Pursuing Tax Appeals for Contaminated Sites

Pursuing Tax Appeals for Contaminated Sites
Riker Danzig Environmental UPDATE May 2016

In a recent case, ACP Partnership v. Garwood Borough (Tax Court March 22, 2016), a New Jersey Tax court found that although property was “in use” for tax valuation purposes, the town was required to consider contamination at the property when assessing taxes.  In ACP, the property owner purchased a site without being aware that it was contaminated.  In fact, the property owner subsequently received an innocent party grant from the  NJDEP to assist with the cleanup.  The property was assessed for tax purposes at its full value because the owner was able to use the site and had several tenants.  The property owner, however, challenged the tax assessments for the past six years given that the property was contaminated.  The town argued that because the contamination was not interfering with the use of the property, it should be assessed at its full value.  The court disagreed.

The court stated that contamination is a critical factor in the true market value of property.  The court explained that since the taxpayer was not responsible for the contamination, there would be no windfall benefit bestowed on the owner by considering contamination in a tax assessment. The issue for the court, however, was how to address contamination when conducting the proper tax assessment.  

Although the court understood that normal assessment techniques should be used when valuing a contaminated property that was “in use,” the court found that it was appropriate to consider the environmental condition of the property when assessing value.  The court stated that normal assessment techniques must be tempered by the costs incurred by the property owner in addressing the contamination.  Thus, the court explained that competent testimony from environmental and property valuation experts would be needed to determine the true market value of the subject property.  The court also dismissed the town’s argument that the court must consider whether third parties are responsible for the remediation.  The court held that “the party bearing responsibility for those [clean up] costs plays no role in determining a property’s true market value.”  

The ACP court suggests that although normal tax assessment techniques should be used by a town when contaminated property is “in use,” the town cannot disregard the impact of contamination on such valuation.  Given the holding in this case, tax appeals for contaminated properties should be explored and pursued in appropriate circumstances.