There are many factors that will determine whether your property tax appeal has a legitimate chance of success. Of course, the most important, is providing relevant proof that your property’s market value is in fact less than the assessed value. Many people however are unaware that just proving your property value is lower than the assessed value may not be enough. New Jersey’s statutes provide that to prevail on a property tax appeal, a taxpayer must prove that the property value is more than 15% below the “common level range.” This is commonly referred to as a municipality’s “safe harbor” rule. To understand the safe harbor rule, you must first understand a Director’s Ratio.
Each year, sales of a town are analyzed as compared to the last time the town underwent a revaluation or reassessment. The revaluation year presumes that values assigned in that year reflect 100% of each property’s true value. Revaluations are expensive and time consuming and as a result are generally not performed all that frequently. In years following a revaluation, the State recognizes that market valuations fluctuate and that, therefore, the assessment may not necessarily reflect 100% of true value. To test this, the State analyzes the sales data from a town and then establishes a number that is intended to approximate the percentage that the town’s real property values have gained or lost to the marketplace. So if a town is recognized as having gained 20% of property value, its percentage is shown as 80% on the table published by the State. This means that your assessed value represents only 80% of the presumed true market value of your property. These ratios are known as the Director’s Ratio and can be found here. For a more in-depth explanation of the Director’s Ratio, please watch the video below:
The safe harbor provided to a town allows that nothing in appraisals is an exact science. Moreover, towns rely on stable property value tables to establish budgets and collect taxes. Without an acceptable range of error, towns would be besieged by constant appeals and would play a continual guessing game as to anticipated receipts. The statutes then provide a 15% range of error to help reduce successful appeals and give more certainty to the budgeting process. This 15% is in fact applied to the Director’s Ratio figure. So an 80% ratio is said to have an upper level of the common level range of 92%. (80 x 15% = 92).
For example, if your property is assessed at $1,000,000 with an 80% ratio it has a presumed true value of $1,250,000. However, to establish a winning tax appeal, you must provide evidence that your property value is less than value found by dividing the upper level of the range, i.e., 92% into the assessed value, or in other words, as applied to this example, less than $1,086,956. So even if you can prove that your property is worth only $1,100,000 and in fact $150,000 less than the presumed true value of $1,250,000, the Judge is required to uphold the assessment and you lose your case.
The safe harbor rule is one of the factors an experienced property tax attorney will take into consideration in evaluating the merits of your case. There are of course instances in which the safe harbor rule does not apply such as a revaluation or reassessment year or in those towns where the Director’s Ratio exceeds 100%.
Mark K. Follender is a Partner at Scarinci Hollenbeck and chair of the firm’s Real Property Tax Appeals Group, which represents private commercial property owners and municipalities throughout the State of New Jersey. Feel free to contact Mark Follender, if you would like to discuss your property tax appeal options or have questions about the article above.