TOWNSHIP OF WAYNE,            :

                Defendant.    :

                Decided:    May 27, 2003

                Nathan P. Wolf for plaintiff (Rosenblum,
                Wolf & Lloyd, attorneys).    

                Heather A. Turnbull for defendant (Skoloff
                & Wolfe, attorneys).

KUSKIN, J.T.C.

    In these local property tax matters, plaintiff contends that the $53,000,000 assessment on its apartment complex for each of tax years 2001 and 2002 constituted a prohibited spot assessment because it was based solely on the purchase price of $63,175,000 paid by plaintiff in December 1998. Plaintiff does not challenge the amount of the assessment for either year, but seeks to have the assessment rolled back by almost $20,000,000 to the assessment for tax year 2000, $33,833,700. For the reasons discussed below, I conclude that the 2001 and 2002 assessments were not spot assessments, and, accordingly, I deny plaintiff's claim for relief.
    Based on the testimony of defendant's tax assessor, called by plaintiff as its only witness at trial (defendant called no witnesses), I make the following factual findings. For the tax years in issue, defendant had approximately 18,000 line items on its assessment list. Of those, approximately 16,000 were Class 2 properties.See footnote 1¹ Of the remainder, seven properties were apartment complexes, including the subject property which was identified as Block 701, Lot 1 on defendant's Tax Map. Defendant conducted a municipal-wide revaluation for tax year 1992. The revaluation assessment on the subject property was a partial assessment of $29,620,000. The property record card prepared by the revaluation company showed an estimated value for the completed complex exceeding $40,000,000 based on projected income and expenses.
    The apartment complex was completed during 1992, and, for 1993, the first year of full assessment, the initial assessment proposed by defendant's tax assessor was $38,049,900. The assessor was aware that the property had sold in June 1992 for $55,517,000. In investigating the sale, the assessor spoke with a representative from the purchaser of the property (the predecessor owner to plaintiff), who advised her that the sale was not at arms length, that the parties were related, and that the sale was accomplished for tax purposes. Based on this information, and representations by the representative as to the potential rental income from the then empty complex, the assessor agreed to reduce the 1993 assessment to $33,500,000. This assessment remained in place until tax year 1998, when it was increased by a $33,700 added assessment representing improvements to the gymnasium at the property.
    On December 29, 1998, the property sold to plaintiff for a purchase price of $63,175,000. As of January 10, 1999, the date that defendant's tax assessor was required to submit her 1999 assessment list to the Passaic County Board of Taxation, N.J.S.A. 54:4-35, she had not received a copy of the deed and, for tax year 1999, continued to assess the property at $33,533,700. The assessor learned of the sale before April 1, 1999. This triggered a review by her of the 1999 assessment on the property and the filing of an appeal for that year. For tax year 2000, the assessor carried over the 1999 assessment and again filed an appeal. The assessor had been authorized by the municipal governing body to decide what appeals should be filed.
    Although the assessor regarded the appeals as mechanisms for increasing the assessments, she instituted the appeals primarily to obtain, through discovery, information as to the sale of the property and accurate income and expense information so that she could review the assessment on the property. She needed additional information because she had not received a complete response to any of the requests for information she sent pursuant to N.J.S.A. 54:4-34 (“Chapter 91”). In 1995, she received, from plaintiff's predecessor in title, a rent roll, but the property was not fully occupied. She did not receive income and expense information. In 1996, she received no response to her request. In 1997 and 1998, she received a rent roll, and income and expense information for six months, and an annual budget. Plaintiff responded to her 1 999 Chapter 91 request by providing a rent roll but stating that an annual operating statement could not be furnished because plaintiff had owned the property for less than one year at the time of the response.
    The assessor was unwilling to use the information she received as a basis for valuing the subject property on an income approach.See footnote 2² She was unable to use income and expense information from the other six apartment complexes in the Township for purposes of valuing the subject property because the allocation of expenses between landlord and tenant was significantly different in those complexes from the allocation in the subject complex. At the subject complex tenants had a much higher expense obligation than in the other apartment complexes. If the assessor had used an income approach based on extrapolations from the information provided to her for the subject complex, the value indicated would have been in excess of $50,000,000.
    On February 1, 1999, the assessor sent a memorandum to defendant's Mayor and Council advising them that she had instructed defendant's attorneys to file an appeal to increase the assessment on the subject property and another property. In the memorandum she stated: “This procedure bypasses the 'welcome stranger' format where an assessor arbitrarily increases an assessment due to the sale. Our contention is that the market value has increased tremendously either by approvals or increases in the income stream. We may not be able to achieve the deed price, but I am confident that we will get a substantial increase regardless.” In response to an inquiry from a member of the Council as to why the assessment on the subject property was much lower than the sale price, the assessor, in a memorandum dated March 12, 1999, described the subject property as “unique” and indicated that appeals were filed “to allow us to serve interrogatories on the property owner [ ] to gain rent rolls for [the subject property]. . . .”
    Although the assessor had not changed the assessment on the subject property between 1993 and 2001 (except for the $33,700 added assessment in 1998), she had revised the assessments on four of the apartment complexes in the Township for tax year 2000, as part of the revision of 1182 assessments (including 77 Class 4 properties), and revised the assessment on a fifth complex for tax year 2001, as part of the revision of 5447 assessments (including 144 Class 4 properties). The percentage change between the tax year 2000 and tax year 2001 assessments on the subject property was substantially greater than the percentage change in the assessments on the other apartment complexes for tax year 2000 or 2001.
     In August 2000, the assessor participated in a settlement conference relating to defendant's appeals for tax years 1999 and 2000 relating to the subject property. At the conference she received a rent roll and actual annual income and expense information. Based on that information, she, in collaboration with the appraiser for the municipality, determined an income approach value for the property and made a settlement proposal with respect to the 1999 and 2000 appeals and the 2001 assessment. Plaintiff did not accept the proposal, and, at a later date, the assessor caused the 1999 and 2000 appeals to be withdrawn.
    The assessor testified that the increase in assessment which she placed on the subject property for tax year 2001 was not based on the sale price, but was the result of the income approach she and the appraiser for the municipality developed at the August 2000 settlement conference. For tax year 2002, she carried over the 2001 assessment.
    Based on the preceding facts, plaintiff contends that, in reality, the sole basis for the increase in the assessment on the subject property for tax year 2001 was the sale which took place on December 29, 1998. Plaintiff asserts that: 1) the assessor admitted the role of the sale in causing her to review the assessment, and 2) her failure to increase the assessment in years preceding the sale, based on income and expense information provided to her by the prior owner, confirms that the sale alone resulted in the assessment increase.
    Defendant responds that, although the sale stimulated the assessor to review the tax assessment on the subject property, the sale played no role in determining the amount of the 2001 assessment. Defendant contends that the assessment resulted from an analysis of the income and expenses for the subject property as contained in the information provided to the assessor at the August 2000 settlement conference. In addition, defendant asserts that the assessor's revision of the assessments on other apartment complexes for tax years 2000 (four complexes) and 2001 (one complex) demonstrates that the subject property was not singled out for spot assessment in 2001.
    West Milford Tp. v. Van Decker, 120 N.J. 354 (1990) contains our Supreme Court's most recent statement of the law applicable to spot assessments. The tax assessor in West Milford increased the assessments of residential properties which had sold but did not revise the assessments on residential properties which had not sold. The Court held that this practice constituted unconstitutional intentional discrimination.
        By singling out for reassessment only that small group of taxpayers who purchased homes in 1984 while leaving undisturbed the assessments of other property in the class, West Milford deviated from the well-established assessment policy of the State. Such spot assessments known as the “welcome stranger” pattern, are commonly recognized as intentional discriminatory practices.
        . . . .
        Such spot assessments violate the New Jersey Constitution's uniformity clause. We note that it is arbitrary intentional discrimination that is unconstitutional. A municipality may revise assessments in years other than years of a municipal-wide revaluation for legitimate reasons . . . . However, under no circumstances can appraised valuation of property be increased merely because it has been sold.

        [Id. at 361-62 (citations omitted) (emphasis added).]

After concluding that the “welcome stranger” practice also violated the equal protection clause of the Fourteenth Amendment of United States Constitution, the Court stated:
        Accordingly, the Township practice of increasing the assessed value only of homes purchased in the Township in 1984 and leaving the value of other homes undisturbed constitutes spot assessment in violation of the federal and state constitutions.