Filed August 17, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-5082
IN RE: CUSTOM DISTRIBUTION SERVICES INC., Debtor
CITY OF PERTH AMBOY,
Appellant
v.
CUSTOM DISTRIBUTION SERVICES, INC.
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 98-cv-04289)
District Judge: Honorable Garrett E. Brown, Jr.
Argued September 8, 1999
Before: SLOVITER and ROTH, Circuit Judges
POGUE,1 Judge
(Opinion filed: August 17, 2000)
Robert J. Cirafesi, Esquire (Argued)
Alan J. Brody, Esquire
Wilentz, Goldman & Spitzer
90 Woodbridge Center Drive,
Suite 900
P.O. Box 10
Woodbridge, New Jersey 07095
_________________________________________________________________
1. Honorable Donald C. Pogue, Judge for the United States Court of
International Trade, sitting by designation.
Barry W. Frost, Esquire (Argued)
David A. Martin, Esquire
Teich, Groh, Frost & Zindler
691 State Highway 33
Trenton, New Jersey 08619
Attorneys for Appellee
John B. Hall, Esquire (Argued)
Sheila N. Maddox, Esquire
McManimon & Scotland, L.L.C.
One Riverfront Plaza, Fourth Floor
Newark, New Jersey 07102
Attorneys for Appellant
OPINION OF THE COURT
ROTH, Circuit Judge:
This case involves a determination of a debtor's right to
receive a refund and offset of certain real property taxes
under the Bankruptcy Code. The District Court affirmed
the Bankruptcy Court's redetermination of Custom
Distribution Services' ("Custom") real estate tax liability and
order of refund and offset of any overpayment of those
taxes. The City of Perth Amboy (City) appealed, contending
that the Bankruptcy Court did not have jurisdiction to
entertain Custom's claim for refund and offset because
Custom did not "properly request" refunds prior to filing its
complaint in Bankruptcy Court as required by 11 U.S.C.
S 505(a)(2)(B). The City also argues that Custom did not
present sufficient evidence to establish property valuation
different from that calculated by the City. For the reasons
set out below, we will affirm in part and reverse in part.
I. Factual and Procedural History
In August 1981, Custom Distribution Services, Inc.,
purchased 22.5 acres of land containing approximately 15
structures in Perth Amboy, New Jersey. In 1987, Custom
and the previous owner of the site, National Lead
Industries, jointly commissioned Killiam Associates to
2
conduct an environmental study of the site. The 1989
Killiam Report ("Report") concluded that soil and
groundwater remediation would be necessary before any
redevelopment of the site could commence.
In 1992, the United States Environmental Protection
Agency identified Custom and National Lead Industries as
potentially responsible parties for the contamination of the
property under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980
(CERCLA), 42 U.S.C. S 9606 et seq. The property was
subsequently put on the National Priority List pursuant to
42 U.S.C. S 9605(8) and is listed as a "Superfund Site." The
property was also put on the Comprehensive Site List with
the New Jersey Department of Environmental Protection
under the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et
seq.2
On March 28, 1994, Custom filed a complaint in the Tax
Court of New Jersey against the City, claiming that the City
had overvalued the property for the 1994 tax year. Custom
sought a reduction of that year's real property tax
assessment and a refund of overpaid taxes with interest
and costs. On May 23, 1995, however, the Tax Court
dismissed the complaint at the request of Custom. Custom
did not file tax appeals contesting the City's valuation of its
property for any other years.
On October 12, 1994, Custom filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code.
In June 1996, it brought an adversary action against the
City, seeking a reassessment of its municipal real estate tax
obligations and tax refunds and/or tax offsets for the years
1992 through 1997. For those years, the City had valued
the property as follows:
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2. Due to the environmental contamination, Custom was unable to sell
the property and had to limit its own use of it. In November 1994,
Custom filed a complaint against National Lead Industries in the
Superior Court of New Jersey, Chancery Division, alleging, inter alia,
that National was responsible for the contamination and liable in
damages to Custom. The action was later removed to the United District
Court for the District of New Jersey. See Custom v. NL Industries, No. 96-
1237, Mem. Op. (N.J. Jan. 6, 1997).
3
1992--$3.82 million
1993--$3.82 million
1994--$3.84 million
1995--$3.84 million
1996--$3.84 million
1997--unavailable
Custom had made the following payments:
1992--paid in full
1993--paid in full
1994--paid in full
1995--partially paid
1996--unpaid
1997--unpaid
At the evidentiary hearing before the Bankruptcy Court,
Custom presented a real estate expert to testify about the
effects of environmental contamination on the value of the
property. The City objected that the expert was not
qualified to offer testimony on environmental contamination
and clean-up costs. It also objected to the expert's reliance
in his testimony on the Killiam Report and on letters from
the Environmental Protection Agency and the New Jersey
Department of Environmental Protection because the
Report and the letters had not been admitted into evidence.
The court overruled both objections.
The Bankruptcy Court issued its opinion on December
17, 1997. The court determined, inter alia, that the
property was contaminated and stigma attached to the
property, causing a diminution in the value of the property.
The court held that it had discretion to reduce Custom's tax
assessments for the 1992 through 1997 tax years pursuant
to 11 U.S.C. S 505. On February 25, 1998, the Bankruptcy
Court entered an order reducing the valuation of Custom's
property as follows:
1992--$1,071,808.00
1993--$1,070,936.00
1994--$1,017,808.00
1995--$1,007,592.00
1996--$1,024,984.00
1997--$1,020,819.00
4
The City was ordered to reassess Custom's real estate tax
obligations based on the new valuations and to refund any
overpayments, less any amount of "taxes, interest, or both,
which may be applied against any other delinquencies,
including water and sewer charges."
The City moved for reconsideration. Upon denial by the
Bankruptcy Court, an appeal was taken to the District
Court. In its brief and at oral argument, the City for the
first time argued that 11 U.S.C. S 505(a)(2)(B) precluded the
Bankruptcy Court from deciding Custom's right to a refund
because Custom did not make proper refund requests
under New Jersey law for any of the years at issue. The
District Court rejected this argument and ruled that
S 505(a)(2)(B) was not a jurisdictional statute but a defense
that the City waived by not raising below. In Ordersfiled on
January 19, 1999, and February 5, 1999, the District Court
affirmed the judgment of the Bankruptcy Court.
The City now appeals to this Court.
II. Standard of Review
We exercise plenary review of the District Court's
determinations reviewing the order of the Bankruptcy
Court. See In re Trans World Airlines Inc., 145 F.3d 124,
130 (3d Cir. 1998). We review the Bankruptcy Court's legal
determinations de novo, its factual findings for clear error,
and its exercise of discretion for abuse thereof. Id. at 131.
III. Discussion
A. Jurisdiction to Adjudicate Tax Refunds under 11
U.S.C. S 505(a)
Section 505(a) of the Bankruptcy Code permits the
bankruptcy court to adjudicate a debtor's tax liability. It
states:
(1) Except as provided in paragraph (2) of this
subsection, the court may determine the amount or
legality of any tax, any fine or penalty relating to a tax,
or any addition to tax, whether or not previously
assessed, whether or not paid, and whether or not
5
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction.
(2) The court may not so determine--
(A) the amount or legality of a tax, fine, penalty, or
addition to tax if such amount or legality was
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction
before the commencement of the case under this
title; or
(B) any right of the estate to a tax refund, before the
earlier of--
(i) 120 days after the trustee properly reques ts
such refund from the governmental unit from
which such refund is claimed; or
(ii) a determination by such governmental unit of
such request.
11 U.S.C. S 505 (1993). We have consistently interpreted
S 505(a) as a jurisdictional statute that confers on the
bankruptcy court authority to determine certain tax claims.
In Quattrone Accountants, Inc., v. Internal Revenue Service,
895 F.2d 921, 923 (3d Cir. 1990), we stated: "when we
review how the language and purpose of Section 505 has
evolved, we conclude that Section 505 was intended to
clarify the bankruptcy court's jurisdiction over tax claims
. . . ." See also In re H & H Beverage Distributors, 850 F.2d
165, 166-67 (3d Cir. 1998); In the Matter of Ribs-R-Us, Inc.,
828 F.2d 199, 202 (3d Cir. 1987).3
It is undisputed by either party that the Bankruptcy
Court had jurisdiction, pursuant to S 505(a)(1), to reduce
Custom's property tax assessments for the 1992 through
1997 tax years. The more difficult task lies in defining the
precise contours of the jurisdictional grant embodied in
_________________________________________________________________
3. Because S 505 is a jurisdictional statute that defines the bankruptcy
court's power to adjudicate tax claims, and as such is not waivable and
may be raised at any time, including on appeal, see Weaver v. Bowers,
657 F.2d 1356, 1360 (3d Cir. 1981) (en banc), we need not reach the
question of whether the City properly preserved itsS 505(a)(2)(B) claim
for appeal.
6
S 505 with regard to refunds and offsets of taxes already
paid by Custom. Although the bankruptcy court is given
broad discretion to determine the debtor's tax liability in
S 505(a)(1), S 505(a)(2)(B) precludes the bankruptcy court
from determining the right of the estate to a tax refund
before the earlier of 120 days after the trustee properly files
a tax refund claim or a determination by the taxing
authority denying the tax refund request. The City contends
that the S 505(a)(2)(B) limitation on the bankruptcy court's
jurisdiction applies here because Custom failed to contest
the City's valuation pursuant to N.J.S.A. 54:3-21, which
provides that a taxpayer must file an appeal to the county
board of taxation on or before April 1 of the tax year, or 45
days from the time notices of assessment are mailed. 4
According to the City, because Custom did not comply with
state procedural requirements and request a reassessment
for any of the tax years at issue, it failed to"properly
request" refunds as required by S 505(a)(2)(B)(i). The
Bankruptcy Court, the City therefore concludes, was
without jurisdiction to order the City to refund any
overpayments made by Custom.5
_________________________________________________________________
4. N.J.S.A. 54:3-21 reads in pertinent part:
(Appeal by taxpayer or taxing district; petition; complaint; transfer;
extension of filing date): A taxpayer feeling aggrieved by the assessed
valuation of his property, or feeling that he is discriminated against
by the assessed valuation of other property in the county, or a
taxing district which may feel discriminated against by the assessed
valuation of property in the taxing district, or by the assessed
valuation of property in another taxing district in the county, may
on or before April 1, or 45 days from the date the bulk mailing of
notification of assessment is completed in the taxing district,
whichever is later, appeal to the county board of taxation by filing
with it a petition of appeal . . . .
Stat. Ann.S 54:3-21.
5. The Bankruptcy Court found, and the City does not contest, that the
jurisdictional limitation imposed by S 505(a)(2)(A) is not implicated here.
Although Custom did file a complaint in the Tax Court appealing the
City's assessment of its real estate tax liability for 1994, the complaint
was voluntarily dismissed by Custom before the Tax Court reached the
merits. The withdrawal of a municipal tax appeal by the taxpayer does
not constitute "adjudication" for the purposes of S 505(a)(2)(A). Curtiss
7
In evaluating the City's claim that the "properly requests"
requirement of S 505(a)(2)(B)(i) requires the debtor to file a
claim for refund in accordance with the procedures set out
by the taxing authority, we begin with the plain language of
the statute. Idahoan Fresh v. Advantage Produce Inc., 157
F.3d 197, 202 (3d Cir. 1998) ("[E]very exercise of statutory
interpretation begins with the plain language of the statute
itself.") (citations omitted); see also Consumer Prod. Safety
Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)
("We begin with the familiar canon of statutory construction
that the starting point for interpreting a statute is the
language of the statute itself."). On its face, the phrase
"properly requests" is susceptible to more than one
meaning. A broad reading would permit the bankruptcy
court to exercise jurisdiction if the debtor or trustee
commenced an adversary proceeding under S 505. It may
also be understood to mean compliance with the taxing
authority's procedural requirements. See In re St. John's
Nursing Home, Inc., 154 B.R. 117, 125 (Bankr. D. Mass.
1993), aff 'd, 169 B.R. 795 (D. Mass. 1994) ("The adverb
`properly' connotes correctness and dictates conformity with
the government unit's procedures. If the statute did not
have this meaning, the word properly would be
superfluous."). Because the language of S 505(a)(2)(B)(i) is
unclear, we proceed to its legislative history for guidance.
Section 2a(2A) of the prior Bankruptcy Act was the
precursor to S 505. It gave the bankruptcy court
jurisdiction to:
[h]ear and determine, or cause to be heard and
determined, any question arising as to the amount or
legality of any unpaid tax, whether or not previously
assessed, which has not prior to bankruptcy been
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction, and
_________________________________________________________________
Wright Corp. v. Wood-Ridge Borough, 4 N.J. Tax 68, 79 (N.J. Tax 1982).
See also In re Buchert, 69 B.R. 816 (Bankr. N.D. Ill. 1987), aff 'd, WL
16019 (N.D. Ill. Aug. 19, 1987) (actual litigation necessary to trigger the
application of S 505(a)(2)(A)); In re Tapp , 16 B.R. 315 (Bankr. D. Alaska
1981) (same).
8
in respect to any tax, whether or not paid, when any
such question has been contested and adjudicated by
a judicial or administrative tribunal of competent
jurisdiction and the time for appeal or review has not
expired, to authorize the receiver or the trustee to
prosecute such appeal or review.
11 U.S.C. S 2a(2A) (repealed 1978) (emphases added). The
language of S 2a(2A) made clear that the grant of
jurisdiction was limited to the adjudication of unpaid taxes
or of refunds if the debtor was first refused a refund in a
non-bankruptcy forum and the applicable appeals period
had not expired.
The enactment of S 505 in 1978 did not produce
substantive changes. The bills filed both in the House and
in the Senate precluded the bankruptcy court from
exercising jurisdiction over refund claims unless the debtor
had seasonably sought an appeal with the appropriate tax
assessing entity.6 The report of the House Committee on the
_________________________________________________________________
6. The House bill provided, in pertinent part:
S 505. Determination of tax liability.
(a) The court may determine the amount or legality of any unpaid
tax, whether or not previously assessed, that has not been contested
before and adjudicated by a judicial or administrative tribunal of
competent jurisdiction before the commencement of the case under
this title.
(b) The trustee may prosecute an appeal or review of an adjudication
by a judicial or administrative tribunal of competent jurisdiction of
any tax, whether or not paid, if the time for appeal or review, as the
case may be, of such adjudication has not expired before the date of
the filing of the petition.
H.R. 8200, 95th Cong, 2nd Sess. (1978) (emphasis added).
The Senate bill provided, in part:
S 505. Determination of tax liability.
(a)(1) For purposes of determining any tax liabili ty of the estate or
of the debtor:
(A) The court in a case under this title may deter mine the liability
of the debtor or the estate for--
9
Judiciary also reveals that S 505 was intended to make only
stylistic changes to S 2a(2A):
Subsections (a) and (b) are derived, with only stylistic
changes, from section 2a(2A) of the Bankruptcy Act,
added in 1966. They permit determination by the
bankruptcy court of any unpaid tax liability of the
debtor that has not been contested before or
adjudicated by a judicial or administrative tribunal of
competent jurisdiction before the bankruptcy case, and
the prosecution by the trustee of an appeal from an
order of such a body if the time for review or appeal
has not expired before the commencement of the
bankruptcy case.
H.R. Rep. No. 95-595, 1977 WL 9628at *756 (1977).
_________________________________________________________________
(i) any tax, whether or not previously assesse d or paid; and
(ii) the amount of any offset or counterclaim to or net
overpayment of, the same tax for the same taxable period.
(B) The court may not make any determination refer red to in
subparagraph (A) concerning a tax incurred before the earlier of the
order for relief or, in an involuntary case, the appointment of a
trustee, if--
(i) before such determination, a judicial or a dministrative
tribunal of competent jurisdiction has determined any such
liability;
(ii) any administrative prerequisite to a refund of tax has not
been satisfied, unless the refund results from an offset or
counterclaim to a claim or request for payment made by a
governmental unit;
(iii) the debtor has initiated a proceeding in the United States
Tax Court, or a similar judicial or administrative tribunal under
State or local law, to contest his liability for such tax; or
(iv) the period provided under other applicabl e tax law for
initiating a proceeding in any tribunal referred to in
subparagraph (iii) has commenced but has not expired, unless
the debtor notifies the court in the case under this title that he
does not intent to initiate any such proceeding. . ..
S. 2266, 95th Cong., 2d Sess. S 505 (1978) (emphases added).
10
The Senate Judiciary Committee Report contains
identical language. S. Rep. No. 95-989, 1978 WL 8531 at
**151-52 (1978). Further confirmation that the bankruptcy
court's authority to determine refund rights are conditioned
upon the debtor's compliance with the procedural
requirements and limitation periods of the taxing authority
can be found in the language that was proposed in 1999 to
be added to S 505(a)(2). The proposed language provides
that the bankruptcy court may not determine "(C) the
amount or legality of any amount arising in connection with
an ad valorem tax on real or personal property of the
estate, if the applicable period for contesting or
redetermining that amount under any law (other than a
bankruptcy law) has expired." 145 Cong. Rec. H2655-02,
H2688, 1999 WL 272237, at *267 (1999).
Our analysis of the legislative history of S 505 and the
conclusions we draw from it do not break new ground. In
re Cumberland Farms, Inc., 175 B.R. 138 (Bankr. D. Mass.
1991), was the first case in which there was analysis of
S 505 and its legislative history. The debtor in Cumberland
Farms sought refunds from 14 municipalities, protesting
that the valuations of some 47 parcels of real estate were
excessive. The debtor had paid the real estate taxes for the
fiscal years 1988 through 1993, with the exception of the
1992 taxes, but had not contested the taxes for any of
those years in accordance with applicable Massachusetts
law. The municipalities argued that the bankruptcy court
lacked jurisdiction to order a refund because by failing to
apply for abatements under Massachusetts law, the debtor
did not "properly request" refunds as required by
S 505(a)(2)(B)(i).
The same Bankruptcy Judge, when faced with a similar
set of issues in a previous case, had ruled that"S 505 gives
the bankruptcy court jurisdiction to adjudicate taxes which
were not seasonably contested." In re Ledgemere Land
Corp., 135 B.R. 193, 198 (Bankr. D. Mass. 1991). But in
Cumberland, he reversed his position after examining the
legislative history of S 505: "The conclusion is inescapable.
Although the final version of section 505 was a compromise
on some matters, both houses agreed with the general
prohibition contained in the prior Act against adjudication
11
of an estate's rights to a tax refund." 175 B.R. at 142.
Section 505(a)(2)(B) must therefore, he continued, be
"interpreted to prohibit adjudication by this court of the
refund claims" where the debtor paid the taxes but did not
contest them in accordance with Massachusetts procedure.
Id.
This legislative history has persuaded other courts to
conclude that the "properly requests" language of
S 505(a)(2)(B)(i) prevents the bankruptcy court from
adjudicating the right to refund where the debtor has not
first sought a refund with the appropriate taxing authority.
See In re Constable Terminal Corp., 222 B.R. 734, 740
(Bankr. D. N.J. 1998) (debtor's failure to comply with state
procedural requirements for obtaining refund of real estate
taxes precluded bankruptcy court from ordering refund); In
re Penking Trust, 196 B.R. 389, 396 (Bankr. E.D. Tenn.
1996) (court has no jurisdiction under S 505(a)(2)(B) to
decide the estate's right to a refund where the trustee failed
to make a proper refund request under Tennessee law for
taxes paid prepetition); In re EUA Power Corp. , 184 B.R.
631, 636 (Bankr. D. N.H. 1995) ("Under S 505(a)(2)(B)(i), the
debtor must timely comply with state procedural
requirements to request a refund of taxes already paid to
preserve the bankruptcy court's discretionary jurisdiction to
decide whether a refund is owed."); In re St. John's Nursing
Home, Inc., 154 B.R. 117, 120 (Bankr. D. Mass. 1993),
aff 'd, 179 B.R. 795 (D. Mass. 1994) ("Section 505(a)(2)(B)
prohibits the bankruptcy court from adjudicating the right
of an estate to a tax refund unless the trustee hasfirst
requested a refund from the government authority
administering the tax and was refused."); In re Graham, 981
F.2d 1135, 1138 (10th Cir. 1992) (trustee's filing of refund
claim was nonwaivable jurisdictional prerequisite to
bankruptcy court's determination of debtors' right to tax
refund).
There are, moreover, policy considerations that compel us
to read the "properly requests" language ofS 505(a)(2)(B)(i)
as creating a jurisdictional bar against adjudicating refund
claims that are raised for the first time in a bankruptcy
proceeding. Such a bar affords the taxing authority a
reasonable amount of time to act on a refund request
12
through its normal procedures. See In re Maley , 152 B.R.
789, 793 (Bankr. W.D.N.Y. 1992). It is also a recognition of
the havoc that would be visited on the financial stability of
a municipality if it were forced to refund taxes paid years
before: "A municipality can take appropriate action to
collect unpaid taxes. It obviously cannot spend the money
before collection. Once the money is in the coffers, however,
it soon goes out." Cumberland Farms, 175 B.R. at 142. And
lastly, the S 505(a)(2)(B) limitation advances federal-state
comity by requiring that "if a federal proceeding is to upset
property tax revenues received by a local governmental
entity that entity should have prompt notice of that fact to
budget accordingly." EUA Power, 184 B.R. at 636.
We recognize there are reported decisions, upon which
Custom relies, holding that the failure to comply with state
procedures for seeking a refund of real property taxes does
not bar the bankruptcy court from determining refund
claims under S 505(a). See In re AWB Associates, G.P., 144
B.R. 270, 278 (Bankr. E.D. Pa. 1992) (state procedural
requirements are pre-empted by the bankruptcy court); In
re El Tropicano, 128 B.R. 153 (Bankr. W.D. Tex. 1991)
(section 505 is an affirmative defense and not a
jurisdictional bar). But AWB and El Tropicano did not
specifically deal with S 505(a)(2)(B)(i) and its "properly
requests" requirement. Nor did they engage in an analysis
of the legislative history of that section, which may have led
them to a different conclusion. We therefore find the two
cases inapposite and unhelpful to the case at bar. See also
Penking Trust, 196 B.R. at 396 (rejecting reasoning of AWB
and El Tropicano); St. John's Nursing Home, 154 B.R. at 122
(same); Constable Terminal, 222 B.R. at 740 (same).
In light of the legislative history of S 505(a), the
overwhelming case authority interpreting it as precluding
the bankruptcy court from adjudicating claims for refund of
taxes that were not seasonably contested in accordance
with procedures set out by the taxing authority, and the
policy considerations underpinning S 505, we are persuaded
that the Bankruptcy Court here did not have jurisdiction to
order the City to refund excess payments for those years in
which Custom paid the taxes but did not contest them in
accordance with N.J.S.A. 54:3-21. Accordingly, the
13
overpayments made by Custom for the 1992, 1993, and
1994 tax years cannot be refunded.
B. Jurisdiction to Adjudicate Tax Offsets under 11
U.S.C. S 505(a)
Custom argues in the alternative that the S 505(a)(2)(B)
limitation does not apply here because it is requesting an
offset rather than a refund. It seeks to offset taxes unpaid
and still due--including real estate taxes and sewer and
water taxes--with the excess taxes paid in the years 1992,
1993, and 1994. There is some merit to its contention.
Although Custom does not so argue, the same legislative
history that compels us to find that the Bankruptcy Court
was barred from making a refund determination here also
leads us to conclude that where a refund is sought as an
"offset," no claim need be filed first with the taxing
authority:
The House amendment adopts the rule of the Senate
bill that the bankruptcy court can, under certain
conditions, determine the amount of a tax refund claim
by the trustee. Under the House amendment, if the
refund results from an offset or counterclaim to a claim
or request for payment by the Internal Revenue
Service, or other tax authority, the trustee would not
first have to file an administrative claim for refund with
the tax authority.
124 Cong. Rec. H. 11,110-11 (daily ed. Sept. 28, 1978),
S.17426-28 (daily ed. Oct. 6, 1978) (Remarks of Rep.
Edwards and Sen. DeConcini). See also infra note 5 (text of
Senate bill 2266); Ledgemere Land, 135 B.R. at 198
("Where, as here, refunds are sought as an offset or
counterclaim to the claim of the taxing authority, no refund
claim need first be made.); United States v. Kearns, 177
F.3d 706, 711 (8th Cir. 1999) (noting that legislative history
of S 505 indicates different treatment of refunds and
offsets); St. John's Nursing Home, 169 B.R. at 797 n. 4
(same); 4 Collier on Bankruptcy P 505.LH[2][a] (15 rev. ed.
1999) (same).
In evaluating Custom's request for an offset, In re Dunhill
Medical, Inc., 1996 WL 354696 (Bankr. D. N.J.) is
instructive. In that case, the Internal Revenue Service filed
14
against the debtor a proof of claim on taxes owing, alleging
that the debtor failed to remit quarterly employee
withholding taxes and Federal Insurance Compensation Act
(FICA) payments for certain periods between 1990 and
1992. The debtor claimed that it had overpaid withholding
taxes and FICA payments during 1986 through 1991 and
that the overpayments should be offset against taxes owed.
The Dunhill court concluded, based on the legislative
history of S 505, that the debtor could "dispense with the
IRS requirement for filing a claim for a refund when a
refund is sought as an offset or counterclaim to a proof of
claim filed by the tax authority." Id. at * 5. But the court
added a caveat: although the debtor's claim for an offset
was properly asserted for purposes of S 505, the court must
nonetheless apply, for each of the tax years at issue, the
Internal Revenue Code's time requirements for refund of
overpaid tax because the timeliness of a refund claim is
jurisdictional. The court could thus consider the debtor's
refund request only if it had filed a claim for refund within
the statute of limitations period provided in the IRC. Id. at
*6 (citing United States v. Dalm, 494 U.S. 596, 602 (1990)
and Kreiger v. United States, 539 F.2d 317 (3d Cir. 1976)).
There is no reason why the analysis in Dunhill should not
apply with equal force to real property taxes and state law.
See, e.g., Constable Terminal, 222 B.R. at 741 (applying
Dunhill reasoning to request for offset of New Jersey real
estate taxes). Although N.J.S.A. 54:4-69.2 and 54:4-134
allow the taxpayer to use overpayment of property tax as
credit toward delinquent taxes and future taxes relating to
the property, including water and sewer payments, the
credit must be claimed pursuant to S 54:3-21, which
provides that the taxpayer must file an appeal to the county
board of taxation before or on April 1 of the tax year, or 45
days from the time notifications of assessments are mailed.7
_________________________________________________________________
7. N.J.S.A. 54:4-69.2 provides:
(Credit, against taxes due or to become due, for refund on reduction
of assessment): If any taxpayer shall have paid the taxes upon any
assessment of property under the provisions of chapter four of Title
54 of the Revised Statute and shall, upon appeal, have obtained a
judgment of the county board of taxation granting a reduction in the
15
Failure to comply with the time prescriptions forfiling an
appeal, a long line of New Jersey courts has held, is a fatal
jurisdictional defect, see Lamantia v. Howell Township, 12
N.J. Tax 347, 351 (N.J. Tax 1992) ("Compliance with this
statutory requirement is an unqualified jurisdictional
requirement."), and bars the maintenance of an action for
refund. See F.M.C. Stores Co. v. Borough of Morris Plains,
495 A.2d 1313, 1316-17 (N.J. 1985); AVT Realty Co. v.
Cranford Tp., 16 N.J. Tax 550, 559 (N.J. Tax 1997);
Cumberland Holding Corp. v. Vineland City, 11 N.J. Tax
457, 460 (N.J. Tax 1991). Thus, although Custom need not
have filed a claim with the county tax board before seeking
an offset in bankruptcy court--as it was required for
obtaining a refund under S 505(a)(2)(B)--its request for an
offset must nevertheless be timely. Because Custom did not
and cannot now file appeals of the tax assessments for the
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said assessment from which neither the taxpayer nor the
municipality shall have duly appealed, or shall have obtained a
judgment of the State Board of Tax Appeals granting a reduction in
such assessment or confirming a reduction granted by the county
board or any part thereof, such taxpayer may claim and the
collector of taxes shall allow a credit, in an amount equal to the
appropriate refund incident to such reduction of said assessment,
against any taxes then due or to become due on such property. . . .
Stat. Ann. S 54:4-69.2.
N.J.S.A. 54:4-134 states, in part:
(Property tax refund applied against delinquent property taxes,
water or sewer payments or parking or payroll taxes): Whenever the
owner of a real property shall be entitled, pursuant to a
determination of a county board of taxation or a judgment of the tax
court, to a refund of all or any portion of the property taxes paid
against the property in any given year, and any property taxes,
water or sewer payments, or parking or payroll taxes imposed to be
collected by the municipality against that property or the owner or
owners of that property are delinquent at the time of the
determination or judgment, the governing body of the municipality
constituting the taxing district in which the property is located may
apply the refund, or such portion thereof as may be necessary,
including any accrued interest, against the delinquency.
Stat. Ann S 54:4-134.
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1992, 1993, and 1994 tax years within the time
requirements set out in N.J.S.A. 54:3-21, its claim for
offsets based on overpayments on those years is time-
barred. As for the 1995 tax year, if the partial payment
made by Custom was less than its real estate tax obligation
for that year, based on the Bankruptcy Court's valuation of
the property, Custom is responsible for the difference; if,
however, the partial payment exceeds its reassessed 1995
real estate tax obligation, Custom is not entitled to a refund
or an offset.
C. Expert Testimony
We now turn to the City's claim that the District Court
erred in affirming the Bankruptcy Court's determination
that Custom met the burden of providing credible expert
testimony sufficient to prove property valuation different
from that calculated by the City. The City contends that
under New Jersey law, the testimony of a real estate
appraiser--who was Custom's sole witness on this issue--
cannot establish property valuation when that valuation is
predicated on estimates of environmental contamination
and clean-up costs. Where environmental contamination
affects valuation, the City argues, the testimony of an
environmental expert is required. We disagree.
When a taxpayer challenges an assessment, "[t]he settled
rule [in New Jersey] is that there is a presumption that an
assessment made by the proper authority is correct and the
burden of proof is on the taxpayer to show otherwise."
Aetna Life Ins. Co. v. Newark, 89 A.2d 385, 387 (N.J. 1952).
To overcome the presumption, the taxpayer must prove a
true valuation different from the assessment with evidence
that is "definite, positive and certain in quality and
quantity." Id. In New Jersey, environmental contamination
has an impact on property valuation. Inmar Associates, Inc.
v. Borough of Carlstadt, 549 A.2d 38, 41-42 (N.J. 1988).
The City cites to several New Jersey cases to demonstrate
that a taxpayer must present an environmental expert in
addition to any other experts to establish property
valuation affected by environmental contamination. See
Badische Corp. v. Town of Kearny, 672 A.2d 186, 193 (N.J.
Super. Ct. App. Div. 1996), appeal after remand , 17 N.J.
17
Tax 594 (N.J. Super. Ct. App. Div. 1998) (remand to tax
court for recalculation of effect of clean-up costs on
property valuation was implicit finding that taxpayer had
proved contamination and its effect on the property value in
lower court where two environmental experts and other
witnesses had testified); American Stores v. Town of Kearny,
14 N.J. Tax 186, 188 (N.J. Super. Ct. App. Div. 1994)
(appraisal expert insufficient absent environmental expert
where no proof of environmental damage presented); Jablin
v. Borough of Northvale, 13 N.J. Tax 103, 109 (N.J. Super.
Ct. App. Div. 1994) (request for reserve operating expense
to monitor possible contamination denied despite testimony
of appraisal expert where there was no proof of pollution);
Jablin v. Northvale Borough, 14 N.J. Tax 184, 185 (N.J.
Super. Ct. App. Div. 1994) (same); Bergen County
Associates v. Borough of East Rutherford, 12 N.J. Tax 399,
412 (N.J. Tax Ct. 1992), aff 'd, 625 A.2d 524 (N.J. Super.
Ct. App. Div. 1993), cert. denied, 634 A.2d 528 (N.J. 1993)
(real estate assessor testimony discredited in absence of
record support for his wetlands evaluation); University
Plaza Realty Corp. v. Hackensack, 12 N.J. Tax 354, 357-58
(N.J. Tax 1992), aff 'd, 624 A.2d 1000 (N.J. Super. Ct. App.
Div. 1993), cert. denied, 634 A.2d 527 (N.J. 1993) (finding
of property devaluation due to asbestos contamination after
testimony presented by an environmental expert, a real
estate appraiser, and other witnesses).
But despite City's claim to the contrary, none of these
cases precludes a real estate appraiser from evaluating
contaminated property without the testimony of an
environmental expert. At best, they stand for the
proposition that a real estate appraiser cannot establish
valuation without proof that environmental contamination
exists. Here, the real estate expert did not make any
findings as to whether the property was contaminated.
Rather, he testified--relying on the letters from the United
States Environmental Protection Agency and the New
Jersey Department of Environment and the Killiam Report,
all of which indicated that environmental contamination
existed8--about the valuation of the property as affected by
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8. The City also argues that the real estate appraiser should not have
been permitted to rely on the Report and letters because they themselves
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such contamination. Because there is no merit to the City's
argument, we find that the District Court did not err in
affirming the Bankruptcy Court's determination that
Custom met its burden of providing credible expert
testimony on property valuation.
IV. Conclusion
Based on the aforementioned reasons, we find that the
Bankruptcy Court was without jurisdiction to grant
Custom's request for refund and offset of overpayments
made in the tax years 1992, 1993, and 1994. As for the
1995, 1996, and 1997 real estate taxes, we will remand this
case to the District Court for remand to the Bankruptcy
Court for further proceedings consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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were not submitted into evidence. We disagree. Federal Rules of Evidence
Rule 703 states:
The facts or data in the particular case upon which an expert bases
an opinion or inference may be those perceived by or made known
to the expert at or before hearing. If of a type reasonably relied upon
by experts in the particular field in forming opinions or inferences
upon the subject, the facts or data need not be admissible in
evidence.
Fed. R. Evid. 703. See also 68.94 Acres of Land , 918 F.2d at 392 n.2
(citing Fed. R. Evid. 703 and Notes of Advisory Committee). The
Bankruptcy Court questioned the real estate appraiser whether other
experts in his field traditionally relied on such information, and the
witness indicated that they did. See Advent Systems Ltd. v. Unisys Corp.,
925 F.2d 670, 682 (3d Cir. 1990) (court must make factual inquiry and
findings as to what data is found to be reliable by experts in the field).
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