The Evaluator - New Jersey Tax Court Establishes How Mixed-Use Buildings Should Be Classified for Property Tax Purposes
This article appeared in the July 2026 edition of The Evaluator.
One Main St. Edgewater, LLC v. Edgewater Borough, 34 N.J. Tax 1 (2026)
The New Jersey Tax Court recently addressed the classification of mixed-use properties for property tax purposes, ultimately establishing a new “predominant use” test. The case, involving two mixed-use developments containing both retail space and apartments, addressed classification for property tax assessment purposes for the first time and provides clarity to mixed-use property owners on the issue.
In New Jersey, tax assessors are required to classify all real property into one of four categories: 1) vacant 2) residential 3) farmland or 4) other. Properties falling into the fourth “other” category are then assigned a subcategory, including commercial, industrial or apartments. A property’s classification impacts its financial viability, the applicable tax rate, and determines whether transfer taxes may be owed when the property transfers. Specifically, while the sale of commercial properties triggers a realty transfer tax, properties classified as apartments are usually exempt from the tax.
In Edgewater, the property owner contested the classification of his mixed-use properties, alleging that they should be classified as apartments instead of commercial. Each of the properties had first floor retail, with apartments above. The Court evaluated each property’s use by square footage and income, finding that only 14% of the square footage was dedicated to retail and only 13% of the income derived was attributable to the retail space.
Noting that classification is based on property use, the Court concluded that a predominant use test should be utilized to determine mixed-use property classifications. Because the subject properties’ use by both square footage and income were “overwhelmingly” residential, the Court held that the properties should be reclassified as apartments.
