News
Towns Pay The Price When Tax Appeals Succeed
By Ryan Fennell
MIDDLETOWN - When you're given a gift and try to return it but find that it was purchased at a sale price, the store usually makes it clear that you're not entitled to a refund based on the full cost.
While potentially upsetting, the rationale is evident; the store only took in the sale price so it only makes financial sense to refund what was taken in. Not so with property tax appeals.
When a resident or commercial entity files a tax appeal and is awarded a rebate, the municipality in which the property resides must assume the full burden of the rebate even though it only took in approximately 20 percent of the taxes collected.
This practice has Middletown Township Committee members crying foul.
The total tax bill breaks down into the municipal portion, the county portion, and the board of education portion each accounting for a certain percentage.
In Middletown's case the municipal portion makes up approximately 20 percent of the total tax bill while the board of education portion is approximately 70 percent.
However, when a tax appeal is filed and the property owner wins the municipality is legally mandated to rebate the full amount without any contribution from the other entities.
Municipalities in Monmouth County recently underwent township and borough wide revaluations. Since that time property and real estate values have consistently lowered.
"The issue at hand is that we were forced to do a revaluation," Middletown Deputy Mayor Anthony Fiore said. "The drop in real estate prices and drop in home values, we haven't seen this type of activity since the forties. While this may have always been the burden we never had a lot of tax appeals because home values continued to rise."
According to Fiore there has been a significant increase in tax appeals over the last two years and he believes the trend will continue.
"The county forced townships to do a revaluation at the height of the market," Fiore said. "Last year everybody got different valuations of their properties and we've been flooded with a massive amount of tax appeals which is costing tens of thousands of dollars in litigation and then hundreds of thousands of dollars in refunds from successful appeals."
"We saw a dramatic increase last year. We continue to see a dramatic increase this year and we expect we'll see a continued increase next year," Fiore added.
"This is something I don't think many people know and I think it's staggering that it's allowed to go on," Mayor Gerard Scharfenberger said.
Scharfenberger and Fiore cited this system of tax appeal rebates as a major driver in the current budget situation the township is in.
"You can eliminate positions, you can eliminate programs, you can eliminate this or that, but you can't eliminate this and this can run into the hundreds of thousands if not millions of dollars that we're expected to refund that we didn't receive in the first place," Scharfenberger said.
The current rebate system was one of the motivating factors behind Scharfenberger's introduction of a resolution at the last council meeting to remove education funding from property taxes.
"One of the reasons I supported thinking about changing the way we fund education was when a property owner appeals their taxes, we as a municipality have to give it all back," Fiore explained. "To me that's something that needs to be addressed. Unless the state decides to think about education funding they're not going to change anything for us to have to bear the cost of these tax appeals and rebates."
Scharfenberger said that the proposal to eliminate education funding from property taxes is not his alone.
"A lot of mayors around the state are definitely behind this, both Democrats and Republicans because we realize this is a big driver for local property taxes," Scharfenberger said. "This (rebates) is only one component municipalities face when it comes to property taxes, but it's evidence of the need to revamp the system."
Scharfenberger and Fiore said that the township is currently looking into the logistics of implementing a reassessment of homes and properties in Middletown that would better reflect the current market.
Scharfenberger said that if the township could move forward with such an undertaking it would alleviate the pressure of the tax appeals by providing more fair and accurate assessments of homes and commercial properties in the current market.
Scharfenberger hopes that a reassessment could be completed by next year if necessary approvals are gained expeditiously.
