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January 20, 2012
Judge: Red Bulls owe property taxes on Harrison stadium
A New Jersey tax-court judge has ruled that the New York Red Bulls owe property tax to the city of Harrison, despite playing in a stadium built on land owned by a tax-exempt public agency. The decision, if upheld, means that the team owes $3.6 million in back taxes for 2010 and 2011, plus similar amounts going forward.
Without getting too deep into tax law, public land usually goes untaxed — but it can be taxed, or can be subject to payments in lieu of taxes, if it's used for a strictly private purpose. Given that all the money collected at Red Bull Arena flows to the Red Bulls, the judge ruled that the "public" nature of the land was an accounting fiction, and demanded that the team cough up.
Whether cash-strapped Harrison will see any money from this anytime soon is uncertain — the Red Bulls have promised to appeal, which could drag this out for years. (They're also still stiffing the city on $150,000 a year in rent.) But at least there's a chance of the city getting something back for its $80 million in land and infrastructure and $173 million new train station, aside from a bunch of muddy lots set aside for theoretical future development. (According to Business Week, payments from developers are running at just over one-tenth what was projected when the arena project was first planned.)
Given the number of teams that use the public-land, private-use dodge to avoid a stadium tax bill — which is to say, pretty much all of them — it's going to be interesting to see if this ruling sets any kind of precedent. Given that tax law varies widely from state to state, and who knows if this will hold up under appeal anyway, probably not, but it's an interesting idea for local governments to try to recoup some of the money they blew on stadiums in the hopes of sparking development that never arrived.
The Red Bulls are welcome in Harrison. They can pay taxes like the rest of us overtaxed property owners. The services the town provides in handling road traffic and what we have given up in convenient parking near the PATH station, not to mention the huge property tax increases we face for debt servicing are horrific. This town is organized enough, and angry enough to make the Red Bulls pay up or move out completely. If they would like to stall by appealing the decision, let's counter by forcing the stadium to go dark and let them sue us for eviction for failure to pay rent. Not paying contractual or court ordered settlements can work both ways. I would sincerely advise them to come to some amicable terms very, very quickly: the Mayor should propose to EITHER enforce the entire tax or enforce a more equitable rent: say $320k per month (to pay for services) and give the team 30 days max to consider the deal. The next Mayor of Harrison will have a 100% mandate to start blocking all access to the stadium unless a deal is reached, and that's for starters. Any retained attorney that advises the team otherwise is merely padding their own fees: they shall not win anything for their client. I'd rather vote for town bankruptcy and merger with Newark or Hudson County with cancellation of all civic services than let the Red BullS--t get away with leveraging against blue collar local home owners.
Sincere advice to Trenton and beyond: this has the potential to flare into a much bigger, much nastier, front page kind of embarrassment. Suggest that the phone calls start going out to counsel in this case: the patience of the citizens has expired.
Posted by Peter Talbot on January 20, 2012 10:35 AM
Nice to see the tax courts actually demonstrate a backbone on this issue.
Posted by Joshua Northey on January 20, 2012 10:42 AM
Yeah, really sounds like they're "welcome" there. The club has been made the scapegoat for a lot of bad decisions and empty promises of ancillary development. As a RBNY fan I won't be spending a dime in Harrison if I can help it.
Posted by Matt on January 20, 2012 11:21 AM
Yeah, really sounds like they're "welcome" there. The club has been made the scapegoat for a lot of bad decisions and empty promises of ancillary development. As a RBNY fan I won't be spending a dime in Harrison if I can help it.
Posted by Matt on January 20, 2012 11:22 AM
@Peter Talbot -
Please contact Santa Clara Plays Fair - the group that is fighting the 49ers stadium in Santa Clara. We face the same property tax issue. People here would like to hear about what your community is going through. Our County Tax Assessor actually endorsed the stadium despite the lack of property taxes that will be paid because the city owns the land so it's being billed as a 'municipal' stadium although its purpose is as an NFL stadium. No idea if the free 49ers tickets for the Tax Assessor, Larry Stone, reported on his campaign finance disclosure forms, influenced his decision to actually campaign for the stadium during the stadium election.
Santa Clara Plays Fair can be contacted here:
santaclaraplaysfair.org
Citizens all over the country who are fighting against being taken to the cleaners by pro-sports teams and their quest for stadiums need to come together to put a halt to public funding and giveaways for stadiums.
Posted by SantaClaraTaxpayer on January 20, 2012 01:32 PM
Larry Stone gets to hang out on the sidelines at 49ers games.
To turn around and campaign for the stadium while in office as assessor stuck me as being highly inappropiate.
To do so while accepting gifts from the 49ers is corruption.
Posted by santa clara jay on January 20, 2012 03:02 PM
Can someone help me understand the 1.8Mil a year assessment? Is it based on a full year (365 days a year) of occupancy? If there were other tenants would they need to split the tax? Anyone know if there were other events there?
Posted by JB on January 20, 2012 06:14 PM
Can someone help me understand the 1.8Mil a year assessment? Is it based on a full year (365 days a year) of occupancy? If there were other tenants would they need to split the tax? Anyone know if there were other events there?
Posted by JB on January 20, 2012 06:15 PM
JB;
Matters relating to assessment are complex, particularly as applied to commercial and 'non-linear' properties. I deal with assessment appeals (though not in New Jersey) and thus have some general background in this area. Every jurisdiction has it's own rules and regs as relates to assessment and taxation, and I make no pretense toward knowing what these are in the state of NJ.
In general terms, commercial buildings and non linear property (things like trains, utility distribution systems etc) are not assessed based on their replacement or "willing buyer/willing seller" fair market value (as private homes generally are). The reason for this is pretty obvious, given that these types of properties tend to sell infrequently and when they do the price rarely reflects the cost to build or rebuild the same asset.
In general, commercial property is valued based on it's highest and best use (which isn't always what the land is currently used for... for example, if you had an old barn on 10 acres of land in mid town Manhattan, you wouldn't be paying taxes based on the value of the farmland, but on what it would sell for if it was presently on the market and zoned for a use consistent with it's surroundings).
Some types of commercial property are valued based on annual income (or potential). This is a common method for rental and hotel properties. We would need to know what method(s) the assessor used to arrive at an accurate explanation for the value given for this particular land and building, but I would assume RBA has been assessed based on it's income potential.
Although it may seem counter-intuitive, it is not uncommon for multimillion dollar sports facilities (or other types of buildings) to be assessed at 10-20% of their construction cost - even when they seem practically new. This is a reflection of the income generating ability of the building itself as a standalone asset (whether or not such a building is a good investment when it is assessed at 15% of it's cost one year after opening is another matter entirely...)
In the rare instances where these facilities are sold (generally by the municipality that built and owns them), they often sell for a value not far from the "10-20%" value mentioned above - sometimes much less (see Skydome).
As I understand the lease/ownership arrangement at RBA, the club paid for the building (more or less) and are the owners of same. Thus, they are subject to any tax burden deemed payable by the state (assuming the present judgment isn't reversed on appeal) regardless of what other tenants might be present or events may be held.
This amount could be reduced if, for example, the stadium owners have agreed to payments in lieu of taxes (Pilots) to cover things like infrastructure connections, policing and the like. As far as I know, they haven't done so, but I am not fully familiar with RBA or any agreements made with the city/state.
Hope that helps...
Posted by John Bladen on January 22, 2012 03:42 PM
That is great info, John Bladen. Thank you.
Posted by Ben Miller on January 23, 2012 10:08 AM
You're welcome, Ben. Quite often the answer to good questions like the one JB asked can lead to even more confusion!
Posted by John Bladen on January 23, 2012 12:55 PM
Very useful thank you. It does open a bunch of other questions but it could be never ending so I will stop there for now and do some research of my own. :-) (you provided plenty of direction for me). Thanks again.
Posted by JB on January 23, 2012 04:32 PM
John,
It's interesting to note that sports facilities depreciate like cars do. Glitzy and fun when new but hardly someone should view as a solid investment to own.
In Santa Clara the mayor is trying to refer to it as a "municipal" stadium. The 49ers will be paying no property tax. The Santa Clara County Assessor is all with this because he likes the 49ers so much.
Posted by santa clara jay on January 24, 2012 02:40 AM