Conford, Gaulkin and Kilkenny. The opinion of the court was delivered by Kilkenny, J.A.D.
The Township of Livingston appeals from judgments of the State Division of Tax Appeals, filed on February 9, 1962, (a) dismissing petitions of Livingston, and (b) reducing the aggregate assessments for 1957 of water reserve lands in the Township of Livingston owned by the City of East Orange to the sum of $1,238,110.
The City of East Orange cross-appeals, contending that the assessments should be further reduced.
The lands owned by East Orange in Livingston consist of approximately 1471 acres of raw land. About 10% is cleared land and the other 90% is woodland. The land is utilized by East Orange, along with other acreage in adjacent municipalities, to supply potable water to its inhabitants. The land does not contain a reservoir but has beneath its surface an
aquifer, i.e. , water-bearing strata, which is tapped by means of wells. The subterranean aquifer also extends throughout a substantial part of the Livingston area outside of the water reserve of East Orange and for miles over a good part of New Jersey to the west, north and south of the water reserve.
Livingston assessed this water reserve land for 1957 at a total of $1,734,900. The total acreage was made up of 40 parcels, each listed separately by lot and block number and separately assessed. The total assessment was based on Livingston's determination that the aggregate market value of the land (excluding improvements) was $3,469,800 and to this was applied the local 50% ratio of assessment to value.
Livingston's right to tax this water reserve land is fixed by N.J.S.A. 54:4-3.3 which provides:
"* * *. The lands of counties, municipalities, and other municipal and public agencies of this State used for the purpose and for the protection of a public water supply, shall be subject to taxation by the respective taxing districts where situated, at the taxable value thereof, without regard to any buildings or other improvements thereon, in the same manner and to the same extent as the lands of private persons, but all other property so used shall be exempt from taxation. * * *"
East Orange appealed the Livingston assessment to the Essex County Board of Taxation. The county board fixed the total assessment at $1,314,200, thus giving East Orange a reduction of $420,700. Both Livingston and East Orange then petitioned the State Division of Tax Appeals for a review of the county board judgment, with the result first noted above.
The parties agree that the assessment valuation for 1957 is determinable as of October 1, 1956. N.J.S.A. 54:4-23. Their disagreement is as to the proper method to be employed in making the evaluation. Livingston contends that the land must be valued "in the condition in which the owner holds it," as a watershed in this case, with a substantial aquifer which has a value, irrespective of the surface use of the land. It complains that it was precluded by the State
Division from introducing evidence as to the nature and extent of the aquifer for the purpose of developing by expert testimony a capitalized value for the water reserve lands on the basis of a public utility in the water supply business.
East Orange, on the other hand, argues that Livingston's approach is fundamentally contrary to the legislative intent that this property should be assessed "at the taxable value thereof * * * in the same manner and to the same extent as the lands of private persons." N.J.S.A. 54:4-3.3. It maintains that Livingston's attempt to impose a special, peculiar and unique form of assessment on these water reserve lands, based on the valuation of subterranean water rights, is contrary to constitutional and statutory assessment principles. East Orange contends that the property is zoned residential AAA, in which zone buildings are limited to one home per acre, and "true value" can be determined only by a finding as to what a real estate developer would pay for the 1471 acres, purchased as a single entity, "at a fair and bona fide sale by private contract," in their present state and for the purpose of building homes thereon.
N.J.S.A. 54:4-23 requires the assessor to "determine the full and fair value of each parcel of real property situate in the taxing district at such price as, in his judgment, it would sell for at a fair and bona fide sale by private contract on October 1 next preceding the date on which the assessor shall complete his assessments."
Livingston counters with the argument that the approach of East Orange is inconsistent with the realities of the situation because this land will not in the foreseeable future ever be utilized for residential development, since that would interfere with the highest and best use of this land as a watershed. Accordingly, Livingston would have us discard as irrelevant the testimony of the real estate experts for East Orange, who based their valuations upon what the land would bring if used for a residential development, which was their opinion of its most readily feasible and highest economic use from the standpoint of a purchaser in the open market.
The parties agree that the division of the land into lots and blocks as assessment units is purely artificial and that the tract should be valued as a whole. It is admitted that Livingston's zoning regulations will not permit a building to be erected where the mesne elevation above sea level is less than 176 feet. About 340.59 acres are below that minimum level. The municipal AAA residential zoning herein means that a building plot must have a frontage of at least 150 feet and a depth of at least 235 feet, each house being required to have at least one acre of ground.
Each side produced experts in real estate values, who gave their varying opinions as to what these lands were worth as of the assessment date. The State Division applied, with some modifications, the formula established by Franklin Hannoch, a well-qualified expert called by East Orange. Mr. Hannoch used the approach of analyzing sales of large tracts in the area, purchased for residential development and, in one instance, by Commonwealth Water Company, in the several years prior to the assessment date. He figured market value without regard to what one particular customer, such as a water company, might pay for the tract. His appraisals set forth varying acreage values depending upon the differences in the elevations above sea level of the several parcels and on their condition as wooded or cleared or under water. For example, he gave no value to 60.9 acres under water. As to the other lands, Mr. Hannoch used the following acreage value formula: