Changes Coming to New Jersey Long-Term Tax Exemption Statute

September 12, 2019  |  By: William F. Harrison, Esq., Gerard D. Pizzillo, Esq.

Several bills affecting the long-term tax exemption statute are slowly making their way through the New Jersey Legislature. While each bill addresses different provisions of the statute, the common theme among them is one of restrictiveness.

Long Term Tax Exemption

Under Assembly Bill 3915, introduced on May 7, 2018, residential projects would require that municipalities pay the local board of education five percent of the annual service charges collected under the statute. Senate Bill 1701/Assembly Bill 345, as amended by the Senate Budget Committee on June 11, 2018, would require a cost benefit analysis be included with all applications seeking a long-term tax exemption. The analysis would address the net financial impact on the municipality, county and school district based on the payments made to the municipality under the financial agreement. The municipality would then be required to conduct its own independent cost-benefit analysis to determine the impact of the application on the finances of the municipality, county and school district. Any resolution acting on a long-term tax exemption application would require specific findings about estimated net impact on municipal, county and school district finances. The amended bill requires that the service charge payments be distributed to the municipality, county and school district in the same proportion as the property taxes are distributed.

Senate Bill 59, introduced on January 9, 2018, would require any urban renewal entity that enters into a financial agreement with a municipality, to remit a percentage of the annual service charge set forth in the financial agreement to the school district. The amount of the charge for residential projects will be calculated by multiplying the number of school-age children attending public school in the municipality and who are residing in the approved project (as certified by urban renewal entity) by the school district’s budgetary cost per pupil. For non-residential and mixed use projects, the school district would be entitled to 5% of the service charge. The bill would also require that local school districts be put on notice of a tax exemption application, and be provided with copies of the application and the Mayor’s recommendation on that application. The municipality and County have 10 days to submit their own recommendations concerning the tax exemption application to the governing body.

Assembly Bill 4287, introduced on June 27, 2018, would prohibit the exemption of property taxes for school purposes in any of the former Abbott school districts. Assembly Bill 3969, introduced on May 17, 2018, would eliminate the ability to, in a long-term tax exemption, exempt property taxes for school purposes. Assembly Bill 1637, introduced on January 9, 2018, precludes a municipality from granting an exemption under the long-term tax exemption law, if the municipality’s tax exemption threshold is above five percent or if the exemption would result in exceeding the five percent threshold. The threshold is computed by dividing the value of property already subject to a financial agreement by the sum of the value of property subject to a financial agreement, plus the net taxable valuation, then multiplying that number by 100.

Of the bills discussed above, A-3915 has the greatest chance to be enacted into law. S1701/A-345 and S-59 should be closely monitored since they also have significant legislative support. A-4287, A-3969 and A-1637 have little chance of passage.

About the Authors:

William F. Harrison is a Partner in the Firm's Newark, NJ office and Chair of the Environmental Law and Land Use & Approvals Practice Groups and a member of the Commercial Real Estate & Redevelopment Practice Group as well as the Agriculture, Real Estate, Energy & Regulated Utilities, and Alcohol, Food & Beverage Industry Groups. He regularly counsels clients on all phases of the real estate development process and has extensive experience in navigating complexities of acquiring zoning, planning, environmental and other regulatory approvals.

Gerard D. Pizzillo is an Associate in the Firm's Jersey City, NJ office and a member of the Corporate Law & Business Transactions, Commercial Real Estate & Redevelopment and Land Use & Approvals Practice Groups. He has represented numerous real estate and corporate entities in all aspects of transactional real estate, development and commercial legal issues and has experience in real estate development and redevelopment law as well as tax abatement, zoning and land use.
Genova Burns works with companies, individuals, governmental organizations and business interests regionally, nationally and internationally on matters in New Jersey and the Northeast Corridor between New York and Washington D.C. For more information, click here.

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