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Monthly Archives: December 2013

Setting the record straight on Farmland Assessment

In a recent article titled “Celebrity Hypocrites,” author and television journalist John Stossel wrote “Bon Jovi …. at tax time, …. labels himself a “farmer.” He pays only $100 in state property tax. And his tax dodge gimmick: raising honeybees.”

Without commenting specifically on John Stossel or his politics (for the record: this site is strictly NON political, as my interest is solely in real estate valuation), I feel it is important to correct the misstatements and misunderstandings inherent in the above sentence.

Under the Farmland Assessment Act of 1964, all improvements (if any) on a qualifying property are assessed as if situated on a hypothetical building site, known as a Homesite parcel. The bulk of the land is assessed at values reflecting farmland productivity, rather than market value, and is identified as a Qualified Farmland parcel. This is done in order to preserve farmland, in a state where such land has been gobbled up with housing developments at a staggering rate over the years. This makes it possible for people who are land rich but cash poor (otherwise known as “middle class”) to keep their land, rather than being forced to sell it to developers because of the high property taxes. John Bon Jovi doesn’t “label(s) himself a ‘farmer.’ ” He leases his farmland to an actual farmer, in order to qualify for the Farmland Assessment. Nor does he pay “only $100 in state property tax.” (In fact, there is no such thing: we don’t pay “state property tax” in New Jersey. Real estate is assessed and taxed at the local; i.e, municipal level.) As for his house and any other improvements on the land? They are assessed at full market value (see “Homesite Parcel,” above), so Farmland Assessment is not at all the dodge, or hypocrisy, that the article makes it out to be. It would be good if those who report would get the facts first.

It should also be pointed out that, once a Qualifying Farm parcel is no longer eligible for Farmland Assessment due to a change in its use, the property in question is then liable for “roll-back” taxes. In calculating the amount of roll-back taxes that are due, the municipal Tax Assessor will value the land at its actual market value (not farmland value) for the year of the change, plus the previous two years. In this way, the local municipality and school district can recoup, potentially, a substantial amount of tax revenue previously foregone.

One other note: the Farmland Assessment program, along with general Open Space initiatives, farmland easement purchases and Green Acres acquisitions, have remained very popular in New Jersey, as witnessed by the continued support for these programs. New Jersey may get a bad rap from the uninformed, but just drive around for a while, and you understand how we can justifiably call ourselves “The Garden State:” and why we would like to keep it that way.

Tax appeal success story

I am often asked about the results of a tax appeal appraisal, and whether it really is worth the effort to file an appeal. One dramatic example may provide an answer.

I was asked by a client to appraise a number of mixed-use properties (retail/commercial on the first floor, apartments on the upper floors) he owns in Somerville, Somerset County, New Jersey. Several years ago, the Borough of Somerville underwent a revaluation, whereby every property in town was re-assessed for tax purposes. In the course of revaluing one of the properties owned by my client, the appraiser for the revaluation company made a significant error in calculating the gross building area of the building, so that a building of just over 16,000 square feet ended up being assessed (and, therefore taxed) based on approximately 26,000 square feet! Needless to say, this resulted in a substantially higher annual tax bill than would have been the case with an accurate calculation. When I brought this to the attention of the municipal Tax Assessor, he acknowledged the error and made the necessary correction to the property record. The end result? By correcting this error, and by providing a complete appraisal report that detailed the market value of the property as of October 1 of the pre-tax year, my client’s tax bill was reduced by more than $24,000 – every year.

Granted, this is obviously an extreme case, where a property’s over-assessment was due mostly (although not entirely)  to a mechanical error in the property records. Still, wouldn’t it be prudent to find out what your own assessment is based upon?