On certification to the Superior Court, Appellate Division, whose opinion is reported at 214 N.J. Super. 256 (1986).
For Affirmance in No. A-76 and Reversal in No. A-77. Chief Justice Wilentz and Justices Clifford, Handler, Pollock, Garibaldi and Stein. For Reversal in No. A-76 -- None. For Affirmance in No. A-77 -- None. The opinion of the Court was delivered by O'Hern, J.
This appeal concerns the proper method for determining the assessed value of real property subject to governmentally-imposed requirements for environmental cleanup. We agree with the courts below that neither case presented an adequate basis under proper appraisal techniques for reaching the correct value by the simple expedient of deducting the estimated cost of such cleanups from the municipality's assessed valuation of the lands. We find, however, that the proofs in the Inmar case raised a sufficient challenge to the correctness of the municipal assessment to require the Tax Court to exercise its independent judgment as to value. We remand that case to the Tax Court for further proceedings. We affirm the GAF case.
The issue arises in the context of two taxpayers contesting the assessment of industrial properties. The facts of each case are set forth in the reported opinions below. We shall recite them briefly.
The GAF Corporation had operated an asphalt siding plant for many years at its South Bound Brook facility. For a variety of reasons the site became industrially obsolete. Although the plant was in use during the year in question, the company contemplated that it might remove the plant from service and sell the land. Thus, GAF sought a study to fix an asking price for the property. Over the years the hot tar used in the manufacturing process had found its way onto the land. "The entire surface of the site * * * has an oily surface or an oily slick to it as the result of that asphalt being on and around those tanks." Under the Environmental Cleanup Responsibility Act (ECRA), N.J.S.A. 13:1K-6 to -14, GAF would be required to clean up the property prior to its sale. See generally Rodburg, General Environmental Regulations on Business Transactions in 1987 (1987) [hereinafter Rodburg] (for an overview of ECRA requirements).
The assessment in contest was for the tax year 1984 and thus of the October 1, 1983, value. The entire GAF property in South Bound Brook had a total assessment of $2,263,800, broken up into seven distinct lots and blocks. Of primary concern, however, is one lot -- the site of the asphalt plant concerning which the taxpayer stipulated that absent chemical contamination, the property would be worth $1,600,000. GAF argued that the costs to comply with the ECRA requirements should be considered when assessing the land. GAF's Director of Real Estate had estimated costs to comply with ECRA requirements to be at a minimum of $450,000. This figure included expenses for: asbestos cleanup -- $225,000; asphalt cleanup -- $100,000; removal of contaminated tanks -- $100,000; and sampling study -- $41,000. The municipality disagreed with GAF's contention that the $450,000 cleanup cost should be a direct deduction from the stipulated tax assessment.
The taxpayer appealed and sought from the Tax Court "an opinion dealing with the public policy questions of how ECRA cleanup costs should be treated in a tax assessment and whether it had any application to tax year 1984." ECRA had been enacted on September 2, 1983, L. 1983, c. 330, but remained inoperative for 120 days. In its unreported opinion, the Tax Court found that it was "unable to quantify the effect that compliance with ECRA requirements would have had on the market value of the property on the assessing date," and thus did not address the broader question posed by the taxpayer. The court concluded that the statements made by the GAF Director of Real Estate merely represented "rough estimates based on an inspection of the property but without a sampling study. There is no evidence of a cleanup plan approved by the Department of Environmental Protection."
GAF appealed to the Appellate Division, which scheduled the case for disposition with the Inmar case, which posed similar issues.
Inmar involved an appeal of the 1983 assessment of a 5.9-acre tract of land located in the Hackensack Meadowlands near the Sports Complex. It is an undeniably choice location suited for light industrial use and, under a special exception permit, may be suited for office, commercial, or hotel uses. As such, the land would have an immediate development potential but for its prior use as the site of Scientific Chemical Processing Company's (Scientific) industrial solvent recovery operations. (Scientific was a tenant of Inmar.) Abandoned by Scientific, the site had been placed on the federal Superfund list, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§ 9601 to 9675. No cleanup had taken place at the time of the assessment.
Scientific's operations terminated in 1980 after the New Jersey Department of Environmental Protection (NJDEP) revoked the company's authority to operate due to regulatory violations. Sixty-seven stationary tanks and numerous tank wagons were abandoned on the site by Scientific. Evidence was presented that these tanks, which were leaking, contain various chemical wastes and solvents. In 1983, the NJDEP filed suit against Scientific and Inmar to require a cleanup of the site. In that action, the NJDEP became custodian of the property and impressed liens on the assets of Inmar for payment of the cleanup costs. In all, 150,000 gallons of liquid waste and 2,000 to 2,500 tons of solid chemical waste were found abandoned on the site. Inmar estimated the cost to strip the soil of contamination to be in excess of two million dollars -- in addition to the $500,000 estimated cost for removal of the above-ground tanks, tank wagons, and the material inside.
The municipal assessor refused to hazard any opinion on what the cost would be, but like GAF, Inmar equally was unable to ascertain the full extent of the cleanup cost at the assessment date because neither the exact degree of contamination nor the level to which the contamination would have to be
cleaned up on the site had been determined by any governmental agency.
Inmar argued that the property was unmarketable and therefore should be regarded as having no value or, in the alternative, that Inmar's cleanup costs are "in the nature of repairs," and should therefore "be deducted dollar for dollar from the value of the property to reach a correct assessment." Hence, Inmar sought to have deducted the $450,000 minimum costs of the removal of the abandoned above-ground tanks and tankers, the waste contained therein, and the visible leakage and spillage. In its words: "That is all in the inexact art of groping for true value that Inmar asked the Tax Court to accept." The Tax Court refused to allow the deduction for costs calculated from a 1984 contract, and affirmed the assessment (approximately $60,000 an acre for Meadowlands commercial property) because it found that as of October 1, 1983, of the assessment year, no firm or fixed obligation to do restoration work had been incurred. Inmar Assocs. v. Borough of Carlstadt, 7 N.J. Tax. 482, 490 (Tax Ct.1985).
On appeal, the Appellate Division affirmed the judgment of the Tax Court in both cases. Inmar Assocs. v. Borough of Carlstadt, 214 N.J. Super. 256 (1986). In the view of the Appellate Division, the condition of the land was to be viewed as one temporary in nature and not affecting the long-term value of the property. Id. at 264. The court also reasoned that "hazardous waste contamination is sui generis involving as it does, an unusual threat to health and safety of the public," and that allowing a deduction for the cost of ...