Cost of tax settlement to be felt over 3 years
Hilton appealed assessment based on lower vacancy rates
BY VINCENT TODARO
Staff Writer

East Brunswick will have to give more than a half-million dollars back to a local hotel as the result of a tax appeal settlement.

The Hilton hotel in the Tower Center, Route 18, appealed its tax assessments for 2003 and 2004, and as part of its settlement with the township, will get a refund of $620,000, according to township Finance Director L. Mason Neely. In turn, the hotel agreed to drop its appeal of the 2005 assessment.

Neely said the township is buying notes to finance the refund and spread out the impact on taxpayers. Instead of having to shoulder the $620,000 loss in one year, the hit will be spread over three years.

Taxes paid on the average township residence will be increased by $13 for a three-year period as the result of the settlement.

“Instead of paying it all at once, and giving everyone a tax increase all at once, we will finance it over three years,” he said.

Neely said it was obvious that the township’s assessments would not stand up in New Jersey tax court, so the township opted to settle the case. The settlement still awaits a judge’s approval, but that is considered a formality.

“The amount of taxes we owe is about $620,000 based on the reduction of value,” Neely said.

What made the hotel’s case successful was that the Hilton saw lower vacancy rates and revenue levels, which should have reduced the property’s assessed values in the three affected years, Neely said. In January 2005, the township did lower the assessment, though only for that year.

While residents’ property taxes are based only on an estimated assessment of their property value, commercial and industrial taxes are based on a different formula that takes into account the level of profit.

Residential assessments are based on the replacement value, or what it would take to replace the property and home, as well as market value. But because business buildings are sold less frequently, and are more often rented, the other method is needed. That involves looking at the rental rate and measuring that against the gross income of the business, Neely said. In the case of the hotel, occupancy rates were a factor in determining the income level.

New Jersey laws also strengthen such appeals, he said. The state is unique in that any party can appeal an assessment, even if it’s not their own.

“It allows full disclosure,” Neely said of the law. “There are lots of attorneys looking to appeal taxes all the time.”

New Jersey also has a law requiring tax assessors to keep commercial and industrial properties assessed within 15 percent of the common assessment to sales ratio — the assessment on the books versus the selling price.

The last time East Brunswick was revaluated was in 1983, so the average property is assessed at about 30 percent of its actual market value. Every time the ratio drops, businesses are entitled to a reduction because they must stay within the 15 percent, Neely said.

“So we get appeals each year by commercial and industrial properties,” he said.