Goldmann, Freund and Haneman. The opinion of the court was delivered by Goldmann, S.j.a.d.
This is a companion appeal to Passaic v. Gera Mills et al. , 55 N.J. Super. 73, decided this day.
The City of Passaic appeals from judgments of the Division of Tax Appeals ("Division") dismissing its appeals from judgments of the Passaic County Board of Taxation reducing the 1954 and 1957 assessments on real property owned by respondent Passaic Pioneer Properties Co. ("taxpayer") on Eighth Street, Passaic, and affirming those judgments. The property consisted of a 7.82-acre tract on which there were located 59 building units, most of them 40 to 60 years old. One building, and portions of three others, had been built within the past decade. The buildings were in generally fair or poor condition, and there was considerable evidence of deferred maintenance. The property had originally been a paper mill; for the tax years in question it was used as an industrial terminal, tenanted by many different industries.
The local assessment on the land in both 1954 and 1957 was $37,550, reduced by the county tax board to $31,280. The city assessed the improvements in 1954 at $410,200, and in 1957 at $411,700. The county board reduced these assessments to $287,450 in each year. The Division affirmed the county board's action.
The local assessments were the result of the revaluation program undertaken by the city in 1953 through the Cleminshaw organization of Cleveland, Ohio. The methods followed in revaluing industrial properties in Passaic were described by the city's expert Vermilya, who did the actual appraising. His figures, representing what he termed the "sound value" of the property, were submitted to Alfred Green, who was in charge of the total project for the Cleminshaw firm, and to Leonard Cleminshaw. They made no change. The figures were then passed along to the city and adopted by it as a basis for applying the 40% common ratio used for all Passaic properties, of whatever nature.
Vermilya's qualifications and our observations on some of the deficiencies of the appraisal methods used and his testimony are set out in Passaic v. Gera Mills. As in Gera Mills , Vermilya testified that the only formula used in appraising industrial properties was current reproduction cost less physical and obsolescence depreciation. By way of supplement to our outline of his testimony in the Gera Mills case, the record here shows that he measured each building and examined its construction. Using the outside measurements, he would determine the ground area and then apply a unit cost to that area, without regard to the actual floor area of the structure. He gave no consideration to rentable area nor to its rental value.
Vermilya testified that the property had a total replacement value of $2,419,450. After allowing for physical depreciation and functional obsolescence, he gave it a "sound value" of $1,025,520. The 40% common ratio applied to this figure determined the $410,200 assessment for improvements which the city fixed for 1954 as well as 1957. We commented on the method used by Vermilya in determining
depreciation and obsolescence in Gera Mills , as well as on his insistence upon "sound value," and total disinterest in market value.
Alfred Green, general supervisor of the revaluation project, testified that he had not analyzed Vermilya's figures; he knew nothing of industrial property construction costs. He had merely assembled the figures Vermilya gave him and calculated the assessment at the 40% ratio. Green was one of the men who had fixed the value of the land here in question at $12,000 an acre.
Before passing on to a summary of the testimony adduced by the taxpayer it should be noted with respect to the 1957 appeal that the unit costs of reproduction were compiled by the Cleminshaw organization in June 1952, without Vermilya's participation; that Vermilya applied these unit costs in the spring of 1953 in calculating his "sound values"; that these values were first used by the city in making its 1954 assessment as of October 1, 1953; and that the same figures were used as a basis for the 1957 assessment (as of October 1, 1956), without regard to any possible increase since 1953 in physical deterioration, functional obsolescence, or economic obsolescence.
The first expert produced by the taxpayer was Joel Schlesinger, a real estate broker and appraiser with 39 years' experience, president of a firm dealing only in industrial and commercial properties and the sale of vacant land and industrial sites. Much of the firm's business is in New Jersey -- a large part of it in Passaic County. The company had negotiated a number of leases for industrial properties in the general area of the subject real estate. Schlesinger determined the fair value of the property on the basis of capitalization of income. He testified that he had considered the reproduction less depreciation approach, but discarded it because, in his opinion, no one in the present market would ...