Alcatel-Lucent USA, Inc. v. Township of Berkeley Heights

TAX COURT OF NEW JERSEY

Joshua D. Novin Washington & Court Streets, 1st Floor
Judge P.O. Box 910
Morristown, New Jersey 07960-0190
Tel: (609) 815-2922, Ext. 54680
Fax: (973) 656-4305

NOT FOR PUBLICATION WITHOUT THE APPROVAL
OF THE TAX COURT COMMITTEE ON OPINIONS

March 22, 2018

Christopher John Stracco, Esq. 1
Day Pitney, LLP
One Jefferson Road
Parsippany, New Jersey 07054

Scott G. Collins, Esq.
Riker Danzig Scherer Hyland Perretti, LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, New Jersey 07962

Martin Allen, Esq.
DiFrancesco, Bateman, Coley, Yospin,
Kunzman, Davis, Lehrer & Flaum, P.C.
15 Mountain Boulevard
Warren, New Jersey 07059

Re: Alcatel-Lucent USA, Inc. v. Township of Berkeley Heights
Docket Nos. 004598-2014, 007688-2014 and 003166-2015

Dear Counsel:

This letter shall constitute the court’s opinion, following: (i) the hearing on plaintiff’s

alleged “false or fraudulent account” in response to defendant’s request for income and expense

information under N.J.S.A. 54:4-34, commonly known as Chapter 91 (L. 1979, c. 91); and (ii) the

1
During the hearings Alcatel-Lucent USA, Inc. was represented by Michael James Guerriero, Esq. Subsequent to
conclusion of the hearings, and prior to the court’s entry of this letter opinion, Mr. Guerriero retired from Day
Pitney, LLP.
hearing on the reasonableness of the 2015 tax year local property tax assessment. At issue, is

whether plaintiff’s representative, in preparing and submitting his June 13, 2013 response to

defendant’s Chapter 91 request for income and expense information, inadvertently submitted

incomplete or imperfect information, or intentionally omitted information, and thus, acted with

unclean hands. Additionally at stake, is whether the data and methodology employed by

defendant’s tax assessor, in arriving at the subject property’s 2015 local property tax assessment,

was reasonable in light of the information available on the valuation date.

For the reasons explained more fully below, the court concludes that: (i) plaintiff’s June

13, 2013 response to defendant’s Chapter 91 request was a “false or fraudulent account,” as such

phrase was contemplated by our Legislature under N.J.S.A. 54:4-34; and (ii) plaintiff failed to

satisfy its burden of proof, establishing that the subject property’s 2015 local property tax

assessment was unreasonable in light of the data and valuation methodology available to

defendant’s tax assessor.

Accordingly, the court: (i) grants defendant’s motions to dismiss plaintiff’s 2014 Tax

Appeal Complaint and 2014 Farmland Assessment Complaint, subject to plaintiff’s right to a

reasonableness hearing pursuant to Ocean Pines, Ltd. v. Borough of Point Pleasant, 112 N.J. 1

(1988); and (ii) finds that the subject property’s 2015 tax year assessment is reasonable, in light of

the information available to defendant’s tax assessor, and dismisses plaintiff’s 2015 Tax Appeal

Complaint.

I. Findings of Fact and Procedural History

Alcatel-Lucent USA, Inc. (“plaintiff”), is the owner of the real property and improvements

commonly known as 600 – 700 Mountain Avenue, in the Township of Berkeley Heights, County

of Union, and State of New Jersey. The property is designated on the Township of Berkeley

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Heights (“defendant”), municipal tax map as Block 3701, Lot 1 (the “subject property”). The

subject property consists of approximately 1,500,000 square feet of improvements, comprising

buildings and various other structures, situate on approximately 153.4 acres of real property. The

subject property is plaintiff’s United States headquarters housing administrative offices and

research and development operations.

A. 2014 Tax Year

On June 1, 2013, defendant’s tax assessor mailed plaintiff, by certified mail, return receipt

requested, “a Chapter 91 request for income and expenses” (the “2013 Chapter 91 Request”). The

2013 Chapter 91 Request sought “the current income and expense data for the property identified

on the attached forms.” It further instructed the property owner to “submit a copy of the actual

leases, rent rolls, and expense ledger, or use the attached forms in order to provide necessary

information.” As required under N.J.S.A. 54:4-34, the 2013 Chapter 91 Request notified the

taxpayer that if the information sought was not furnished within 45 days, “you may be precluded

from filing any tax appeal challenging the assessment of this property.”

On June 13, 2013, plaintiff’s corporate counsel, Lewis M. Lefkowitz, issued a two page

written response to defendant’s tax assessor stating, in part:

I am writing in response to the letter from you to Alcatel-Lucent
USA Inc. . . . dated June 1, 2013, requesting certain information
regarding Block 3701, Lot 1. . . from the ‘Property Owner’ pursuant
to N.J.S.A. 54:4-34.

. . . the Property was conveyed by quitclaim deed dated June 29,
2001 from Alcatel-Lucent to LTI NJ Finance LLC and long term
ground leased back to Alcatel-Lucent from LTI by lease from LTI
also dated June 29, 2001. Under that Lease, Alcatel-Lucent is
treated as the beneficial owner having all the rights (other than title)
and obligations (including payment of real estate taxes) of an owner.
LTI is a single member limited liability company, whose sole

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member and 100% owner is Alcatel-Lucent. . . We therefore
consider the property to be owner-occupied.

The Property is not income producing real estate as that term is
commonly understood, although very small portions of the Property,
totaling less [than] 1% of the building square footage, are occupied
by Sychip, OFS Fitel, Wipro, and Garden Savings Federal Credit
Union. Please note that Affinity Federal Credit Union vacated the
Property effective December 31, 2011 and now only maintains an
ATM on site for which it pays $300 monthly to Alcatel-Lucent . . .
Although the payments by those occupants are insignificant, and
irrelevant and immaterial in valuing the property, a schedule of
those payments entitled MURRAY HILL, NJ 2012 RENTAL
INCOME is attached.

Two wireless carriers pay monthly fees pursuant to license
agreements to maintain cell sites on a[n] Alcatel-Lucent tower on
the Property . . . Their payments are also reflected in the attached
MURRAY HILL, NJ 2012 RENTAL INCOME.

Attached to Mr. Lefkowitz’s June 13, 2013 letter was a document captioned “Alcatel-Lucent USA

Inc. Murray Hill, NJ 2012 Rental Income” (“2012 Rental Income Report”), and a separate

document captioned “Alcatel-Lucent 600 Mountain Avenue Murray Hill, NJ 2012 Operating

Expense” (“2012 Operating Expense Report”) (the June 13, 2013 letter, 2012 Rental Income

Report and 2012 Operating Expense Report shall be collectively referred to as the “June 13, 2013

Response”). The 2012 Operating Expense Report itemizes 20 categories of expenses incurred by

plaintiff for the subject property on a month-to-month basis, together with an annual reconciliation.

The 2012 Rental Income Report reflects the gross “Rental Income” received by plaintiff on an

annual basis from six “Subtenant[s].”

It is undisputed that plaintiff received defendant’s 2013 Chapter 91 Request. It is further

undisputed that defendant received plaintiff’s June 13, 2013 Response.

Defendant’s tax assessor placed a tax assessment on the subject property for the 2014 tax

year, as follows:

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Land $31,350,000
Improvements $54,715,000
Total $86,065,000

Shortly thereafter, on July 24, 2013, plaintiff submitted an Application for Farmland

Assessment, Woodland Data Form and detailed Forest Management Plan to defendant, seeking

farmland tax assessment for the 2014 tax year on a portion of the subject property allegedly being

used for the production of tree and forest products for sale (“2014 Farmland Assessment

Application”).

By notice dated August 19, 2013, defendant’s tax assessor denied plaintiff’s 2014

Farmland Assessment Application asserting that “agricultural use is not dominant use” (“2014

Farmland Assessment Denial Notice”).

On March 13, 2014, plaintiff timely filed a Complaint with the Tax Court challenging the

2014 tax year assessment on the subject property (“2014 Tax Appeal Complaint”).

On March 28, 2014, plaintiff timely filed a Complaint with the Tax Court challenging the

2014 Farmland Assessment Denial Notice for the subject property (“2014 Farmland Assessment

Complaint”).

B. 2015 Tax Year

On June 1, 2014, defendant’s tax assessor mailed plaintiff, by certified mail, return receipt

requested, “a Chapter 91 request for income and expenses” (the “2014 Chapter 91 Request”). The

2014 Chapter 91 Request sought “income and expense data” for the subject property. It further

instructed the property owner that it may “submit a copy of the actual leases, rent rolls, and expense

ledger; or use the enclosed forms in order to provide the requested information.” As required

under N.J.S.A. 54:4-34, the 2014 Chapter 91 Request notified the property owner that if the

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information sought was not furnished within 45 days, “you may be precluded from filing any tax

appeal challenging the assessment of this property.”

Accompanying the 2014 Chapter 91 Request, was a reproduction of N.J.S.A. 54:4-34, a

form captioned “Annual Statement of Business Income and Expenses Commercial Properties,” a

form captioned “Instructions for Completion of Schedule A” and a rental schedule form captioned

“Schedule A”.

It is undisputed that the 2014 Chapter 91 Request was received by plaintiff. It is further

undisputed that plaintiff did not furnish any response to the 2014 Chapter 91 Request, nor did it

notify defendant of any difficulties encountered in responding to the 2014 Chapter 91 Request.

Thereafter, on July 24, 2014, plaintiff submitted an Application for Farmland Assessment,

Woodland Data Form and detailed Forest Management Plan to defendant, seeking farmland tax

assessment for the 2015 tax year on a portion of the subject property allegedly being used for the

production of tree and forest products for sale (the “2015 Farmland Assessment Application”).

By notice dated August 11, 2014, defendant’s tax assessor denied plaintiff’s 2015

Farmland Assessment Application asserting that “agricultural use is not dominant use” (“2015

Farmland Assessment Denial Notice”).

Accordingly, defendant’s tax assessor placed an assessment on the subject property for the

2015 tax year, as follows:

Land $31,350,000
Improvements $54,715,000
Total $86,065,000

On March 17, 2015, plaintiff timely filed a Complaint with the Tax Court challenging the

2015 tax year assessment on the subject property (“2015 Tax Appeal Complaint”).

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On March 31, 2015, plaintiff timely filed a Complaint with the Tax Court challenging the

2015 Farmland Assessment Denial Notice for the subject property (“2015 Farmland Assessment

Complaint”).

C. Motions to Dismiss

Defendant filed motions seeking dismissal of plaintiff’s: (i) 2014 Tax Appeal Complaint;

(ii) 2014 Farmland Assessment Complaint; (iii) 2015 Tax Appeal Complaint; and (iv) 2015

Farmland Assessment Complaint.

Defendant charged in its motions that plaintiff’s 2014 Tax Appeal Complaint and 2014

Farmland Assessment Complaint must be dismissed because plaintiff’s June 13, 2013 Response

constituted a “false or fraudulent account” in reply to the 2013 Chapter 91 Request. Specifically,

defendant asserted that, “[d]uring the course of discovery it became apparent that the subject

property is not owner occupied and that the subject property’s 2012 rental income was

substantially higher than the one provided in the Chapter 91 response.” Defendant highlighted

that in response to discovery requests, plaintiff disclosed that its 2012 rental income was

“$1,153,994.77 and not $960,639.23 as stated in their Chapter 91 response.” The approximate

$193,355.54 income discrepancy apparently arose from the omission of fees paid plaintiff by LGS

Innovations, its wholly owned subsidiary, for occupying a portion of the subject property.

Defendant further maintained that plaintiff’s June 13, 2013 Response mischaracterized the

subject property as “owner-occupied,” when “it is clear” from defendant’s “review of the leases

provided in discovery” that “the subject property is income producing.” Thus, defendant argued

that the June 13, 2013 Response was a “false or fraudulent account,” thereby precluding plaintiff

from pursuing its 2014 Tax Appeal Complaint and 2014 Farmland Assessment Complaint, subject

only to a reasonableness hearing.

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Defendant further contended that plaintiff’s 2015 Tax Appeal Complaint and 2015

Farmland Assessment Complaint must be dismissed because plaintiff failed to respond to the 2014

Chapter 91 Request. Defendant maintained that plaintiff is precluded from advancing the causes

of action raised in the 2015 Tax Appeal Complaint and 2015 Farmland Assessment Complaint as

a result of its failure to respond to the 2014 Chapter 91 Request, subject only to a reasonableness

hearing.

On September 8, 2016, this court issued a letter opinion granting defendant’s motions to

dismiss plaintiff’s 2015 Tax Appeal Complaint and 2015 Farmland Assessment Complaint, as a

result of plaintiff’s failure to respond to defendant’s 2014 Chapter 91 Request, subject to a

reasonableness hearing pursuant to Ocean Pines Ltd., 112 N.J. 1. 2 However, the court reserved

decision on defendant’s motions to dismiss plaintiff’s 2014 Tax Appeal Complaint and 2014

Farmland Assessment Complaint pending the outcome of a hearing on whether the June 13, 2013

Response constituted a “false or fraudulent account,” as contemplated by our Legislature, under

N.J.S.A. 54:4-34. The court’s Orders directed the parties to engage in discovery and set a date for

the reasonableness hearing and “false or fraudulent account” hearing.

II. Conclusions of Law

In response to concerns that property owners were “not subject to any penalty” for refusing,

or failing to disclose economic information for income-generating properties to tax assessors prior

to setting local property tax assessments, in 1979 our Legislature amended N.J.S.A. 54:4-34 (L.

1979, c. 91). Lucent Technologies, Inc. v. Township of Berkeley Heights, 201 N.J. 237, 246

2
Plaintiff subsequently advised the court that it did not want to pursue a reasonableness hearing with respect to the
2015 Farmland Assessment Complaint. Accordingly, on October 11, 2016, the court entered a final Order
dismissing plaintiff’s 2015 Farmland Assessment Complaint. A Notice of Appeal of the court’s October 11, 2016
final Order was filed with the court on October 20, 2016.

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(2010) (quoting Senate Revenue, Finance and Appropriations Committee, Statement to Senate Bill

No. 309 (January 26, 1978)). To address what was perceived as “the shortcomings in the existing

[N.J.S.A. 54:4-34] statute,” the amendment imposed an “obligation [on property owners] to

respond within forty-five days” to requests for income and expense information. Id. at 247. Thus,

Chapter 91 was born from the notion that an assessor must be afforded reasonable access to the

economic records of an income-producing property, thereby enabling the assessor to reasonably

arrive at a fair assessment, and potentially “avoid[ing] unnecessary expense, time and effort”

which may result in any ensuing local property tax appeal litigation. Ocean Pines, Ltd., 112 N.J.

at 7 (quoting Terrace View Gardens v. Township of Dover, 5 N.J. Tax 469, 474-75 (1982)).

Accordingly, Chapter 91 exemplifies the public policy considerations “of having assessors

formulate assessments by using information from the ‘best available source,’ the property owner.”

Tower Center Associates v. Township of East Brunswick, 286 N.J. Super. 433, 438 (App. Div.

1996) (quoting Terrace View Gardens, 5 N.J. Tax 469, 472 (Tax 1982), aff'd o.b., 5 N.J. Tax 475

(App. Div. 1983)).

As amended, N.J.S.A. 54:4-34 provides:

Every owner of real property of the taxing district shall, on written
request of the assessor, made by certified mail, render a full and true
account of his name and real property and the income therefrom, in
the case of income-producing property, and produce his title papers,
and he may be examined on oath by the assessor, and if he shall fail
or refuse to respond to the written request of the assessor within 45
days of such request, or to testify on oath when required, or shall
render a false or fraudulent account, the assessor shall value his
property at such amount as he may, from any information in his
possession or available to him, reasonably determine to be the full
and fair value thereof. No appeal shall be heard from the assessor’s
valuation and assessment with respect to income-producing
property where the owner has failed or refused to respond to such
written request for information within 45 days of such request or to
testify on oath when required, or shall have rendered a false or

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fraudulent account. The county board of taxation may impose such
terms and conditions for furnishing the requested information where
it appears that the owner, for good cause shown, could not furnish
the information within the required period of time. In making such
written request for information pursuant to this section the assessor
shall enclose therewith a copy of this section

[N.J.S.A. 54:4-34.]

In Ocean Pines, our Supreme Court fashioned the remedy available for income-producing

property owners who have failed to comply with requests for economic information under Chapter

91. The Court explained that a property owner is “entitled to appeal the valuation . . . , but any

such appeal is sharply limited in both its substantive and procedural aspects.” Ocean Pines, Ltd.,

112 N.J. at 11. Thus, the focus of a trial court’s substantive inquiry at such hearing centers on

“whether the [assessed] valuation could reasonably have been arrived at in light of the data

available to the assessor at the time of the valuation.” Ibid. Embodied within that inquiry is: “(1)

the reasonableness of the underlying data used by the assessor, and (2) the reasonableness of the

methodology used by the assessor in arriving at the valuation.” Ibid.

A. Reasonableness Hearing

A reasonableness hearing should “not include plenary proofs as to the value of the property

under appeal but only proofs as to whether the assessment imposed by the assessor was

reasonable.” Lucent Technologies, Inc., 24 N.J. Tax at 308. In gauging the reasonableness of a

tax assessment, “[b]oth the underlying data and the methodology used by the assessor are entitled

to [a] presumptions of correctness.” 510 Ryerson Road, Inc. v. Borough of Lincoln Park, 28 N.J.

Tax 184, 193 (Tax 2014). This standard “is less stringent than the standard applicable in the

context of a plenary valuation hearing for purposes of determining whether a presumption of

validity attaches to an assessment.” Lucent Technologies, Inc., 24 N.J. Tax at 312. This is because

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Chapter 91 “requires only that the assessor ‘reasonably determine’ the value of a property” based

on data and information available to the assessor at the time of valuation. Id. at 297.

During a reasonableness hearing, the taxpayer must “produce evidence that is definite,

positive and certain in quality and quantity in order to overcome [the presumption of correctness].”

Ocean Pines, Ltd., 112 N.J. 12 (quoting Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105

(1952)). The taxpayer shoulders the burden of proving that “the methodology utilized in [arriving

at] the original assessment manifested an arbitrary or capricious discharge of the assessor’s

responsibilities” and “provide[d] no reliable indication that the quantum of the assessment [was]

itself reasonable.” Transcontinental Gas Pipeline Corp. v. Bernards Township, 111 N.J. 507, 538

(1988). It is not enough for the taxpayer to merely show that the methodology employed by the

tax assessor was flawed or imperfect, the taxpayer must demonstrate that the manner in which the

assessment was arrived at was arbitrary and capricious. Pantasote Co. v. Passaic, 100 N.J. 408,

417 (1985).

Here, plaintiff charges that the 2015 local property tax assessment was arbitrary, capricious

and unreasonable, because: (1) defendant’s tax assessor violated the Handbook for New Jersey

Assessors, by failing to have an appraisal report commissioned that offered an opinion of the true

market value the subject property, as of the October 1, 2014 valuation date; (2) defendant’s

assessor failed to determine the true market value of the subject property, as of the October 1, 2014

valuation date by engaging in either the sales comparison, replacement reproduction, or income

capitalization approaches to value; and (3) the subject property’s 2014 local property tax

assessment was erroneous therefore; carrying forward the 2014 tax year assessment to the 2015

tax year, was arbitrary and capricious.

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In support of these arguments, plaintiff presented the testimony of Thomas Welsh, a State

of New Jersey certified general real estate appraiser, who was accepted by the court as an expert

in the field of real estate appraising. 3 In Mr. Welsh’s opinion, the defendant’s assessor acted in an

unreasonable manner in the following respects:

1. The assessor failed to undertake an independent investigation of the subject
property to verify the accuracy of the information contained in the assessor's files;

2. The assessor failed to determine the full and fair value of the subject property by
commissioning an appraisal report, or using one of the three generally accepted
approaches to value;

3. The subject property’s 2014 local property tax assessment was erroneous therefore;
the 2015 local property tax assessment was erroneous.

Voir dire disclosed that Mr. Welsh is a certified general real estate appraiser, has served as

an appraisal expert in court, and has instructed courses regarding the appraisal of real property.

However, Mr. Welsh readily acknowledged that, he is not a certified tax assessor, has never served

as municipal tax assessor, and during his career has never been employed in a municipal tax

assessor’s office. Therefore, his opinions as to reasonableness of the procedures employed by

defendant’s assessor in setting the subject property’s 2015 local property tax assessment, and

defendant’s assessor’s reliance upon data and information contained in his files, were based solely

on his experience as an appraiser, and not as a certified tax assessor.

Mr. Welsh’s testimony primarily focused on concerns regarding calculation of the subject

property’s 2014 local property tax assessment, including the analysis performed by defendant’s

appraisal expert. In Mr. Welsh’s opinion, the November 5, 2013 analysis prepared by defendant’s

appraiser, and relied on by defendant’s assessor to assist him in establishing the subject property’s

3
The court declined to accept Mr. Welsh as an expert Certified Tax Assessor, or as an expert in the field of real
estate assessing practices and procedures, and placed a statement of reasons on the record.

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2014 local property tax assessment, was flawed. Mr. Welsh believed that the areas of the building

demolished in late 2013 were lab space, and therefore should have been attributed a greater value,

resulting in a lower tax assessment for the 2014 tax year. In Mr. Welsh’s opinion, in order to

“determine the value” of real property, under N.J.S.A. 54:4-35.1, an appraisal report is required.

Moreover, Mr. Welsh’s testimony highlighted that the Uniform Standards of Professional

Appraisal Practice, applicable to appraisers and the preparation of appraisal reports, requires an

appraiser to independently verify the square footage of an improvement existing on a property,

and not rely upon unqualified third-party information.

However, Mr. Welsh was not qualified to offer any fact or opinion testimony regarding

municipal tax assessing practices, or why defendant’s assessing practices, as applied to the subject

property, resulted in an arbitrary or capricious discharge of the assessor’s responsibilities.

Moreover, Mr. Welsh did not offer any testimony regarding significant marketplace changes

between the 2014 valuation date and 2015 valuation date that were not considered by defendant’s

assessor in establishing the subject property’s 2015 local property tax assessment. Mr. Welsh did

not present any evidence that material alterations were made to the improvements on the subject

property between the 2014 valuation date and 2015 valuation date. In sum, Mr. Welsh could not

offer any testimony or evidence that it was unreasonable to have arrived at the subject property’s

2015 local property tax assessment in light of the data available to defendant’s assessor at the time

of the valuation.

Our courts have recognized the practical limitations faced by tax assessors in re-measuring,

re-appraising, and personally inspecting each property in a municipality, every year to determine

its full and fair value, under N.J.S.A. 54:4-23. These limitations “preclude most assessors [from]

reviewing every assessment line item every year. . . .” Tri-Terminal Corp. v. Borough of

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Edgewater, 68 N.J. 405 (1975)). However, assessors must nonetheless be sensitive and “alert[] to

changed valuation factors peculiarly affecting individual properties in years between revaluations

and requiring prompt revision of such assessments in fairness to the particular taxpayer or to the

taxing district.” Ibid. Thus, the focus of the court’s inquiry centers on whether the valuation of

the property, and determination of the tax assessment, was reasonably related to sound assessment

practices, based on reasonable data and information, was sensitive to changing market conditions,

considered physical factors uniquely applicable to the property, or did it “manifest[] an arbitrary

or capricious discharge of the assessor’s responsibilities.” Transcontinental Gas Pipeline Corp.,

111 N.J. at 538.

A taxpayer has failed to meet the requisite burden of proof by relying upon the assessor’s

continuation of a prior years assessment, or the failure of an assessor to re-inspect, “re-measure

and re-appraise each property. . . for purposes of determining the proper assessment.” Lucent

Technologies, Inc., 24 N.J. Tax at 312. Although these type of flaws would likely render the trial

testimony of an appraiser inadequate, the role of an assessor “is different and distinguishable from

the role of the appraiser,” and does not serve as prima facie evidence that a tax assessment is

arbitrary or capricious. Ibid. See also 510 Ryerson Rd., Inc., 28 N.J. Tax at 196 (local property

assessment is not unreasonable even if assessor did not “independently verify” information on

rents and did not personally inspect the property, and adopted the values recommended by the

revaluation company based on an income approach); Waterside Villas Holdings, LLC v. Monroe

Township, 2012 N.J. Tax Unpub. LEXIS 22 (Tax 2012) (rejecting the taxpayer’s argument that

“an assessment based on a valuation using the income approach is unreasonable and arbitrary if

the assessor cannot demonstrate that he reviewed market rents at the time of the assessment”),

aff’d, 434 N.J. Super. 275, 279 (App. Div. 2014).

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Thus, employing an imperfect assessment methodology, failing to personally inspect a

property, or declining to obtain an appraisal report does not result in a tax assessment being per se

arbitrary and capricious. Provided that the tax assessor has “reasonably determine[d]. . . the full

and fair value” of a property based upon “any information in [the assessor’s] possession or

available to [the assessor],” the local property tax assessment will generally withstand judicial

scrutiny under the content of a reasonableness hearing. N.J.S.A. 54:4-34.

Here, the record discloses that Robert J. Edgar, CTA began serving as defendant’s

municipal tax assessor in 2009. Mr. Edgar is a Certified Tax Assessor (“CTA”), and earned his

CTA designation in 1974. Mr. Edgar credibly testified that, in his role as municipal assessor, he

has become familiar with the subject property, and personally inspected the subject property in

2013, and again in January 2014.

Mr. Edgar’s testimony further revealed that on or about December 23, 2013, his office

received a letter from plaintiff’s counsel advising that subsequent to the October 1, 2013 valuation

date “the subject property and/or improvements have undergone significant alteration and

demolition, thereby reducing the usable square footage of the subject property.” Thus, pursuant

to N.J.S.A. 54:4-35.1, and prior to finalizing his 2014 tax year assessment roll, on or about

February 1, 2014, he reduced the subject property’s 2014 local property tax assessment by

approximately 14% to account for a corresponding reduction in the building area. According to

Mr. Edgar, in determining the subject property’s 2014 local property tax assessment he relied on

a November 5, 2013 analysis prepared by defendant’s appraiser. The appraiser’s analysis

considered the impact of demolition of portions of the improvements on the subject property

during the 2013 tax year.

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Moreover, Mr. Edgar testified that the subject property’s 2015 tax year assessment was

ostensibly “a carryover from the 2014 [tax] assessment.” He credibly offered that based on his

review of his files and records, “there was no significant change in the property for which I would

need to change the assessment” from the 2014 to 2015 tax years. He further offered that

defendant’s building department provides his office with copies of building permits and

certificates of occupancy that are issued in the municipality during the preceding year. However,

he received no documents from the building department or from any other sources disclosing that

any structural alterations were undertaken on the subject property after the 2014 local property tax

assessment was finalized.

Additionally, in Mr. Edgar’s opinion, there were no material changes in the real estate

market, or in defendant’s Chapter 123 ratio, warranting an adjustment of the subject property’s

2015 local property tax assessment. Based on his review of the records and files in his office, Mr.

Edgar concluded that the subject property’s 2015 local property tax assessment was reasonable.

Here, plaintiff failed to demonstrate that the subject property experienced any material

changes following determination of the 2014 tax year assessment, and prior to setting the 2015 tax

year assessment that Mr. Edgar failed to consider. Additionally, plaintiff did not offer any

information that there was overwhelming market data on the valuation of corporate headquarter

campuses that Mr. Edgar ignored. Although Mr. Edgar’s action of carrying forward the subject

property’s 2014 tax year assessment to the 2015 tax year could be characterized as imperfect, the

record fails to disclose that Mr. Edgar acted in either an unreasonable, arbitrary, or capricious

manner in carrying out his duties or in arriving at the subject property’s 2015 tax assessment. As

Judge Menyuk keenly observed, the court is “unaware of any decision holding that the carrying

over of an assessment from one year to the next is per se unreasonable.” Waterside Villas

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Holdings, LLC, 2012 N.J. Tax Unpub. LEXIS 22 (Tax 2012), aff’d, 434 N.J. Super. 275, 279

(App. Div. 2014).

Accordingly, for the foregoing reasons, the court concludes that plaintiff has failed to prove

that the subject property’s 2015 local property tax assessment was unreasonable and unrelated to

true value, or derived from a patently arbitrary and capricious methodology.

B. False or fraudulent account

In its motion, defendant maintained that plaintiff’s omission of the LGS Innovations

income from the 2012 Rental Income Report rendered the June 13, 2013 Response a knowing

misrepresentation. Additionally, defendant asserted that plaintiff’s June 13, 2013 Response

“intentionally misrepresent[ed] that the [subject] property is not income producing . . . by stating

that the property is not [sic] owner-occupied.” Thus, defendant argued that plaintiff’s June 13,

2013 Response was a “false or fraudulent account,” as such phrase was contemplated under

N.J.S.A. 54:4-34, necessitating dismissal of plaintiff’s 2014 Tax Appeal Complaint and 2014

Farmland Assessment Complaint.

Conversely, plaintiff advocated for the court to weigh and consider the taxpayer’s purpose,

intent, and objectives in furnishing a timely answer and documents responsive to defendant’s 2013

Chapter 91 Request, before concluding that it is a “false or fraudulent account” under N.J.S.A.

54:4-34.

By letter opinion dated September 8, 2016, this court evaluated the plain and express

language of Chapter 91, the generally accepted meaning ascribed to the statutory words, the intent

of our Legislature in enacting Chapter 91, and case law offering insight into the statutory text of

Chapter 91. Ultimately, the court concluded that in enacting Chapter 91 our Legislature did not

intend taxpayers to face the harsh appeal preclusion consequences when a timely, good faith

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response to a Chapter 91 request was furnished, which may have mistakenly, inadvertently, or

unintentionally excluded, overstated, or understated income and expense information or property

information.

Therefore, the court concluded that by conducting a hearing, the court would be in the best

position to weigh and assess issues of credibility of the party offering the information and to

discern their purpose, intent, and/or motivation. Moreover, if following the hearing, the court

discerned that the taxpayer had unclean hands because its Chapter 91 response intentionally

excluded information known to the respondent, was designed to be misleading, or was deliberately

calculated to obtain an advantageous tax assessment, dismissal of the taxpayer’s appeal would be

warranted, subject to an Ocean Pines Ltd. reasonableness hearing. In contrast, if the court was

able to deduce from the evidence presented that the taxpayer timely furnished a good faith response

to a Chapter 91 request and accidentally, mistakenly, or inadvertently omitted information, and

timely rectified such omission; and said information was otherwise inconsequential in fixing the

local property tax assessment, the court can exercise its equitable powers and deny a municipality’s

motion to dismiss. Accordingly, the court set down the matter for a hearing on whether plaintiff’s

June 13, 2013 Response constituted a “false or fraudulent account” under Chapter 91.

During the hearing, testimony was offered by plaintiff’s former Senior Counsel, Real

Estate, Lewis Lefkowitz. Mr. Lefkowitz was the individual charged with preparing a response to

defendant’s 2013 Chapter 91 Request and signed the June 13, 2013 Response. As plaintiff’s Senior

Counsel, Real Estate, Mr. Lefkowitz was responsible for furnishing counsel and advice to plaintiff

involving the sale, lease, licensure, and disposition of all real property interests. Thus, Mr.

Lefkowitz was responsible for overseeing any licenses, leases, lease modifications, lease renewals,

and lease amendments involving the subject property.

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Based on his approximately eleven years of service with plaintiff, Mr. Lefkowitz was

familiar with a taxpayer’s responsibility to furnish income and expense information in response to

a Chapter 91 request. Moreover, Mr. Lefkowitz credibly testified that he was aware a court could

impose penalties on a taxpayer for failing to timely furnish a response, or for offering a response

that was false or fraudulent. Admittedly, in preparing his June 13, 2013 Response, Mr. Lefkowitz

did not conduct any independent investigation to verify the accuracy of the 2012 Rental Income

Report. Instead, Mr. Lefkowitz asked a representative of plaintiff’s real estate department to

furnish him with a list of the income received from all third-party occupants on the subject property

during the 2012 calendar year and relied on that representative’s diligence.

Mr. Lefkowitz acknowledged that the 2012 Rental Income Report did not include the

income paid to plaintiff by LGS Innovations, its wholly owned subsidiary. Mr. Lefkowitz

explained that LGS Innovations was originally known as Lucent’s Government Services unit,

handling contracts between Lucent Technologies, Inc. and the United States government.

However, when Lucent Technologies, Inc. merged with French company Alcatel in 2006, as a

condition of the merger, the United States government required that those government contracts

be maintained by a separate, wholly owned subsidiary of plaintiff, LGS Innovations.

According to Mr. Lefkowitz, although he was readily aware that LGS Innovations

exclusively occupied a portion of the subject property, he:

purposefully excluded LGS [from the 2012 Rental Income Report]
because they were a wholly owned subsidiary, it would have been
misleading to include them, because at the Alcatel-Lucent level it
was a wash, the subsidiary was paying rent to the parent but at the
parent level it was a wash because its an expense for the subsidiary
that’s carried up to the parent . . . so it’s the left pocket paying the
right pocket, there was no income whatsoever to Alcaltel-Lucent
Inc. (emphasis added)

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And furthermore, . . . each division, each unit of Alcatel-Lucent got
charged back for occupying space in the property . . . and we were
doing the same thing for LGS, we just formalized it, so there was no
difference in my mind . . . since they were all units or subsidiaries
of Alcatel-Lucent USA Inc. and it was all a wash at the property
owner level, which was the one responding to this [Chapter 91]
inquiry.

Mr. Lefkowitz offered that he intended his June 13, 2013 Response to be “truthful” and “as

complete and accurate as possible. . . .” In his opinion, it would have been inaccurate and

misleading to include the fees paid by LGS Innovations to plaintiff on the 2012 Rental Income

Report because it was a payment made by a wholly-owned subsidiary of Alcatel-Lucent, Inc., and

not arms-length rental income. In Mr. Lefkowitz’s estimation, because the amounts paid by LGS

Innovations to plaintiff were the functional equivalent of plaintiff assessing a chargeback to other

units or divisions for occupying space in the subject property, no income was actually being

realized by plaintiff.

Testimony was also elicited during the hearing from Robert J. Edgar, CTA, defendant’s

municipal tax assessor. Mr. Edgar testified that he received and reviewed Mr. Lefkowitz’s June

13, 2013 letter and attachments in response to his 2013 Chapter 91 Request. However, in Mr.

Edgar’s opinion, the June 13, 2013 Response was not “terribly relevant” to establishing the market

value of the subject property for the 2014 tax year. Mr. Edgar did not rely on, nor consider the

June 13, 2013 Response material in establishing the assessed value of the subject property for the

2014 tax year. In Mr. Edgar’s opinion, because LGS Innovations was occupying only a small

percentage of the subject property, he would not have given its ascribed rental rate much weight

in determining the 2014 local property tax assessment on the subject property.

Admittedly, Mr. Edgar did not perform an income capitalization approach to arrive at an

estimated market value for the subject property for the 2014 tax year. Thus, he did not rely on any

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of the information reported on plaintiff’s 2012 Rental Income Report in fixing the subject

property’s 2014 local property tax assessment. Instead, Mr. Edgar offered that the 2014 local

property tax assessment was carried forward from the 2013 local property tax assessment, and

adjusted downward to account for demolition of a portion of the improvements on the subject

property, based on the recommendations of defendant’s appraiser.

However, Mr. Edgar explained that despite his conclusion that the 2012 Rental Income

Report was not material in fixing the subject property’s 2014 local property tax assessment, he

nevertheless regularly uses information disclosed in response to Chapter 91 requests to assist him

in fixing other local property tax assessments in the municipality.

As previously stated, Chapter 91 was enacted in response to concerns that property owners

were “‘not subject to any penalty for not disclosing property income information.’” Lucent

Technologies, Inc., 201 N.J. at 246 (quoting Senate Revenue, Finance and Appropriations

Committee, Statement to Senate Bill No. 309 (January 26, 1978)). To address what was perceived

as “shortcomings,” N.J.S.A. 54:4-34 was amended to impose “the obligation [on a taxpayer] to

respond within forty-five days” to a request for property income and expense information. Id. at

247.

Thus, a goal of Chapter 91 was to afford municipal tax assessors access to financial

information thereby permitting them to reasonably arrive at a fair assessment, thereby potentially

“avoid[ing] unnecessary expense, time and effort” which may result in any ensuing local property

tax appeal litigation. Ocean Pines, Ltd., 112 N.J. at 7 (quoting Terrace View Gardens, 5 N.J. Tax

at 474-75). Hence, Chapter 91 exemplifies fundamental public policy purposes of ensuring

uniformity in tax assessments and an equal sharing of the tax burden by “having assessors

formulate assessments by using information from the ‘best available source,’ the property owner.”

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Tower Center Associates, 286 N.J. Super. at 438 (quoting Terrace View Gardens, 5 N.J. Tax at

472).

However, for Chapter 91 to have any meaningful impact on the accurate formulation of

local property tax assessments, taxpayers must timely, and accurately, adhere to the information

disclosure requirements. When the taxpayer has failed to timely furnish a response to a valid

Chapter 91 request, or has furnished a response that is a false or fraudulent account, Chapter 91

affords our trial courts the authority to dismiss the taxpayer’s cause of action, subject to the right

to a reasonableness hearing. N.J.S.A. 54:4-34; Ocean Pines, Ltd., 112 N.J. at 11.

Here, testimony was elicited from taxpayer’s representative that he “purposefully

excluded” the sums paid by LGS Innovations because it was “a wholly owned subsidiary,” and in

his opinion, “it would have been misleading to include them. . . .” Although taxpayer’s

representative knew that penalties could be imposed for failing to timely furnish a response, or for

offering a response that was a “false or fraudulent account,” he nonetheless intentionally and

purposefully excluded certain income information from the 2012 Rental Income Report. In his

opinion, disclosure of the amounts paid by LGS Innovations to occupy a portion of the subject

property would be an inaccurate representation of income, because they were the functional

equivalent of chargebacks, similarly assessed against other units or divisions of plaintiff.

However, the willful or intentional exclusion of income or expense information by a

taxpayer offends the fundamental goals and purposes sought to be achieved by Chapter 91. As

stated above, the essence of Chapter 91 is to provide a mechanism for tax assessors to evaluate a

property’s economic records in order to arrive at a fair tax assessment, thereby avoiding potentially

costly tax appeal litigation. Regardless of the taxpayer’s motivations in refusing to furnish

information, a response that purposefully or intentionally excludes income information known to

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the taxpayer or its representative renders the response a “false or fraudulent account” under

N.J.S.A. 54:4-34. The court cannot condone the purposeful or knowing omission of rental income

information about an income-producing property.

Despite Mr. Lefkowitz’s opinion or belief that disclosure of the payments made by LGS

Innovations to plaintiff would be misleading because they involved inter-company transfers, he

nevertheless bore a duty to disclose such information to defendant. The taxpayer must disclose all

income and expense information responsive to a valid and timely Chapter 91 request and permit

the tax assessor to gauge what weight to accord such information. Although the ownership of real

property by one entity and concomitant leasing of that property to a related entity “may reduce the

usefulness of the income accounting required by the statute . . . some or all of it may have utility,

and it is up to the assessor and not the taxpayer to decide whether to consider the information

furnished.” SKG Realty Corp., 8 N.J. Tax 209, 211 (App. Div. 1985). Here, by intentionally and

purposefully excluding the payments made by LGS Innovations to plaintiff from the 2012 Rental

Income Report, Mr. Lefkowitz deprived defendant’s tax assessor of the opportunity to evaluate all

of the income information before determining the subject property’s 2014 local property tax

assessment.

Although Mr. Edgar acknowledged that he accorded the 2012 Rental Income Report little

weight, the taxpayer cannot act as a filter of financial information, determining what material is,

and is not, probative in discerning the local property tax assessment. Tax assessors bear the

constitutional duty and statutory obligation to determine the full and fair value of each property,

as of October 1 of the pre-tax year, consistent with the purpose of securing a uniform standard of

value of all property within the taxing district. See N.J. Const. art. VIII, § 1, ¶ 1(a); N.J.S.A. 54:4-

23. The goal of Chapter 91 is to provide tax assessors with access to information to fulfill these

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obligations. “The purpose of N.J.S.A. 54:4-34 is to assist the assessor, in the first instance, to

make the assessment and thereby hopefully to avoid unnecessary expense, time and effort in

litigation.” Terrace View Gardens, 5 N.J. Tax 471-472.

Here, the taxpayer “purposefully excluded” payments made by LGS Innovations to

plaintiff from the June 13, 2013 Response to defendant’s 2013 Chapter 91 Request. Said knowing

and intentional conduct does not amount to a mistaken or inadvertent submission of false or

incorrect information. Moreover, it does not comprise a response, made in good faith, to a Chapter

91 request that inadvertently excluded, overstated, or understated property or income and expense

information. Although the record before the court does not reveal that plaintiff’s response was

deliberately designed to deceive defendant, the intentional omission of the payments by LGS

Innovations to plaintiff from the June 13, 2013 Response was planned, purposeful, and intentional

and therefore, constituted a “false or fraudulent account” under N.J.S.A. 54:4-34.

Accordingly, the court grants defendant’s motions to dismiss plaintiff’s 2014 Tax Appeal

Complaint and 2014 Farmland Assessment Complaint, subject to plaintiff’s right to a

reasonableness hearing pursuant to Ocean Pines, Ltd.

III.Conclusion
For the foregoing reasons, defendant’s motions to dismiss plaintiff’s 2014 Tax Appeal

Complaint and 2014 Farmland Assessment Complaint are granted, subject to a reasonableness

hearing. Orders reflecting this opinion will be simultaneously entered herewith.

Very truly yours,

/s/Hon. Joshua D. Novin, J.T.C.

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