New Jersey tax exemption and reduction laws

PL1991, c.431 with final retroactive amendments effective on August 5, 1992 consolidated, into a more flexible law, the various long-term tax exemption laws under which municipalities can agree with private entities to undertake redevelopment projects to change of tax exemptions.

PL1991, c.441, effective for the first full fiscal year beginning after enactment on January 18, 1992, consolidated the various five-year tax reduction and exemption laws into a more standardized law to govern all reductions and tax exemptions regardless of the type of structure.

Long-term tax exemption law

Prior to 1993, which was the first full year of operation governed by the new Long Term Tax Exemption Act, under the provisions of NJSA40: 55C-40, the “Urban Renewal Corporations and Associations Act of 1961”, commonly Known as the Fox-Lance Act, a qualified municipality (a municipality with “areas in need of rehabilitation”) could reduce taxes on a corporation’s newly built industrial, commercial, cultural or residential projects from 15 to 20 years, with profits in excess of the limited earnings returned to the municipality, or 30 to 35 years for condominium projects. The condominium projects have been awarded for 30 to 35 years to provide a realistic period of permanent financing. In addition, prior to 1993 under the provisions of NJSA55: 16-1 et seq., The “Limited Dividend Non-Profit Housing Partnership or Association Act,” a qualified municipality could reduce taxes on homes for up to 50 years. new construction. Additionally, according to NJSA55: 14I-1 et seq., A qualified municipality could reduce taxes on newly constructed senior housing by up to 50 years. Finally, prior to 1993, under the provisions of NJSA40: 55C-77, the “Urban Renewal Nonprofit Corporations Act of 1965”, basically the same types of properties and projects as the Fox-Lance Act could be reduced during 20 to 25 years with all benefits are returned to the municipality. In all cases under these laws exemption from property taxes in lieu of tax payments was required.

Beginning in 1993, the provisions of NJSA40A: 20-1 et seq. allowed a qualified municipality to reduce property and project taxes in the same way the pre-1993 law did, with the following notable exceptions:

A new flexible formula in place of taxes has been established with a gradual introduction of payments in place of taxes that will be made in both the gross rental percentage formula and the percentage of total project cost formula.

The formulas for calculating payment in lieu of taxes have been changed for both office projects and housing projects. The minimum annual service charge for office buildings was reduced from 15 to 10 percent of the gross annual revenue of the project or project units. Municipalities retained the option of calculating payment in lieu of taxes at no less than 2 percent of the total project cost or the total cost of the project units. For housing projects, the annual service charge was changed from a minimum of 15 percent to a maximum of 15 percent of the gross annual project income or from a minimum of 2 percent to a maximum of 2 percent of the total project cost or total unit cost of the project.

The formulas of payment in lieu of taxes are basically unchanged for all other types of industrial, commercial or cultural projects.

Five-year exemption and reduction law

Prior to 1993, which was the first full year of operation under the new Five-Year Exemption and Reduction Law, there were three types of property that a qualified municipality (a municipality with “areas needing rehabilitation”) could grant an exemption. and reduction for a period of five years.

These types of property include:

Homeowner improvements (including additions and extensions) made to one- or two-unit residential homes that are more than 20 years old. As determined by ordinance, the first $ 4,000, $ 10,000, or $ 15,000 of increased value due to improvements to each unit may be exempt from tax (see NJSA 54: 4-3.72 to 3.79).

Commercial and industrial improvements and construction projects (with less than 30% increase in building volume) could have the full assessed value of the improvement exempted with payments in lieu of taxes at 2% of the project cost or at 15% of gross annual income. or a gradual incorporation instead of paying taxes. (see NJSA 54: 4-3.94-3.112).

Multiple home improvements or conversion of other types of structures into multiple homes could have up to 30% of the total value of the exempt conversion or improvement modification. No payment in lieu of taxes was required (see NJSA 54: 4-3,121-3,129).

Beginning in 1993, the provisions of NJSA 40A: 21-1 et seq., The “Five-Year Exemption and Reduction Act,” which consolidated all provisions of the prior five-year reduction statutes, allowed a qualified municipality to grant exemptions and partial reductions. in residential dwellings, non-residential structures, and multiple dwellings in the same manner as the pre-1993 law did, with the following notable exceptions made to the new law:

A new single definition of “areas in need of rehabilitation” was established to regulate all exemptions and reductions that, if chosen, could allow an entire municipality to be designated as an area in need of rehabilitation (thus allowing new structures to facilitate the construction of filling). ).

The new five-year law also allowed, for the first time, tax reductions and exemptions for new construction of single and multi-family housing units and non-residential structures rather than just improvements or extensions to such properties.

The new law also increased the maximum tax exemptions allowed for value added by upgrading from $ 4,000, $ 10,000, and $ 15,000 to $ 5,000, $ 15,000, and $ 25,000, respectively, as specified by city ordinance.