City of Atlantic City v. ACE Gaming, No. 000157-1997 (N.J. Tax 5/12/2006)
| Decision Date | 12 May 2006 |
| Docket Number | No. 003540-1997,No. 003538-1997,No. 000176-1997,No. 002612-1998,No. 000162-1997,No. 001192-1999,No. 000157-1997,No. 002604-1998,No. 003541-1997,No. 000158-1997,No. 003543-1997,No. 000161-1997,No. 000163-1997,No. 002591-1998,No. 002609-1998,No. 003030-1999,No. 000159-1997,No. 000160-1997,000157-1997,000158-1997,000159-1997,000160-1997,000161-1997,000162-1997,000163-1997,002609-1998,002612-1998,002604-1998,002591-1998,000176-1997,003538-1997,003540-1997,003541-1997,003543-1997,001192-1999,003030-1999 |
| Parties | CITY OF ATLANTIC CITY, Plaintiff, v. ACE GAMING, LLC, Defendant. ACE GAMING, LLC, Plaintiff, v. CITY OF ATLANTIC CITY, Defendant. |
| Court | New Jersey Tax Court |
TABLE OF CONTENTS
I. Introduction ........................................................... 2
II. Procedural History .................................................... 4
III. Background ........................................................... 7
IV. Observations .......................................................... 9
A. Casino hotels are limited-market properties ............................ 14
B. Casino hotels are not conventional hotels .............................. 16
Stipulated Facts .......................................................... 21
Analysis .................................................................. 28
The Sands' Case ........................................................... 35
A. The relationship between more hotel rooms and casino profits ........... 36
B. The ability to compete ................................................. 44
C. Management ............................................................. 51
Determination of Value .................................................... 62
A. Tax Year 1996 .......................................................... 64
B. Tax Year 1997 .......................................................... 70
C. Tax Year 1998 .......................................................... 73
D. Tax Year 1999 .......................................................... 76
Appendix .................................................................. 80
This is the court's determination with regard to property tax appeals filed by both the City of Atlantic City (hereinafter "Atlantic City") and Ace Gaming, LLC1 (successor in interest to Greate Bay Hotel and Casino, Inc., operating as the Sands Hotel and Casino in Atlantic City, hereinafter the "Sands"), challenging the Sands' property tax assessments for tax years 1996, 1997, 1998, and 1999.
For tax years 1996 through 1998 the properties under appeal were designated by the taxing district as Block 30, Lot 60, Block 26, Lots 117, 119.02, 191, and 192, Block 163, Lots 8 and 9, and constitute a single economic unit. (See Chart A at page 80 in the Appendix for a more detailed description).
For tax year 1999, block and lot designations for the properties under appeal were changed by the taxing district to Block 47, Lots 12 and 19, Block 48, Lots 8 and 10, Block 49, Lots 10, 11, 19, 20 and Block 274, Lots 16 and 17, and continue to constitute a single economic unit. (See Chart B at page 80 in the Appendix for a more detailed description).
Both sets of the abovementioned block and lot numbers, i.e. those before 1999 and those in 1999, are hereinafter collectively referred to as the "Subject Property."
For each of the years under appeal the Subject Property was originally assessed at $261,092,000, with $36,325,200 attributed to land, and $224,766,800 attributed to improvements. (See Chart C at page 81in the Appendix, for the allocation of the total assessment among the specific blocks and lots for tax years 1996 through 1999).
The common level of assessment for each of the tax years in dispute as promulgated by the Director of the Division of Taxation pursuant to N.J.S.A. 54:1-35(a) to 35(c) (L. 1973, c. 123) is as follows: (1) 1996-94.45%, with the upper limit of the common level range being 108.62%, or 100%, see Caulfield v. Surf City Bor., 14 N.J. Tax 118 (Tax 1994), and the lower limit being 80.28%; (2) 1997 — 102.59%, with the upper limit of the common level range being 117.98%, or 100%, ibid., and the lower limit being 87.20%; (3) 1998 — 94.10%, with the upper limit of the common level range being 108.22%, or 100%, ibid., and the lower limit being 79.98%; and (4) 1999 — 102.80%, with the upper limit of the common level range being 118.22%, or 100%, ibid., and the lower limit being 87.38%.
After making a determination of value under the income approach for each of the years under appeal, it is the decision of this court to affirm and reinstate the original assessment of the Subject Property for tax year 1996, to reduce the assessment to $237,722,000 for tax year 1997, to reduce the assessment to $226,409,000 for tax year 1998, and to further reduce the assessment to $208,867,000 for tax year 1999. The reasoning for the court's decision is set forth below.
For tax year 1996, the Sands filed an appeal with the Atlantic County Board of Taxation (hereinafter the "Board") pursuant to N.J.S.A. 54:3-21. After a hearing was held, the Board issued its judgment reducing the Subject Property's overall assessment to $228,000,000, with $36,039,000 attributed to land, and $191,961,000 attributed to improvements. (See Chart D on page 82 in the Appendix for the specific allocation of the 1996 reduction). Atlantic City appealed to the Tax Court pursuant to N.J.S.A. 54:51A-1, seeking review of Board's 1996 judgment. The Sands then filed its own appeal with the Tax Court challenging that judgment under that same statute.
For tax year 1997, the Sands initially filed a tax appeal with the Board. Atlantic City, however, filed a direct appeal with the Tax Court seeking to increase the assessment to which the Sands then filed a counterclaim. The appeal before the Board was eventually dismissed,2 leaving the Tax Court to determine the 1997 appeal.
For tax year 1998, after first filing for bankruptcy protection earlier that year under the Federal Bankruptcy Act (11 U.S.C. §§ 101 to -1501),3 the Sands filed Adversary Proceedings in the Bankruptcy Court challenging its 1998 tax assessment and, pursuant to 28 U.S.C. §1452(a), removed the 1996 and 1997 pending appeals to the bankruptcy court.4 Upon application of Atlantic City, the bankruptcy court "abstain[ed] from exercising jurisdiction over the Adversary Proceedings" and transferred all three matters (1996 through 1998) to the Tax Court of New Jersey.5
For tax year 1999,6 Sands filed a direct appeal to the Tax Court and Atlantic City filed a counterclaim.
At trial in the present matters, the Sands called the following fact witnesses: Timothy Ebling, former Vice-President of Finance and a former Director of the Sands; James Tuthill, Vice-President of Casino Operations at the Sands; Frederick H. Kraus, former General Counsel to the Sands, as well as a former Director; Frank A. Bellis, Jr., former Vice-President, General Counsel and Secretary, and later Chief Executive Office of the Claridge Casino in Atlantic City; and Novelette Hopkins, the current Tax Assessor of Atlantic City, and former Deputy Assistant Assessor.
Mr. Bellis was initially offered as an expert witness in "the difficulties in generally operating...a casino in the Atlantic City market during the time period, the years operating in that environment, financially, competitively and...with respect to small, isolated, landlocked, multi-level, low or no amenity facilities," [Transcript May 10, 2005 at 27, lines 10-25; Id. at 28, line 1] and prepared a report that was offered in evidence. On the objection of Atlantic City, the court refused to accept Mr. Bellis as an expert finding that, (1) his intended expert testimony would not necessarily aid the court, (2) the basis for his proposed expertise was not a recognized discipline, and (3) he did not possess sufficient specialized knowledge to express and explain an expert opinion. State v. Kelly, 97 N.J. 178, 208 (1984). Accordingly, his report was excluded. Mr. Bellis did testify as a fact witness, although his testimony was found to be of minimal relevance and was given little weight by the court.
The deposition testimony of Douglas Stuart, Tax Assessor for the City of Atlantic City during the relevant tax years was read into the record without objection pursuant to N.J.R.E. 804(b)(1)(A) of the Rules of Evidence, as it was represented by counsel for both the Sands and Atlantic City that Mr. Stuart is now incapacitated and unable to testify directly, and that both parties N.J.R.E. 804(b)(1)(A).
The court gave careful consideration to the testimony of all the fact witnesses called by the Sands. As will be apparent in the balance of this opinion, the court found some witnesses and testimony more compelling than others. There were no fact witnesses called by Atlantic City.
Both the Sands and Atlantic City engaged the services of professional real estate appraisers to provide opinions of value of the Subject Property for each of the tax years in dispute. Each appraiser was accepted by the court to testify as an expert and prepared a valuation report which was admitted into evidence (hereinafter referred to as "Sands Report" and "AC Report"). Both experts concluded that the highest and best use of the Subject Property is to continue in its current use as a casino hotel with supporting structures.
The Sands' expert, relying solely upon the income approach, concluded that the value of the real estate of the Subject Property was $132,000,000 for tax year 1996, $105,000,000 for tax year 1997, $95,000,000 for tax year 1998, and $75,000,000 for tax year 1999. In sharp contrast, Atlantic City's expert, relying primarily upon the income approach, and cross checked by the market (or comparable sales) approach, concluded that the...
To continue reading
Request your trial