On appeal from and on certification to the Superior Court, Appellate Division.
For affirmance -- Chief Justice Wilentz and Justices Clifford, Handler, O'Hern, Garibaldi and Stein. For reversal -- None. The opinion of the Court was delivered by O'Hern, J.
This is a municipal-tax case involving the valuation of Ford Motor Company's auto-assembly plant in Edison, New Jersey. The Ford Motor Company (Ford) challenged the local property tax assessments for the years 1983, 1984, and 1985 and sought reduction, alleging that the Township of Edison (Edison) had significantly overassessed the property. The value was set at approximately $28 million for 1983. Ford believes that its value is half of that. Edison believes that its value is almost half-again greater.
The appeal involves four issues: (1) whether the property is special or general purpose in nature; (2) whether, if it is general purpose, its highest and best use is as an auto-assembly plant, as opposed to a diversified general-purpose manufacturing facility; (3) whether the Tax Court erred in rejecting four comparable sales of general-purpose manufacturing facilities; and (4) whether the Tax Court abrogated its duty to make an independent determination of true value by relying on the presumptive reliability of a County Tax Board judgment and
the original municipal assessments. We hold that the property is general purpose in nature; that the Tax Court did not limit its consideration of value to the use of the plant as an auto-assembly plant; and that the Tax Court did not err in its treatment of the proffered comparable sales. Finally, although the Tax Court should have made its own determination of value in the face of the evidence presented, the Tax Court's failure to do so does not warrant a remand.
Although the case involves three separate tax years, 1983, 1984, and 1985, for ease of analysis we shall refer principally to the 1983 tax year. A more comprehensive recital of the facts and issues is set forth in the reported Tax Court opinion, 10 N.J. Tax 153 (1988).
Ford's auto-assembly plant is one of the state's major industrial facilities. The property covers 76.54 acres of land and has 2900 feet of frontage on Route 1, one of the state's main corridors. Ford's auto-assembly complex consists of three main buildings (an assembly building, warehouse, and two-story administration building) and six outbuildings, occupying a total area of 1,350,162 square feet. (To put that in perspective one would have to envision the enclosure of about twenty-four football fields.) The property has been significantly improved over the years and now consists of a paved lot that provides parking for approximately 1600 cars, chain-link fencing, exterior lighting, water and fuel tanks, and extensive truck-docking capabilities and rail lines. The property also has the benefit of all public utilities, including water, sewer, gas, and electric. During the relevant time period, Ford used the property for the assembly of its Escort and Lynx automobiles.
The original assessment for the tax year 1983, following a revaluation of all properties in Edison, was $20,957,600, consisting of $3,827,000 for land and $17,130,600 for improvements. Edison appealed that assessment to the Middlesex County
Board of Taxation (the County Board). The County Board increased the assessment on the property for the 1983 tax year to $28,422,000, consisting of $3,827,000 for land and $24,595,000 for improvements. Both parties appealed the County Board's judgment to the Tax Court: Edison sought an even greater increase in the assessed value of the property for the 1983 tax year, Ford a reduction. The property was reassessed at $28,422,000 for 1984 and 1985. Ford and Edison appealed those assessments directly to the Tax Court. The 1983, 1984, and 1985 appeals were consolidated, and the case was tried for sixteen days before the Tax Court.
Despite much anecdotal and now outdated evidence about the "high-tech" capacity of the plant and the profitability of robotics in the assembly of the Lynx and Escort automobiles (at one point Edison proffered the comments made by Ford officials at a Chamber of Commerce meeting (as the theme from the movie "Rocky" played in the background) that this was "the most efficient plant east of Tokyo" producing a "world class car" because of the "quality of labor" in the community), the case came down to an evaluation of expert-opinion evidence.
Ford's appraisal expert, Jeffrey Parkhouse, testified that as of October 1, 1982, the fair market value of the property was $14,500,000 for the 1983 tax year. Because 1983 was a revaluation year, he did not apply an equalization ratio. Parkhouse arrived at his estimate of value by applying the market-data and cost approaches to valuation. In applying the market-data approach, Parkhouse reviewed and analyzed market data involving several thousand property transactions. Parkhouse then used five sales of improved general-purpose manufacturing-warehouse facilities for the 1983 and 1984 tax years, and included an additional sixth sale for the 1985 tax year. Parkhouse made percentage adjustments to the unit price of each comparable property to reflect comparisons between the comparable and Ford's property.
Parkhouse also used the cost approach to valuation, relying on the Marshall Valuation Service Manual for determining the value of the improvements and a market-value analysis for the value of the land. Although Parkhouse also considered the value of the property by means of the income approach, he did not rely on the results of that approach in reaching his final estimate of value.
Based on a survey of national demand for large industrial properties, an analysis of comparable sales, and a review of population, work force, taxes, and labor, Parkhouse concluded that the property's highest and best use is as a general-purpose manufacturing facility. One of Ford's engineers described the relative ease of removing the machinery and equipment from the plant, having gained that experience in retooling the Edison plant on prior occasions and in removing the equipment from the Ford plant in Mahwah before it closed in 1980.
Edison countered with the testimony of Barry J. Polayes, of National Valuation Services, Inc., regarding the value of the property, and Oliver B. Spence on the cost figures. Polayes concluded that the fair market value of the property as of October 1, 1982, was $30,000,000 for the 1983 tax year and as much as $36,000,000 for the 1985 year. Polayes estimated the value of the property by means of cost and income approaches. Polayes did not prepare a market-data analysis because he did not consider any of the property sales that he reviewed to be comparable to the Ford property.
Edison contested Parkhouse's Conclusion that the plant's highest and best use was that of a general-purpose manufacturing facility. Edison emphasized the plant's special features, such as the extensive plumbing facilities needed in the painting process, the strong steel structure and concrete flooring throughout, extensive boiler capacity, extra-heavy electric capacity, miles of air compressor lines, water-cooling lines, and specialized paint facilities. Those features led Edison to conclude
that the building would be under used by most general-purpose manufacturers.
Edison's emphasis on the plant's special features was reflected in its pretrial position that the property was a specialpurpose facility -- that is, a facility that could not, without extensive expenditures, be converted to any other use. By the time of trial, the parties had the benefit of a decision by the same Tax Court Judge in connection with the same 1983 revaluation of another major manufacturing facility in Edison. See WCI-Westinghouse, Inc. v. Edison Township, 7 N.J. Tax 610 (1985), aff'd o.b., 9 N.J. Tax 86 (App.Div.1986). The Westinghouse plant was close to one million square feet and in close proximity to the Ford property. The Tax Court held in that case that the Westinghouse plant was not a special-purpose facility but rather that its highest and best use was as a general-purpose manufacturing-warehouse facility. Id. at 617.
Much of the argument in this case then focused on whether the highest and best use of Ford's property would encompass any use other than as an automobile-manufacturing facility or an allied use. Also at issue was whether there is a market demand for the property as an automobile-manufacturing facility. Edison attempted to show that demand for auto-assembly use or an allied use was demonstrated by at least two of the comparables relied on by Parkhouse in his market-data approach.
Following the sixteen-day trial in the Tax Court, the New Jersey Legislature enacted Laws 1986, chapter 117, which established new criteria for determining whether property is taxable as real property. That law was made applicable to pending appeals. Edison moved before the Tax Court to reopen the proofs and for additional discovery, arguing that the property contained a number of items and systems that Edison's appraisers did not consider as constituting real property but would affect its value under the new law. The Tax Court granted Edison's motion to reopen the case. Counsel for Ford
then requested that the Tax Court render its valuation determination with regard to the proofs that had been adduced at the original trial. The Tax Court found Ford's request to be well founded, agreeing that such a determination
would be helpful to the parties, and perhaps even be conducive to settlement negotiations, and thus obviate what is anticipated to be a protracted trial on the issue of whether the items to which Edison now makes reference pursuant to c. 117 should be deemed, and assessed as, realty. [10 N.J. Tax at 157-58.]
The Tax Court held that neither Ford nor Edison had sustained its requisite burden of proof in seeking to overturn the 1983 judgment and the revised assessments for 1984 and 1985. Ford appealed the Tax Court decision, as did Edison. Edison later abandoned its cross-appeal. The Appellate Division affirmed the Tax Court decision. 12 N.J. Tax 244 (1990). One member of the panel Dissented, concluding that "[t]his is an unsatisfactory result, not worthy of the considerable and otherwise commendable efforts expended by the trial Judge. Something like a well-tailored garment constructed with only one sleeve." Id. at 249. The Dissenting member would have reversed the Tax Court's decision and remanded to fix the value of the improvements on the property.
Ford appealed this issue as of right under Rule 2:2-1(a). We granted Ford's petition for certification to consider the other issues raised in the appeal. N.J. (1991).
The Ford Auto-Assembly Plant is a General-Purpose Property.
"Equality of treatment in sharing the duty to pay real estate taxes is a constitutional right." Murnick v. City of Asbury Park, 95 N.J. 452, 458, 471 A.2d 1196 (1984). All real property must be assessed at true value. In New Jersey, the concept of true value has been expressed in terms of the price that could be obtained for the property in money at a fair sale
between a willing buyer and a willing seller. New Brunswick v. State, Div. of Tax Appeals, 39 N.J. 537, 543, 189 A.2d 702 (1963). In the case of certain properties, conventional market theories are not readily adaptable. "[C]ourts of this state have long recognized that for certain types of unique property that were constructed for a special purpose and are only suited for that particular purpose, the market and income approaches to value are not applicable." Transcontinental Gas v. Bernards Township (Transcontinental II), 111 N.J. 507, 526-27, 545 A.2d 746 (1988); see, e.g., Hackensack Water Co. v. Borough of Old Tappan, 77 N.J. 208, 215, 390 A.2d 122 (1978) (Handler, J., Dissenting); CPC International v. Borough of Englewood Cliffs, 193 N.J. Super. 261, 269-70, 473 A.2d 548 (App.Div.1984) (discussing other cases). "With regard to such special purpose property, the cost approach is usually relied upon for property tax valuation purposes." Transcontinental II, supra, 111 N.J. at 527, 545 A.2d 746; see, e.g., Pantasote Co. v. City of Passaic, 100 N.J. 408, 412, 495 A.2d 1308 (1985); Dworman v. Borough of Tinton Falls, 1 N.J. Tax 445, 452 (Tax 1980). However, a property does not qualify as special purpose "where it possesses certain features which, while rendering the property suitable to the owner's use, are not truly unique." Sunshine Biscuits, Inc. v. Borough of Sayreville, 4 N.J. Tax 486, 495 (Tax 1982). Special-purpose property is most easily understood in terms of property that "cannot be converted to other uses without large capital investment," such as a public museum, a church, or a highly-specialized production facility like a brewery. Id. at 495 n. 3.
Because of Edison's great emphasis on the "special features" of the property -- its heavy steel framing, its spraypaint booths and baking ovens, its massive boilers, its terrazzo and tile amenities, the Appellate Division may have been led to refer to the property as "special-purpose property." Both Ford and Edison have agreed that the property does not qualify as "special-purpose property," regardless of their disagreement concerning the limits on the market for this property.
The Tax Court did not restrict its consideration of value of the plant to that of automobile assembly.
Had the Tax Court limited its consideration of value to the current use of the property as an auto-assembly plant, it would have reached by the back door much the same result as would have been reached by classifying the property as "special-purpose property." The narrower the uses that can be considered, the narrower the market that can be relied on to establish value with the concomitant necessity to rely on cost as an estimate of value.
Just how wide is the range of difference that that approach can produce was demonstrated in the examination of Edison's expert appraiser. The appraiser had estimated the value of Ford's assembly plant at Mahwah at approximately $80 million for the 1982 and 1983 tax years. When Ford closed the Mahwah plant and turned to the market to find value for its property, the market valued the property at $20 million in 1984. The appraisals in this case are not quite so far apart, but the differences are significant and the potential effect of a misjudgment about the highest and best use of the property is great.
The irony of the debate about highest and best use is that historically the taxing authorities have sought to expand consideration of value beyond current uses. Assessment at current use "is an alternative to the highest and best use standard, and generally results in a reduced assessment." Joan M. Youngman, Defining and Valuing the Base of the Property Tax, 58 Wash.L.Rev. 713, 764 n. 220 (1983) (Youngman). In Inmar Associates, Inc. v. Township of Edison, 2 N.J. Tax 59, 64 (1980), the Tax Court explained that "[a]ny parcel of land should be examined for all possible uses and that use which will yield the highest return should be selected." That use is known as the ...