Chapter 91 – Law Continues to Develop

On May 28, 2008, I discussed the HJ Bailey Company v. Neptune case where the Appellate Division held that the appeal preclusion provision under Chapter 91 does not apply to non-income producing properties.  In the HJ Bailey case, the property in question was owner-occupied and did not generate any income over the preceding years.  Although the decision is sound, it must be read in conjunction with a recent New Jersey Tax Court case which held that the Chapter 91 appeal preclusion remedy may apply to certain types of non-income producing properties.  Specifically, the New Jersey Tax Court recently held that when an income producing property stops producing income, the taxpayer is obligated to respond to the Chapter 91 request and advise the local assessor that the property was no longer producing income.  Trinity Matzel, LLC v. City of East Orange (January 16, 2009).
Trinity Matzel owned an apartment building in East Orange which produced rental income for many years prior to 2006.  During 2006, the property owner performed major renovations at which time the tenants vacated the apartment building.  As a result, no income was received in 2006.  The following year, the tax assessor sent a Chapter 91 request to the property owner seeking annual income and expense information for the property.  The property owner did not respond to the Chapter 91 request.
The following year, the property owner filed a tax appeal seeking to appeal the assessment.  The municipality moved to dismiss the complaint arguing that the property owner failed to respond to the Chapter 91 request and, as a result, the complaint must be dismissed. [See New Jersey Law Journal for discussion on Chapter 91] The property owner, relying in part upon the HJ Bailey case, argued that since the property did not produce any income in 2006, it was not required to respond to the Chapter 91 request seeking information for that particular year.  The municipality, relying primarily upon an prior Appellate Division case captioned Alfred Conhagen v. Borough of South Plainfield, 16 N.J. Tax 470 (App. Div. 1997), argued that the complaint should be dismissed even though the property did not produce income in the year of question, because in prior years, the property did produce income and the property owner failed to notify the assessor of the change to a non-incoming producing property.
The Tax Court reviewed the Conhagen and HJ Bailey cases and found that the Conhagen case was more similar to the case at bar and dismissed the taxpayer’s complaint.  The Tax Court followed Conhagen’s holding that a property owner “had a mandatory duty to respond to the tax assessor and a duty to demonstrate that its property ceased to be income-producing as of May 1994.” (emphasis added).
The definition of “non-incoming producing” is not as clear as one would think.  If the property generated income at one time and subsequently becomes owner occupied or vacant, the property owner should respond to the Chapter 91 request and advise the assessor of the status of the property.   In light of the continued uncertainty in this area of the law, prudent property owners should respond to the annual Chapter 91 request even if the property does not generate any income.  The response is easy to complete and will provide you with protection in the event a motion to dismiss your complaint is filed.