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Is a real estate tax assessment appeal admissible in a condemnation case?

It happens often during a condemnation trial. The attorney for the condemnor will attempt to move into evidence an application filed by claimant to reduce real estate taxes in a tax certiorari proceeding. The argument made is that the lower value placed on the property by the former owner in the tax appeal constitutes an admission against interest. That is why an article published on March 30, 2012 in the “New Jersey Condemnation Law” blog caught our attention.

In the blog, a Kansas case is reported where an owner of a Kansas City Mall challenged a $7.5 million award of court-appointed appraisers in an eminent domain case*, only to have the award reduced to $6.95 million at trial based on evidence of the property’s value from a prior tax appeal. The Kansas Supreme Court found “the tax appeal evidence was relevant to – both material to and probative of – the fair market of the subject property.” Proving that sometimes it is best to leave well enough alone. Kansas City Mall Associates, Inc. v Unified Government of Wyandette County, March 16, 2012, (Sup. Ct.) 2012 Kan Lexis 159.

The New Jersey condemnation law blog informs us that:

In New Jersey, a property’s assessed value is not admissible as proof of a property’s market value. However, New Jersey Rule of Evidence 803 (b)(2) could permit a valuation report, or other valuation evidence, from a property tax appeal to be admitted into evidence as an admission against interest. Notably, to be admissible, the rule does not require the statement to have been against the party’s interest at the time that the statement was made. However, the mere existence of an expert report is insufficient to have it admitted against a party, and the report must have been previously relied upon by the party to qualify as the party’s statement. See Skibinski v Smith, 206 N.J. Super., 349, 353-54 (App. Div. 1985).

But what is the rule in New York? At the outset, New York’s Eminent Domain Procedure Law provides that a condemnation claim may only be tried by a Supreme Court Justice, or if against the State, a Court of Claims Judge. EDPL Sec. 501(b); Accessocraft Products Corp. v City of New Rochelle, 7 AD3d 703 (2nd Dept. 2004). First, it is important to note that New York’s State Constitution provides two different formulas for fixing value in the two valuation contexts.

In a condemnation proceeding, the subject property must be valued at its highest and best use regardless of actual use. Matter of City of New York (Clearview Expressway), 9 NY2d 439 (1961). The valuation of the subject property is set forth in the parties’ appraisal reports. Upon trial, all parties shall be limited in their affirmative proof of value to matters set forth in their respective appraisal reports. 22 NYCRR 202.61(e). Article I § 7 of the New York State Constitution provides that “private property shall not be taken for public use without just compensation.” The constitutional requirement of just compensation requires that the former property owner be indemnified so that it may put in the same relative position, insofar as that is possible, as if the taking had not occurred. Buffalo v J.W. Clement Co, 28 NY2d 241 (1971). So, in condemnation, the subject property must be valued on highest best use.

There is fundamental difference in the valuation property for tax assessment purposes. Real Property Tax Law § 302(1) states that “the taxable status of real property in cities and towns shall be determined annually according to its condition and ownership as of the first day of March and the valuation thereof determined as of the appropriate valuation date.” The New York State Office of Real Property Services (“ORPS”) has set forth in their opinion on this issue in Volume 10, Opinions of Counsel SBRPS No. 45. This opinion discusses when property should be valued according to its current use, and when it should be valued based on its highest and best use. ORPS counsel concluded in their opinion that for purposes of real property tax assessments, property must be valued based on its current use, not its highest and best use. The courts in New York State have adopted current use as the general standard for tax assessment purposes in valuing improved properties.

The cardinal principle of property valuation for tax purposes set forth in the State Constitution is that property assessments shall in no case exceed full value. NY Const. Art. XVI § 2; Matter of Commerce Holding Corp., v Board of Assessors of the Town of Babylon, 88 NY2d 724, 729. A tax certiorari determination requires an inquiry as to the property’s condition and ownership on the applicable valuation date. RPTL § 301 (1). This controlling principle of valuation has been interpreted to require valuation of improved property according to its existing use, not a potential one contemplated in the future. Matter of Gen. Motors Corp. Cent Foundry Div. v Assessors of the Town of Massena, 146 AD2d 851, 852 (3d Dept 1989).

There are other reasons why a tax assessment review proceeding is irrelevant to a condemnation proceeding. First, the date of title vesting in a condemnation proceeding is different than a tax assessment date. Matter of Lincoln Square Slum Clearance Project, 22 Misc2d 260 (Sup Ct, New York County, 1959), affd and mod 15 AD2d 153 (1st Dept 1961) affd 16 NY2d 497 (1965). Second, building values in tax certiorari proceedings cannot exceed certain amounts; (Id). Specifically, the building value in a tax certiorari proceeding cannot exceed the buildings reconstruction cost less depreciation. No such limitation exists in establishing just compensation In an eminent domain proceeding. And third, evidence of earnings in a tax certiorari proceeding carries less weight than in a condemnation proceeding. (Id).

Some courts might permit the introduction of assessed value of property in a condemnation proceeding, but such evidence should only be admissible when the other proofs of value are questionable. This should be a rare situation in a condemnation case since the parties are preceding based on appraisals. When it is considered, it is generally to assure that compensation is not less than the assessed valuation. See Matter of City of New York (Brooklyn Bridge Southwest), 25 NY2d 627 (1969).

In Matter of City of New York (2460 Jerome Ave. Realty Co.), 18 AD2d 991 (1st Dept. 1963), the court considered the assessed value of the subject property only because there was no evidence of rental value of the property in question or sale value of comparable properties. And, courts have recognized that the probative value of a tax assessment proceeding is not very high in condemnation proceedings even when such evidence is admissible. For example, in In Re Shinnecock Inlet, 43 NYS2d 532 (Suffolk County Ct. 1955) the court did not consider tax assessment evidence because the facts and the testimony in the condemnation proceeding differed so widely from the real property tax valuation. The court in that case noted that “the tax valuation has little, if any, probative value.” (Id. At 536.) And in Matter of City of New York (Lincoln Square Slum Clearance Project), 15 AD2d 153 (1st Dept. 1961) the court acknowledged that statements made by property owners in prior tax assessment proceedings lacked probative value in condemnation proceedings when it explained that:

A certain degree of cynicism is no doubt warranted by the very general practice of landowners who have applied for writs of putting down estimates that vary widely from the claims that they make when the property is about to be condemned. (Id. At 163)

Another reason for non-consideration of a former owner’s application to reduce taxes is the general and well-established law and policy which prohibits disclosure of all tax filings because of their confidential nature. Gordon v Grossman, 183 AD2d 669 (1st Dept. 1992). Citing Matthews Indus. Piping Co v Mobil Oil Corp., 114 AD2d 772 (1st Dept 1985).

* This is Kansas’ initial procedure for determination of just compensation. If unsatisfied, either side may request a trial.

Reprinted with permission from the May 4, 2012 edition of the New York Law Journal © 2012 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.