Opinion ID: 2396842
Heading Depth: 1
Heading Rank: 7

Heading: The Valuation Question.

Text: The limited issues projected by the township's appeal under this heading should be approached in the light of the presentation of this aspect of the case in the Division. The over-all valuation question had two different, but partially interrelated, facets which were tried together and in effect decided as one. Both involve the matter of the proper assessment of the railroad's Class II property for the years 1956, 1957 and 1958. As previously stated, this class comprises real property used for railroad purposes other than main stem. It is taxed, according to assessments made by the Director at true value, at the general tax rate for the municipality where located. The tax is collected by the State but paid over for local and county use. The railroad in its appeals from the Director's assessments for these years claimed only unconstitutional discrimination. It alleged that the Class II assessments had been based upon a standard equal to or in excess of true value whereas the real estate of other owners in the township had been locally assessed at considerably below true value. It asked the Division to establish the true value of its Class II properties and then to compute its assessments by reducing the same to that percentage of true value which was the common level of local assessment of other real property in the township. The right of a railroad to such relief was established by Delaware, Lackawanna and Western R.R. Co. v. Neeld, 23 N.J. 561 (1957). The railroad's property involved  land and improvements comprising track, buildings and other structures and installations  was the same for each of the three years except that it included for 1956 only a creosoting plant comprising 72 acres of land with structures in part of the yard in Woodbridge (plus an additional 32 adjacent acres in Carteret). This plant with the 105 acres of land was sold in April of that year to an industrial concern and the items comprising it were removed from the assessment list in 1957. The township's appeals to the Division for 1957 and 1958 (although no formal appeal was filed for 1956, the Division treated the matter as if one had been and no objection is posed on this score) were quite independent of the railroad's appeals and had no necessary connection. In fact they were filed in each year prior to those of the railroad. They complained that the Director's assessments were at less than true value and sought increase of the respective assessments to actual true value. The Division tried all the appeals together. This was feasible because one element of the discrimination appeals and the whole of the township's appeals required the determination of true value of each of the respective items of the railroad's property, even though one appellant might ultimately prove entitled to relief on its appeals and the other not. Two major elements were necessary for the railroad to make out a case of actionable discrimination, the proofs as to which were presented at the outset of the Division hearing. The first was to demonstrate that locally assessed real estate in Woodbridge Township was assessed at less than true value and what the common assessment level (percentage of true value) of such property actually was. This the railroad did by very voluminous evidence. (The presentation of proofs was concluded prior to this court's decision in In re Appeals of Kents 2124 Atlantic Ave., Inc., 34 N.J. 21 (1961), which clarified and simplified a complaining taxpayer's burden and method of proof in such a situation.) The second was to prove the true value of its property to establish the figure upon which the common level percentage would operate to produce the proper assessment for such property. If this were not required, a complaining taxpayer whose real estate was assessed on a basis greater than the common ratio but at less than actual true value would receive a benefit greater than that to which he should be entitled vis-a-vis other property owners in the municipality. The railroad recognized it had to sustain this burden of proof and sought to do so prima facie by the testimony of the Director that his assessments of Class II railroad property were at true value, plus evidence of changes of use and condition in this yard over the years upon which to ground findings of functional and economic obsolescence and depreciation for reduction of a physical appraisal dollar figure in order to arrive at actual true value. The Division acquiesced in this proof theory and the hearing panel ruled that the burden of going forward on the matter of value thereby shifted to the township. The latter then offered its value proofs by expert testimony as to some but not all of the items. With respect to the buildings and structures on which such testimony was offered, the basis of dollar opinion was essentially reproduction cost less physical depreciation, with no allowance for obsolescence. The railroad in turn offered rebuttal dollar value proofs again as to some but not all of the items. The ruling of the Division on the method of a complainant's proof of true value and the shift in the burden of going forward was also made, of course, prior to our decision in Kents, although it did not decide the case until after that opinion was handed down. In Kents, we said on this problem: The burden is his [the complaining taxpayer's] to establish with independent proofs the true value of the parcel with its improvements and that the total assessment of the improved parcel substantially exceeds the ratio of assessment of real property in the taxing district. (34 N.J., at pp. 33-34, emphasis added) (The Division made no mention in its opinion of this aspect of Kents. ) The Division held that the railroad had established local assessment of real property generally in the township at substantially less than true value for the three years in question and that the local assessment ratio was 16% of true value. It then reached its dollar conclusions of true value as to each item of the railroad's property  land, track, buildings, structures and other installations  based on the total proofs, with allowances as it found appropriate for functional and economic obsolescence as well as physical depreciation. (Not every item was individually discussed in the decision but all are separately listed in the judgments. Because it had earlier found on the classification aspect of the case that the tracks leading to and upon the car-dumper pier, the pier itself, the dumper, thawing shed and other related installations should be classified as main stem, it made no value determinations as to these items although proofs had been offered thereon at the discrimination-value hearing since that hearing was commenced before the panel report on the classification issue was filed.) In no instance did the Division find true value of any item to be less than the Director's assessment therefor. Where the proofs showed a true valuation of less than his figure, his assessment was confirmed. The same is true where neither party offered any independent evidence as to an item. In many instances, the Division substantially increased the Director's assessment. The Division then took 16% of the figure it thus determined for each item to arrive at the proper assessment. We said at the outset of this portion of the opinion that the issues projected by the township's appeal to us are limited ones. It is therefore important to have in mind what is not attacked as well as what is. The township does not quarrel with the finding that other local real estate is assessed at substantially less than true value, that the common assessment ratio thereof is 16%, and that, as a general proposition, the railroad is entitled to have its Class II property assessed on that percentage of true value. It does not object to the Division's valuation of the land, where it turned out there were full independent value proofs on both sides, except with respect to the 72 acres comprising the creosoting plant as to 1956 only, nor does it raise any question concerning the valuation of the substantial item of track. Conversely, the railroad has not cross-appealed from any determination of the Division, thereby indicating its acceptance of the item values fixed by it. The points the township does make, to which we should limit our attention, are confined to the Division's valuations as to structures (except with respect to the creosoting plant land as to 1956) and may be summarized as follows: 1. The railroad did not sustain its burden of independent proof of true value of the structures as required by Kents. 2. The Division erred in arriving at the various percentages it used for functional and economic obsolescence because of the absence of evidence to support them. As to these points, it urges that all the structure valuations for the three years be set aside and (a) the original assessments reinstated ( i.e., at their full amount without application of the 16% ratio), or (b) the matter remanded to the Division for consistent action. 3. In any event, since no proofs were offered by either side, probably due to oversight, with respect to the valuation of the 72 acres of land and the structures constituting the creosoting plant as to 1956, the Director's assessments thereon should be restored ( i.e., at their full amount without application of the 16% ratio). As to the first point urged, the township is technically correct, speaking as of the date of the Division's decision, in saying that any taxpayer complaining of discriminatory assessment must, as part of his case, establish the true value of his property by independent proofs and may not rely for that proof on the taxing authority's assessment. This is what was meant by the previously quoted passage from Kents. The soundness of the requirement, which is just as applicable to the Director as to a municipal assessor, is demonstrated by the evidence in this case. Although the Director testified that his policy and aim was to value railroad property at its full fair market value as we are best able to determine it on the basis of the information at hand, he made it clear that the tax history of the property in question as distinguished from a physical reappraisal of the property for the purpose of assessment was utilized and that it had been many years since an actual physical appraisal or valuation had been done. The effect of the assessment method used is shown here by the fact that the Director's land assessment of approximately $1,074 per acre was increased by the Division to $5,000 per acre and his assessment of track in ballast amounting to $293,903 was raised to $605,000 (both before application of the 16% ratio). The Division pointed out in its decision that a revaluation of all railroad property in the State is very much needed, which the overburdened Director had been unable to undertake with an insufficient budget. Therefore it has to be said that the Division was in error, as a matter of hindsight, in permitting the railroad to rely on the Director's assessments for prima facie proof of true value and in shifting to the township the burden of going forward with valuation testimony. However, we are faced with a practical situation. The pronouncement of Kents did not exist when the Division ruled and we do not think that it can be said that the Division necessarily ought to have anticipated it here. This case has already taken years to reach its present status, involving voluminous hearings and untold expense. While there has to be a remand to the Division on this account, we think that what that remand should encompass ought to depend primarily on the extent to which the township may fairly be said to have been prejudiced. The position it asserts is a broad and technical one and we think it would be grossly inequitable to require the matter of the true value of each of the numerous items to be completely retried or to disallow completely the application of the 16% ratio for this reason. (We are speaking now of the items other than those comprising the creosoting plant land and structures for 1956, as to which we will comment separately.) Certainly as to the land, where there were complete value proofs on both sides despite the order of presentation, the valuation was fairly determined and this phase is not to be reopened. Neither should the track valuation be reconsidered, since the township does not object to it. This leaves the various buildings and structures of substance, as distinguished from those of minor value as to which there was little or no testimony and where both sides appeared content with the Director's valuations. We need not list them in detail. As a practical matter, it would seem that the township value proofs thereof would have been at the highest possible figure. Where that figure was lower than the Director's assessment, his figure was confirmed and where the township figure exceeded his assessment, one would suppose the railroad's evidence of true value, if offered on its case, would certainly not have been higher than the township's proofs. The township's brief on this point paints with a broad brush and we are unable to determine whether it conscientiously feels that, as to some items, it was actually prejudiced by the erroneous method and order of proof permitted. We therefore feel that it should be permitted informally to demonstrate to the Division in what respects and as to what items it can fairly say it was harmed and that, as to those items found by the Division to demand it on this score, the further testimony of each side should be taken, presented under the method required by Kents, and the true valuation of each such item redetermined upon which the 16% ratio will then be applied. In addition, there will, of course, now have to be a Division determination of the true value, on competent and properly presented proofs, of the tracks leading to and upon the car-dumper pier, the pier itself, the dumper, thawing plant and other structures which the Division had classified as Class I property and which we held earlier herein must be designated as Class II. We leave it to the Division to determine in the first instance, under the general principles outlined, whether or not the proofs presented at the hearing on these items, but not passed upon, are adequate for this purpose. In any event, either party should be permitted to supplement the same as may be desired. We find no merit in the township's second point that the Division erred in the percentage allowances for obsolescence which it applied in arriving at the true value of certain of the buildings and structures. It is not disputed that obsolescence is an appropriate factor to be taken into account in arriving at true value, but the point seems to be that there was not sufficient evidence to ground the percentages arrived at. While it is true that there is no specific evidence as to precise percentages, that is not at all fatal under the circumstances here. Again we need not go into great detail. The railroad presented on its case evidence, which was not contradicted, showing that the coal traffic in the yard had decreased drastically in recent years by reason of the almost complete discontinuance of the use of anthracite coal and a drop in its shipments of bituminous coal, which had resulted in a decrease, for this reason alone, in the operation of many of the yard facilities and the number of employees and consequent nonuse of all or part of many of the buildings. It further showed that the substitution of diesel locomotives for steam power as well as other technological advances had rendered many of the special purpose installations obsolete and useless, as well as reducing the number of operating employees needed and thereby lessening the need for employee facilities. These proofs went into particularity with reference to each building and structure affected. We think this evidence clearly demonstrated functional and economic obsolescence as to the particular buildings and installations to which the testimony applied and that, with this background, it was well within the competence and expertise of the Division to translate such proof into percentages for the respective buildings without specific proof as to such figures. The evidence sufficiently supported its conclusions thereon. We see no basis to interfere with the Division's value determinations in this regard and the remand shall not extend to any such matter. This leaves us with the township's third point  the matter of the valuation of the creosoting plant land and structures for 1956. Once more the township may well be asserting a technical rather than a realistic position. There is no specific mention in the Division's opinion of these particular items and there was no proof offered by either side concerning the valuation of the structures (the judgments simply adopt the Director's valuations). It may be that this aspect was completely overlooked by everybody; it also may be that the township felt the Director's structure valuations were adequate. As far as the land value is concerned, these 72 acres were simply part of the entire yard tract and it cannot be clearly ascertained from the record whether those expert witnesses whose testimony was thought worthy of consideration by the Division, who gave their valuation opinion on a general per acre basis, were applying that opinion to the whole tract or only to that part remaining after the creosote plant sale. The railroad suggests that the two parts of the tract are indistinguishable. We see no reason to conclude, as the township urges, that this posture of affairs calls for a holding that the 16% ratio is not to be applied to all these items. Rather we think that this phase of the matter should have further treatment in the Division similar to that outlined with respect to the township's first point, i.e., on the basis of harm or prejudice to the township. We think the Division should first determine whether it intended to decide that the $5,000 per acre land valuation discussed in its opinion applied, under the evidence, to the entire tract. If so, that will end any further controversy as to that phase. If not, the township should be called upon to make a showing that the true value of the creosote plant land is sufficiently different from the balance of the yard to warrant further testimony as to that segment. It should also be required to make a showing that it has actually been prejudiced by the Division's acceptance of the Director's structure valuations. If such showings are made to the satisfaction of the Division, additional proofs thereon should then be taken in the proper order and fashion and the items revalued, with the 16% ratio applied to the figures as determined. The judgments of the Division of Tax Appeals are modified as outlined herein and the matter is remanded to that agency for further action consistent herewith. No costs to any party. For modification  Chief Justice WEINTRAUB and Justices JACOBS, FRANCIS, PROCTOR, HALL, SCHETTINO and HANEMAN  7. Opposed  None.