Opinion ID: 1468027
Heading Depth: 1
Heading Rank: 2

Heading: THE DuPONT SALES.

Text: DuPont owned 25 separately assessed real estate units. Their total assessed value for 1958 was $1,372,350, $209,200 of which was for land and $1,163,150 for improvements. All of the property was offered for sale because duPont was moving from Kearny. All of it was sold in August and September 1958 by the two sales involved in this proceeding. On August 11, 1958 duPont sold to Carla Holding Company Inc. 11 acres of the property for $9,500. There is no charge that it was not an ordinary arms length transaction. The 11 acres, however, consisted of a strip of vacant land taken from three contiguous assessed units and amounted to about two-thirds of those units. The three original units were assessed at $28,850, of which $24,950 was for land and $900 for improvements; they represented less than 2% of the total assessment and the portion conveyed to Carla represented about 1% of the total. About six weeks later, on September 26, 1958, the remaining 22 whole units, plus the unsold portion of the three units transferred to Carla, were sold to Wasco Chemical Company, Inc. for $400,000, as confirmed by the revenue stamps on the deed. The Director received the abstracts of the deeds covering these sales at different times. Thus, on ascertaining that the Carla property was made up of parts of three separately assessed units, he branded the sale a split-off under Category 6 and therefore not usable in the formulation of his equalization table. This was understandable. Manifestly, there was no way of telling from the abstract what effect, if any, the separation of the 11 acres from the original three units might have had upon the purchase price, and there being no separate assessment on record for the 11 acres, no ratio between sale price and assessment could be arrived at. When the Wasco deed came to his attention and it appeared that the tract conveyed consisted of 22 separately assessed units and parts of three others so assessed, again he classified the sale as a split-off. The same reason obtained as in the earlier case. The portion of the original three units remaining after the cutting off of the 11 acres not having been assessed separately after the August sale, and there being nothing before him then to show what effect addition of that portion to the 22 units had on the purchase price, there was no basis for calculating the sale-assessment ratio. It seems important to observe at this point that the conclusion to be drawn from the record is that the Director (or the agent who acted for him) did not have these two deeds before him at the time when he declared the second sale a split-off, or then recall, or even know of, the earlier one, or realize that the two deeds represented disposition of the entire 25 duPont assessed units. In any event, when Kearny called attention to the fact that the sales were less than two months apart in the same year and disposed of the entire duPont assessed realty, he declined to treat them other than as split-offs. The town's further request to add the purchase prices of the two sales so as to obtain the full market value of the entire 25 units, and then to compare that value with the total assessment of the 25 units so as to compute the ratio, was also rejected. The effect on the town of the split-off declaration (as to these sales and Congoleum) was severe. Its share of the county tax burden increased in excess of $600,000 and it suffered a loss of $26,326 in school aid. Such an unfavorable impact, as has been indicated above, calls for a careful scrutiny of the action of the Director and of the County Tax Board. Looking at the two sales separately and without regard to the time element involved, they appear to fall into the split-off category. But under the Director's rules, the inquiry does not end at that point. If investigation shows clearly that in fairness and equity to the municipality involved, and in the interest of a closer approach to intermunicipal equalization, the transactions should be regarded as ordinary sales and therefore usable in the ratio calculation, exclusion as split-offs cannot be supported as a reasonable exercise of discretion. A significant circumstance, apparently given no weight by the agencies, is that the sales disposing as they did of all the duPont property occurred within about six weeks of each other in the same year  a year whose sales were forming the base for the Director's ratio. If one transaction was completed within the year of the table in question, and the second during the year of the succeeding table, obviously there would be no disagreement with application of the split-off rule to each of them. But occurrence of the two in a single year puts the matter in a different light from the standpoint of achieving a more realistic appraisal of the relation between the aggregate of assessments and the aggregate fair value of the real estate ratables. There should be no difficulty at all at the end of the particular table year, in such cases where all the assessed units are sold, in adding the assessments together, then adding the purchase prices and comparing the total of each to find the ratio between assessment and market value. It must be kept in mind that sales are divided by the Director into the four classes already mentioned. Both the duPont and Congoleum properties belong in the industrial class, where there are relatively few sales in the course of a given year. For example, in the study for the table under review the Director used 287 Kearny deed transactions. Of these, only six were industrial sales with assessments totaling $153,100. More than 50% of Kearny's total assessments are industrial and the sales show a higher ratio of assessment to true value than appears in the other classes. As a consequence, omission of a substantial industrial sale has a greater impact on the town's overall average ratio. The paucity of industrial sales has an important bearing on the appraisal of the Director's discretion here. The reason advanced for failure or refusal to combine the two duPont sales was that the administrative burden would be too great if the many thousands of deed transactions had to be studied and matched up so as to remove them from the non-usable category. The Director's representative's testimony is to the effect that a split-off is a split-off. He said also, We follow these categories to the best of our ability without prejudices. If it fits, that's it. Now if we are go in and say well, it hurts or helps, then we begin to express personal opinion. In this particular case it fits Category Number 6. Particularizing the basic reason for refusing to consider whether on the merits the sales qualified as usable, the witness said: By the Commissioner: Q. I understand, therefore, that in this case your objection is that the practicalities of the situation in your office preclude you from ascertaining in the first place whether or not property that has been split off from other property could later in the same year be added to another sale and thus create one sale which could be compared with the old assessment. A. That's right. But when, at the end of the Director's year, there are only nine industrial sales in a municipality like Kearny, and information is furnished by the municipality showing that three of them, having the surface appearance of split-offs, are not in fact deserving of that description, the administrative problem of checking and then accepting the sales as usable in fixing the fair ratio does not seem unduly harassing. The testimony indicates that the Director's agents usually investigate practically all industrial sales. When this statement was made in the Division of Tax Appeals, on the Commissioner's inquiry the following appeared: Q. So that then you ought to be able to tell at the end of the year whether or not there have been two sales which put together would indicate that the entire property assessed to that owner had been sold. Is that right? A. There is no doubt about it. At another point in the course of discussion of the Attorney General's argument that if Kearny's claim were allowed the same course would have to be taken for all other municipalities thereby causing an excessive administrative burden, the Commissioner remarked: But Kearny's position is that if this occurred in every other taxing district you should have done the same thing, so I don't think that's a good argument. Kearny wants to know what is the difference actually whether this property was sold in two separate pieces regardless of the percentage of split, since it was all sold within one year? What's the difference whether you consider that, add the two sales together and apply the total assessment of the property sold to the total purchase price? What difference would that be than if it were all sold at once, in the absence of clear proof that the purchase price of the second sale was materially affected by the purchase price in the first? And even if it were, what difference does that make? It's still a total purchase price, isn't it, if this were one sale? In our judgment that comment was sound and leads to the result we deem to be just in the case. Apparently, however, the Commissioner was persuaded ultimately that the matter should be left to the discretion of the Director. On analysis we find ourselves unable to agree that too great an administrative burden would be cast on the Director if he were to give consideration to influential sales like these two of duPont and to recognize them as usable and not split-offs when they are called to his attention before his table is completed and promulgated. Moreover, when the County Board is formulating its equalization table the task is even less onerous because that Board starts out with the Director's table and a record of all sales occurring in each municipality in the pertinent period. It is not a difficult task to evaluate a few sales in the industrial class on the complaint of the municipality that it was improper to regard them as split-offs. The City of Passaic case, supra, clearly requires consideration of the facts adduced to demonstrate the error. Under all the facts and circumstances, we conclude that the Director mistakenly used his discretion in barring these two sales as split-offs, and that the County Tax Board, the Division of Tax Appeals, and the Appellate Division erred in affirming his action on the theory that the Town's proof had not overcome the statutory presumption of correctness of the ratio assigned to it. As appears earlier in this opinion, two appeals to the Division of Tax Appeals are before us. The first attacked the Kearny ratio as it affected the allocation of school aid. The second was an appeal from the County Tax Board's automatic acceptance of the Director's table as the basis for distribution of the county tax burden, and from its refusal to accept the Congoleum and duPont transactions as usable sales in determining Kearny's average assessment ratio. In the first appeal the only question raised was whether the three sales constituted split-offs. Only that issue was considered by the Division of Tax Appeals and the Appellate Division. In the county tax distribution appeal, the Attorney General presented an additional issue before the Division of Tax Appeals. It was whether the two duPont sales were non-usable transactions because they fell into Category 23. That rule banned: Sales of commercial or industrial real property which include machinery, fixtures, equipment, inventories, good will when the values of such items are indeterminable. It was urged also that the sales were a package transaction involving, in addition to machinery and inventory, acquisition by the buyer Wasco of the corporate stock of Selastics Corporation, a duPont subsidiary. It is true that the duPont-Wasco contract concerned three elements, the real estate referred to herein, machinery and inventory, and stock of Selastics Corporation. The proof shows, however, that the total purchase price was $1,000,000, and allocated in this wise: $400,000 for the real estate, $200,000 for the machinery and inventory, and $400,000 for the stock of Selastics. Kearny offered substantial testimony to establish that $400,000 was a fair market price for the real estate and the revenue stamps on the deed indicated that sale price. There is nothing in the record to show that this additional ground presented by the Attorney General on the second appeal to the Division of Tax Appeals was ever considered by the Director. It was not advanced by the Director's witnesses on the school aid appeal, either to the Division of Tax Appeals or to the Appellate Division. Nor was it dealt with at all by the County Tax Board in promulgating its equalization table for county tax distribution purposes. The opinion of the Division of Tax Appeals sustaining the County Board in the second case was predicated upon its earlier holding in the school aid appeal. A sentence was added saying that evidence had been offered showing that the Director could have excluded the duPont sales on a ground in addition to the one on which he relied  i.e., that it was a split-off. Presumably the reference was to the evidence about the so-called package deal which, so far as the record shows, was not before the Director but, as we have said, was offered for the first time on this second appeal. In view of our holding that these duPont sales should not be deemed split-offs, but should be combined for the purpose of obtaining the ratio of total assessments to total purchase price, we feel that the parties should have the opportunity to explore fully before the Division of Tax Appeals the matter of the alleged package deal and to obtain a finding and ruling with respect to it. Further, since the entire matter is affected with the public interest and since the appeals were consolidated for decision by this court, in our opinion the remand to that Division should not be limited to the issue as it affects Kearny's proper share of the county tax burden. The problem is basically the same in the school aid distribution case and any finding on the merits as to whether the challenged sale is a usable one ought to control both causes. If $400,000 was not actually considered by the parties as the purchase price of the real estate covered by the sale, or if that sum did not constitute a fair market price between a willing buyer not obliged to buy and a willing seller not obliged to sell, then a finding barring it as a usable sale would be justified. All that we have said, therefore, leads to the following conclusions: (1) The Congoleum-Kearnyland Inc. and the duPont sales should not have been regarded as split-offs and treated as not usable for that reason; (2) The Kearny ratio should be revised so as to reflect the Congoleum-Kearnyland Inc. sale, and the revised ratio should be used in fixing Kearny's just share of state school aid and county tax burden; (3) The judgments are reversed and both causes are remanded to the Division of Tax Appeals for full hearing and determination whether the $400,000 sum was in fact considered by duPont and Wasco as the fair purchase price of the real estate encompassed by the deed between the one as an owner willing but not compelled to sell, and the other as a buyer willing but not compelled to buy. If the proof does not establish such a transaction, then both duPont sales should be excluded as factors in the allocation of Kearny's school aid and share of the county tax burden. If the contrary result is reached, then, as in the case of the Congoleum-Kearnyland Inc. transaction, the sale should be used to revise the Kearny ratio. We find no prejudicial error in either case as to the other grounds of appeal raised. For reversal  Chief Justice WEINTRAUB, and Justices JACOBS, FRANCIS, PROCTOR, HALL, SCHETTINO and HANEMAN  7. For affirmance  None.