AMERICAN GOLF CORPORATION v. TOWNSHIP OF WILLINGBORO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5753-13T4

A-5754-13T4

A-5755-13T4

AMERICAN GOLF CORPORATION,

Plaintiff-Appellant,

v.

TOWNSHIP OF WILLINGBORO,

Defendant-Respondent.

__________________________________

December 10, 2015

Submitted November 30, 2015 Decided

Before Judges Fasciale and Nugent.

On appeal from the Tax Court of New Jersey, Docket Nos. 11526-2010, 5197-2011 and 2057-2012.

Blau & Blau, attorneys for appellant (Robert D. Blau, on the brief).

Zeller & Wieliczko, L.L.P., attorneys for respondent (Dean R. Wittman, on the brief).

PER CURIAM

In these three consolidated cases, plaintiff, American Golf Corporation, appeals from July 11, 2014 Tax Court of New Jersey judgments affirming defendant Willingboro Township's tax assessment of an eighteen-hole golf course owned by plaintiff (the property). After conducting a trial in July 2014, Tax Court Judge Patrick DeAlmeida entered the judgments under review, one for each of the consolidated appeals. Applying the applicable law and standards of review, we affirm.

At trial, plaintiff contended that the Township's assessment of the property exceeded the true value of the property. The property is a daily-fee golf course, meaning that it is open to the public to play rounds of golf for a fee; it is not a private club and does not have private membership. The property comprises 130.0625 acres and has certain building improvements, including a clubhouse, maintenance building, a storage facility for golf carts, a pump house, and a range room. The course, constructed in 1966, is deed restricted for use as a golf course.

Plaintiff's sole trial witness was an expert appraiser, Kenneth Jones, who used the income capitalization approach to appraise the property. Mr. Jones declined to use the sales comparison approach or the cost approach, opining that both would be inappropriate. Instead, he focused on the income producing aspect of the property.

Mr. Jones evaluated the income and expense statements, provided to him by an individual whom the expert testified was a "consultant" to plaintiff, and from these unverified representations determined that the stabilized net operating income of the property for the years in question was $165,000. By applying the capitalization rates to the stabilized net operating income, Mr. Jones valued the property as follows: $1,485,000 as of October 1, 2009; $1,510,000 as of October 1, 2010; and $1,600,000 as of October 1, 2011. The Township's assessment of the property was $3,968,100.

The Tax Court judge carefully considered and rejected the testimony of the expert, concluding that his opinions were undermined by: his failure to examine the income and expenses of nearby daily-fee golf courses; failure to undertake an analysis of the quality of management at the property; failure to properly deduct business value and personal property value in his income analysis; and failure to stabilize the net operating income until asked to do so by plaintiff's attorney. Because the expert failed to provide sufficient reliable information in his report, the Tax Court judge concluded he was unable to "determine by a preponderance of the evidence the true market value of the subject property under the three valuation dates." As a result, he found himself "constrained . . . to enter a judgment affirming the assessment for each of the years."

On appeal, plaintiff argues that the Tax Court judge erred by failing to find the value of the property. Specifically, plaintiff contends that the Tax Court judge failed to apply a presumption of good management to the property, thereby impermissibly shifting the burden to plaintiff to establish good management. Moreover, plaintiff argues that the Tax Court judge had a duty to rely on his expertise to independently value the property, even if the expert's report and testimony were insufficient. Plaintiff suggests it was unjust for the Tax Court judge to affirm the Township's assessment because any reasonable number arrived at by the Tax Court judge would have ultimately been lower than the assessment.

This court's review of a decision by the Tax Court is highly deferential. Estate of Taylor v. Dir., Div. of Taxation, 422 N.J. Super. 336, 341 (App. Div. 2011) (explaining that this court has "a limited scope of review following a determination of [the Tax] [C]ourt"). "The judges presiding in the Tax Court have special expertise; for that reason their findings will not be disturbed unless they are plainly arbitrary or there is a lack of substantial evidence to support them." Glenpointe Assocs. v. Twp. of Teaneck, 241 N.J. Super. 37, 46 (App. Div.), certif. denied, 122 N.J. 391 (1990). Conversely, we review the Tax Court's legal determinations de novo. UPS v. Dir., Div. of Taxation, 430 N.J. Super. 1, 8 (App. Div. 2013), aff'd, 220 N.J. 90 (2014). Applying these standards, there is substantial credible evidence to support the Tax Court judge's finding that the expert's opinions were insufficient and unreliable. Thus, we conclude that the Tax Court judge did not err.

It is well-established that "[o]riginal assessments and judgments of county boards of taxation are entitled to a presumption of validity." MSGW Real Estate Fund, LLC v. Mountain Lakes Borough, 18 N.J. Tax 364, 373 (Tax 1998). Our Supreme Court has explained that "[t]he presumption attaches to the quantum of the tax assessment[,]" and that "the appealing taxpayer has the burden of proving that the assessment is erroneous." Pantasote Co. v. Passaic, 100 N.J. 408, 413 (1985). To overcome the presumption, the "evidence must be definite, positive and certain in quality and quantity . . . ." Ibid. (citation and internal quotation marks omitted).

The Tax Court judge initially accorded "every inference to the expert" concluding that the presumption was overcome. However, as he correctly noted, this does not end the inquiry. Our Supreme Court explained that if

sufficient competent evidence is produced and the presumption overcome, the matter is not thereby concluded in favor of the complaining party. The court must then turn to a consideration of the evidence adduced on behalf of both parties and conclude the matter based on a fair preponderance of the evidence. When the court rejects the ultimate conclusions as to the true value proffered by the parties' experts, it should make an independent determination of true value on the basis of those portions of the experts' testimony which [39] the court finds credible.
 
[Ford Motor Co. v. Edison, 127 N.J. 290, 312 (1992) (citations and internal quotation marks omitted).]

The Tax Court judge questioned the utility of using the income approach, but agreed to apply it as it did not "strike [him] as entirely lacking in credibility[.]" He then noted that the expert

used actual income and expenses. He made no market check, no corroboration to ensure that those figures were in line with the market. And presumably he operated under good management. He testified that the owner of this property is a large company that operates a lot of golf courses and operates them successfully, but he did no independent analysis and I find that troubling. He didn't look at all about how the property is run. He got figures, a printout of figures from someone who's a consultant for the taxpayer. It didn't strike me that he interviewed people running the property and got down to the details of how it's run to make a real determination that there's good management there. He just assumed that [plaintiff] is managing the property appropriately, and this is troubling.

The evidence at trial demonstrated that within a twelve-mile radius of the property, there are approximately twenty-nine other golf courses, thirteen of which are daily-fee courses. The expert admitted that he did not have, nor did he seek, any information about the other courses. The Tax Court judge explained that "under the income approach, the income at the subject property should be tested against market data to determine whether it's market income and market expenses." That was not done.

Plaintiff argued that it was entitled to a presumption of good management, which the judge declined to apply. We reject plaintiff's contention that the Tax Court judge erred by declining to apply a presumption of good management, a concept that has arisen in the context of valuing large apartment buildings, specifically in attempting to assess the rental value of real estate. See Parkview Vill. Assoc. v. Borough of Collingswood, 62 N.J. 21 (1972).

When conducting an income analysis, the appraiser must determine "the economic rent, also known as the 'market rent' or 'fair rental value.'" Parkway Vill. Apartments Co. v. Cranford, 108 N.J. 266, 270 (1987). In Parkview Village Associates, supra, 62 N.J. at 34, the Court held that

[i]n the absence of convincing evidence to the contrary the current ongoing income scale of a large, well-managed apartment project like this, functioning as customary with leases of relatively short length, should be deemed prima facie to represent its fair rental value for purposes of the capitalized income method of property valuation.

This rule was reaffirmed by the Court in Parkway Village Apartments Co., supra, 108 N.J. at 274. Later, this presumption was extended beyond just apartment buildings to hotels. See Glen Pointe Assocs. v. Twp. of Teaneck, 10 N.J. Tax 380, 391 (Tax 1989) (holding that "[t]he principles of Parkview Village are . . . applicable to the tax valuation of a hotel[,]" and concluding "that the operating revenues of the . . . hotel . . . are prima facie of economic rent, subject to adjustments for business value and the value of personal property"). The Tax Court judge, in that case, reasoned that

resort to revenues of other hotels does not aid in the judicial quest for economic rent of the subject. For, as defendant argues, a hotel is a labor-intensive [11] business requiring a high degree of management expertise; so that the revenues of other hotels require the same adjustments to eliminate business value as the expert made with respect to the revenues of the subject. The adjustments in the revenues of other hotels thus vitiate the probative value of those revenues.

Second, the evidence shows that the hotel is managed pursuant to an arm[']s[]-length management contract, the provisions of which provided incentives to management to maximize revenues. The record also indicates that [the owner] is an experienced, expert hotel management concern.

[Id. at 390-91.]

There is no precedent extending the presumption beyond apartment complexes and hotels.

Here, plaintiff seeks to extend this presumption to golf courses, arguing that "leases" to users of the golf course are shorter than that of tenants in an apartment building, and that like a hotel, a golf course may change its rates daily. Additionally, plaintiff argues that like apartment buildings and hotels, there is no danger that a golf course operator would burden "the property with below market rates."

Neither this court nor our Supreme Court has expanded the presumption beyond hotels and apartments. To expand the presumption to whenever a licensee enters a premises for a duration of time would significantly expand the presumption beyond its limited purpose. In Great Adventure, Inc. v. Township of Jackson, 10 N.J. Tax 230, 233-34 (App. Div. 1988), we rejected the plaintiff's argument that an amusement park's income from an entry fee is "rental income" and concluded that an

admission fee is no different than that paid by patrons of any other amusement or entertainment facility including, for example, theaters, concert halls, ball parks, circuses, and the like. The fee is not paid by the patron for the use of the property in any tenancy sense but rather for the entertainment package offered.

Without the presumption, plaintiff has the burden to establish value. When relying on the income approach, it is required that "reliable market data be furnished to the court as the basis for the expert's opinion so that the court may evaluate the opinion." Glen Wall Assocs. v. Twp. of Wall, 99 N.J. 265, 279-80 (1985). Here, the Tax Court judge correctly found that the expert was required to make "some examination . . . of the income and expenses . . . to make a determination that they're somewhat in line with the market."

The Tax Court judge found that the expert "didn't make any effort to examine the income and expenses at [the other golf courses]." The Tax Court judge concluded that without "an examination of the operations of this golf course in closer detail, I think it was not credible for the expert to just rely on the actual income and expenses without any further inquiry."

In any event, whether the presumption is extended to this case or not, the Tax Court judge would still need to make a value determination based on the credible evidence in the record. See Ford Motor Co., supra, 127 N.J. at 312 (explaining that when a court "rejects the ultimate conclusions as to the true value proffered by the parties' experts, it should make an independent determination of true value on the basis of those portions of the experts' testimony which [39] the court finds credible") (emphasis added) (citations and internal quotation marks omitted). Essentially, the Tax Court judge found that the expert did not offer any credible evidence on which to make a determination as to the value of the property. The Tax Court judge concluded that he "would just be making up a number and [he] couldn't do that." We have no reason to disturb that finding.

The Tax Court judge concluded that even had the good management presumption attached, he still questioned the expert's analysis, namely why golf cart rentals were included in the figures, which is a rental of personal property, not real property, therefore calling into question its relevance in the expert's analysis under the income approach. And, moreover, even if the golf carts were properly included, it raises a legitimate question as to why, then, golf club rentals were not also included, casting further doubt on the accuracy of the analysis. He further concluded that while stabilizing the income was appropriate, the expert did not stabilize the income until "he was instructed to do so by [plaintiff's] attorney." The Tax Court judge noted that he did not "hear convincing testimony from the expert that the stabilization was, in his opinion, the correct figure." He found that this "lukewarm endorsement of the stabilized approach" further undermined the credibility of the expert's report.

Plaintiff's counsel argued that the court should undertake its own analysis of the figures, apply the income approach, and come to its own determination of value despite the fact that plaintiff's expert had not discounted business value and income generated from personal property (i.e., the golf carts).1 The Tax Court judge declined, noting that he had "nothing at all in the record to guide [him]." He explained that

it is up to the taxpayer to produce evidence that's sufficient to reach a decision under the income approach. That's the approach they elected to take, and even if I credit every step of the way to this final step where I back out the business value and the personal property value, I have no evidence to support that final step. There's been a failure to meet the burden of proof with respect to the establishment of the true market value, and that results in an affirmance of the assessment. . . . It has to be a principled resolution where you reach a true market value. It's not just deal making. And here I don't have evidence beyond a preponderance, or at a preponderance of the evidence to establish what the business value and personal property value is that's generated at this property to take that out of the income.

The judge's determination regarding the credibility of the expert's report is supported by substantial credible evidence in the record, and the judge did not err as a matter of law. See Glenpointe Assocs., supra, 241 N.J. Super. at 46. While the Tax Court, given its expertise, "has the duty to apply its own judgment to valuation data submitted by experts in order to arrive at true value[,]" its "right to make an independent assessment is not boundless; it must be based on evidence before it and data that are properly at its disposal." Ibid. A Tax Court judge "must not arbitrarily assign a value to the property which is not supported in the record." Ibid. Moreover, "[t]he probative value of an expert's opinion depends entirely upon the facts and reasoning adduced in support of it. Stated otherwise, an expert's conclusion rises no higher than the data which provide the foundation." Gale & Kitson Fredon Golf, L.L.C. v. Twp. of Fredon, 26 N.J. Tax 268, 281 (Tax 2011) (citations and internal quotation marks omitted).

There existed substantial credible evidence in the record to support each of the judge's findings. For example, the expert testified that he only stabilized the net operating income when plaintiff's attorney made that request; the income and expense information was not verified or audited in any way, he simply "took [the individual who provided the records] at his word"; he did not make any inquiry into the income and expense information of the other golf clubs in the area, nor did he undertake an analysis of the management of the golf course in question, he simply rested on the assumption that because plaintiff is a large company that owns many golf courses, the management at this particular course must be sound; and he did not testify as to the effectiveness of the management of plaintiff as a whole, rendering his reasoning on this issue even more suspect.

Additionally, the expert included golf cart rentals in his income analysis, but left out golf club rentals as well as merchandise sales. At trial, the expert further testified that he had incomplete data when preparing his report, using calendar years for part of the analysis and fiscal years for other parts. Thus, because there was ample factual basis in the record to question the credibility of the expert's report, it cannot be said that that the Tax Court judge's findings were "plainly arbitrary[.]" Glenpointe Assocs., supra, 241 N.J. Super. at 46. Thus, the Tax Court judge properly concluded that simply drawing an arbitrary number would not be acceptable.

Plaintiff contends that no matter what value the Tax Court judge determined, even if he left the business value and personal property value in, thereby creating an artificially high valuation, it would still be far lower than the estimate offered by the Township. Plaintiff contends that the Tax Court judge's failure to arrive at any reasonable number was unjust. However, where, as here, the plaintiff fails to meet its burden to provide the Tax Court judge with adequate and sufficient data to derive the value, the assessment must stand. See Gale & Kitson Fredon Golf, L.L.C., supra, 26 N.J. Tax at 278-87, 289. The Tax Court judge must not arbitrarily assign values. The Tax Court judge correctly noted at trial that "there's nothing there's not even a suggestion of how to value the business value or the income from the personal property at this subject."

The Tax Court judge concluded that the credibility of the expert was undermined not just at the "final step[,]" meaning the final step of subtracting the business value and value of the personal property, but also "other steps that . . . diminish the credibility of the" expert's opinion. Thus, he acknowledged that he not only had insufficient data as to the final step, but as a whole plaintiff's failure to meet its burden left the court with insufficient reliable data to reach the "true market value of the property." Because there was insufficient evidence in the record to discern the property's true market value, the Tax Court judge did not err in affirming the Township's assessment.

Affirmed.

1 The income approach requires that the court discount the business value of the operation as well as value derived from personal property. See Marina Dist. Dev. Co., LLC v. City of Atlantic City, 27 N.J. Tax 469, 492-93 (Tax 2013), aff'd, 28 N.J. Tax 568 (App. Div. 2015), certif. denied, __ N.J. __ (2015); see also Glen Pointe Assocs., supra, 10 N.J. Tax at 391.