May 12, 2009
1717 REALTY ASSOCIATES, LLC, PLAINTIFF-APPELLANT,
BOROUGH OF FAIR LAWN, DEFENDANT-RESPONDENT.
On appeal from Final Judgment of the Tax Court, Docket No. 2329-2007.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 31, 2009
Before Judges Grall and Espinosa.
N.J.S.A. 54:4-34, (L. 1979, c. 91, § 1), establishes a procedure for municipal tax assessors to request income information from property owners to aid the valuation of income-producing property (a "Chapter 91 request"). To promote timely compliance, the statute imposes an appeal-dismissal sanction upon taxpayers who fail to respond within forty-five days. Plaintiff, 1717 Realty Associates, LLC, failed to respond to the Fair Lawn tax assessor's Chapter 91 request, and, pursuant to the statute, the Tax Court dismissed its appeal from an assessment after conducting a reasonableness hearing. Plaintiff claims that the statute is unconstitutional as applied here. Specifically, plaintiff argues that the difference between the resulting tax bill and the tax it contends should be due constitutes an "excessive fine" in violation of the United States and New Jersey Constitutions. We reject this argument and affirm the judgment of the Tax Court.
Plaintiff presents the following points to support this argument on appeal:
THE EXCESSIVE FINES CLAUSE OF THE EIGHTH AMENDMENT PROHIBITS STATUTORY CIVIL FORFEITURES THAT CONSTITUTE EXCESSIVE FINES.
THE EIGHTH AMENDMENT AND ITS STATE CONSTITUTIONAL ANALOG APPLY TO CHAPTER 91.
A. CHAPTER 91's APPEAL PRECLUSION PROVISION SERVES BOTH A PUNITIVE AND DETERRENT FUNCTION AND THEREFORE CONSTITUTES PUNISHMENT.
B. THE FORFEITURE OF PLAINTIFF'S OVERPAID TAXES IS A FINE WITH [SIC] THE MEANING OF THE EIGHTH AMENDMENT.
THE RESERVATION OF OVERPAID TAXES BY DEFENDANT IS AN EXCESSIVE FINE UNDER THE U.S. AND NEW JERSEY CONSTITUTIONS.
Plaintiff, a subsidiary of Mack-Cali Realty Corporation, owns a 145,783 square foot, multi-tenant office building in Fair Lawn, New Jersey. On October 6, 2006, the tax assessor for the Borough of Fair Lawn sent a Chapter 91 request for income and expense information to the record owner of the property by certified mail pursuant to N.J.S.A. 54:4-34, which provides in pertinent part:
Every owner of real property of the taxing district shall, on written request of the assessor, made by certified mail, render a full and true account of his name and real property and the income therefrom, in the case of income-producing property, and produce his title papers, and he may be examined on oath by the assessor, and if he shall fail or refuse to respond to the written request of the assessor within 45 days of such request, or to testify on oath when required, or shall render a false or fraudulent account, the assessor shall value his property at such amount as he may, from any information in his possession or available to him, reasonably determine to be the full and fair value thereof. No appeal shall be heard from the assessor's valuation and assessment with respect to income-producing property where the owner has failed or refused to respond to such written request for information within 45 days of such request or to testify on oath when required, or shall have rendered a false or fraudulent account.
Plaintiff did not provide the information requested.
N.J.S.A. 54:4-23 provides for the assessor to "determine the full and fair value of each parcel . . . as, in his judgment, it would sell for at a fair and bona fide sale by private contract . . . ." When plaintiff failed to respond to the Chapter 91 request, the tax assessor based his valuation upon the information available to him pursuant to N.J.S.A. 54:4-34 and used a "cost approach." The assessment for the 2007 tax year was $13,608,000 for land and $16,057,700 for improvements, resulting in a total assessment of $29,665,700.
Plaintiff filed a direct appeal in the Tax Court, seeking a judgment reducing the assessment for the property. On September 11, 2007, defendant Fair Lawn moved to dismiss the complaint pursuant to N.J.S.A. 54:4-34. Although the statute precludes an appeal from the assessor's valuation and assessment, the taxpayer is entitled to a hearing to determine the reasonableness of the valuation based upon the data available to the assessor. Ocean Pines Ltd., v. Borough of Point Pleasant, 112 N.J. 1, 11 (1988). The sole inquiry at such a hearing is "whether the valuation could reasonably have been arrived at in light of the data available to the assessor at the time of the valuation." Ibid. The hearing addresses the reasonableness of:
(1) the underlying data used by the assessor and (2) the methodology used in arriving at the valuation. Ibid.
The reasonableness hearing was held on February 11, 2008. Plaintiff presented the testimony of an appraiser who arrived at an assessable value of $20,180,000 for the property using an "income approach." Based upon this testimony, plaintiff asserted that the assessed value of $29,665,700 was clearly unreasonable.
In an oral opinion, the Tax Court observed that the income approach was preferred for the valuation of property such as the plaintiff's. However, since plaintiff had failed to provide "any income information" to the assessor as of the date that the assessment was to be determined, this approach could not be used by Fair Lawn. The court concluded that plaintiff "failed to establish that the assessment on the subject property could not reasonably have been arrived at in light of the data available to the assessor at the time of valuation . . . ." Further, the court noted that plaintiff had "presented no evidence as [to] the reasonableness of the cost approach data used by the assessor . . . [or] that the use of that approach was unreasonable . . . in light of the information available to the assessor." Judgment was entered in favor of Fair Lawn, dismissing the appeal.
Before this court, plaintiff argues that the difference between the taxes that would have been due on a valuation of $20,180,000 and the Borough's valuation of $29,665,700 constitutes a "fine" for failing to provide the information requested pursuant to N.J.S.A. 54:4-34. Applying the tax rate for 2007, this difference amounts to $192,559.71, which plaintiff contends is an "excessive fine" prohibited by the Eighth Amendment of the United States Constitution and Article I, § 1, ¶ 12 of the New Jersey Constitution.
In Ocean Pines, supra, the Supreme Court reviewed substantive and procedural due process challenges to N.J.S.A. 54:4-34. The Court stated that the purpose of the statute is to assist municipal tax assessors in discharging their responsibility for property valuations by affording them timely access to fiscal information that can aid in the valuation of property. Ocean Pines, supra, 112 N.J. at 7. See also, Lucent Techs., Inc. v. Twp. of Berkeley Heights, 405 N.J. Super. 257, 263 (App. Div. 2009). The Court rejected the substantive due process challenge, noting that "the municipality has a significant interest in the timely receipt of economic data for income-producing property," and that there is a rational basis for the legislature's conclusion that the appeal-dismissal sanction of the statute "creates a reasonable incentive in the owner of such property to produce the requested data." Ocean Pines, supra, 112 N.J. at 10.
In considering the procedural due process argument, the Court applied the balancing test established in Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed. 2d 18, 33 (1976), that involves three factors: "(1) the nature of the private interest involved, (2) the risk of an erroneous deprivation of the private interest through the procedures used and the value of any additional safeguards, and (3) the nature of the governmental interest involved." Ocean Pines, supra, 112 N.J. at 9. Recognizing that "the private interest involved is the actual tax bill to the taxpayer," the Court noted that the protection afforded by the reasonableness hearing rendered "the risk of an erroneous deprivation of the taxpayer's money . . . minimal." Id. at 9-10. The Court concluded that the "significant" governmental interest in the "timely receipt of economic information necessary for an accurate valuation of the property . . . clearly outweighs the private interest involved." Ocean Pines, supra, 112 N.J. at 10.
Plaintiff relies heavily upon Austin v. United States, 509 U.S. 602, 113 S.Ct. 2801, 125 L.Ed. 2d 488 (1993), to support its argument. In Austin, the Supreme Court determined that the drug-related forfeitures of property pursuant to 21 U.S.C.A. §§ 881(a)(4) and (a)(7) were subject to the Excessive Fines Clause of the Eighth Amendment. The forfeiture provisions reviewed by the Supreme Court in Austin lend themselves to characterization as punishment for an offense. As the Court noted, "Congress understood those provisions as serving to deter and to punish," a view consistent with the "historical understanding of forfeiture as punishment." Id. at 621-22, 113 S.Ct. at 2812, 125 L.Ed. 2d at 505. In concluding that the forfeiture provisions constituted punishment, the Supreme Court relied upon a principle articulated in United States v. Halper, 490 U.S. 435, 448, 109 S.Ct. 1892, 1902, 104 L.Ed. 2d 487, 502 (1989): "[A] civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes, is punishment. . . ." (emphasis added).
Plaintiff seeks to expand the application of Austin here by characterizing N.J.S.A. 54:4-34 as serving retributive or deterrent purposes. However, the actual tax bill to plaintiff is not a punishment. The tax bill is not a forfeiture or even a civil sanction. It is the amount reached by applying the municipal tax rate to the valuation made, in compliance with statute, based upon the information available to the tax assessor. The process and the data relied upon were both found to be reasonable by the Tax Court. Plaintiff was not assessed any penalty or additional tax for its failure to comply with the Chapter 91 request.
The federal courts have rejected efforts to expand the application of Austin to cases in which a tax penalty or "addition to tax" was imposed. In Little v. Commissioner, 106 F.3d 1445 (9th Cir. 1997), the Commissioner of Internal Revenue Service imposed "additions to tax" for a taxpayer's negligence and substantial understatement of tax for three tax years pursuant to 26 U.S.C.A. §§ 6653(a) and 6661. The taxpayer's argument that these "additions to tax" violated the Excessive Fines Clause of the Eighth Amendment was rejected by the Court of Appeals for the Ninth Circuit:
Taxpayer offers no compelling reason for extending the holding of Austin to his situation. The additions to tax at issue in the present case are purely revenue raising because they serve only to deter noncompliance with the tax laws by imposing a financial risk on those who fail to do so.
[Little, supra, 106 F.3d at 1454.]
See also Louis v. Comm'r, 170 F.3d 1232 (9th Cir. 1999), cert. denied, 528 U.S. 1115, 120 S.Ct. 932, 145 L.Ed. 2d 812 (2000); Thomas v. Comm'r, 62 F.3d 97, 102-03 (4th Cir. 1995); McNichols v. Comm'r, 13 F.3d 432, 433-34 (1st Cir. 1993), cert. denied, 512 U.S. 1219, 114 S.Ct. 2705, 129 L.Ed. 2d 833 (1994).
The reasoning in declining to expand the Austin decision is even more persuasive in this case as plaintiff was required to pay no more than the tax that was due. The application of N.J.S.A. 54:4-34 did not impose any additional tax upon plaintiff for its failure to comply. We therefore conclude that the statute as applied does not result in the imposition of an "excessive fine" prohibited by the United States and New Jersey Constitutions.
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