December 12, 2007
CITY OF NEWARK, PLAINTIFF-RESPONDENT,
NEW JERSEY TURNPIKE AUTHORITY, DEFENDANT-APPELLANT.
On appeal from the Tax Court of New Jersey, Docket No. 6360-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 26, 2007
Before Judges Weissbard, S.L. Reisner and Baxter.
The New Jersey Turnpike Authority appeals from an August 4, 2006 decision of the Tax Court, granting summary judgment in favor of the City of Newark on the grounds that the Authority was not entitled to a tax exemption on a small parcel of land located in the City. We reverse and remand for further proceedings.
We draw the facts from the Authority's Statement of Material Facts and supporting certifications, because the City did not support its summary judgment motion with any legally competent evidence.
The Authority owns a parcel of land known as Block 5001, Lot 70 on the Newark tax maps. According to a certification from Richard McBurnie, the Authority's Right of Way Manager, the Authority acquired the property from PSE&G in the 1950's "as part of the original acquisition of land for the construction of the New Jersey Turnpike." When construction was completed, a landlocked 2.1 acre remainder parcel was left over and was held "for the Authority's future use." In 1971, the Authority used a portion of this remainder parcel to widen the Turnpike and to create an adjacent right of way. After this project, an even smaller parcel was left (Parcel 599X), comprising 1.69 acres, which is the subject of the dispute in this case.
According to McBurnie's certification, Parcel 599X is "landlocked by the widened Turnpike right of way on the West, Amtrak's right of way on the [e]ast and the Passaic River on the north." The parcel "continues to be reserved in the event of future widening of the roadway and possible use as a staging area for construction and maintenance vehicles." Attached maps and an aerial photograph document that the property is inaccessible. McBurnie's certification did not elaborate on the possible time frame within which the parcel might be used, or any potential plans to widen the road in the future, nor did he indicate what might constitute a reasonable or realistic length of time for an entity, such as the Authority, to hold such a piece of property for that purpose.
The Authority also submitted a certification from Mark W. Sussman, a certified real estate appraiser and tax assessor. Sussman attested that the property was 1.69 acres and completely landlocked with "no public access." According to Sussman, portions of the Property are wet and the Property is unsuitable for development or subdivision. Its only viable use is for turnpike purposes, as, for example, a roadway or right of way widening or for construction and maintenance purposes.
There is no private or commercial use that can be made of the Property, and no potential buyer for it.
Nonetheless, in tax year 2005, the City assessed this property for $639,000. The Authority appealed to the Essex County Board of Taxation, which determined that the property was tax exempt. The City appealed that determination to the Tax Court.
In a written opinion, the Tax Court judge first rejected the Authority's argument that 2003 legislation effectuating the merger of the Highway Authority and the Turnpike Authority had expanded the permissible bases on which the Turnpike Authority could claim a tax exemption for its property. Relying on New Jersey Turnpike Authority v. Washington Township, 16 N.J. 38 (1954), the judge then concluded that the Authority had not presented "clear evidence" of a present plan to devote the parcel to a public use "within a reasonable time."
The subject parcel has been owned by the Turnpike for nearly fifty years. It was part of a larger tract that was last developed for actual use thirty five years ago. . . . After all this time a single, vague paragraph in the certification of an appraiser, to the effect that the parcel, essential wetlands, is "reserved in the event of future widening of the roadway and possible use as a staging area for construction and maintenance vehicles" . . . does not permit this long vacant land acquisition to meet the clearly established (and still viable) constitutional standard that there be a "present design to devote it within a reasonable time" to actual public use.
Our review of a trial court's grant of summary judgment is de novo, Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998), using the same standard employed by the trial court. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). While we acknowledge the expertise of the Tax Court in tax matters, we are not bound by the tax judge's construction of the law. See Twp. of Holmdel v. NJ Highway Auth., 190 N.J. 74, 86 (2007). It is also well established that cases presenting novel and important issues should not be decided on a sketchy or incomplete record. See Siwiec v. Financial Resources, Inc., 375 N.J. Super. 212, 218-19 (App. Div. 2005); Agurto v. Guhr, 381 N.J. Super. 519 (App. Div. 2005). Employing those principles, we conclude that this case presents a potentially very significant legal issue, that the Authority's evidence, viewed in the most favorable light as Brill requires, could support a finding that the land is being held for a public purpose, and that a hearing is necessary to develop a full record before deciding whether this property should be tax exempt.
We begin by reviewing the applicable law concerning tax exemptions for public property. It is well-established that "it is unconstitutional to award tax exemptions simply because a government agency owns the subject property. . . . The tax exemption must be based on the property's use, and the property must, in fact, be put to that use." Twp. of Holmdel v. NJ Highway Auth., supra, 190 N.J. at 87-88 (citing N.J. Const. art VIII, § 1, par. 2; N.J. Const. art IV, § 7, par. 9(6)). Statutory tax exemptions are to "be liberally construed because they facilitate the provision of public services." Id. at 88. Even if an entity leases its land to a private entity, the tax exemption is not lost unless the property is being used for a purpose not within the scope of the agency's statutory mission. Id. at 89. On the other hand, governmental claims for tax exemptions are subjected to "searching judicial review," id. at 99, to be sure that the property in question is being used "in furtherance of the agency's statutory mandate." Id. at 88-89.
In Holmdel, the Court concluded that the Highway Authority's operation of the PNC Bank Arts Center amphitheater was consistent with the Legislature's understanding of the agency's mission, which included operating an amphitheater to raise revenue to support the agency. Id. at 93-94. However, the agency's construction of a reception center on the Arts Center property was actually contrary to the Legislature's intent when it "reluctantly grandfathered the . . . amphitheater" in 1968. Id. at 94. Therefore, the reception center had no "reasonable nexus to the Arts Center's original purpose" and hence was "beyond the intended scope of the tax exemption." Id. at 95. The Court also construed 2003 legislation merging the Highway Authority into the Turnpike Authority, L. 2003, c. 79, as "reaffirming" pre-existing tax exemptions of those agencies' property rather than as creating new exemptions. Id. at 97-98. Thus, while the amendments continued the exemption for the amphitheater, the amendments did not create a new exemption for the reception center. Consequently, we agree with the Tax Court judge that the 2003 enactment is not pertinent to the case before us.
The Turnpike Authority contends that N.J.S.A. 27:23-5(i) authorizes it to "hold" the subject property for future use. This section, which was not amended during the 2003 Merger Legislation, gives the Authority power "[t]o acquire, hold and dispose of real and personal property in the exercise of its powers and the performance of its duties under this act." Ibid. It is clear, however, that merely "holding" property is not sufficient to qualify for a tax exemption unless the property is being held for one or more of the agency's statutorily-mandated purposes. Holmdel, supra, 190 N.J. at 87-88; New Jersey Tpk. Auth. v. Washington Twp., supra, 16 N.J. at 44.
Both sides cite Washington Township in support of their contentions. In that case, two municipalities sought to assess taxes on several hundred acres of the Turnpike's land located outside the highway right of way. It is worth reciting the essential facts, which differ considerably from those here:
Before their acquisition by the Turnpike Authority the lands involved in these appeals were used for farming. Since then they have not been used and despite some vague testimony to the contrary it is now conceded that there is no likelihood of their being used in the future for turnpike purposes. On the contrary, it is the announced intention of the Turnpike Authority to dispose of them as surplus property as soon as it conveniently can. In extenuation of its delay in disposing of these properties the Authority states that they are mere parts of former farms that have been cut in two by the construction of the Turnpike and that some of them are without access to a public road and that the number of prospective buyers is therefore distinctly limited. On the other hand, the appellant townships point out that although some of the individual tracts lack access to a public road, all of them by reason of their common ownership by the Turnpike Authority do have access to public roads, that their value is deteriorating for lack of cultivation and that the Turnpike Authority has not made any real effort to sell them. [Id. at 42.]
Against that backdrop, "the single issue" before the Court was "whether or not the Turnpike Authority has an unlimited right to tax exemption, including even such property as is not used as part of the turnpike project." Ibid. The Court reasoned that the ability of certain public entities to remove property from the tax rolls was harmful to the ability of other public entities to support themselves through taxation.
[T]he right to acquire by purchase a larger amount of land than would have been permitted by condemnation does not imply a power to retain any land thus acquired that is not intended for a public purpose and the burden of making out a case for utilization of such land rests on the Turnpike Authority. The permanent taking of private property can be justified only if in the public interest and for the purposes specified in the enabling act. Were the rule otherwise, in these days of expanding governmental activities the amount of property remaining in private hands would be uselessly diminished, adversely affecting the taxing power of the State, which necessarily depends in large measure on the amount of private property available for taxation. [Id. at 43.]
To avoid the unnecessary diminution of the tax rolls, "vacant land, as here, not now in the public use or presently intended for public use is taxable even when owned by bodies having a right to tax exemption with respect to property used for an appropriate purpose." Id. at 44. Moreover, to comport with the constitutional requirement that tax exemptions cannot be based solely on the identity of the landowner, the Turnpike's statutory tax exemption must be related to its use of the land. "[The exemption] applies to property acquired for turnpike purposes and, having been so acquired, used for such purposes, or held with the present design to devote it within a reasonable length of time to such use." Id. at 45. The Court also quoted Tippett v. McGrath, 70 N.J.L. 110, 113 (Sup. Ct. 1903), aff'd, 71 N.J.L. 338 (E&A 1904), in indicating the constitutionality of exempting land based on "'features that inhered in the property itself, or in the purposes to which it . . . was devoted.'" Washington Twp., supra, 16 N.J. at 45.
The Authority contends that it is holding this small piece of land for purposes of possible future road widening or to store equipment. There is support for the concept that land may be held for future purposes for some reasonable period of time. For example, in Moonachie v. Port of N.Y. Auth., 38 N.J. 414 (1962), the municipality claimed a tax exemption for a ten acre parcel acquired when it constructed an airport. The Court described the land as follows:
There is no doubt that this . . . area, acquisition of which was completed in 1952, was initially purchased for airport purposes. It was to provide noise protection for people living south of the airport; also adequate space within the airport for such runway extensions or changes as the future might require, or for any new or additional air navigation aids that might be ordered. It is still being devoted to those purposes. [Id. at 417 (emphasis added).]
The Court held that the land was tax exempt, although a factory building located on the land was not exempt because not used for air terminal purposes.
The Court recently cited Moonachie with approval in Holmdel, supra, although the Holmdel opinion characterized the land as having been acquired "to use as a sound barrier around an airport," 190 N.J. at 89, and did not refer to its also being held for purposes of expanding the airport runway. While Holmdel did not address possible future use of public property, the Holmdel court cited Washington Township with approval. Holmdel, supra, 190 N.J. at 87-88. In Washington Township, supra, 16 N.J. at 45, the Court confirmed that property held for future public use must be "held with the present design to devote it within a reasonable length of time to such use."*fn1
This case presents a novel and potentially important issue concerning the reasonable length of time for which a public agency may hold land for future use without incurring tax liability. We conclude that this case is distinguishable from Washington Township, because here the public entity has presented legally competent evidence that it is holding the land for the purpose of future road widening. In Washington Township, the agency admitted it had no plans for the property and was planning to sell it off. Further, unlike Washington Township, where the agency was holding onto hundreds of acres of usable land, the only evidence in this case thus far establishes that the Authority's property is a small piece of swampy, landlocked ground usable for no purpose other than future road expansion or other Turnpike purposes. Whether the land is useless for other purposes may have an important bearing on the question of how long the agency should reasonably be permitted to hold the property for future expansion purposes without being subject to taxation. The parties should have an opportunity to present further evidence on that issue. It may also be relevant whether there is a standard among public highway agencies for the length of time considered "prudent" or reasonable to hold land for future road widening. See id. at 45.
In short, we conclude that although the parties both filed summary judgment motions, the case was not ripe for summary judgment in favor of either side. See Driscoll Const. Co., Inc. v. State, Dep't of Transp., 371 N.J. Super. 304, 317-18 (App. Div. 2004). We therefore conclude that the matter should be remanded for a plenary hearing at which the Authority's witnesses can testify and be cross-examined and at which the parties may present any additional evidence respecting the Authority's plans for the property, or whether it can be used for other purposes.
Reversed and remanded.