Before Judges Seidman and Lane.
The Township of Edison appeals from three judgments entered in the Division of Tax Appeals reducing the assessments for the years 1974, 1975 and 1976 on lands and improvements owned by the petitioner, Abe Gaynes, t/a Marina Gardens. The original assessment on the land for each year was $557,800. The improvements were assessed at $2,146,200 for 1974 and 1975, and $2,727,900 for 1976. Appeals to the county board of taxation were dismissed. On further appeal to the Division of Tax Appeals the judge there determined that the fair market value of the lands and improvements for each year was $2,633,242. He found, further, that petitioner had proved its claim of discriminaion with respect to the assessment and, using a common level factor of $75%, reduced the assessment to $1,974,932, allocating it $557,800 to the land and $1,417,132 to the improvements.
On this appeal, the township contended that the taxpayer's proofs "failed to satisfy the criteria set forth in Tri-Terminal Corporation v. The Borough of Edgewater [68 N.J . 405 (1975)]," and, therefore, the granting of discrimination relief was improper; that the best indication of market value was the sales of the subject property, and that the court below erred in determining the common level.
The judge of tax appeals heard conflicting evidence on the fair market value of the property, which consists of a 10.954-acre tract on which is constructed a 201-unit garden apartment complex. The taxpayer's expert valued the property at $2,260,000, arriving at the figure by capitalizing the net income, computed by him to be $303,111, using a capitalization rate comprised of 8 1/2% interest, 3% recapture and an average effective tax rate of $2.95. An expert appraiser testifying for the municipality also relied chiefly on the income approach. His net income figure was $339,768, which he capitalized with a rate consisting of 8% interest, 2% recapture and an average tax rate of $3.51. His resulting value was $2,600,000. The tax judge
rejected the sales prices of the subject property as insufficient market data "due to the obvious financial manipulations involved in them." On the issue of value, he also chose the income approach. He took the gross income figure of $520,000 used by both experts and, accepting as "better proof" average expenses of 34.66%, capitalized the net income of $339,768. Using a rate consisting of 8% interest, 2 1/2% recapture and an effective tax rate average of $2.97 for the three years in question, he determined the fair market value of the land and improvements to be $2,633,242.
Although petitioner is content with the finding of fair market value, acknowledging in its brief that it is supported by substantial evidence in the record, the township maintains that the market data approach was the fairest way to appraise the property, even though its own expert relied on the income approach. The proofs disclosed that petitioner sold the property in 1973 for $2,900,000 with three mortgages covered by a wraparound fourth mortgage for $2,500,000; that the purchaser resold the property a year later for $3,000,000, with $100,000 in cash being paid plus a fifth mortgage, and that when the new owner defaulted in 1975, petitioner became the received of the property and the prior purchases were wiped out. In the circumstances the judge of tax appeals was amply justified in refusing to consider the sales as satisfactory evidence of the fair market value of the subject property. The findings and conclusions of the judge with respect to the fair market value of the property could reasonably have been reached on sufficient credible evidence present in the record, considering the proofs as a whole and giving due regard to the ability of the factfinder to judge of the credibility of the witnesses. Passaic v. Botany Mills , 72 N.J. Super. . 449, 454 (App.Div.1962).
On the issue of discrimination, the judge of tax appeals found, with support in the record, that while the subject property had been taxed at 100% of true value "or very close to it," the common level of taxation in the township was "well below it."
"Common level" has been defined as "a ratio to or percentage of full true value at which property generally [is] assessed in the municipality." In re Appeal of Kents , 34 N.J . 21, 26 (1961).
At the prior argument of this appeal a dispute arose rearding the method used to arrive at the common level of 75%. We requested supplemental letter briefs on the issue. The taxpayer argued that in determining the capitalization rate the judge of tax appeals used the average tax rate for the three applicable years multiplied "by the average weighted rates"*fn1 and, after reaching his judgment of value based on this approach, he then multiplied the true value by 75% to eliminate discrimination. The complaint is that the 75% represented the approximate unweighted average ratio and, to be consistent, the judge of tax appeals should have used the same ratio for both purposes. Had he done so, according to the taxpayer, the ultimate assessment would have been $2,035,196 instead of $1,974,932. Despite this generous concession by the taxpayer, the township contended that the weighted ratio should have been applied to the true value as found, resulting in an assessed valuation of $2,229,303.
Since these arguments were not advanced until oral argument, we chose to defer to the expertise of the Tax Court and, to that end, in an unreported opinion, we remanded the matter to that Court for such further proceedings "as may be deemed necessary to a resolution of the conflicting arguments presented by counsel," and for the filing thereafter in this court the findings and conclusions.
Such proceedings were had and in due course Tax Court Judge Andrew filed his findings and conclusions. Judge Andrew found that the common level in the township for the three tax years involved "was at the unweighted ratio averaged... at 75.72%." The Tax Court judge further determined that "the unweighted, unclassified arithmetic ratio should be applied to eliminate inequality in assessment in this case if such inequality is found to exist." He concluded that in the income approach to value the effective tax rate must reflect the unweighted and not the Director's weighted ratio "to insure consistency." Accordingly, he recomputed the capitalization figures used by the judge of tax appeals and determined that the assessed value should be $2,035,200, allocated $422,400 to land and $1,612,800 to improvements. We agree with the result reached substantially for the reasons expressed by Judge Andrew in his findings and conclusions.
The judgment of the Division of Tax Appeals is modified accordingly and, as modified, is affirmed.
This matter raises for the first time since In re Appeal of Kents, 2124 Atlantic Ave., Inc., 34 N.J . 21, 32 (1961), the issue of whether the unweighted average sales-assessment ratio of the Director of the Division of Taxation is better suited than the Director's weighted average sales-assessment ratio for the purpose of providing relief to a taxpayer in a local property tax case involving inequality of assessment.*fn1
Plaintiff challenged its local property tax assessment on the ground that it exceeded fair market value and also contended that the assessment should be reduced to the level of assessments generally prevailing in the municipality for the tax years of 1974, 1975 and 1976. After a hearing before the Division of Tax Appeals, the trial judge made a value determination and also found that discrimination in assessment existed, therefore entitling plaintiff to Kents type relief. Ibid . Inasmuch as the property involved was an income-producing garden apartment complex, the Division judge relied upon the income approach to value as being the most persuasive tool for deriving fair market value.
In his utilization of a reconstructed income approach he used the Director's weighted sales-assessment ratio in arriving at an effective tax rate, pursuant to the requirement of New Brunswick v. Tax Appeals Division , 39 N.J . 537, 547 (1963). However, after finding true value he then applied the Director's unweighted, unclassified sales-assessment ratio in order to eliminate the inequality in assessment. The taxing district appealed the judgments entered in the Division of Tax Appeals, and at oral argument before the Appellate Division of the Superior Court the issue of the trial judge's use of two different ratios was posed for the first time. The Appellate Division referred to the language of our Supreme Court in In re Appeal of Kents, supra , wherein it was noted:
We should add that we are aware of some opinion that the unweighted average ratio is better suited than the weighted average ratio for the purposes of an individual taxpayer's appeal. We leave the initial determination of the subsidiary question to the expertise of the State Division. [34 N.J . AT 32]
As a result of the exceptions taken by both parties to the use of both the weighted and unweighted ratios by the trial court, the Appellate Division remanded the matter to the Tax Court for findings and conclusions in order to resolve the dispute as to the proper ratio to be applied.
A counsel conference was held by this court and it was stipulated that the court would base its findings and determinations
on the record established before the trial judge supplemented by written briefs and oral argument.
The record reveals that the taxpayer's expert was of the opinion that the unweighted, unclassified ratio reflected the common level in Edison during the tax years in question. He stated that if the term "common level" meant that "single ratio to true value at which the great bulk of the ratables is assessed" or that "ratio to or percentage of full true value at which property generally was assessed in the municipality," then it can be concluded that Edison had a common level of assessment which was the level of the unweighted, unclassified sales-assessment ratios averaged for the ...