from any other sources disclosing that
any structural alterations were undertaken on the subject property after the 2014 local property tax
assessment was finalized.
Additionally, in Mr. Edgar’s opinion, there were no material changes in the real estate
market, or in defendant’s Chapter 123 ratio, warranting an adjustment of the subject property’s
2015 local property tax assessment. Based on his review of the records and files in his office, Mr.
Edgar concluded that the subject property’s 2015 local property tax assessment was reasonable.
Here, plaintiff failed to demonstrate that the subject property experienced any material
changes following determination of the 2014 tax year assessment, and prior to setting the 2015 tax
year assessment that Mr. Edgar failed to consider. Additionally, plaintiff did not offer any
information that there was overwhelming market data on the valuation of corporate headquarter
campuses that Mr. Edgar ignored. Although Mr. Edgar’s action of carrying forward the subject
property’s 2014 tax year assessment to the 2015 tax year could be characterized as imperfect, the
record fails to disclose that Mr. Edgar acted in either an unreasonable, arbitrary, or capricious
manner in carrying out his duties or in arriving at the subject property’s 2015 tax assessment. As
Judge Menyuk keenly observed, the court is “unaware of any decision holding that the carrying
over of an assessment from one year to the next is per se unreasonable.” Waterside Villas
16 Holdings, LLC, 2012 N.J. Tax Unpub. LEXIS 22 (Tax 2012), aff’d, 434 N.J. Super. 275, 279
(App. Div. 2014).
Accordingly, for the foregoing reasons, the court concludes that plaintiff has failed to prove
that the subject property’s 2015 local property tax assessment was unreasonable and unrelated to
true value, or derived from a patently arbitrary and capricious methodology.
B. False or fraudulent account
In its motion, defendant maintained that plaintiff’s omission of the LGS Innovations
income from the 2012 Rental Income Report rendered the June 13, 2013 Response a knowing
misrepresentation. Additionally, defendant asserted that plaintiff’s June 13, 2013 Response
“intentionally misrepresent[ed] that the [subject] property is not income producing . . . by stating
that the property is not [sic] owner-occupied.” Thus, defendant argued that plaintiff’s June 13,
2013 Response was a “false or fraudulent account,” as such phrase was contemplated under
N.J.S.A. 54:4-34, necessitating dismissal of plaintiff’s 2014 Tax Appeal Complaint and 2014
Conversely, plaintiff advocated for the court to weigh and consider the taxpayer’s purpose,
intent, and objectives in furnishing a timely answer and documents responsive to defendant’s 2013
Chapter 91 Request, before concluding that it is a “false or fraudulent account” under N.J.S.A.
54:4-34.
By letter opinion dated September 8, 2016, this court evaluated the plain and express
language of Chapter 91, the generally accepted meaning ascribed to the statutory words, the intent
of our Legislature in enacting Chapter 91, and case law offering insight into the statutory text of
Chapter 91. Ultimately, the court concluded that in enacting Chapter 91 our Legislature did not
intend taxpayers to face the harsh appeal preclusion consequences when a timely, good faith
17 response to a Chapter 91 request was furnished, which may have mistakenly, inadvertently, or
unintentionally excluded, overstated, or understated income and expense information or property
information.
Therefore, the court concluded that by conducting a hearing, the court would be in the best
position to weigh and assess issues of credibility of the party offering the information and to
discern their purpose, intent, and/or motivation. Moreover, if following the hearing, the court
discerned that the taxpayer had unclean hands because its Chapter 91 response intentionally
excluded information known to the respondent, was designed to be misleading, or was deliberately
calculated to obtain an advantageous tax assessment, dismissal of the taxpayer’s appeal would be
warranted, subject to an Ocean Pines Ltd. reasonableness hearing. In contrast, if the court was
able to deduce from the evidence presented that the taxpayer timely furnished a good faith response
to a Chapter 91 request and accidentally, mistakenly, or inadvertently omitted information, and
timely rectified such omission; and said information was otherwise inconsequential in fixing the
local property tax assessment, the court can exercise its equitable powers and deny a municipality’s
motion to dismiss. Accordingly, the court set down the matter for a hearing on whether plaintiff’s
June 13, 2013 Response constituted a “false or fraudulent account” under Chapter 91.
During the hearing, testimony was offered by plaintiff’s former Senior Counsel, Real
Estate, Lewis Lefkowitz. Mr. Lefkowitz was the individual charged with preparing a response to
defendant’s 2013 Chapter 91 Request and signed the June 13, 2013 Response. As plaintiff’s Senior
Counsel, Real Estate, Mr. Lefkowitz was responsible for furnishing counsel and advice to plaintiff
involving the sale, lease, licensure, and disposition of all real property interests. Thus, Mr.
Lefkowitz was responsible for overseeing any licenses, leases, lease modifications, lease renewals,
and lease amendments involving the subject property.
18 Based on his approximately eleven years of service with plaintiff, Mr. Lefkowitz was
familiar with a taxpayer’s responsibility to furnish income and expense information in response to
a Chapter 91 request. Moreover, Mr. Lefkowitz credibly testified that he was aware a court could
impose penalties on a taxpayer for failing to timely furnish a response, or for offering a response
that was false or fraudulent. Admittedly, in preparing his June 13, 2013 Response, Mr. Lefkowitz
did not conduct any independent investigation to verify the accuracy of the 2012 Rental Income
Report. Instead, Mr. Lefkowitz asked a representative of plaintiff’s real estate department to
furnish him with a list of the income received from all third-party occupants on the subject property
during the 2012 calendar year and relied on that representative’s diligence.
Mr. Lefkowitz acknowledged that the 2012 Rental Income Report did not include the
income paid to plaintiff by LGS Innovations, its wholly owned subsidiary. Mr. Lefkowitz
explained that LGS Innovations was originally known as Lucent’s Government Services unit,
handling contracts between Lucent Technologies, Inc. and the United States government.
However, when Lucent Technologies, Inc. merged with French company Alcatel in 2006, as a
condition of the merger, the United States government required that those government contracts
be maintained by a separate, wholly owned subsidiary of plaintiff, LGS Innovations.
According to Mr. Lefkowitz, although he was readily aware that LGS Innovations
exclusively occupied a portion of the subject property, he:
purposefully excluded LGS [from the 2012 Rental Income Report] because they were a wholly owned subsidiary, it would have been misleading to include them, because at the Alcatel-Lucent level it was a wash, the subsidiary was paying rent to the parent but at the parent level it was a wash because its an expense for the subsidiary that’s carried up to the parent . . . so it’s the left pocket paying the right pocket, there was no income whatsoever to Alcaltel-Lucent Inc. (emphasis added)
19 And furthermore, . . . each division, each unit of Alcatel-Lucent got charged back for occupying space in the property . . . and we were doing the same thing for LGS, we just formalized it, so there was no difference in my mind . . . since they were all units or subsidiaries of Alcatel-Lucent USA Inc. and it was all a wash at the property owner level, which was the one responding to this [Chapter 91] inquiry.
Mr. Lefkowitz offered that he intended his June 13, 2013 Response to be “truthful” and “as
complete and accurate as possible. . . .” In his opinion, it would have been inaccurate and
misleading to include the fees paid by LGS Innovations to plaintiff on the 2012 Rental Income
Report because it was a payment made by a wholly-owned subsidiary of Alcatel-Lucent, Inc., and
not arms-length rental income. In Mr. Lefkowitz’s estimation, because the amounts paid by LGS
Innovations to plaintiff were the functional equivalent of plaintiff assessing a chargeback to other
units or divisions for occupying space in the subject property, no income was actually being
realized by plaintiff.
Testimony was also elicited during the hearing from Robert J. Edgar, CTA, defendant’s
municipal tax assessor. Mr. Edgar testified that he received and reviewed Mr. Lefkowitz’s June
13, 2013 letter and attachments in response to his 2013 Chapter 91 Request. However, in Mr.
Edgar’s opinion, the June 13, 2013 Response was not “terribly relevant” to establishing the market
value of the subject property for the 2014 tax year. Mr. Edgar did not rely on, nor consider the
June 13, 2013 Response material in establishing the assessed value of the subject property for the
2014 tax year. In Mr. Edgar’s opinion, because LGS Innovations was occupying only a small
percentage of the subject property, he would not have given its ascribed rental rate much weight
in determining the 2014 local property tax assessment on the subject property.
Admittedly, Mr. Edgar did not perform an income capitalization approach to arrive at an
estimated market value for the subject property for the 2014 tax year. Thus, he did not rely on any
20 of the information reported on plaintiff’s 2012 Rental Income Report in fixing the subject
property’s 2014 local property tax assessment. Instead, Mr. Edgar offered that the 2014 local
property tax assessment was carried forward from the 2013 local property tax assessment, and
adjusted downward to account for demolition of a portion of the improvements on the subject
property, based on the recommendations of defendant’s appraiser.
However, Mr. Edgar explained that despite his conclusion that the 2012 Rental Income
Report was not material in fixing the subject property’s 2014 local property tax assessment, he
nevertheless regularly uses information disclosed in response to Chapter 91 requests to assist him
in fixing other local property tax assessments in the municipality.
As previously stated, Chapter 91 was enacted in response to concerns that property owners
were “‘not subject to any penalty for not disclosing property income information.’” Lucent
Technologies, Inc., 201 N.J. at 246 (quoting Senate Revenue, Finance and Appropriations
Committee, Statement to Senate Bill No. 309 (January 26, 1978)). To address what was perceived
as “shortcomings,” N.J.S.A. 54:4-34 was amended to impose “the obligation [on a taxpayer] to
respond within forty-five days” to a request for property income and expense information. Id. at
247.
Thus, a goal of Chapter 91 was to afford municipal tax assessors access to financial
information thereby permitting them to reasonably arrive at a fair assessment, thereby potentially
“avoid[ing] unnecessary expense, time and effort” which may result in any ensuing local property
tax appeal litigation. Ocean Pines, Ltd., 112 N.J. at 7 (quoting Terrace View Gardens, 5 N.J. Tax
at 474-75). Hence, Chapter 91 exemplifies fundamental public policy purposes of ensuring
uniformity in tax assessments and an equal sharing of the tax burden by “having assessors
formulate assessments by using information from the ‘best available source,’ the property owner.”
21 Tower Center Associates, 286 N.J. Super. at 438 (quoting Terrace View Gardens, 5 N.J. Tax at
472).
However, for Chapter 91 to have any meaningful impact on the accurate formulation of
local property tax assessments, taxpayers must timely, and accurately, adhere to the information
disclosure requirements. When the taxpayer has failed to timely furnish a response to a valid
Chapter 91 request, or has furnished a response that is a false or fraudulent account, Chapter 91
affords our trial courts the authority to dismiss the taxpayer’s cause of action, subject to the right
to a reasonableness hearing. N.J.S.A. 54:4-34; Ocean Pines, Ltd., 112 N.J. at 11.
Here, testimony was elicited from taxpayer’s representative that he “purposefully
excluded” the sums paid by LGS Innovations because it was “a wholly owned subsidiary,” and in
his opinion, “it would have been misleading to include them. . . .” Although taxpayer’s
representative knew that penalties could be imposed for failing to timely furnish a response, or for
offering a response that was a “false or fraudulent account,” he nonetheless intentionally and
purposefully excluded certain income information from the 2012 Rental Income Report. In his
opinion, disclosure of the amounts paid by LGS Innovations to occupy a portion of the subject
property would be an inaccurate representation of income, because they were the functional
equivalent of chargebacks, similarly assessed against other units or divisions of plaintiff.
However, the willful or intentional exclusion of income or expense information by a
taxpayer offends the fundamental goals and purposes sought to be achieved by Chapter 91. As
stated above, the essence of Chapter 91 is to provide a mechanism for tax assessors to evaluate a
property’s economic records in order to arrive at a fair tax assessment, thereby avoiding potentially
costly tax appeal litigation. Regardless of the taxpayer’s motivations in refusing to furnish
information, a response that purposefully or intentionally excludes income information known to
22 the taxpayer or its representative renders the response a “false or fraudulent account” under
N.J.S.A. 54:4-34. The court cannot condone the purposeful or knowing omission of rental income
information about an income-producing property.
Despite Mr. Lefkowitz’s opinion or belief that disclosure of the payments made by LGS
Innovations to plaintiff would be misleading because they involved inter-company transfers, he
nevertheless bore a duty to disclose such information to defendant. The taxpayer must disclose all
income and expense information responsive to a valid and timely Chapter 91 request and permit
the tax assessor to gauge what weight to accord such information. Although the ownership of real
property by one entity and concomitant leasing of that property to a related entity “may reduce the
usefulness of the income accounting required by the statute . . . some or all of it may have utility,
and it is up to the assessor and not the taxpayer to decide whether to consider the information
furnished.” SKG Realty Corp., 8 N.J. Tax 209, 211 (App. Div. 1985). Here, by intentionally and
purposefully excluding the payments made by LGS Innovations to plaintiff from the 2012 Rental
Income Report, Mr. Lefkowitz deprived defendant’s tax assessor of the opportunity to evaluate all
of the income information before determining the subject property’s 2014 local property tax
assessment.
Although Mr. Edgar acknowledged that he accorded the 2012 Rental Income Report little
weight, the taxpayer cannot act as a filter of financial information, determining what material is,
and is not, probative in discerning the local property tax assessment. Tax assessors bear the
constitutional duty and statutory obligation to determine the full and fair value of each property,
as of October 1 of the pre-tax year, consistent with the purpose of securing a uniform standard of
value of all property within the taxing district. See N.J. Const. art. VIII, § 1, ¶ 1(a); N.J.S.A. 54:4-
23. The goal of Chapter 91 is to provide tax assessors with access to information to fulfill these
23 obligations. “The purpose of N.J.S.A. 54:4-34 is to assist the assessor, in the first instance, to
make the assessment and thereby hopefully to avoid unnecessary expense, time and effort in
litigation.” Terrace View Gardens, 5 N.J. Tax 471-472.
Here, the taxpayer “purposefully excluded” payments made by LGS Innovations to
plaintiff from the June 13, 2013 Response to defendant’s 2013 Chapter 91 Request. Said knowing
and intentional conduct does not amount to a mistaken or inadvertent submission of false or
incorrect information. Moreover, it does not comprise a response, made in good faith, to a Chapter
91 request that inadvertently excluded, overstated, or understated property or income and expense
information. Although the record before the court does not reveal that plaintiff’s response was
deliberately designed to deceive defendant, the intentional omission of the payments by LGS
Innovations to plaintiff from the June 13, 2013 Response was planned, purposeful, and intentional
and therefore, constituted a “false or fraudulent account” under N.J.S.A. 54:4-34.
Accordingly, the court grants defendant’s motions to dismiss plaintiff’s 2014 Tax Appeal
Complaint and 2014 Farmland Assessment Complaint, subject to plaintiff’s right to a
reasonableness hearing pursuant to Ocean Pines, Ltd.
III.Conclusion For the foregoing reasons, defendant’s motions to dismiss plaintiff’s 2014 Tax Appeal
Complaint and 2014 Farmland Assessment Complaint are granted, subject to a reasonableness
hearing. Orders reflecting this opinion will be simultaneously entered herewith.
Very truly yours,
/s/Hon. Joshua D. Novin, J.T.C.