Infinite Engineering Solutions, LLC v. Washington Borough

• Court: New Jersey Tax Court
• Decided: October 27, 2021
• Docket: 013509-2020
• Status: Unpublished

Opinion

TAX COURT OF NEW JERSEY JOSHUA D. NOVIN Dr. Martin Luther King, Jr. Justice Building Judge 495 Dr. Martin Luther King, Jr. Blvd., 4th Floor Newark, New Jersey 07102 Tel: (609) 815-2922, Ext. 54680

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS

October 26, 2021

Michael W. C. Fourte, Esq. 212 Pompton Avenue Verona, New Jersey 07044

Richard Conley, Esq. 100 Belvidere Avenue Washington, New Jersey 07882

Re: Infinite Engineering Solutions, LLC v. Washington Borough Docket Nos. 013509-2020

Dear Mr. Fourte and Mr. Conley:

This letter constitutes the court’s opinion following trial of the above local property tax

appeal. Infinite Engineering Solutions, LLC (“plaintiff”) challenges the 2020 local property tax

assessment on its mixed-use building located in Washington Borough (“Washington”).

For the reasons stated more fully below, the court affirms the 2020 local property tax

assessment.

I. Procedural History and Findings of Fact

Pursuant to R. 1:7-4, the court makes the following findings of fact and conclusions of law

based on the evidence and testimony offered at trial.

Plaintiff is the owner of the three-story mixed-use building located at 28-30 East

Washington Avenue, Washington Borough, Warren County, New Jersey. The property is

identified on Washington’s municipal tax map as Block 24, Lot 28 (the “subject property”). For

the 2020 tax year, the subject property was assessed as follows:

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Land: $ 12,000 Improvement: $212,000 Total: $224,0001

Plaintiff filed a Petition of Appeal (“Petition of Appeal”) with the Warren County Board

of Taxation (the “Board”), challenging the subject property’s 2020 local property tax assessment.

On October 28, 2020, the Board issued a Memorandum of Judgment affirming the 2020 tax

assessment and bearing judgment code 2B, “Presumption of correctness not overturned” (the

“Judgment”).

On December 23, 2020, plaintiff filed a Complaint with the Tax Court challenging the

Board’s Judgment.

At the outset of trial, Washington moved for dismissal of plaintiff’s Complaint, arguing

that no appraisal report was submitted and objecting to any testimony from plaintiff’s managing

member, Amgad Khalil, regarding the subject property’s sale. The court denied Washington’s

motion and placed a statement of reasons on the record.

During trial, Mr. Khalil offered testimony that plaintiff acquired the subject property and a

nearby mixed-use building at 14-16 East Washington Avenue, Washington, New Jersey (“14-16

East Washington Avenue”), on or about October 22, 2019. Mr. Khalil stated during trial that a

single Deed, reporting the total consideration paid for the two properties of $300,000, was recorded

in the Warren County Clerk’s Office.2

1 Washington’s average ratio of assessed to true value, commonly referred to as the Chapter 123 ratio, was 82.32% for the 2020 tax year. See N.J.S.A. 54:1-35a(a). When the average ratio is applied to the subject property’s 2020 tax assessment, the implied equalized value of the property is $272,109. 2 A copy of the Deed was not introduced during trial.

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According to Mr. Khalil, the subject property consists of a ground-floor commercial unit

and four apartments located above. Similarly, 14-16 East Washington Avenue also has a ground-

floor commercial unit; however, it contains only two apartments above. Mr. Khalil stated that 14-

16 East Washington Avenue’s commercial unit is approximately twenty percent smaller than the

subject property’s commercial unit. Mr. Khalil further offered that 14-16 East Washington

Avenue’s apartments are larger than the subject property’s apartments; however, Mr. Khalil was

unfamiliar with their square footage and could not offer precise testimony as to the size variations.

Mr. Khalil testified that he is an experienced investor, having purchased dozens of other

properties and having formerly been a New Jersey licensed real estate salesperson. He initially

saw the subject property and 14-16 East Washington Avenue’s listings on LoopNet and a multiple

listing service and then contacted the listing broker about the properties.3 4 Mr. Khalil expressed

that his purchase of the subject property and 14-16 East Washington Avenue was an arms-length

transaction, as the properties had been listed for sale for more than three hundred days.

During trial, Mr. Khalil identified the Contract for Sale of Real Estate he executed on

plaintiff’s behalf with Etienne Properties LLC (the “seller”) in or about August 2019 for the subject

property and 14-16 East Washington Avenue. Additionally, Mr. Khalil identified a Rider to

Contract executed between plaintiff and seller in or about August 2019. Mr. Khalil testified that

under the Rider, the seller requested that the parties allocate the $300,000 purchase price as

follows: (i) $155,000 to the subject property; and (ii) $145,000 to 14-16 East Washington Avenue.

However, Mr. Khalil could not explain and did not know how the allocation was arrived at.

3 Plaintiff submitted a copy of the subject property’s listing from the ColdwellBankerHomes.com website. A copy of 14-16 East Washington Avenue’s listing was not furnished to the court. 4 Mr. Khalil offered conflicting testimony during trial whether one real estate salesperson was involved in the transaction or two real estate salespersons were involved in the transaction.

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According to Mr. Khalil, “this was a request from the seller, and I do not know . . . his rationale,

to me at the end of the day, the mean price did not change, but he preferred the breakdown to be

as such, actually, I should have thought about it a little bit more, . . . but we accepted the $155,000

for the 28-30.” Moreover, Mr. Khalil testified that he did not obtain appraisal reports for either

the subject property or 14-16 East Washington Avenue prior to his purchase to determine the

accuracy of the purchase price allocation. Rather, Mr. Khalil surmised that maybe the size

difference between the two commercial units was “why [seller] priced it as such.”

In addition, questioning by the court revealed that the subject property was apparently

offered for sale on the ColdwellBankerHomes.com website for $125,000, however, Mr. Khalil was

unsure why the purchase price allocated to the subject property was $155,000. Additionally, Mr.

Khalil could not recall the listing price for 14-16 East Washington Avenue. Importantly, Mr.

Khalil did not know whether the seller had a mortgage either on the subject property or 14-16 East

Washington Avenue; whether the seller had to obtain the approval of any mortgage lender; and

whether the seller was under duress and had to sell the subject property and/or 14-16 East

Washington Avenue.5

II. Conclusions of Law

As construed by applicable case law, a presumption of validity attaches to original tax

assessments and county board of taxation judgments. MSGW Real Estate Fund, LLC v. Borough

of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998); Riverview Gardens, Section One, Inc. v.

North Arlington, 9 N.J. 167, 174-175 (1952); Aetna Life Insurance Co. v. Newark City, 10 N.J.

5 Plaintiff did not submit a copy of the Seller’s Residency Certification/Exemption, form GIT/REP-3 or the HUD-1 Settlement Statement from the closing of the subject property and 14- 16 East Washington Avenue to enable the court to possibly ascertain if the sale was under duress or if the sale was a short sale transaction.

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99, 105 (1952); Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985). 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.” Pantasote Co., 100 N.J. at 413 (citing

Riverview Gardens v. North Arlington Borough, 9 N.J. 167, 174 (1952)). The presumption

remains intact “even if the municipality utilized a flawed valuation methodology, so long as the

quantum of the assessment is not so far removed from the true value of the property or the method

of assessment itself is so patently defective as to justify removal of the presumption of validity.”

Transcontinental Gas Pipe Line Corp. v. Bernards Twp., 111 N.J. 507, 517 (1988).

However, the presumption is not an evidentiary device functioning “as a mechanism to

allocate the burden of proof. It is, rather, 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 Co., 100 N.J. at 413 (quoting Powder Mill, I Assocs. v. Hamilton Twp., 3 N.J.

Tax 439 (Tax 1981)). The evidence presented must be “based on sound theory and objective data,

rather than on mere wishful thinking.” MSGW Real Estate Fund, LLC, 18 N.J. Tax at 376. A

litigant can only surmount the presumption by introducing “cogent evidence” of true value. That

is, evidence “definite, positive and certain in quality and quantity to overcome the presumption.”

Aetna Life Insurance Co., 10 N.J. 99, 105 (1952). Thus, the appealing party shoulders the burden

of presenting the court with credible evidence “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 Properties, Inc. v. City of Jersey City, 18 N.J. Tax 405, 408 (Tax 1999), aff’d, 18

N.J. Tax 658 (App. Div. 2000), certif. denied, 165 N.J. 488 (2000)).

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In the absence of a motion for judgment or involuntary dismissal, under R. 4:37-2(b), the

court must nevertheless first decide whether the presumption of validity has been overcome before

engaging in an evaluation and analysis of the evidence. MSGW Real Estate Fund, LLC, 18 N.J.

Tax at 377. Only after the court has concluded that the presumption of validity has been “overcome

with sufficient evidence . . . must the court ‘appraise the testimony, make a determination of true

value and fix the assessment’” based on a fair preponderance of the evidence. Greenblatt v.

Englewood City, 26 N.J. Tax 41, 52 (Tax 2011) (quoting Rodwood Gardens, Inc. v. City of

Summit, 188 N.J. Super. 34, 38-39 (App. Div. 1982)). If the court concludes the presumption of

validity has not been overcome, in the absence of a counterclaim, the assessment must be affirmed,

and the court need not make an independent determination of value. Ford Motor Co. v. Edison

Twp., 127 N.J. 290, 312 (1992); Global Terminal & Container Serv. v. City of Jersey City, 15 N.J.

Tax 698, 703-704 (App. Div. 1996).

The inquiry, under R. 4:40-1, requires the trial court to “accept as true all the evidence

which supports the position of the party defending against the motion and accord him the benefit

of all inferences which can reasonably and legitimately be deduced therefrom.” Estate of Roach

v. TRW, Inc., 164 N.J. 598, 612 (2000) (quoting Dolson v. Anastasia, 55 N.J. 2, 5-6 (1969))

(citations and quotations omitted from original). In resolving such issue, the court must view the

evidence presented as “uncontradicted” and accord the non-moving party the “benefit of all

legitimate inferences” which can be deduced therefrom. Verdicchio v. Ricca, 179 N.J. 1, 30-32

(2004). See also MSGW Real Estate Fund, LLC, 18 N.J. Tax at 376. Thus, the decision of the

trial court turns upon an evaluation of the evidence presented.

Here, Mr. Khalil offered credible testimony that he acquired the subject property and 14-

16 East Washington Avenue for $300,000 consideration on or about October 22, 2019. Moreover,

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the court finds credible his testimony that only one Deed for both properties was delivered to him

and recorded in the Warren County Clerk’s Office.

However, plaintiff submits that the court should accept the purchase price allocated by the

seller under the Contract for Sale of Real Estate as evidence of the subject property’s true or fair

market value. Notably, Mr. Khalil admitted on the record that this allocation was made entirely

by the seller and that plaintiff made no independent investigation of the seller’s legal basis,

rationale, or justification for this allocation. Additionally, plaintiff did not engage an appraiser to

test the accuracy of the purchase price allocation in the marketplace. Rather, Mr. Khalil was

unconcerned with how the purchase price was allocated under the Rider to the Contract, provided

that the overall sales price for both properties remained fixed at $300,000. Other than the joint

sale of the subject property and 14-16 East Washington Avenue, plaintiff offered no other evidence

of comparable mixed-use property sales as of the October 1, 2019 valuation date.

As stated above, before weighing the testimony and determining a property’s true or fair

market value, the appealing party must have first presented the court with credible evidence

“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, 20

N.J. Tax at 579 (quoting Lenal Properties, Inc., 18 N.J. Tax at 408). However, in the absence of

credible evidence of value, the assessment must be affirmed, and the court need not endeavor to

determine a property’s true value.

In the court’s journey to determine a property’s true value for tax assessment purposes, the

focus of the inquiry is “the fair value of the property, the price a willing buyer would pay a willing

seller.” New Brunswick v. State of N.J. Div. of Tax Appeals, 39 N.J. 537, 543 (1963). The term

market value has been defined as:

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the most probable price, as of a specified date, in cash or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

[Appraisal Institute, The Appraisal of Real Estate 58 (14th ed. 2013).]

Thus, although the sale of property is indicative of an exchange of consideration between

parties, it may not be dispositive on the issue of true or fair market value. As expressed by our

Supreme Court, “[t]here may be instances when the sale price may not reflect true market value.

In such instances it is for the court to appraise the circumstances surrounding a sale to determine

if there were special factors which affected the sale price without affecting the true value.” Glen

Wall Associates v. Wall Twp., 99 N.J. 265, 282 (1985). For the sale of a property to be a

trustworthy and reliable indicator of fair market value, the following criteria must be met:

1) buyer and seller are typically motivated, and neither is under duress; 2) buyer and seller are well informed or well advised and are acting prudently, knowledgeably and in their respective self-interests; 3) the property has been reasonably exposed to an open, relevant and competitive market for a reasonable period of time; 4) the purchase price is paid in cash or its equivalent; and 5) the purchase price is unaffected by special or creative financing or by other special factors, agreements, or considerations.

See Venture 17, LLC v. Borough of Hasbrouck Heights, 27 N.J. Tax 108, 126 (Tax 2013); Hull

Junction Holding Corp. v. Borough of Princeton, 16 N.J. Tax 68, 94 (Tax 1996)).

Here, although the court finds credible Mr. Khalil’s testimony that the subject property and

14-16 East Washington Avenue were listed for sale and marketed on a multiple listing service, that

is not the sole measure by which the court determines the true value of a property under appeal.

Plaintiff lacked any knowledge and offered no evidence that the seller was typically motivated,

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acting prudently, and not suffering from any duress. Admittedly, Mr. Khalil did not know whether

the seller had any mortgages on the subject property or on 14-16 East Washington Avenue.

Moreover, Mr. Khalil did not know whether this transaction was a short sale, requiring the seller

to obtain the approval of its lender, or whether the seller was under duress and had to sell the

subject properties. Most importantly, the allocated purchase price was seemingly arrived at

capriciously and arbitrarily, without consideration of the subject property’s actual true or fair

market value. For example, the seller could have been unusually motivated to minimize its tax

burden associated with the sale by allocating a lower portion of the purchase price to the subject

property and a higher portion of the purchase price to 14-16 East Washington Avenue.

However, regardless of the seller’s alleged motivations, the record is clear that the purchase

price allocation was not arrived through arms-length negotiations between plaintiff and the seller

based on market data, nor was it independently verified with an appraiser. In sum, the court

concludes that insufficient evidence exists in the trial record to enable the court to determine the

true or fair market value of the subject property, thereby establishing the existence of a debatable

question as to the correctness of the subject property’s assessment.

Accordingly, the court concludes that plaintiff has failed to overcome the presumption of

validity that attaches to the subject property’s local property tax assessment. Plaintiff has failed

to prove, by a fair preponderance of the evidence, that the subject property’s 2020 local property

tax assessment exceeds its true market value. Therefore, the court shall enter judgment affirming

the 2020 assessment.

Very truly yours,

Hon. Joshua D. Novin, J.T.C.

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