| Revaluation may be needed when properties in a municipality are not being assessed at the same rate of true market value and/or are being assessed substantially below true market value
Real property is required to be assessed for tax purposes at a percentage of true value set by each County Board of Taxation.
Before addressing the subject of revaluation, let me first review the basis on which property in New Jersey is valued.
You may know that New Jersey's real property tax is ad valorem or a tax "according to the value" meaning each person pays tax on the value of the property he or she owns. The State Constitution at Article VIII, Section 1, Par. 1 requires that all real property, except agricultural/horticultural land, be assessed at the "same standard of value." New Jersey Statutes at N.J.S.A. 54:4-23 establish the standard of property value to be the "full and fair value" or "true value" which is defined as "the price at which, in the assessor's judgment, each parcel of real property would sell for at a fair and bona fide sale by private contract
on October 1 next preceding the date on which the assessor shall complete his assessments..." New Jersey courts have held "true value," "market value" and "full and fair value," to be synonymous. Real property is required to be assessed for tax purposes at a percentage of true value set by each County Board of Taxation. All 21 counties in New Jersey have chosen 100 percent as the level at which property is to be assessed for taxation in support of county and local government and schools.
Revaluation may be needed when properties in a municipality are not being assessed at the same rate of true market value and/or are being assessed substantially below true market value.
The Division of Taxation
stresses the importance of
assessor participation and
offers many suggestions
to ensure a successful
The purpose of a revaluation program is to distribute the tax burden among property owners more fairly according to the true worth of their real estate.
A municipality may itself decide to revalue the property inside its boundaries or the County Board of Taxation may order a municipality to do so. Whether voluntarily or by Board order, certain approvals must be given by the Director of the State Division of Taxation before a revaluation can proceed. In a recent Tax Court decision it was observed by the Court, that the duty to determine whether a revaluation is required was assigned by the Legislature to the municipal assessor pursuant to the assessor's obligation under N.J.S.A. 54:4-23 to assess property at its "full and fair value," and to the County Board of Taxation pursuant to its supervisory authority over assessors, as per N.J.S.A. 54:3-16, and its obligations with respect to the equalization of property tax assessments in the county under N.J.S.A. 54:3-18 and N.J.S.A. 54:4-47. The court also observed that whether a revaluation is necessary is determined pursuant to standards established by the Director, Division of Taxation. [N.J.S.A. 54:1-35.35, N.J.A.C. 18:12-4.1 et seq. and N.J.A.C. 18:12A-1.14(b)(1).]
When the state Division of Taxation receives notice of a revaluation, statutory and regulatory criteria are applied and property statistics reviewed to decide if revaluation is warranted.
A Taxing District's Average Assessed Value to True Value Ratio (aka Director's Ratio); Coefficients of Deviation; Year Last Revalued; Neighborhood/ Zoning Changes; Accuracy of Property Records; Revenues Lost through Appeals and any other pertinent evidence is reviewed when considering the need for revaluation.
The Sales Ratio Program is a two-year statistical averaging study conducted annually by the Taxation Division's Property Administration Branch. The Sales Ratio Program compares the sale prices with the assessed values of properties sold in arms length transactions during a specific time period based on deed recordings. The assumption is that the assessed values of sold properties are representative of the assessment practice in the taxing district. For example, if the assessed values of the properties sold average 90 percent of the sales prices, it is assumed that all similar properties in the taxing district are assessed at 90 percent of their true value. A ratio is developed for each of the 566 taxing districts in the state, known as the Average Assessment Sales Ratio or Director's Ratio. A Director's Ratio of 85 percent or less denotes noncompliance. It is not considered a good ratio relative to the 100 percent value standard at which property is to be assessed for taxation and indicates a rising real estate market and/or a lack of assessment maintenance. But a declining ratio does not indicate the level of uniformity of the assessments within a municipality. Uniform assessment may be measured by Coefficients of Deviation. A General Coefficient of Deviation is a measure of variation, i.e. the average deviation of individual Assessment-Sales Ratios from the overall average Assessment-Sales Ratio of all sales in a taxing district expressed as a percent. About 25 years ago a 20 percent General Coefficient of Deviation was considered a good degree of uniformity, the current acceptable figure for Coefficients of Deviation is 15 percent, although some authorities advocate 10 percent in light of improved assessment practices and computerization. A Coefficient of Deviation greater than 15 per-cent indicates a significant lack of uniformity within a municipality and the need for revaluation.
The Division also reviews the number of sales outside a municipality's common level range or Chapter 123 corridor for Class 1 (vacant land), 2 (residential) and 4 (commercial/industrial) properties. For instance, if the Director's Ratio is 77 percent, the municipality's common level range is 65.45 percent to 88.55 percent. Recent sales are compared to assessments to get an assessment/sales ratio. An individual Assessment-Sales Ratio is found by dividing the taxable assessed value of a property by the amount for which the property sold and expressing the result as a percentage. The more sales falling above or below the 15 percent corridor from the Director's Ratio, the greater the need for a revaluation.
Again, the number of years since the last revaluation can be a factor. If a revaluation has not taken place for 10 or more years, one may be needed especially if regular assessment maintenance has not been done.
When a revaluation is ordered by the county Tax Board, the state offers a revaluation orientation.
A Division representative meets with the assessor and municipal officials to offer support and information regarding the revaluation process. The representative discusses the revaluation stages, from selecting a revaluation firm to the final values being put on the Tax List (or to the tax appeals that may follow the completion of the revaluation). The division stresses the importance of assessor participation and offers many suggestions to ensure a successful revaluation in a timely manner.
The division's role is now to monitor the revaluation process from beginning to end.
A municipality's tax map must be submitted for review and approval by the division before a revaluation can proceed.
In the process of inspecting a tax map for revaluation purposes, the State of New Jersey is concerned that important information related to the revaluation process is shown. The information referred to would be block and lot numbers, dimensions, acreages of lots and clear lot limits.
Another important item that needs to be shown on each tax map is the Certification Statement. This statement is supplied by the New Jersey Licensed Land Surveyor and states that the map was made or revised under his/her immediate supervision. The surveyor's name, signature, license number and seal are shown after this statement.
N.J.S.A. 54:1-35.35-38.37 requires the Director, Division of Taxation to establish standards to be used in the valuation and revaluation of real property to be used for assessment purposes and to prescribe minimum qualifications for firms and individuals engaged in the business of valuing and revaluing all or designated portions of a municipality.
Prior to the execution of any revaluation contract, a municipality must submit the contract to the Director for his review. The Director is required to make a determination regarding the contract within 30 days.
The revaluation firm submits a revaluation contract for approval to the Division of Taxation and once approved begins inspections and preliminary work.
Both interior and exterior physical inspection of all properties are conducted during the reevaluation process. Recent sales are studied and income-providing properties must supply business income information to the revaluation company/assessor so appropriate appraisal techniques can be used.
Throughout a revaluation program Taxation Division personnel tries to visit the municipality to check the revaluation's progress.
Once a revaluation is complete, there are property reviews to conduct. Revaluation firms are required to mail written notices to all property owners indicating the new value and advising the property owner of his right to an informal review with the firm. At that time, the owner can ask questions, discuss possible errors and better understand the revaluation process.
The final result of the revaluation should be uniformity of assessments and these assessments are based on the same standard of value called for in the New Jersey State Constitution of 1947.