SPRINGFIELD, NJ—Understanding the key valuation ratios plays a critical role in determining when a property tax assessment should be appealed, Springfield attorney Daniel Kanoff tells GlobeSt.com exclusively.

In the second part of a two-part Q&A, Kanoff describes how tax appeal attorneys calculate the “upper limit value” for a property to decide whether the tax assessment is reasonable.

Kanoff, an associate at Springfield-based Blau & Blau, which specializes in property tax appeals, was named a "Rising Star" by New Jersey Super Lawyers magazine in 2014, one of a handful of attorneys under 40 with 10 or less years' experience who have been awarded the title.

Question: Let's talk hypothetically about a property assessed for $7,500,000. Suppose it is worth at least $10,000,000. Is that one where you would consider an appeal?

Kanoff: Each year the Division of Taxation does a sales study to determine the average ratio of assessed value to true value. If the average ratio is low, the true value can be more than the assessed value and still be too high. In your example, if the average ratio was 50% and the assessment was $7,500,000 then the equalized assessed value would be $15,000,000. The property would be over-assessed even though it was assessed for less than the $10,00,000 true value.

Question: What is an equalized assessed value?

Kanoff: The equalized assessed value is determined by dividing the assessment by the average ratio.

Question: So a property owner can win a tax appeal if the property's equalized assessed value is more than its true value?

Kanoff: Not necessarily. Chapter 123 is more complicated than that. It depends on the upper limit ratio and the upper limit value.

Question: What is the upper limit ratio?

Kanoff: It's the average ratio multiplied by 1.15. So in our example, if the average ratio is 50% the upper limit ratio is 57.5%

Question: What is the upper limit value and why is it important?

Kanoff: You calculate the upper limit value by dividing the assessment by the upper limit ratio. So in your example, if the assessment is $7,500,000 and the upper limit ratio is 57.5% the upper limit value would be $13,040,000. The upper limit value is important because, in most cases, in order to reduce the assessment, the property owner must prove that the market value of the property is less than the upper limit value.

Question: What happens then?

Kanoff: If you prove that the market value is less than the upper limit value, the county board of taxation or the tax court will multiply the market value by the average ratio to determine the new assessment. In the example we've been using, if the court found that the market value was $13,030,000 it would reduce the assessment to $6,515,000. If, on the other hand, the court found that the market value was $13,050,000 it would affirm the assessment.

Question: Earlier you said that in most cases you must prove that the market value is less than the upper limit value in order to reduce the assessment. What are the exceptions?

Kanoff: There are two exceptions.

Chapter 123 does not apply in a revaluation year. In a revaluation year the average ratio and the upper limit are both 100%. You need only prove that the market value is less than the assessed value. If you do, the assessed value will be reduced to the market value.
The upper limit value can never be more than 100%. If the average ratio is 95% the upper limit value is still 100% not 109%

Question: This sounds complicated.

Kanoff: It is. That's why you want to make sure you use an attorney experienced in tax appeals, not a general real estate lawyer.

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