This local property tax case involves an omitted assessment for 1986 and the regular assessment for 1987. The principal issue is the taxable status of certain machinery and equipment utilized in hydroelectric power generation. The other issues are the timeliness of the omitted assessment and the true value of the property involved, assuming the court finds the machinery and equipment to be real property in accordance with the standards set forth in N.J.S.A. 54:4-1, as amended by L.1986, c. 117.
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The Passaic County Board of Taxation affirmed the omitted-added assessment for 1986; the 1987 assessment was the subject of a direct appeal pursuant to N.J.S.A. 54:3-21.
Plaintiff is a limited partnership which owns and operates a hydroelectric power generation plant on land leased from Dundee Water Power and Land Company. The lease requires plaintiff to pay all real estates taxes imposed on the improvements installed on Dundee’s land. The project providing for the installation of the subject is known as the Dundee Project and it was financed, along with another project known as the Warrior Ridge Project, through the sale of limited partnership interests and a mortgage loan from Connecticut Bank & Trust Company.
The Dundee Project was established to generate hydroelectric power for sale to Public Service Electric & Gas Company. The impetus for the project was the 1978 enactment of federal legislation, i.e., the Public Utility Regulatory Policies Act, 16 U.S.C.A. § 2601 et seq. (PURPA), requiring electric utilities to purchase power from small hydroelectric plants. Also, effective January 1, 1980, the Federal Internal Revenue Code was amended to provide for an 11% energy credit for certain hydroelectric power equipment, to extend application of the 10% investment tax credit to specified hydroelectric power equipment and to make such equipment eligible for five-year accelerated depreciation deductions.
Hydroelectric power is generated by the flow of water from one elevation to another and the passage of the water through plaintiff’s equipment. The water flows down the Passaic River, passes through a trash rack, which collects debris, and enters a canal. The water then flows through intake conduits and pipes
The Dundee Project was installed by Conduit & Foundation Corporation, the parent company of C & F Hydro Corporation, one of plaintiffs two general partners. The hard costs of the project including the cost of the equipment, its installation and the site work, totaled $2,875,000. Of this amount, $184,770 was attributable to site work, which includes dam structures, foundation pads, landscaping and site-preparation costs such as clearing and erosion protection.
The equipment which makes up the hydroelectric generation plant consists of bell mouth intake conduits, steel pipes, butterfly valves, reducing elbows, turbine generator units, draft tubes, a trashrack, a control enclosure, a power transformer, a utility metering panel, a circuit breaker and a steel frame with disconnect switches and lightning arrestors. All of these items are attached to each other and/or to concrete foundation pads by flanges and bolts. The equipment was specifically designed to be easily removable and, in fact, has been removed in the past. The removal of this type of equipment can be effected quickly and inexpensively. Removal entails disconnecting wires and cables, unbolting the pieces of equipment from each other and from the foundation pads and lifting the equipment away by mobile crane.
I.
The Omitted Assessment.
On November 13, 1986, defendant’s assessor filed with the Passaic County Board of Taxation an added-assessment list which included an added assessment for the subject property of $1,185,600, pro-rated for eight months of 1986. The county
By letter of December 16, 1986, the Director, Division of Taxation extended
On February 17, 1987, plaintiff filed a complaint with this court seeking invalidation of the added assessment for non-compliance with the added-assessment statutes. On June 25, 1987 this court denied defendant’s motion to dismiss for untimely filing and declared the added assessment invalid for failure to comply with the added-assessment statutes. American Hydro-power Partners v. Clifton, 9 N.J.Tax 259 (Tax Ct.1987). The Appellate Division affirmed on January 23, 1989. American Hydropower Partners v. Clifton, 239 N.J.Super. 130,
After this court invalidated the 1986 added assessment defendant’s assessor, on September 29, 1987, notified plaintiff that such assessment was under consideration as an omitted-added assessment for 1986. At the time plaintiff was so notified, this court’s decision was on appeal. On October 28, 1987 the assessor filed an omitted-assessment list with the county board, which included an added assessment on the subject property for 1986 in the same amount as the invalidated added assessment.
On or about December 1, 1987 plaintiff filed an appeal with the county board, which affirmed the omitted-added assessment on or about December 29, 1987. Plaintiff’s complaint seeking review of the county board judgment was filed with this court on January 29, 1988.
There are two methods by which omitted property may be assessed. Under the first method the county board makes the assessment upon application of the tax collector or any taxpayer of the taxing district or of its governing body or upon the county board’s own motion. Upon notice to the property owner a summary hearing is conducted and the county board then enters judgment in accordance with the proofs. N.J.S.A. 54:4-63.12, -63.13, -63.14.
On October 1 of the year in which the county board has rendered one or more judgments assessing omitted property for the current year or the preceding year the assessor of each affected taxing district files an omitted-assessment list with the county board which certifies it by October 10. N.J.S.A. 54:4-63.17. The certified list is then delivered to the tax collector of each affected taxing district, and that officer is required to send omitted assessment tax bills to the property owners at least one week prior to November 1. N.J.S.A. 54:4-63.19. County board judgments assessing omitted property may be appealed to the Tax Court in accordance with the State Tax Uniform Procedure Law (45 days after service of the county board judgment, N.J.S.A. 54:51A-la; R. 8:4-1(a)(2)), N.J.S.A. 54:4-63.23.
Under the second or alternate method, the assessor makes the omitted assessment. N.J.S.A. 54:4-63.31. On October 1 of the year in which omitted property is assessed the assessor must file his omitted assessment list with the county board, which then must certify it and return a duplicate thereof to the
Defendant chose the second or alternative method. The evidence does not indicate precisely when the omitted assessment was made but the assessor’s letter to plaintiff of September 29,1987 indicated that the assessment was under consideration. The only inference that can be drawn from this letter is that the omitted assessment, which had been by then invalidated as an added assessment by this court, had not actually been made by September 29, 1987. The list of omitted assessments made by defendant’s assessor, including the omitted-added assessment in dispute, was not filed with the Passaic County board until October 28, 1987, almost four weeks after the deadline for such filing imposed by N.J.S.A. 54:4-63.32. The same statute requires the county board to examine, revise and correct the omitted assessment list and return a certified duplicate thereof to the tax collector by October 10. This was not done until November 4, 1987; and Dundee did not receive a bill from the collector until November 16, 1987.
Thus, none of the statutory requirements dealing with omitted assessment procedures was met by defendant. There is no proof that the omitted-added assessment was made prior to October 1; indeed, it seems unlikely given the letter of defendant’s assessor indicating that the assessment was still under consideration as late as September 29, 1987. In any event,
Defendant asks this court to overlook the wholesale disregard of each and every statutory deadline on the ground that plaintiff could reasonably anticipate the assessment, especially in view of this court’s observation in the first case that the failure to follow statutory procedures in making the original added assessment could be rectified through an omitted-added assessment. 9 N.J.Tax at 264. Indeed! By the same token, defendant was also aware of the need for corrective action, as this court’s decision was published on July 13, 1987, giving defendant ample time to impose an omitted-added assessment in accordance with the law.
Defendant also justifies its late submission of the list by resort to the regnant, hi-tech alibi of computer malfunction. (“The computer is down.”) To be sure, the evidence submitted by plaintiff shows that 14 of the 16 municipalities in Passaic County, including defendant, submitted their omitted assessment list on October 28, 1987. The other two taxing districts, Passaic City and Wayne Township, submitted their list on October 9, 1987.
The responsibility for submitting an omitted-assessment list to the county board by a specified date is imposed by law upon the taxing district. The law makes no exception for computer malfunction. It was incumbent upon defendant’s assessor to prepare the list manually, if need be, just as assessments lists were prepared prior to the advent of today’s sophisticated technology.
Finally, defendant argues that, unlike the first case, plaintiff was not prejudiced by the delay as its appeal was filed with the county board prior to December 1, 1987, the filing deadline imposed by N.J.S.A. 54:4-63.39. The argument is unsound.
Defendant relies on Haddon Hills Apts. North v. Haddon Tp., 31 N.J.Super. 124,
The omitted-assessment procedures must be followed. The Legislature has laid down an orderly sequence of dates by which specific actions must be taken, beginning with the date the assessor submits the omitted-assessment list to the county board and ending with the dates by which appeals must be filed with the county board and decided by that tribunal. The time sequence is necessarily compressed into three calendar months in view of the need for a prompt disposition of actions so intimately related to municipal budgets and revenues.
It is well settled that a filing deadline for a tax appeal is jurisdictional, and its observance is a categorical judicial imperative. Newark v. Fischer, 3 N.J. 488,
If, as Justice Holmes said, “[citizens] must turn square corners when they deal with the Government,” Rock Island, A. & L.R. Co. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 56,
The omitted added assessment for 1986 is invalidated.
II.
The 1987 Regular Assessment.
A.
Real Property v. Personal Property.
N.J.S.A. 54:4-1, as amended by L.1986, c. 117, provides pertinently:
Real property taxable under this chapter ... includes personal property affixed to the real property or an appurtenance thereto, unless: a. (1) The personal property so affixed can be removed or severed without material injury to the real property;
(2) The personal property so affixed can be removed or severed without material injury to the personal property itself; and
(3) The personal property so affixed is not ordinarily intended to be affixed permanently to real property____
Two aspects of this statute are significant. First, the exclusion requirement is conjunctive, i.e., it must be established both that the property is removable without material injury either to the real property or to the removed property itself, and that the personal property affixed is not ordinarily intended to be permanently affixed. Failure of the proponent of the exclusion to establish both elements results in taxation of the affixed property as real property. Chevron U.S.A. Inc. v. Perth Am-
With the foregoing statute and case law as the framework the court will now address the evidence concerning the property in dispute insofar as it pertains to the 1987 regular assessment.
Plaintiff concedes that the concrete foundation pads and the steel pipes embedded in the canal wall cannot be removed without material injury to the property involved, i.e., the concrete foundation pads and the concrete foundation wall. Thus, plaintiff concedes that such items are taxable as real property.
As to the rest of the items in dispute the uncontroverted testimony of plaintiffs expert, William Pentin, an engineer with extensive experience in the design of hydroelectric power plants, indicates that such items can all be removed without material injury either to the items removed or to the real property to which the items were attached. On the basis of the expert’s credible testimony the court finds that all the items in dispute except the concrete foundation pads and the 11 steel pipes embedded in the concrete canal wall can be removed without material injury as that term has been defined in decisional law. Bayonne v. Port Jersey Corp., 79 N.J. 367,
As stated above, however, the proponent of the statutory exclusion as to property affixed to real property must not only prove that the property can be removed without material injury
Plaintiffs evidence on the issue of permanent annexation was also proffered through Pentin. That expert testified that it is the practice in the hydropower industry to move equipment from one site to another; that the trend in that regard has accelerated in frequency in recent years and that the market for both new and used hydropower equipment increased sharply after the passage of PURPA in 1978. However, Pentin went on to state that equipment was moved from one site to another when the volume of water changed, either through upstream diversion or because of a change in rainfall, or when small hydro plants owned by large utilities were abandoned because their continued operation was no longer economically feasible. When he was asked on cross-examination if he knew the intentions of hydropower plant owners to sell plants that met expectations and made money he replied that that was beyond his expertise, that he was unable to address questions of economics, raising investment capital and negotiation of contracts.
Moreover, Pentin did not know of a single instance where a functioning hydroelectric plant had been totally removed and transported to another site. His knowledge was limited to the existence of a market for the sale of some of the items that comprise the plant.
The expert’s testimony falls short of establishing that the items in issue are not ordinarily intended to remain permanently affixed to real property. The probative value of an expert’s opinion rests entirely upon the facts and reasoning offered in support of it. Dworman v. Tinton Falls Boro., 1 N.J.Tax 445 (Tax Ct.1980), aff’d o.b. per curiam 180 N.J.Super. 336, 3 NJ.Tax 1,
In addition, plaintiff’s president, Peter McGrath, testified that the market demand for small hydroelectric power plants such as the plant in issue took a sharp drop with the passage of 1986 Tax Reform Act, which virtually eliminated tax shelters. Tax
Plaintiff bears the burden of proving, by the preponderance of the evidence, that the machinery and equipment in issue are not ordinarily intended to remain permanently affixed to real property. For the reasons stated above, plaintiff has not met that burden. The court is not obliged to make an affirmative finding that the property in question is ordinarily intended to be permanently annexed to the real property. Accordingly, all the items in issue will be treated as real property taxable pursuant to N.J.S.A. 54:4-1.
B.
Valuation.
Plaintiffs valuation expert estimated the true value of the subject property, including an extrapolated land value for three parcels, only one of which is before the court, to be $833,500 on October 1, 1986 for tax year 1987. In reaching this conclusion he placed sole reliance on the income approach, confining that approach to the value of the improvements. (He testified that his assignment was limited to estimating the true value of the improvements.) His economic gross income of $220,738 was derived entirely from actual sales of electric power for the 12 months ended December 31, 1987.
He estimated expenses for the same period at $153,728, which included $10,063 in land rent paid to Dundee. The difference between economic gross income and expenses result
Although the expert acknowledged on cross-examination that the subject of his appraisal, namely, a hydroelectric power plant, was special-purpose property, he declined to consider the cost approach.
The court rejects the expert’s opinion of value. To begin with, his income approach, upon which he places exclusive reliance, employs the income from the business, not the property. Real property valuation, for local property tax purposes, cannot be based solely upon gross sales from a business conducted on the real property involved. Aetna Life Ins. Co. v. Newark, 10 N.J. 99, 108-109,
The rationale of Glen Wall is inapposite in the case before this court for two reasons. First, unlike the situation in Glen Wall, land value is in issue here notwithstanding plaintiff’s apparent concession. Second, the expert employed the mortgage-equity technique, not the building residual technique; and the former involves a total capitalization rate derived from two weighted components. The capitalization rate is applied to the net operating income to arrive at a value estimate for the entire property, land and building merged. Plaintiff’s expert did not follow this procedure. He confined the mortgage-equity capitalization technique to the improvements, to which he added a land value without a scintilla of credible evidence to support it.
Finally, while conceding that the hydroelectric power plant was special purpose in character, the expert declined to use the cost approach. It is well settled in this State that ordinarily the cost approach is the most reliable method for valuing special-purpose property for tax assessment purposes. Transcontinental Gas v. Bernards Tp., 111 N.J. 507,
Defendant’s expert estimated the true value of the subject property, both land and improvements, to be $4,191,000 on October 1, 1986 but this included the land value of three parcels, only one of which is before the court, viz., Block 3.14, Lot 9. His value estimate for the improvements, all of which are located on the parcel under review, was $2,875,000. He valued all the land at $100,000 an acre. The land under review
The expert recognized that the hydroelectric power plant was special-purpose property and he accordingly relied solely upon the cost approach in valuing the improvements. His cost estimate was predicated upon the recently incurred actual costs of those improvements; his land value estimate was supported by five comparable sales of vacant land. All sales took place in reasonable proximity to the assessing date and involved only properties within the defendant municipality.
The expert’s value estimate is supported by the credible evidence in the record. Recently incurred actual costs of improvements are evidentiary and may be considered in valuing real property under the cost approach for tax valuation purposes. Bostian v. Franklin State Bank, 167 N.J.Super. 564, 401 A.2d 549 (App.Div.1979), on remand 1 N.J.Tax 270 (Tax Ct.1980), aff’d o. b. per curiam 179 N.J.Super. 174, 2 N.J.Tax 391, 430 A.2d 1140 (App.Div.1980). See Abe Schrader Corp. v. Secaucus, 8 NJ.Tax 390, 394 (Tax Ct.1986). The expert’s comparable land sales offer convincing probative support for his land value estimate. The probative utility of an expert's opinion depends upon the facts and reasoning offered in support of it. Dworman v. Tinton Falls Boro., supra.
In view of the foregoing I find that the true value of the subject property on October 1, 1986 to be:
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The general average ratio for defendant taxing district for tax year 1987, as promulgated by the Director, Division of Taxation, was 35.14%. The upper and lower limits of the common level range, also as promulgated by the Director, were 40.41% and 29.47%, respectively. The ratio of true value as herein found to the assessment is 40.18%, which is within the common level range.
Notes
The Director’s power to grant the extension was not raised as an issue in this case.
The expert averaged net income for the period March 16, 1986, the date operations commenced, to December 31, 1986 and net income for calendar year 1987.