To A.C.'s dismay, Borgata wins ruling slashing taxes

The Borgata casino hotel , shown at dusk, is a striking presence in Atlantic City but its revenue has declined, as have other casinos'. AKIRA SUWA / Staff Photographer
The Borgata casino hotel , shown at dusk, is a striking presence in Atlantic City but its revenue has declined, as have other casinos'. AKIRA SUWA / Staff Photographer
Posted: October 23, 2013

ATLANTIC CITY - Citing the sharp decline in the casino industry's fortunes, the Tax Court of New Jersey on Monday slashed the tax liability of the Shore resort's biggest taxpayer, the Borgata Hotel & Casino.

The ruling, reducing the property's assessment by 61 percent in each of two years, 2009 and 2010, caused dismay among city officials over the lost revenue. They vowed to appeal.

If upheld, the blow to the city may be the biggest of many, tax experts said. Some similar but lesser tax disputes already have been resolved. But, they said, other casinos that are still in tax court likely will seek more favorable settlements.

A city attorney raised the specter of bankruptcy.

Under the decision, the city owes Borgata a property-tax refund of $48.8 million, plus interest.

In reducing Borgata's assessment, the tax court said factors such as the recession and increased casino competition in surrounding states have had a negative impact on the casino's market value.

In a 64-page ruling, Tax Court Presiding Judge Patrick DeAlmeida agreed to lower the assessed value of the Borgata property in the Marina district from $2.3 billion to $880 million in tax year 2009, and $2.3 billion to $870 million in tax year 2010.

"We believe that Judge DeAlmeida's decision was fair," Auggie Cipollini, Borgata's senior vice president of operations, said in an e-mail response. "The judge's ruling was based on expert appraisals and testimony presented by both Borgata and the city over the course of a five-week trial.

"Since opening in 2003, Borgata has paid over $410 million in property taxes, and we are happy to contribute our fair share," Cipollini said. "However, as the judge ruled today, we have been significantly overcharged in property taxes for the years under appeal. It is the right of every property owner to have their property taxes set by a independent and fair assessment."

Borgata paid $38.7 million to Atlantic City in 2009 in property taxes, and $48.9 million in 2010.

"Borgata is currently the highest property-tax contributor in Atlantic City, and we are scheduled to pay roughly $58 million in property taxes in 2013, up $26 million or 84 percent since 2006. Borgata also pays over $6 million annually to the Atlantic City Alliance, along with more than $500,000 in fees to the Tourism District."

The alliance is a newly created nonprofit funded by casinos to market the resort's appeal beyond gaming.

The city, the defendant in the case, called the decision disappointing, and said it would have to find other ways to make up for the substantial difference, including potentially shifting the tax burden to other commercial, industrial, and residential property owners.

"The City of Atlantic City is deeply disappointed with the Tax Court judge's decision in the matter of the Borgata Hotel & Casino," Braun D. Littlefield, attorney for the Atlantic City solicitor, said in a statement.

"After review and consideration of the court's ruling, we have undertaken steps to authorize our outside counsel to file an appeal to the Appellate Division of Superior Court in order to reverse the ruling, as, in our view, the decision is fundamentally incorrect."

Littlefield said the current city administration inherited the citywide revaluation of properties conducted in 2008 prior to Mayor Lorenzo Langford's election in 2009.

"We contend that the Borgata's current challenge to the 2008 revaluation is based upon the assertion of the prior city administration's mismanagement," he said.

"Over the last three years, the Atlantic City government has taken steps to minimize the adverse impact of these assessments on the taxpayers. . . . If the decision stands, its impact could effectively exempt several other casino properties from local property taxation."

In his decision, DeAlmeida alluded to competitive pressures that have led to the decline of Atlantic City's main industry: "By Oct. 1, 2008, it was readily apparent that Atlantic City's long-held near-monopoly on East Coast gaming was rapidly being eroded by the expansion of casino gaming in nearby states."

DeAlmeida cited nine new gambling halls sprouting in Pennsylvania between 2006 and 2009, which made the situation worse by Oct. 1, 2009, the second valuation date for Borgata.

"Plaintiff [Borgata] produced credible expert testimony that this change was not a short-term setback," DeAlmeida wrote. "The gaming market had been reset and the economic prospects for Atlantic City's casino-hotels dimmed for the foreseeable future."

The judge said the assessor putting the value on Borgata should have been cognizant of such factors. The assessor should have recognized that there was no way the property could still be worth $2.3 billion, the judge said, explaining why he adopted the Borgata's expert's conclusion that the casino was valued at $880 million in 2009 and $870 million in 2010.

Attorney A. Paul Genato at Archer & Greiner P.C. in Princeton, a tax appeal expert who has represented Atlantic City taxpayers, said the decision would have far-reaching implications.

The total refund amount for 2009 and 2010 is $48.8 million - what the City of Atlantic City has to pay out to Borgata plus 5 percent interest because of the overvaluation.

"Borgata was the premier [Atlantic City] casino in 2009 and 2010, and now it has successfully appealed its tax assessment, it will definitely embolden the other casinos' positions," Genato said. "Those that have not yet settled probably will seek a more aggressive position in settlement decisions. They will want a big reduction, too."

Littlefield acknowledged as much.

"While we respectfully disagree with the outcome, it has created an enormous burden on the local residential taxpayers who ultimately would have to make up the projected revenue loss from this decision," he said. "We intend to vigorously contest the decision in the courts, as its impact could effectively bankrupt the city."

By the Numbers

$2.3 billion: Borgata's old tax assessment for years 2009 and 2010.

$880 million: New assessment for 2009.

61%: Reduction in assessment for Borgata.

$410 million: How much Borgata has paid in taxes since 2003, according to Auggie Cipollini, Borgata's senior vice president of operations.

856-779-3928 @SuzParmley

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