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DSM Nutritional Products, Inc. v. White Township


August 28, 2008


On appeal from the Tax Court of New Jersey, Docket Nos. 4916-2004 and 2077-2005.

Per curiam.


Argued April 14, 2008

Before Judges Stern, A. A. Rodríguez and Collester.

Defendant White Township appeals from two December 15, 2006 judgments entered by the Tax Court with respect to the assessment on plaintiff's complex of industrial buildings in White Township. The Tax Court reduced the assessment from $134,230,700 to $57,415,200 for 2004 and to $60,217,600 for 2005 (after the $500,000 exemption).*fn1

The Township claims that "the Tax Court erred by reducing the tax assessment set by a revaluation company, because there was no definite, positive and certain evidence that the assessment was incorrect" and "erred when it 'stretched' to use plaintiff's land sales, and without legitimate land sales the court could not determine the value of the DSM complex." The defendant also emphasizes the presumed correctness of the assessments and asserts that the quality of plaintiff's proof did not overcome it.

The plaintiff emphasizes the presumption of correctness of the Tax Court opinion and the special expertise to which the court is entitled. It argues that valuation was properly determined based on competent evidence including the plaintiff's use of expert testimony as to depreciation, and that the trial court did not abuse its discretion in admitting evidence.

The site has seventy-one "separate improvements" (or "industrial buildings") comprising 899,533 square feet on 276.118 acres. However, the stipulated "land area" of the land "actually under appeal" is 144.01 acres. Only plaintiff presented proofs as to value. After plaintiff's expert, John Coyle, had submitted his report with his estimated market value for tax year 2004, and his updated report with his estimated market value for tax year 2005, the parties stipulated to the cost of replacing the buildings that totaled $153,000,000 for tax year 2004 and $171,000,000 for tax year 2005.*fn2

In his final report, Coyle allocated a land value of $4,320,000 for 144.01 acres of land (the stipulated acreage amount), and $50,205,000 for improvements, which totaled $54,525,000 for the tax year 2004. He arrived at the cost for improvements using the stipulated figure of $153,000,000 for the cost of rebuilding the improvements. He subtracted $101,244,200 for "physical deterioration" and $1,552,700 for "functional obsolescence," so that the "total depreciation" was $102,796,900. Thus, the "depreciated cost new of the improvements" was $50,203,100, which together with the land value was $54,523,100.

For tax year 2005, Coyle allocated a land value of $4,535,000 for the 144.01 acres of land and $52,465,000 for improvements, which totaled $57,000,000. He then used the stipulated figure of $171,000,000 for the "cost new of the improvements," and subtracted $116,924,000 for "physical deterioration" and $1,622,300 for "functional obsolescence," so that the "total depreciation" was $118,546,300. Thus, the "depreciated cost new of the improvements" was $52,453,700, resulting in a total value of $56,988,700, which was rounded to $57,000,000.

Coyle determined that if the property were vacant land as of the date of appraisal, "low density industrial development in accordance with zoning and other land uses controls would represent its highest and best use." "As presently improved," he believed the highest and best use is "industrial utilization for manufacturing and related purposes" by a "single occupant."

Coyle noted all three approaches to value -- "the sales comparison approach," the "income approach," and "the cost approach" -- but made no calculation based on the first two approaches because he felt there was inadequate information available as to sale or rental of similar properties of similar size with multiple buildings and some multiple levels.

In his cost approach, Coyle used multiple comparable land sales, Da 247-353, of properties in rural areas physically close to Warren County, including Eastern Pennsylvania. Based on the five land sales, Coyle determined that the subject property had a value of $30,000 per acre. The original report was based on the 276.118 acres of land, but - as already noted - based on the stipulation as to the size of the subject property, Coyle revised his calculation so that it was based on 144.01 acres. Thus, he concluded that land was worth $4,320,000 for tax year 2004. For tax year 2005, Coyle "trended" the land value upward by five percent, so he calculated $31,491 per acre for 2005. Thus, he concluded that the land was worth $4,535,000 for tax year 2005.

Coyle considered the cost of reconstruction, age and overall condition of the buildings, and calculated depreciation and costs for replacing the improvements. As already noted, he determined their value to be $54,523,100 and $56,598,700 respectively, and "rounded" the total value for the property to be $54,525,000 and $57,000,000 for the tax years 2004 and 2005 respectively.

Coyle was examined and cross-examined on these subjects and the report, and acknowledged some errors in some of his factual predicates as well as the need for adjustments he made. The cross-examination was extensive over three days. In his redirect testimony and in response to questioning thereafter by the judge, Coyle acknowledged some mistakes and need for corrections to his opinion. He also explained the reasons for the data and sales he used, and for his opinions. He also discussed subjects such as depreciation and obsolescence.

Judge Harold Kuskin found that Coyle's reliance on the "cost approach alone [was] appropriate." In so doing, he relied on his prior opinions in General Motors Corp. v. Linden, 22 N.J. Tax 95 (2005), and International Flavors and Fragrance, Inc. v. Union Beach, 21 N.J. Tax 403 (2004), and noted that in this case "other market data," such as "comparable sales or leases, [were] scarce or nonexistent."*fn3 The question of depreciation became a major issue, and as to that the judge noted that "the analysis by plaintiff's appraiser was not error free" but that "defendant presented no depreciation analysis," or other proofs to challenge the conclusions or adjustments of plaintiff's appraiser. The judge evaluated in detail Coyle's testimony and report, and after noting the need to make corrections and adjustments thereto, nevertheless concluded the "original assessment [was] unreliable," and therefore not entitled to "its presumptive correctness."

Because the cost approach involves a separate determination of land value and improvement value, the judge considered the proofs as to both separately. He reviewed the proofs and considered at length the details of Coyle's expert evaluation, stating why he agreed and disagreed with aspects and made adjustments with respect to others.

As previously stated, Judge Kuskin concluded that the land for tax year 2004 was worth $4,320,300 plus improvements totaling $53,594,900 for a total fair market value of $57,915,200. For tax year 2005, he set the value of the land at $4,536,300 and the value of the improvements at $56,181,300 for a total value of $60,717,600. He then ordered that the totals be reduced for each tax year by $500,000 for an exemption, so that the 2004 judgment was $57,415,200 and the 2005 judgment was $60,217,600.*fn4

The judge emphasized that defendant presented no proofs, but it cannot be said he merely endorsed the proofs presented. To the contrary, the judge did a meticulous and detailed evaluation of Coyle's report and testimony.

Defendant, in essence, relies on the presumption of correctness of the original assessment, but Coyle's presentation and the record in this case precludes reliance on the presumption. The municipality therefore also argues before us that the judge took over the presentation of plaintiff's case and "made its case," and that it would have presented an expert if it knew how the case would be tried.

We cannot presume or conclude that questioning by the judge affected the result, or that the result should be upset based on how the proofs were developed. Defendant cannot reasonably assert it would have prepared the case differently if it thought the judge would ask questions. It could not reasonably discount what would be asked by counsel or clarified by the court. In any event, we find no undue or improper involvement by the judge, and no material objection to his questioning even if he sought more than clarification. This was a non-jury trial in which Coyle had presented complex expert testimony. In essence, we are presented with no basis for rejecting his findings based on the expert testimony and the special expertise of the Tax Court.

The Township is correct that the court is required to afford the municipality's original tax assessment a presumption of validity. Pantasote Co. v. City of Passaic, 100 N.J. 408, 412 (1985). "The presumption attaches to the quantum of the tax assessment. Based on this presumption, the appealing taxpayer has the burden of proving that the assessment is erroneous. The presumption in favor of the taxing authority can be rebutted only by cogent evidence," id. at 413 (internal citations omitted), or proof that it was based on "a patently arbitrary and capricious assessment methodology." Id. at 417. In order to overcome the presumption, the evidence presented by the taxpayer "must be 'definite, positive and certain in quality and quantity,'" id. at 413 (quoting Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105 (1952)), because "it is to be presumed that governmental authority has been exercised correctly and in accordance with law." Ibid.

Defendant relies on the standard from Pantasote and Aetna Life that the presumption of correctness stands unless sufficient competent evidence is adduced to prove a true valuation different from the assessment.*fn5 That is true, but Judge Kuskin determined that the original assessment was unreliable and plaintiff presented evidence in the form of Coyle's report and testimony that was sufficient to overcome the presumption of correctness.*fn6 The judge considered the complexity of the appraisal and its length and number of calculations, in determining not to invalidate the expert opinion in its entirety and to overcome the presumption of validity, and the judge gave reasons for determining there was evidence warranting the conclusion that the assessments were incorrect. There was no adequate defense of the assessment or its methodology in making the original assessment on this large and unique pharmaceutical complex, and once the presumption was "overcome," it became "incumbent upon the court to appraise the conflicting testimony, make a determination of true value, and fix the assessment." Little Egg Harbor Tp. v. Bonsangue, 316 N.J. Super. 271, 286 (App. Div. 1998).

Relying on Ford Motor Co. v. Tp. of Edison, 127 N.J. 290, 313 (1992), Judge Kuskin stated: "When an original assessment is unreliable, the Tax Court may not invoke its presumptive correctness and must establish value," and noted that his "obligation," therefore was "to find value." The judge determined that the original assessment was unreliable because of the stipulated price of costs new for the improvements and the current age of the improvements. The basis of the judge's reasoning is that inherent in the age of the improvements was deterioration that had to be reflected by depreciation that was not properly considered in the assessment. We cannot disagree with that proposition, which is true notwithstanding the presumed validity of the assessment. Nor are we cited to a rule that an appraiser or a judge may not rely on only one approach to value when the others are not appropriate,*fn7 and Coyle considered the other two approaches and rejected them based on the lack of comparable sales or properties.*fn8 We cannot fault Judge Kuskin for relying on Coyle's testimony and determining that the assessment was unreliable, and then primarily relying on Coyle's cost approach to set value. The resulting finding that the original assessment was unreliable, based on the stipulated cost of reconstructing new improvements and current age of the buildings, finds support in the record.

Defendant asserts that New Jersey courts have held that the cost approach is not the favored approach to value property and it is less likely to be reliable concerning buildings that are not newly constructed. (Db49). See J.C. Penney Co. v. Lawrence Township, 8 N.J. Tax 473, 479 (Tax 1986), aff'd o.b., 9 N.J. Tax 635 (App. Div.), certif. denied, 108 N.J. 664 (1987); Congoleum Corp. v. Hamilton Township, 7 N.J. Tax 436, 443 (Tax 1985). While that appears to be so, Judge Kuskin gave reasons and determined under the facts here that it was indeed appropriate in this case. Thus, Judge Kuskin raised questions concerning Coyle's conclusions, but in his oral opinion of November 29, 2006, explained why he made adjustments to those conclusions. The identified errors in Coyle's figures were not of the magnitude to preclude the judge from relying on Coyle's analysis altogether.*fn9

In sum, we must defer to the Tax Court's findings when supported by substantial credible evidence. Little Egg Harbor Tp. v. Bonsangue, 316 N.J. Super. 271, 286 (App. Div. 1998) (citing Glenpointe Assocs. v. Tp. of Teaneck, 241 N.J. Super. 37, 46 (App. Div.), certif. denied, 122 N.J. 391 (1990)); Southbridge Park, Inc. v. Borough of Fort Lee, 201 N.J. Super. 91, 94 (App. Div. 1985). This is so with respect to the findings of the Tax Court because of its special expertise. City of Atlantic City v. Boardwalk Regency Corp., 12 N.J. Tax 164, 192 (2002); Global Terminal & Container Serv. v. Jersey City, 15 N.J. Tax 698, 702-703 (App. Div. 1996); Kearny Leasing Corp. v. Town of Kearny, 7 N.J. Tax 665, 667 (App. Div.), certif. denied, 102 N.J. 340 (1985). "Moreover, '[s]ince the judges assigned to the New Jersey Tax Court have special expertise, [this court] will not disturb their finding unless they are plainly arbitrary or there is a lack of substantial evidence to support them.'" Pine St. Mgmt. Corp. v. City of E. Orange, 15 N.J. Tax 681, 686 (App. Div. 1995) (quoting G & S Co. v. Borough of Eatontown, 6 N.J. Tax 218, 220 (App. Div. 1982)), certif. denied, 144 N.J. 172 (1996).

Finally, at argument before us counsel for the Township made an articulate and impassioned argument that affirmance would devastate this small community which would be hard pressed to fund the lost revenue. Counsel noted the parcel has now been vacated. We cannot go beyond the record in deciding the case, but note only that what were told at argument only supports the conclusion that the buildings were old and deteriorating, and had been previously sold and vacated by pharmaceutical giants.

The judgments are affirmed.

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