On appeal from Division of Tax Appeals, Department of the Treasury.
For reversal -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For affirmance -- None. The opinion of the court was delivered by Brennan, Jr., J. Vanderbilt, C.J. (concurring). Vanderbilt, C.J., and Heher, J., concurring in result.
The City of Passaic appeals from the dismissal by the Division of Tax Appeals of its complaint under R.S. 54:2-37 seeking review, and the correction and revision, of the 1954 equalization table adopted by the Passaic County Board of Taxation.
The taxing scheme for the just apportionment of county taxes among the several municipalities of the county aims at the adjustment to the same relative standard of value of the aggregate sums of real estate ratables reported by the local assessors, and the fixing of each municipality's contribution to the county tax burden in the ratio of its adjusted aggregate to the total of adjusted aggregates. Borough of Totowa v. Passaic County Board of Taxation, 5 N.J. 454 (1950); 3 Cooley, Taxation (4 th ed. 1924), sec. 1195, pp. 2390 et seq. The process does not result in any change in the individual assessments making up an aggregate; in that sense the adjustment of the total figure is artificial and is made solely for the purpose of assuring so far as possible that no municipality shall avoid or escape from its fair share of the common burden. An increase or decrease of the aggregate of any municipality simply alters the percentage shares of the county tax to be paid by all the municipalities of the county.
In the instant case the Passaic County Tax Board adopted without change the aggregate sums of the real estate assessments shown on the 1954 duplicates of 15 of the 16 taxing districts of the county. The only change was in the aggregate of $69,398,825 shown on the duplicate of the City of Passaic. That figure was increased $7,900,273, to $77,299,098, and resulted in an increase of the same amount in the total of all aggregates from $451,885,617 to $459,785,890.
The result was to raise the City of Passaic's percentage share of county taxes from 15.36% to 16.81% and to reduce the percentage shares of the other 15 municipalities. As no change in individual assessments resulted, the increased sum was reflected in a higher tax rate for the City of Passaic and in lower tax rates in the other taxing districts.
The system of equalizing percentage shares by bringing the aggregates as near as may be to the same relative standard of true value is the expedient followed historically by the Legislature in face of the chronic failure of local assessors to assess property at a uniform standard of value. There has been general agreement for over a century that individual property valuations and assessments have been and are marred by the grossest inequities. See Report of the Commission to Investigate Tax Assessments (1912), appointed by Joint Resolution No. 7, L. 1912, p. 946; Report of the New Jersey Commission on Tax Law Revision (1939), created L. 1938, c. 95, p. 214; The Revenue System of New Jersey, Report No. 6 of the Commission to Investigate County and Municipal Taxation and Expenditures (1932); The General Property Tax in New Jersey, Sixth Report of The Commission on State Tax Policy (1953), authorized by Joint Resolution No. 8, L. 1952, p. 1176. Governor Woodrow Wilson in 1911 succinctly summarized the consensus in words adopted by Governor Driscoll as true today in his inaugural address of January 21, 1947:
"There is an uneasy feeling throughout the state, in which, I dare say, we all share, that there are glaring irregularities in our system -- or, at any rate, in our practice -- of taxation. The most general complaint is, that there is great irregularity as between individuals and corporations. I do not see how anyone can determine whether there are or not, for we have absolutely no uniform system of assessment. It would seem that in every locality there is some local variety of practice, in the rate, the ratio of assessment value to market value, and that every assessor is a law unto himself. Our whole system of taxation, which is no system at all, needs overhauling from top to bottom." Sixth Report, supra, p. ix (1953).
And not only have inequities between individual assessments in the same municipality long persisted, but local assessment practices have tended to keep down the percentage of true value of all assessments therein, with the result that there is a considerable variation in the average assessment ratios as between different taxing districts. The following comments from the 1912 report cited, confirmed in the 1953 State Tax Policy Commission report as also the current practice, attribute this practice to an open effort to minimize the municipality's percentage of tax burdens shared with other municipalities:
"There is a continual pressure upon the local assessor, especially where he is an elected official, to keep down the valuations in order to reduce the share of the county and state tax paid by his district." Report, supra, p. 18.
"The elected assessor, and even the appointed assessor, is under constant pressure to keep down the valuations in his district so as to reduce its share of county and state school tax. Even though he may try to equalize between individuals in his district, he has no inducement save pressure from the county board to increase his ratio of valuation so as to be on a par with other districts in the county. The local pressure is all the other way. Many assessors have freely admitted at the hearings that they refrained from raising valuations because they had no assurance that the other districts in the county would raise theirs, and they did not want their district to suffer." Ibid., at p. 21.
True parity of the aggregates of the several municipalities cannot really be achieved without elimination of the inequities among individual assessments within all municipalities of the county. Quoting again from the 1912 report, --
"Some districts are assessing on what is termed a 40 per cent. basis; many at 50 or 60 per cent.; a few at 80 per cent. to 90 per cent. When such differences exist in any one county (as they do), it is obvious that the people of some districts are paying more than their share of county tax.
But this percentage basis does not mean or guarantee that every individual in the district will be placed on the same basis as his neighbor. While a district may average 50 per cent., some properties or classes of property may be assessed at 40 per cent. of value and others at 70 or 80 per cent." at p. 25.
And the State Tax Policy Commission report states, --
"Average assessment ratios are at best only estimates of the assessment experiences for individual properties which may or may not vary widely in individual cases. Even the most accurate average suggests a uniformity of experience within taxing districts which does not exist. It is in the nature and extent of variations in assessment ratios among individual properties which spell out the real estate tax environment in the State. These variations are serious and widespread. Their elimination is basic to the achievement of an equitable tax structure." Sixth Report, p. xxiv.
But the aggregates which are equalized in the apportioning of county taxes (presently there are no state or state school taxes raised from assessments of property) are only the aggregates of assessments against real estate. The process does not draw in the assessments or the aggregates thereof against personal property or second-class railroad property. Too, as mentioned, the increase or decrease of an aggregate of real estate assessments does not result in the change of any individual real estate assessment included in it. We have therefore been required to conclude in an earlier case that the Legislature did not intend that the duty of the county boards of taxation under N.J.S.A. 54:4-47 to revise, correct and equalize the individual personal and real property assessments shown on the several duplicates was requisite to the process of equalizing the aggregates of real estate ratables,
"* * * the Legislature intended to have the aggregate method provide for an equalization of real property valuations as among taxing districts solely for the purpose of apportioning to each district its fair share of the county tax burden and to have the individual assessment method provide the only basis for equalizing the county and local tax burden as among individual property owners, whether holders of real, second-class railroad, or personal property, within the same taxing district." Borough of Totowa v. Passaic County Board of Taxation, supra, 5 N.J., at page 463.
We thus are not concerned in this case with the remedies of individual taxpayers from discriminatory assessment of their property, a matter dealt with in Baldwin Construction Co. v. Essex County Board of Taxation, 16 N.J. 329 (1954).
Imperfect as equalization of aggregates of real estate assessments is, the county and state agencies have the duty so to administer the equalization of aggregates process as best to secure the fair distribution of tax burdens common to municipalities; or, stated conversely, the duty is to minimize so far as possible the unfair distribution of the county tax which is one result of varying average assessment ratios among municipalities within the same county. When the standard of assessment was "full and actual value thereof," L. 1866, c. 487, p. 1079, the former Supreme Court held that the duty of the agency in utilizing the aggregate method was "to ascertain approximately, not accurately, the relative valuations, so that no apparent injustice will be done to any one [taxing district]." State, Weehawken Twp., Pros., v. Roe, 36 N.J.L. 86 (Sup. Ct. 1872). And this court has said:
"It is well recognized that absolute equality in taxation is a practical impossibility and that the Legislature in setting up tax procedures is not held to a standard of perfection." Borough of Totowa v. Passaic County Board of Taxation, supra, 5 N.J., at page 464.
Report No. 6 of the 1932 Commission, supra, at p. 78, cogently observed that there will be "a closer approach to equitable taxation, if greater emphasis is put upon the assessment of property at full value than if this is neglected and the results are corrected by elaborate equalizing devices." The 1953 Sixth Report of the State Tax Policy Commission echoes this, at p. 141:
"The assessors' experience everywhere has proved that supervision or any other device cannot substitute for a good original assessment by the local assessor. * * *. * * * everyone has recognized that this costly and sometimes disappointing procedure [equalization of aggregates] cannot substitute for competent and effective local assessors who give continuous attention from year to year to the problem of equality of taxation."
It thus appears that equalization by the aggregate method is at best a substitute for local assessments at true value,
adopted for the express purpose of defeating the results of competitive undervaluation. The extent to which it achieves its ends is necessarily dependent upon the precision with which the average assessment ratios reflect the average degree of undervaluation.
The equalization of aggregates method has been a feature of our tax laws for 156 years. It first appeared in the Act of June 10, 1799; Paterson's Laws, p. 404 (rev. ed. 1800), which required the local assessors as a body to meet annually and by majority vote determine reasonable and just aggregate valuations for all townships and to fix the proportionate shares of state taxes accordingly. On occasions, particularly during the 19th Century, the Legislature has undertaken to make its own apportionment. There are statutes on the books which levy sums to be raised by taxes upon property and fix the amount of the contribution to be made by each county and the rate to be applied by the local ...