Opinion
Docket No. 011756-2012
11-09-2012
Greenwood ACRA, Inc. v. Township of Hamilton
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Patrick DeAlmeida
Presiding Judge
Arthur E. Sklar, Esq.
Levin, Staller, Sklar, Chan, Brown & Donnelly, P.A.
3030 Atlantic Avenue
Atlantic City, New Jersey 08401-6380
Raymond J. Went, Jr., Esq.
Hankin, Sandman & Palladino
30 South New York Avenue
Atlantic City, New Jersey 08401
Dear Counsel:
This letter constitutes the court's opinion on the parties' motions with respect to whether plaintiff's cause of action is limited to a reasonableness hearing pursuant to N.J.S.A. 54:4-34 and Ocean Pines, Ltd., v. Borough of Point Pleasant, 112 N.J. 1, 11 (1988), because of plaintiff's failure to respond to the assessor's request for income and expense information. For the reasons explained more fully below, the court concludes that the subject property is not income producing within the meaning of N.J.S.A. 54:4-34. Plaintiff, therefore, is not subject to the statute's appeal-limitation provision.
I. Findings of Fact and Procedural History
This letter opinion sets forth the court's findings of fact and conclusions of law on the parties' motions. R. 1:6-2(f). The following findings of fact are based on the certifications and exhibits submitted by the parties.
Plaintiff Greenwood ACRA, Inc. is the owner of real property in defendant Hamilton Township, Atlantic County. The property is designated by the township as Block 1135.01, Lot 10.01 and is commonly known as 4501 Black Horse Pike.
Plaintiff operates the Atlantic City Race Course on the subject property which is open to the public for approximately six days a year of live racing. In addition, the property hosts year-round simulcasting of races open to the public in the first-floor grandstand.
During 2011, as in earlier years, plaintiff entered into five licensing agreements with third parties to permit short-duration, non-continuous use of the parking lot at the subject property for auctions, car shows and the circus. Three of the licensing agreements were for one day. One agreement covered a four-day period and one covered a three-day period. Each agreement indicated that the license applied to a predetermined portion of the parking lot at the subject property, although the exact location was not specified in any of the licensing agreements.
Revenue from the licensing agreements accounted for 1.54% of plaintiff's total revenues from the property in 2010 and 1.66% of plaintiff's total revenues from the property in 2011. On a "statement of operations" disclosed during discovery plaintiff characterized revenue from the licensing agreements as "event rental income."
It is undisputed that during 2011 the Hamilton Township tax assessor sent plaintiff a request pursuant to N.J.S.A. 54:4-34 for income and expense information relating to the subject property to assist the assessor in determining the assessment for the property for 2012. Plaintiff failed to respond to the request. As a result, the assessor set a total assessment of $20 million for the property for 2012 without the benefit of plaintiff's response.
Plaintiff challenged the assessment before the Atlantic County Board of Taxation. On June 12, 2012, the county board issued a Judgment affirming the assessment. The code on the Judgment indicates that the decision was the result of plaintiff's having failed to respond to the assessor's request for income and expense information.
On July 9, 2012, plaintiff filed a Complaint with this court challenging the assessment.
On August 1, 2012, defendant filed an Answer asserting as an affirmative defense that "Plaintiff's claims are barred for failure to respond to the Township's request for Plaintiff to complete an Income and Expense Statement pursuant to N.J.S.A. 54:4-34 (Chapter 91)."
On August 8, 2012, plaintiff moved to strike the township's affirmative defense. According to plaintiff, the subject property is owner occupied, generates no rental income, and is not, therefore, subject to the appeal-limitation provision of N.J.S.A. 54:4-34.
On August 30, 2012, defendant opposed plaintiff's motion and cross-moved to limit plaintiff's remedy to an Ocean Pines reasonableness hearing.
Although defendant's cross-motion asks the court to dismiss the Complaint with prejudice, it is well-established that a taxpayer subject to N.J.S.A. 54:4-34 is entitled to an Ocean Pines reasonableness hearing prior to dismissal of the Complaint.
The parties waived oral argument. The motions, therefore, are decided on the papers.
II. Conclusions of Law
N.J.S.A. 54:4-34 provides
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 if he shall fail or refuse to respond to the written request of the assessor within 45 days of such request . . . 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 . . . .
Where the owner of income-producing property fails to respond to an assessor's timely and clear request for income and expense information, the taxpayer's subsequent challenge to the assessment on that property is "sharply limited" by N.J.S.A. 54:4-34. Ocean Pines, supra, 112 N.J. at 11. Such a taxpayer may seek a hearing, likely summary in nature, in which the court reviews "(1) the reasonableness of the underlying data used by the assessor, and (2) the reasonableness of the methodology used by the assessor in arriving at the valuation." Ibid.
This statutory limitation, however, does not apply to property that does not produce income, even if the assessor's request for income and expense information went unanswered by the property owner. H.J. Bailey Co. v. Township of Neptune, 399 N.J. Super. 381 (App. Div. 2008); See also Thirty Mazel, LLC v. City of East Orange, 24 N.J. Tax 357 (Tax 2009). For purposes of N.J.S.A. 54:4-34 "income producing property is generally limited to property producing rental income." ML Plainsboro, Ltd v. Township of Plainsboro, 16 N.J. Tax 250, 259 (App. Div.)(citation omitted), certif. denied, 149 N.J. 408 (1997). A property is income producing under the statute if a fee is paid to the owner for "the continuous and exclusive use of a specific portion of the land and buildings, in the traditional sense of a tenancy . . . ." Southland Corp. v. Township of Dover, 21 N.J. Tax 573, 589 (Tax 2004). The limitation does not apply where revenue is generated from permitting "the brief right to enter the land and buildings with others on a non-exclusive basis, more akin to a license." Ibid.
Plaintiff contends that the subject property does not produce income within the meaning of N.J.S.A. 54:4-34 because the property owner does not realize rental income from a tenancy at the property. The court concludes that plaintiff's position is supported by law.
The court's decision is guided by the Appellate Division holding in Great Adventure, Inc. v. Township of Jackson, 10 N.J. Tax 230 (App. Div. 1988). In that case, the property owner operated an amusement park. Patrons were charged an admission fee which entitled them to enter the facility and have access to a variety of rides, games and other attractions. The municipal tax assessor sent the property owner a request for income and expense information pursuant to N.J.S.A. 54:4-34 to assist with setting the assessment for the following tax year. Id. at 231. The taxpayer did not respond to the request and the municipality thereafter sought dismissal of a subsequently filed appeal of the assessment.
The court framed the issue before it as follows:
The question then is whether the phrase "income-producing property" as used by the statute was intended by the Legislature to include only property producing rental income or to extend as well to commercial activities conducted by an owner-occupier which produce business income.The court applied a well-established understanding of the term "income-producing property" to N.J.S.A. 54:4-34:
[Id. at 232.]
We agree with the Tax Court, both as expressed by Judge Crabtree in Monsanto [Co. v. Town of Kearny, 8 N.J. Tax 109 (Tax 1986)] and Judge Rimm in his oral opinion in this case, that the phrase "income-producing property" must be construed as a term of art in accordance with the understanding commonly ascribed to it by the business, investment, and real estate community. As Judge Rimm pointed out, in the real estate appraisal field, the term income-producing property is generally limited to property producing rental income.
[Ibid.]
The court rejected the municipality's argument that the taxpayer's property was income producing because "the admission fee paid by patrons actually constitutes a rental payment for the use of the premises." Id. at 233. The court concisely explained its disagreement with that position:
We conclude, however, that the argument is specious. The admission fee is no different than that paid by patrons of any other amusement or entertainment facility including, for example, theaters, concert halls, ball parks, circuses and the like. The fee is not paid by the patron for the use of the property in any tenancy sense but rather for the entertainment package offered.
[Id. at 233-34.]
The court concludes that the licensing agreements in place at the subject property during 2011 did not create a landlord-tenant relationship between the property owner and the licensees for purposes of N.J.S.A. 54:4-34. The agreements were for limited duration, the longest being four days in length. In addition, the licensing periods were not continuous, but were instead sporadic and separated by months in which no licensing activity took place. Nothing in the terms of licensing agreements indicates that the parties to the agreements contemplated the establishment of a landlord-tenant relationship or the creation of an enduring property interest for the licensees. The agreements allow the licensees to enter the subject property for the limited purpose of conducting short-term commercial activity in the parking lot in exchange for a set fee and a portion of revenue generated from specified concessions at the events. The agreements prohibit the licensees from erecting any structure and making any improvement to the subject property.
The court concludes that the revenue generated from the licensing agreements at the subject property during 2011 is more akin to the admission fees examined by the Appellate Division in Great Adventure, where the property was found not to be income producing, than it is to the rental income from lease agreements in a variety of cases in which courts have held that the appeal-limitation provision of N.J.S.A. 54:4-34 applies. See Lucent Technologies, Inc. v. Township of Berkeley Heights, 405 N.J. Super. 257 (App. Div. 2009)(holding rental payments from sale/lease-back transaction renders property income producing under N.J.S.A. 54:4-34), aff'd in part, rev'd in part on other grounds, 201 N.J. 237 (2010); Morey v. Borough of Wildwood Crest, 18 N.J. Tax 335, 337 (App. Div. 1999)(holding N.J.S.A. 54:4-34 applicable to income from the rental of hotel rooms), certif. denied, 163 N.J. 80 (2000); Alfred Conhagen, Inc. v. Borough of South Plainfield, 16 N.J. Tax 470, 472 (App. Div.)(holding N.J.S.A. 54:4-34 applies where taxpayer occupied building, but leased a portion of adjoining land to another entity for the storage of vehicles), certif. denied, 151 N.J. 74 (1997); SKG Realty Corp. v. Township of Wall, 8 N.J. Tax 209 (App. Div. 1985)(holding rental payments from lease with related entity, even if not economic rent, renders property income producing under N.J.S.A. 54:4-34); Southland, supra, 21 N.J. Tax at 586-587 (holding payments associated with lease provision of franchise agreement render property income producing under N.J.S.A. 54:4-34); Rolling Hills of Hunterdon, LP v. Township of Clinton, 15 N.J. Tax 364 (Tax 1995)(holding portion of the fee paid by nursing home patients is, for purposes of N.J.S.A. 54:4-34, effectively attributable to rent for the room they occupy).
Having concluded that the subject property is not income producing, the court is compelled to grant plaintiff's motion to strike the municipality's affirmative defense and deny defendant's cross-motion to limit plaintiff's remedy to an Ocean Pines reasonableness hearing. An Order effectuating the court's decision is enclosed.
Prior to the return date of the parties' motions, the municipality discovered two towers on the subject property which defendant suspected to be income producing. Plaintiff thereafter produced credible evidence that a tower on the grandstand is used to boost 9-1-1 transmissions as a community service without charge. A second tower sits within a utility right-of-way granted to Atlantic City Electric Company by plaintiff's predecessor in title. According to a certification submitted by plaintiff, this tower generates no revenue for plaintiff. Defendant uncovered no evidence to contradict the certification. Defendant, of course, may move for reconsideration of the court's Order denying its motion to dismiss should discovery produce evidence that plaintiff realized rental income from the second tower. See Johnson v. Cyklop Strapping Corp., 220 N.J. Super. 250, 257 (App. Div. 1987)(holding a trial court has "the inherent power, to be exercised in its sound discretion, to review, revise, reconsider and modify its interlocutory orders at any time prior to the entry of final judgment."), certif. denied, 110 N.J. 196 (1988).
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Very truly yours,
Patrick DeAlmeida, P.J.T.C.