The opinion of the court was delivered by: Hamill
The subject of this local property tax appeal is a beer distribution warehouse located at 183 Three Brooks Road and designated as Block 72.06, Lot 1 on the Freehold Township tax map. For 1994, the year at issue, the property was assessed at $4,146,000. The assessment was reduced by the Monmouth County Board of Taxation to $3,100,000. The township has appealed the judgment of the county board.
Before the issue of valuation can be addressed, it must be determined whether certain interior walls and ceilings, most of which enclose two refrigerated areas within the warehouse, and the compressors and blowers that are related to the refrigerated areas, are realty as defined in N.J.S.A. 54:4-1 or personalty and therefore not subject to local property taxation. It was decided to proceed first with the realty/personalty issue so that the parties' appraisers would know what property should be included in valuing the warehouse.
The following facts were developed at a hearing devoted to the realty/personalty issue.
The warehouse contains approximately 89,600 square feet. A drive-through divides the warehouse into two segments. The wall on one side of the drive-through is constructed of concrete blocks, while the other wall is constructed of insulated panels measuring approximately 2 1/2 x 3 feet each. The panels are approximately 4-5 inches thick and contain an insulating material with a metal sheath on each side. The panels attach to one another by means of a cam-lock fastener and are easily assembled and disassembled by means of a wrench that locks and unlocks the cam-lock. The insulating panels form the walls and ceilings of the two refrigerated areas within the warehouse. The ceiling panels are suspended from the roof by means of rods extending between the roof girders and the insulating panels. The rods fit into grooves in the roof girders and are attached to the insulated panels by means of clips that fit between the seams of the panels. At floor level the insulated panels are bolted or screwed to the floor by means of metal L plates. Around the base of the insulated panels is a metal curb filled with concrete, which protects the panels from being bumped by forklift trucks. Approximately 75% of the curbing and panels were originally used at a prior location of the taxpayer in Holmdel. The panels and curbing were disassembled at the Holmdel site and moved by truck to the Freehold site, where they were reassembled.
Although most of the insulated panels are used to segregate the refrigerated areas of the warehouse, a small portion of the paneling serves simply as a wall for an unrefrigerated area used for repacking, storing empty beer containers, and recharging electric vehicles.
Testimony of the taxpayer's witnesses established that the cooling of the refrigerated space is accomplished by refrigeration equipment including blowers and compressors. Photos offered by the township show that the compressors are located on the outside of the warehouse, while the blowers are located on the inside. Neither of these items is embedded in the walls or ceilings. Both appear to be discrete pieces of machinery attached to the walls or foundations of the warehouse.
The director of operations at the warehouse testified that he had been offered "used refrigeration space." I presume he meant insulated wall and ceiling panels. In his view, the primary function of the panels was to cool the beer rather than to shelter or contain it. On cross examination he conceded that the insulated panels create walls and ceilings that segregate the beer needing refrigeration from beer that does not need refrigeration. He further testified that the taxpayer had intended to move the warehouse from the prior location in Holmdel, which was leased, but that there was no intention to move the warehouse from the Freehold site. He stated that, were it not for the need to refrigerate some of the beer, there would be no need for the insulated wall panels; the exterior walls of the warehouse would suffice to shelter the beer.
Plaintiff's other witness, the owner of a refrigeration installation company that had disassembled the insulated wall and ceiling panels of the Holmdel warehouse and reassembled the panels in Freehold, testified on cross-examination that the same insulating panels could be used as exterior walls with a steel frame underneath to support them. The wall panels would be functionally similar, serving, as they do in the subject property, to maintain the temperature within the structure. This witness agreed that, in order to make the refrigerated area operational, lights, refrigeration, and piping had to be installed.
Mention should be made of an issue concerning the burden of producing evidence that arose at the commencement of the hearing. As the plaintiff in this matter, the township has the ultimate burden of proving that the judgment of the county board is in error. Riverview Gardens v. North Arlington Borough, 9 N.J. 167, 175 (1952); Rumson Borough v. Peckham, 7 L. Ed. 2d 539, 549 (Tax 1985). The township nevertheless maintains that, as to whether the property at issue constitutes realty or personalty, the taxpayer has the burden of proof and thus the burden of presenting an affirmative case. I ruled in favor of the township on this point and directed the defendant taxpayer to proceed with its proofs on the realty/personalty issue.
Initially, it should be pointed out that what the township labels the burden of proof on the realty/personalty issue is more accurately described as the burden of producing evidence or the duty of going forward. N.J.R.E. 101(b)(2) and Biunno, Current N.J. Rules of Evidence, comment to N.J.R.E. 101(b)(2). The burden of proof or persuasion refers to the "obligation which a party must meet in order to prevail on a claim or defense." Biunno, (supra) , Comment 1 to N.J.R.E. 101(b)(1). The burden of producing evidence refers to the obligation of a party to introduce evidence to avoid a finding against him on a particular fact. N.J.R.E. 101(b)(2) and Comment to N.J.R.E. 101(b)(1).
Here, the township, as plaintiff challenging the judgment of the county board, has the ultimate burden of persuasion, but defendant taxpayer has the burden of producing evidence on the realty/personalty issue. This is so for two reasons. First, the township has the benefit of a statutory presumption that the property in question is realty. N.J.S.A. 54:4-1 provides in pertinent part:
Real property taxable under this chapter means all land and improvements thereon and includes personal property affixed to the real property or an appurtenance thereto unless : [the conditions specified in subsections (a) or (b) are met].
Under the language of the statute, it is plain that unless countervailing evidence is produced, personal property affixed to real property is deemed to be real property. See American Hydro Power Partners v. Clifton, 11 L. Ed. 2d 12, 22-23 (Tax 1990), aff'd in part , 12 L. Ed. 2d 264 (App. Div. 1991). Although not labeled a presumption, the effect of the statute is the same. Once the basic fact is established, i.e., the existence of personal property affixed to real property, the presumed fact is deemed established, i.e., that the personal property is real property, unless evidence is produced to rebut the presumption. See N.J.R.E. 301. The difference between the operation of N.J.S.A. 54:4-1 and a normal presumption is that the statute sets forth in subsections (a) and (b) the proofs that must be produced to rebut the presumption.
The effect of the statutory presumption is to place on the party opposing the presumption the burden of producing evidence. "If no evidence tending to disprove the presumed fact is presented, the presumed fact shall be deemed established if the basic fact is found or otherwise established." N.J.R.E. 301. "The burden of producing evidence on the issue upon which a presumption operates is on the party desiring a result contrary to that compelled by the presumption." Rumson Borough v. Peckham, (supra) , 7 L. Ed. 2d at 547. As made clear in N.J.R.E. 301, the burden of persuasion ...