Town Argues Real Estate Taxes on U.S. Postal Building Were Valid as Assessed

The U.S. Postal Service property in Kearny, N.J., was the subject of real estate tax appeals for the years 1991-1996. The property is leased by the Postal Service from Windmere Associates under a long-term lease. During the course of the appeal, Kearny's tax assessor and expert appraiser conducted physical inspections of the site. The inspections took place in the spring of 1995 and February 1996. During the 1996 inspection, municipal representatives noticed significant improvement to the electrical fixtures within the building and levied an added tax assessment of $1 million. In October of 1996, the Postal Service received notice from the property owner of a tax bill for $52,530 based on the additional $1 million assessment. Counsel for Kearny and the Postal Service subsequently executed a stipulation of settlement resolving the pending 1991-1996 tax appeals by reducing the 1991-1996 assessments based on value as of October 1, 1991-1995.

The Postal Service brought a motion before the state tax court to enforce the settlement agreement with Kearney that negated the real estate tax increases of $1 million for each of the years 1996- 1998. In the alternative, the Postal Service moved to apply a state law, the Freeze Act, to the assessments for the years at issue. The court denied the Postal Service's application to enforce the settlement on the basis of its failure to file an appeal from the 1996 added assessment. The court then denied the Freeze Act motion without prejudice since there was no evidence before the court from which it could determine if the improvements made to the property constituted a meaningful change in value of the property and if so, whether the changes occurred prior to or after the relevant assessment date. A plenary hearing was subsequently held by the court to determine whether for purposes of the Freeze Act representatives of Kearny knew or should have known of the improvements on or before October 1, 1995. On March 19, 2001, the court granted the Postal Service's motion to apply the Freeze Act to the 1996-1998 tax years, thereby invalidating the 1996 added assessment and reducing the assessments for 1997-1998. Kearney now seeks reversal of that determintion.

Kearny argues that the Freeze Act does not apply to reduce the 1996-1998 assessments because the Postal Service did not file a timely tax appeal from the properly levied added assessment and because the property meaningfully increased in value due to the added improvements. The township further asserts that the Supremacy Clause does not support a result that is contrary to Kearny's interpretation of the Freeze Act. Finally, it maintains that since the Postal Service failed to advise Kearny of the improvements prior to the October 1, 1995 assessing date, for purposes of the Freeze Act, the Postal Service must be estopped from arguing that Kearny knew, or should have known, about the improvements prior to October 1, 1995.

[1] This matter was brought before the Tax Court by the United States Postal Service (hereinafter "Postal Service") by motion to enforce a settlement agreement in order to negate a $1,000,000 1996 added assessment imposed by the defendant Town of Kearny (hereinafter "Kearny") and reduce the 1997 and 1998 assessments by $1,000,000 to $18,216,000. Da44-45. In the alternative, the Postal Service moved to apply the Freeze Act to the 1996, 1997 and 1998 assessments. Da71.

[2] In a written opinion dated June 15, 1998, the Tax Court denied the Postal Service's application to enforce the settlement on the basis of its failure to file an appeal from a 1996 added assessment which failure effectively deprived the Tax Court of jurisdiction to void the 1996 added assessment. Da71-78.

[3] The Court also denied the Postal Service's Freeze Act motion without prejudice since there was no evidence before the Court from which it could determine if the improvements made to the property constituted a meaningful change in value of the subject property and, if so, whether the changes occurred prior to or after the relevant assessment date. Da78.

[4] A plenary hearing was held by the Court on October 4, 2000 in order to determine whether, for purposes of the Freeze Act, representatives of Kearny knew or should have known of the improvements on or before October 1, 1995. Da205. In a second written opinion dated March 19, 2001, the Court granted the Postal Service's motion to apply the Freeze Act to the 1996-1998 tax years, thereby invalidating the 1996 added assessment and reducing the 1997-1998 assessment from $19,216,000 to $18,216,000. Da291-298. Kearny now seeks reversal of the Tax Court's March 19, 2001 determination.

PROCEDURAL HISTORY AND STATEMENT OF FACTS

A. BACKGROUND

[5] The Postal Service property, located at 850 Newark Turnpike in the Town of Kearny ("Subject Property") , was the subject of real estate tax appeals for the tax years 1991-1996. Da35-43. The Subject Property, which is known as Block 284 Lot 33, is leased by the Postal Service from Windmere Associates, pursuant to a long-term lease. Da 15-34.

[6] During the course of the appeal, Kearny's Tax Assessor and expert appraiser conducted physical inspections of the site. The inspections took place in the Spring of 1995 (sometime in April\May) and February 1996. Da66. ¹ But it was not until the February 1996 inspection that municipal representatives first noticed significant improvements to the electrical fixtures within the building, including improvements to the wiring and overhead lighting /2/. Da67. In light of the observed improvements, the Town of Kearny levied a 1996 added assessment of $1,000,000. Da67.

[7] On October 16, 1996, the Postal Service received notice from the property owner of a tax bill for $52,530 based upon the $1,000,000 added assessment for the 12 months of tax year 1996. Da67. Following notification of the added assessment, during the period of October 18, 1996 through October 21, 1996, counsel for the Postal Service and the Town of Kearny both executed a Stipulation of Settlement, Da67 and Da35-43, resolving the pending 1991-1996 tax appeals by reducing the 1991-1996 assessments based on value as of October 1, 1991-1995 consistent with the Settlement Agreement as follows:

                                1991

[9] As indicated above, the Stipulation and Judgment set the 1996 assessment at $18,216,000, Da38, based on Kearny's good faith belief regarding the value of the property as of October 1, 1995. It did not address, nor was it intended to address, the 1996 added assessment. Da73 In fact, the Postal Service did not file appeals contesting the 1996 added assessment and in late October 1996, the Postal Service paid the added assessment tax bill in the amount of $52,530. Da68. The 1997 and 1998 assessments were thereafter set by the municipal tax assessor at $19,216,000. Da76.

[10] Since an appeal was not filed to contest the 1996 added assessment, the Court in its June 1998 opinion correctly determined that it was without jurisdiction to void the 1996 added assessment and that, as a consequence, it was without authority to grant the Postal Service's application to enforce the settlement for 1996. Da75-76. The Court further noted that (1) at oral argument, both parties acknowledged that the settlement discussions did not include the electrical improvements in the added assessment; and (2) neither party asserted that the 1996 added assessment was improperly levied pursuant to N.J.S.A. 54:4-63.1 to 63.11, nor was an appeal filed disputing same. Da75. Thus, the Postal Service's motion to enforce the settlement was denied by the Tax Court. Da-76.

[11] With respect to the Postal Service's application to apply the Freeze Act to the settlement for 1996-1998, the Court denied the application for Freeze Act relief without prejudice, pending a determination as to whether (1) the added improvements constituted a meaningful change in value of the subject and, if so, (2) whether the changes occurred prior to or after the relevant assessment date, October 1, 1995. Da-77-78. In order to make a determination of the two remaining issues as identified by the Court in its June 1998 opinion, the Tax Court scheduled a plenary hearing. Da78.

[12] Following the Court's June 1998 decision, in discovery provided for the plenary hearing, including answers to defendant's Interrogatories and the deposition testimony of Postal Service employee, Leon Roszkowski, the Postal Service represented that the improvements at issue were completed in June 1995. Da82-83 and Da144 (T37-23 to T38-3). At the plenary hearing conducted in this matter, however, it became apparent that certain punch list items were not completed until November 1995 and the painting associated with the improvements was not completed until sometime in late 1995 or possibly 1996. Da214-215 (T18-18 to 20-24).

[13] In support of the original motion before the Tax Court, the Postal Service submitted and relied on the Certification of Leon Roszkowski ("Roszkowski Certification"). Da46-48. During the relevant time, Mr. Roszkowski was employed by the United States Postal Service as a Maintenance Manager and was responsible for overseeing the heating, cooling and electrical systems and for capital improvements to the subject property. Da46. The Roszkowski Certification, dated October 16, 1997, stated in relevant part, the following:

During the last 5 years, the only "significant improvements"

[14] At his April 7, 1999 deposition, conducted prior to the plenary hearing, Mr. Roszkowski confirmed that his work responsibilities as Maintenance Manager included oversight of all improvements to the facility:

A. I was a department manager over the building services or

[15] He also revealed that under no circumstances did the Postal Service obtain either building permits or certificates of occupancy for capital improvements to the property. In this regard, he testified as follows:

Q. Now as the maintenance manager of the facility, did you make

[16] The project that initiated the added assessment in this case related to the replacement and disposal of PCB containing magnetic ballast fluorescent lighting fixtures with electronic ballast fluorescent fixtures. Da47. These improvements were described by Mr. Roszkowski as follows:

A. The project was a shared energy project that removed the

[17] The cost and energy savings associated with the project were projected in the Postal Service's Agreement with Energy Options, Inc., of West Nyack, New York ("Energy Options"). Da186-202. Appendix I of the contract, which was marked as Exhibit D-2 for identification at the deposition of Mr. Roszkowski, stated that (1) the equipment installed for the purposes of reducing energy consumption at the Premises is estimated to reduce electric demand by 825 kilowatts and save $450,000.00 in annual electric costs /3/; and (2) the installed cost of the equipment as referenced in paragraph 7(b) of the Agreement, including all materials, labor, engineering, design and metering equipment, is $2,397,300.00. Da-196. In addition to the $2,397,300.00 cost of improvements, the Postal Service paid approximately $40,000 to dispose of the PCB containing ballasts. Da136-137 (T29-3 to 30-4). Thus, the total cost associated with the construction of the added assessment improvements was $2,437,300.00 and, consequently, the improvements made to the property substantially and meaningfully increased its value.

B. WITNESS TESTIMONY

[18] At the plenary hearing conducted in this matter, the Postal Service called two witnesses -- Leon Roszkowski and the Kearny Tax Assessor, Gerard Pontrelli. Da209 (T9-11 to 12) and Da243 (T77-11 to 12). In addition to the testimony of those two witnesses, the Postal Service relied on a series of photographs to support its contention that representatives of the Town of Kearny knew or should have known of the improvements on the relevant date of October 1, 1995. Da283-290.

[19] The unequivocal testimony of the witnesses, however, revealed that the Postal Service never notified Kearny's representatives of the improvements made to the property, representatives of Kearny did not notice the improvements at the Spring 1995 inspection, nor did Mr. Roszkowski, who testified that he was present at the inspection, Da215 (T21-17 to 22-10), advise the Town's representatives of the improvements, despite being admittedly "proud" of them and their cost saving to the Postal Service. On cross-examination, Mr. Roszkowski admitted that he never notified Kearny of the improvements to the property:

a. Okay. So, in this case, with respect to the improvements at

[20] In response to questions posed to Mr. Roszkowski by the Court, Mr. Roszkowski admitted that a discussion of the improvements did not take place at the Spring 1995 inspection:

Q. Did either of the gentlemen ask you whether there has been

[21] On cross-examination, Mr. Roszkowski further testified that he did not reveal the improvements to Kearny's representatives because the resulting added tax would come out of his budget:

Q. So even though, as you testified earlier, you were very proud

[22] Despite Mr. Roszkowski's unequivocal earlier assertions in discovery that the improvements were completed by June 1995, his testimony revealed that punchlist items and painting were not completed until after October 1, 1995. In this regard, Mr. Roszkowski testified as follows:

Q. You indicated previously, sir, that the punch list work began

[23] Representatives from Kearny who inspected the property in the Spring of 1995 and February 1996, Tax Assessor Gerard Pontrelli and real estate appraiser William J. Stack, both testified at the hearing that they had no knowledge of the improvements until the February 1996 inspection. In this regard, Mr. Pontrelli testified as follows:

Q. Now, when you went through the property in September -- or in

[24] Mr. Stack also testified that he had inspected the property on at least five occasions, including sometime in the 1970's after the building was constructed, 1986, 1990, 1995 and 1996. Da-271 (T132-11 to 134-3). Although he inspected the property in the Spring of 1995, he first became aware of the improvements during the February 1996 inspection:

Q. Did you notice any improvements to the lighting system when

C. UNDISPUTED FACTS

[25] The undisputed facts in this case are as follows: (1) in 1995, the Postal Service made improvements to the subject property at a total cost of $2,437,300, which resulted in an annual energy cost reduction of approximately $400,000, Da196, Da136-137 (T29-3 to 30-4) and Da203-204; (2) no approvals (including building permits or certificates of occupancy) concerning the improvements were applied for by the Postal Service, nor did the Postal Service ever notify the Town of Kearny of the improvements made to the property; Da122-125 (T15-4 to T18-4), Da230 (T50-16 to 51-10), Da232 (T54-5 to 55-3), Da238 (T66-6 to 22); (3) with the exception of punch list items and painting, the improvements were completed in June 1995 after the property was inspected in the Spring of 1995 (April\May), Da214 (T18- 18 to 20-24), Da242 (T75-2 to 20) (4) representatives of Kearny first became aware of the improvements during a February 1996 inspection of the subject property; Da253 (T97-5 to 97-21), Da272 (T135-4 to 139- 14); (5) a 1996 added assessment for 12 months in the amount of $1,000,000 was levied against the property on October 1, 1996, Da67; (6) on October 16, 1996, the Postal Service received notice from the owner of the subject property of a tax bill for $52,530 reflecting the $1,000,000 added assessment for tax year 1996, Da67; (7) after receiving notice of the added assessment bill, between October 18, 1996 and October 21, 1996, both counsel for the respective parties executed a Stipulation of Settlement that reduced the 1996 tax assessment from $26,716,000 to $18,216,000 and the Stipulation was forwarded to the Tax Court of New Jersey, Da35-37 and Da68; (8) The settlement negotiations and executed stipulation of settlement did not address the 1996 added assessment, despite the parties knowledge of the levy, Da73; (9) in late October 1996, the Postal Service paid the $52,530.00 tax bill for the added assessment, Da68; (10) no appeal was undertaken by the Postal Service to contest the 1996 added assessment, Da68; (11) Judgment was entered by the Tax Court on November 22, 1996 reducing the 1996 total assessment to $18,716,000, Da38; and (12) no appeal was filed by the Postal Service to contest the 1997 or 1998 assessment of $19,216,000, Da73.

STANDARD OF REVIEW

[26] This matter is on appeal from the Tax Court's opinion and judgment below granting the Postal Service's motion to enforce the Freeze Act, N.J.S.A. 54:51A-8, for the 1996-1998 assessments. Kearny seeks reversal of the Tax Court's opinion and judgment.

[27] Where the issue presented is purely a question of law, the Appellate Division is not required to show deference to a trial court's legal conclusions. DNI Nevada, Inc. v. Medi-Peth Medical Lab, Inc., 337 N.J. Super. 313 (App. Div. 2001), citing Manalapan Realty, L.P. v. Tp. Committee of the Tp. of Manalapan, 140 N.J. 366, 378 (N.J. 1995); Pearl Assurance Co. Ltd. v. Watts, 69 N.J. Super. 198, 205 (App. Div. 1961). Thus, legal conclusions are always subject to an Appellate Court's independent review. Matter of Adoption of Child by P.S. and J.S., H/W., 315 N.J. Super. 91, 107 (App. Div. 1998).

[28] The New Jersey Supreme Court clearly articulated this standard of review in the Manalapan case, stating:

Contrary to Realty's [Plaintiff's] contention, the Appellate

[29] Accordingly, this Court is entitled to independently review the legal findings of the Court below. As such, based upon the following arguments, we respectfully submit that the determination of the Tax Court, holding that the Freeze Act applies to tax years 1996, 1997, and 1998, must be reversed.

ARGUMENT

THE FREEZE ACT, N.J.S.A. 54:51A-8, DOES NOT APPLY TO REDUCE THE

[31] The underlying appeals in this case were filed to contest the 1991 through 1996 assessments. By Stipulation of Settlement dated October 18, 1996 and Tax Court Judgments dated November 22, 1996, the assessments of $31,716,000 for 1991 - 1992 and $26,716,000 for 1993 - 1996 were reduced to $21,716,000 in 1991 - 1992, $19,662,000 in 1993, $20,216,000 in 1994 - 1995 and $18,216,000 in 1996.

[32] On October 1, 1996, Kearny levied a $1,000,000 added assessment on the property for the 12 months of 1996 as a result of completed improvements which were initially observed during an inspection of the property conducted by the municipal assessor and appraiser in February 1996 and which were not completed, identified, or observed at the time of the previous inspection in the Spring of 1995. Under the Added Assessment Law, N.J.S.A. 54:4-63.1 et seq., when any parcel of real property contains any building or other structure which has been added to or improved after October 1 in any year and completed before January 1 following, the assessor SHALL, after examination and inquiry, determine the taxable value of such parcel of real property as of the first day of the month following completion or sale of said property and if such parcel of real estate was not assessed as of October 1 preceding as if such value is so determined exceeds the assessment made as of October 1, preceding, the assessor, shall enter the amount of such assessment against such parcel of real property, for the subsequent tax year on a list to be known as the "Added Assessment List". N.J.S.A. 54:4-63.2. [Emphasis added].

[33] The purpose of the Added Assessment Law is to permit taxation of real property which becomes taxable during the year following the assessment date in order to avoid having properties escape taxation until the next assessment date arrives. Snyder v. Borough of South Plainfield, 1 N.J. Tax 3 (1980).

[34] Appeal from an added assessment must be filed with the County Board of Taxation on or before December 1 of the year of the levy. N.J.S.A. 54:4-63.11. The December 1 filing deadline is statutory, and the taxpayer is required to comply with all applicable statutory requirements. Macleod v. City of Hoboken, 330 N.J. Super 502 (App. Div. 2000). Hence, the failure to meet statutory filing deadlines for appeals of real property tax assessments is a total jurisdictional defect. Id. at 506.

[35] In Snyder, supra, the issue before the Court involved the interpretation of the County Board Freeze Act, N.J.S.A. 54:3-26, and its effect on added assessments. In that case, the Tax Court concluded that the Freeze Act was not applicable because the taxpayer's interpretation of the Act was inequitable since the taxpayer sought to pay no taxes whatsoever on partial improvements in existence on the relevant assessment dates. Id. at 9. In concluding that avoidance of the tax would create an inequitable result, the Court referenced in detail our Supreme Court's decision in In Appeal of New York State Realty and Terminal Co., 21 N.J. 90 (1956). In that case, the Supreme Court held that an omitted assessment may be imposed on an improvement for which the assessor failed to levy an added assessment, even though the time provided for added assessments, pursuant to the added assessment law, had expired. Snyder, supra., at 9-10, citing, In Appeal of New York State Realty and Terminal Co., supra. The Supreme Court stated:

Taxes are the life blood of government and no taxpayer should be

[36] Although the Postal Service failed to appeal the 1996 added assessment prior to the December 1, 1996 filing deadline, see N.J.S.A. 54:4-63.11, in June 1997, long after the appeal deadline expired, the Postal Service filed a motion seeking to enforce a settlement. Since a timely appeal of the 1996 added assessment was not filed, however, in its June 1998 opinion, the Tax Court correctly determined that it was without jurisdiction to void the 1996 added assessment. Accordingly, the taxpayer's motion to enforce the settlement for 1996 was denied. In a further effort to negate the 1996 added assessment without having filed a timely appeal, in the alternative, the Postal Service's motion also sought to apply the Freeze Act to the 1996-1998 assessments.

[37] In this regard, the Tax Court Freeze Act, N.J.S.A. 54:51A-8, provides in relevant part:

Where a final judgment has been rendered by the tax court

[39] Despite the failure of the Postal Service to appeal the 1996 added assessment and the Tax Court's June 1998 determination to deny the Postal Service's Motion to Enforce the Settlement since the Court was "without jurisdiction to eliminate the 1996 added assessment by granting the taxpayer's application to enforce the settlement", Da71-78, the Tax Court, in its March 2001 opinion, granted the Postal Service's Motion for Freeze Act relief, thereby eliminating the 1996 added assessment. In short, the Tax Court, which had previously determined it was without jurisdiction to eliminate the 1996 added assessment by granting taxpayer's application to enforce the settlement, incongruously and inappropriately eliminated the added assessment by applying the Freeze Act to not only two, but, in fact, three years, or tax years 1996, 1997, and 1998. This finding is inconsistent with the plain language of the Act.

[40] Notwithstanding the inapplicability of the Freeze Act to any one of the years at issue, at a maximum, the statute authorizes protection only for the two-year period following the year of the final judgment, or base year. See N.J.S.A. 54:51A-8. In fact, the Appellate Division in AVR Realty Co. v. Cranford Tp., 294 N.J. Super. 294 (App. Div. 1996), cert. denied 148 N.J. 460 (1997), confirmed these statutory parameters, stating "[t]he statute thus provides a clear and unequivocal mandate to taxing districts. They must accord the taxpayer the benefit of the Tax Court judgment FOR THE TWO TAX YEARS FOLLOWING THE LAST YEAR ENCOMPASSED BY THE JUDGMENT -- that is, the base year . . . " Id. at 298 [emphasis added], citing Union Terminal Cold Storage Co. v. Spence, 17 N.J. 162, 167 (1954). Thus, here, while the Tax Court correctly declined to both eliminate the 1996 added assessment and enforce the 1996 settlement on jurisdictional grounds, it inconsistently applied the Freeze Act to all three years at issue, 1996, 1997, and 1998 in contravention of the clear mandate of the statute.

[41] Moreover, other relevant case law compels reversal of the Tax Court's application of the Freeze Act. Namely, courts should avoid interpreting a statute in a manner that leads to an absurd, anomalous, or unreasonable result. See Cty. of Camden v. S. Jersey Port., 312 N.J. Super 387, 396 (App.Div. 1998) In fact, as Judge Kuskin noted in Rockaway 80 Associates, the Freeze Act should not control the assessment process nor should it apply to a properly imposed added assessment. See Rockaway 80 Associates, 15 N.J. Tax 326, 336 (1996). The purpose of the Freeze Act is only to protect taxpayers from arbitrary repeated yearly changes in assessment and from harassment. Id. at 335.

[42] As the tax assessor's testimony revealed at the Plenary Hearing, he did not become aware of the improvements until the February 1996 inspection. Thus, the settled upon 1996 base year assessment, which reflects the value of the property as the assessor knew it existed on the October 1, 1995 assessment date, was $18,216,000. A 12-month added assessment for tax year 1996 was then properly levied on the property following the assessor's discovery of the improvements to the property in February 1996.

[43] The Tax Court's interpretation of the Freeze Act permits the avoidance of a properly levied assessment for improvements in a case where the owner or taxpayer has failed to file a timely appeal. And in fact, it is well settled that strict adherence to statutory time limitations, such as the December 1 and April 1 filing deadlines for added assessment and regular assessment appeals, is essential in tax matters, borne of the exigencies of taxation and the administration of local government. See F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 424 (1985). To that end, tax laws generally require that tax determinations be subject to review in a mandatory manner in strict conformity with statutory time limitations. Hovbilt, Inc. v. Township of Howell, 138 N.J. 598, 603 (1994). In short, the Tax Court's decision to eliminate the added assessment through the Freeze Act permits the Postal Service to reduce the assessment while failing to comply with statutory limitations for filing a timely appeal and, thereby, permits the Postal Service to avoid taxation for a properly imposed added assessment. Therefore, in order to avoid this unjust and unlawful result, Kearny respectfully requests that this Court reverse the Tax Court's determination to apply the Freeze Act to the 1996 base year assessment.

B. THE FREEZE ACT DOES NOT APPLY TO REDUCE THE 1997 AND 1998

[45] The deposition of the Postal Service's Maintenance Manager, Leon Roszkowski, reveals that the improvements to the property were made by Energy Options. The Energy Services Agreement between Energy Options and the Postal Service, dated February 4, 1994, provided for Energy Options to "survey and install energy conserving lighting equipment for the purpose of reducing energy consumption at a specific location" on the subject property. The proposed energy conserving lighting equipment consisted primarily of lighting fixtures, ballasts and lamps. It also included upgrades to the electrical service supplying the fixtures.

[46] According to the Contract, the installed cost of the Equipment, including all materials, labor, engineering, design and metering equipment, was $2,397,300. Moreover, upon installation, the contract estimated that the equipment would reduce electric demand by 825 kilowatts and save $450,000 in annual electric costs. The improvements to the property were started sometime around February 1994 and, according to Roszkowski's deposition, completed in June 1995.

[47] Since the Postal Service did not obtain a building permit or certificate of occupancy for the improvements and did not otherwise advise municipal officials of the improvements, testimony revealed that the Town did not become aware of the improvements until the February 1996 inspection. ⁴ Accordingly, following its discovery of the improvements to the property, as stated above, the Town placed an added assessment on the improvement to properly reflect the increased value of the property. Despite notice of the added assessment, and the assessments for both 1997 and 1998, the Postal Service did not avail itself of the appeal procedure for either the 1996 added assessment or the 1997-1998 assessments. Further, the Postal Service conceded that the settlement discussions did not contemplate the $2,400,000 in recently added improvements. Da 75. Only in June 1997, well after the expiration of the filing deadline for both the 1996 added assessment appeal (December 1, 1996) and a 1997 appeal (April 1, 1997), did the Postal Service seek to have the assessment reduced by the filing of a motion to apply the Freeze Act. Again, the Tax Court's decision to grant Freeze Act relief despite the Postal Service's failure to file an appeal of the added assessment and the 1997 assessment results in the Postal Service's circumvention of the statutory time limitations for the filing of tax appeals for the purpose of avoiding the payment of tax on a $2,400,000 improvement, which results in annual energy savings of approximately $400,000.

[48] If a judgment for the base year has been entered prior to the assessment date for the Freeze Act years, the assessor is no longer at liberty to make an independent assessment of value as of that date. Because the Freeze Act is self-executing, the assessor is obliged simply to conform the assessment for the freeze years to the judgment. AVR Realty Co. v. Cranford Tp., 294 N.J.Super 294, 299 (App.Div.1996), cert. denied 148 N.J. 460 (1997). In this case, however, the judgment was entered after the October 1, 1996 assessing date (November 22, 1996) for the 1997 tax year. Thus, there is no constraint upon the assessor's ability to assess annually according to true value on the assessment date and it is the taxpayer's burden to seek the benefit of the Freeze Act by motion. Id., at 299-300; AVR Realty Co. v. Cranford Tp., 316 N.J.Super 401, 406 (App.Div.1998), cert. denied 160 N.J. 476 (1999).

[49] Ordinarily, in order to defeat the application for the freeze and be entitled to a plenary hearing, the municipality must allege: (1) the change in value results from an internal or external change; (2) the change materialized after the assessing date of the base year; and (3) the change substantially and meaningfully increased the value of the property. Id. at 407, citing, Union Min. & Alloys Corp., 11 N.J.Tax 280, 283 (Tax 1990) These conditions have undoubtedly been met.

[50] Examples of changes internal to the property are physical refurbishment of the building or additions thereto such as added wings or added floors, which changes are easily ascertainable. AVR Realty Co, supra., at 407, citing, Cumberland Arms v. Burlington Tp., 10 N.J.Tax 255 (Tax 1988). In this instance, the testimony of the witnesses clearly establish that the change in value resulted from significant internal changes to the property, i.e., the improvements to the electrical and lighting systems. Secondly, since the municipality, through no fault of its own, only became aware of the improvements in February 1996, and since the Postal Service took no measures during the inspections nor in the course of good faith settlement discussions to introduce the subject of the added improvements, fundamental fairness dictates that the improvements must be deemed to have materialized upon their discovery by the Town after the October 1, 1995 assessing date. Thirdly, the changes to the subject property substantially and meaningfully increased the value of the property. The installed cost of the equipment was $2,397,300 and it resulted in approximately $400,000 in annual cost savings. As the Township's expert appraiser, William Stack, testified at the Plenary Hearing:

A. I think that the improvements definitely impact on the value

[52] In sum, although the Tax Court found that the improvements were substantially completed by October 1, 1995, the overriding fact is that representatives of Kearny did not become aware of the improvements until February 1996. Indeed, it is not until Kearny's representatives got notice or learned of the improvements that they can be deemed to have materialized for purposes of the Freeze Act. The Tax Court's determination results in the inequitable situation, whereby the Postal Service successfully avoided taxation when a substantial basis for their imposition exists. See In Appeal of New York State Realty and Terminal Co., 21 N.J. 90 (1956), supra. Based upon this reasoning and the fact that the improvements substantially and meaningfully increased the property's value, the Tax Court's application of the Freeze Act to the base year 1996 judgment for tax years 1997-1998 must also be reversed.

C. THE SUPREMACY CLAUSE DOES NOT SUPPORT A RESULT THAT IS

[54] In general, the Supremacy Clause requires preemption of state law by federal statute only when (1) Congress explicitly expresses its intent to preempt State law; (2) where the Federal legislation is so comprehensive that it creates the inference the Congress intended to leave no room for State regulation in the area; or (3) where State law conflicts with Federal law. Franklin Tower One, L.L.C. v. N.M., 157 N.J. 602 (1999). Preemption is not to be lightly presumed and the party claiming preemption bears the burden of supporting the claim by clear and manifest evidence. Id. at 615.

[55] As discussed above, the subject property, although leased by the Postal Service, is undeniably taxable real property, despite the Postal Service's entitlement to claim the federal government's immunity from State and local taxation. See Reinhold Holding Co. v. Freehold Tp., 14 N.J. Tax 266 (1994), aff'd 15 N.J. Tax 675 (App. Div. 1995). To reiterate, the assessment and collection of tax on a property tenanted by a federal agency results because local property tax is charged to the owner of the property. The property is assessed to the owner, N.J.S.A. 54:4-23 and, absent instructions to the contrary, tax bills are sent to the owner. N.J.S.A. 54:4-64; Id. at 276.

[56] Kearny does not dispute the Postal Service's immunity from local zoning regulation pursuant to the Supremacy Clause. However, the property owner should not be permitted to avoid its fair share of local property taxation for improvements which were made to the property and which were discovered by the local taxing authority (through no fault of its own) after the assessing date, all under the shroud of an alleged immunity. In fact, the Supreme Court has indicated as much, stating that "absent congressional action, we have emphasized that the States' power to tax can be denied only under 'the clearest constitutional mandate.'" Washington v. United States, 460 U.S. 536, 546 (1983).

[57] As a matter of fact, a state law is unenforceable only if it "regulates the United States directly or discriminates against the Federal Government or those with whom it deals." North Dakota v. United States, 495 U.S. 423, 435 (1990), citing South Carolina v. Baker, 485 U.S. 505, 523 (1988); United States v. County of Fresno, 429 U.S. 452, 460 (1977). Indeed, the Supreme Court has precisely held that, "[t]he State does not discriminate against the Federal Government and those with whom it deals unless it treats someone else better than it treats them." Washington v. United States, 460 U.S. 536, 544-545 (1983). Kearny's fair and justifiable interpretation of the Freeze Act does not, in any way, regulate or discriminate against the Postal Service, nor does it conflict with Federal law, but, in fact, creates uniform treatment of all taxpayers in the municipality.

[58] Kearny's interpretation, (i.e., that improvements, for purposes of the Freeze Act, occur to the property on the date when the municipality is notified of their existence, regardless of the identity of the taxpayer), treats all taxpayers uniformly in that the statute would prohibit any taxpayer from seeking Freeze Act protection in order to avoid appropriately imposed added assessments where no notice of improvements was given prior to the relevant assessing date. Specifically, by way of example, in a case where a taxpayer fails (through building permit, certificate of occupancy, or by any other means) to notify a municipality of improvements made to a property and the imposition of the Freeze Act is implicated, such improvements are deemed to have occurred only when the Municipality discovers them. Once again, this interpretation of the Freeze Act is to be applied uniformly, regardless of the identity of the taxpayer -- thus, virtually every taxpayer who fails to notify a municipality of improvements made would be affected by this interpretation in the very same way. Therefore, since Kearny's interpretation of the Freeze Act does not regulate or discriminate against the Postal Service, the Supremacy Clause cannot be invoked to avoid reversal of the Tax Court's decision.

D. SINCE THE POSTAL SERVICE FAILED TO ADVISE KEARNY OF THE

[60] At the Spring 1995 inspection of the facility, Postal Service Maintenance Manager, Leon Roszkowski made the deliberate choice not to advise Kearny representatives of the lighting improvements in order to avoid an additional tax burden, despite the fact that he was responsible for overseeing all improvements made to the facility and that he was admittedly "proud" of the improvements at the time of the inspection. In addition, while the Postal Service was not required to apply for a building permit for the construction of the subject improvements, it failed to otherwise advise Kearny of the improvements prior to the October 1, 1995 assessing date. Accordingly, as a matter of justice and common fairness, the Postal Service must be estopped from arguing that Kearny knew, or should have known, about the improvements prior to October 1, 1995.

[61] Generally, New Jersey allows for the invocation of estoppel against public entities "where the interests of justice, morality and common fairness dictate that course". Anske v. Borough of Palisades Park, 139 N.J. Super. 342, 348 (App. Div. 1976); see also In re Allstate Ins. Co. , 179 N.J. Super. 581, 593 (App. Div. 1981), quoting Vogt v. Belmar, 14 N.J. 195, 205 (1954) (stating that the doctrine of equitable estoppel may be used against public entities to "prevent manifest wrong and injustice and where it would not hinder or prejudice essential governmental functions").

[62] Further, in the context of disputes involving taxation by a municipality or the state, the Tax Court has declared that "[i]n order to invoke the doctrine of equitable estoppel against a public official or public entity, the party claiming the estoppel must demonstrate detrimental reliance on the action or inaction of the official or entity." Marrinan v. Director, Div. of Taxation, 17 N.J. Tax 47, 57 (1997). As a matter of practical application, however, many of the state tax cases have involved taxpayers seeking the application of estoppel against a taxing authority and indicate that the doctrine "has not barred the imposition of a tax where the taxing authority has by inaction failed to impose a tax in prior years or on a prior transaction". Black Whale, Inc. v. Director, Div. of Taxation, 15 N.J. Tax 338, 355 (Tax 1995), citing Airwork Ser. Div. v. Director, Div. of Taxation, 97 N.J. 290 (1984), cert. denied, 471 U.S. 1127 (1988); City of Bayonne v. Murphy & Perrett Co., 7 N.J. 298, 311-312 (1951); N.J. Turnpike Authority v. Washington Township, 137 N.J. Super 543, 552 (App. Div. 1975), aff'd o.b. 73 N.J. 180 (1977); City of East Orange v. Tp. of Livingston, 102 N.J. Super 512, 521 (Law Div. 1968), aff'd o.b. 54 N.J. 96 (1969).

[63] Yet, unlike the Black Whale line of tax cases, here, estoppel is not sought against the taxing authority, but, in fact, is sought against an agency of the federal government, which has the status of taxpayer, the United States Postal Service. Hence, the body of tax case law which eschews enforcement of the estoppel doctrine as it applies to taxing authorities, lacks any significance as applied to the facts of the matter at hand.

[64] Here, during the Spring 1995 inspection, the Town of Kearny's representatives reasonably relied on Roszkowski's silence as to any improvements to the property. As a matter of fact, despite being responsible for overseeing the improvements to the building and, further, being "proud" of them at the time of the inspection, Roszkowski made no mention of them whatsoever to Kearny's representatives. Da-230 (T50-16 to 51-10). Likewise, no other official or agent of the Postal Service otherwise notified Kearny of the subject improvements prior to the October 1, 1995 assessing date. As a result, the 1996 settlement assessment on the property, which was based upon value as of October 1, 1995, could not and did not reflect the more than two million dollars of improvements made to the building in that year.

[65] In spite of the Postal Service's deliberate choice not to advise Kearny of the improvements made to the property prior to October 1, 1995, now, it somewhat disingenuously argues (under the guise of the Freeze Act) that Kearny knew or should have known of those improvements prior to the assessing date and, as a result, should be precluded from asserting the $1,000,000 added assessment for 1996. Thus, Kearny's reasonable reliance on the Postal Service's failure and inaction has worked to its own detriment. Accordingly, under these circumstances, the Postal Service must be estopped from making its claim and, thereby, the Tax Court's application of the Freeze Act to the 1996-1998 assessments must be reversed.

[66] Moreover, while it is true that, as a general matter, courts disfavor the application of estoppel against the federal government, where a party proves affirmative misconduct by the government, estoppel may be established. In re Burford, 231 B.R. 913, 919 (Bankr. N.D. Texas 1999), citing DePaolo v. United States (In re Depaolo), 45 F.3d 373 (10th Cir. 1995), Taylor, 132 F.3d 256, 263 (5th Cir. 1998). "Affirmative misconduct means an affirmative act of misrepresentation or concealment of a material fact. Mere negligence, delay, inaction, or failure to follow agency guidelines does not constitute affirmative misconduct." In re Burford, 231 B.R. at 920, citing DePaolo, 45 F.3d at 377. But where a party seeking to invoke the doctrine of estoppel against a federal entity proves that (1) the party to be estopped was aware of the facts, and (2) intended its act or omission [affirmative misconduct] to be acted upon; (3) the party asserting estoppel did not have knowledge of the facts, and (4) reasonably relied on the conduct of the other to his substantial injury, the court will apply the doctrine of estoppel. In re Burford, 231 B.R. at 919, citing Taylor, 132 F.3d at 263, quoting United States v. Bloom, 112 F.3d 200, 205 (5th Cir. 1997).

[67] Even the United States Internal Revenue Service is not immune from the invocation of estoppel. In the case of In re Burford, supra, the U.S. Bankruptcy Court held that the IRS was estopped from collecting any additional amounts (pre-petition taxes accruing after filing of Chapter 11 bankruptcy petition) on accounts of personal income taxes where the Plaintiff/debtor relied on a monthly amount in an amortization schedule provided by the IRS in order to pay a tax debt in full. In re Burford, 231 B.R. at 913. There, the IRS claimed that it did not include post-petition interest in the amortization schedule provided to the debtor and, thus, the debtor was still liable for the interest. Id. at 917. The Court disagreed, however, finding that (1) the IRS had the information to calculate the amortization schedule in accordance with the court's order and, in fact, deliberately provided the Plaintiff with a monthly payment amount, (2) it intended that the Plaintiff/debtor would act on the information it provided; (3) the Plaintiff did not have the facts sufficient to calculate the schedule to fully retire the debt and (4) relied on the amortization schedule to comply with the court order. Id. at 920. Consequently, the IRS was estopped from contending that the amortization schedule it submitted pursuant to the court order that required payments of an amount sufficient to amortize and fully retire the debt did not do just that. Id. at 922. To that end, the court would not allow the IRS to profit by supplying the debtor an incorrect payment amount. Id.

[68] Similarly, here, the Postal Service was certainly aware of the improvements made to the subject property at the time of the Spring 1995 inspection. In fact, not only was the Postal Service Maintenance Manager aware of the improvements, but, moreover, he was "proud" of them. Even more compelling, and certainly relevant to the affirmative misconduct present here, Roszkowski deliberately did not reveal the existence of the improvements to Kearny's representatives because he knew that they would result in an increased tax assessment and, correspondingly, an increase in tax which would ultimately come out of his budget. Da-230 (T50-16 to 51-10 and T54-5 to 55-3). Thus, in failing to appropriately advise Kearny, Roszkowski knowingly concealed a material fact and, in so doing, undoubtedly intended that Kearny would assess the property without considering the improvements.

[69] Further, as the Postal Service was not required to take out a building permit and did not otherwise advise Kearny of the lighting improvements, Kearny's representatives had absolutely no knowledge of the improvements prior to the October 1, 1995 assessing date. Thus, in reasonable reliance upon Roszkowski's silence and the Postal Service's similar failure to otherwise notify, Kearny agreed to a 1996 assessment, based upon the October 1, 1995 valuation date, which did not include over $2,000,000 in improvements to the building. In light of the Postal Service's contest of the $1,000,000 added assessment through its seeking application of the Freeze Act for 1996, it is evident that Kearny relied to its detriment.

[70] Even more compelling, while the conduct of the IRS in In Re Burford was determined to be "misconduct" and, even on that basis alone, warranted the invocation of estoppel, the Court did not, however, find that the IRS acted maliciously or with a deliberate intent to mislead and, thereby, concluded:

The government failed to accurately and fully calculate the

[71] On the other hand, in this case, Roszkowski did, in fact, deliberately intend to mislead or conceal the existence of the improvements to Kearny representatives at the Spring 1995 inspection. Again, as discussed above, Roszkowski admitted that (1) he was responsible for overseeing the construction of the improvements made to the facility, (2) he was "proud" of them at the time of the inspection, and, most compelling, (3) he deliberately did not reveal the existence of the improvements to Kearny's representatives because he knew that they would result in an increased tax assessment. Da-230 (T50-16 to 51-10 and 54-5 to 55-3). Obviously, in this case, even more egregious than those circumstances present in In Re Burford, there was an admittedly deliberate intent to mislead Kearny. Likewise, here, too, this Court should not sanction the Postal Service's conduct as the "right conduct."

[72] Based on the foregoing, Kearny respectfully submits that representatives of Kearny did not know, nor should they have known, of the internal improvements to the subject property. Moreover, because of the Postal Service's affirmative misconduct and Kearny's reliance thereon, we respectfully submit that the Postal Service be estopped from arguing that Kearny knew, or should have known, about the improvements prior to October 1, 1995 and, consequently, the finding of the Court below applying the Freeze Act for 1996, 1997 and 1998 must be reversed.

CONCLUSION

[73] Based on the foregoing, the decision of the Tax Court should be reversed and the Motion of the United States Postal Service to apply the Freeze Act to the 1996-1998 assessments must be denied.

DATED: October 17, 2001

² Since the Postal Service is immune from local zoning regulations, see Thanet Corp. v. Township of Princeton, 104 N.J.Super. 180 (L.Div. 1969), aff'd 108 N.J.Super. 65 (App.Div. 1969), certif. den. 55 N.J. 360 (1970), it did not apply for a building permit or certificate of occupancy.

³ A computer printout supplied by the Postal Service indicated an energy cost reduction from $158,289 in July 1994 to $124,688 in July 1995 which reflects an annual cost reduction of $403,452. Da 203-204.

⁴ In a footnote contained in the March 2001 written opinion, the Tax Court stated that "in no way does this opinion prevent a municipality from obtaining added assessments on improved property. It can still avail itself of said taxes by yearly inspections." See Slip Opinion dated March 19, 2001, Da291-298. However, absent litigation, there is no authority for mandatory inspections by the Tax Assessor. In fact, warrantless searches are considered per se unconstitutional, unless falling within one of the recognized exceptions to the warrant requirement. See N.J. Transit PBA Local 304 v. N.J. Transit Corp., 151 N.J. 531, 544 (1997); State v. Jones, 143 N.J. 4, 12 (1995). Inspections by the Tax Assessor to examine private property for improvements do not fall into any of the enumerated exceptions. N.J. Transit PBA Local 304, 151 N.J. at 544-549.