A SHORT AND SIMPLE GLIMPSE AT THE PROPERTY TAX IN NEW JERSEY
(Copy of the brochure in PDF for downloading)
“Look at this bill. How come my property taxes are so high?”
In order to answer that question, you need to consider all the factors that go into the computation of your
property tax liability and how they can change, from year to year.
Your tax is determined by six basic factors: 1) the market value of the property that you own; 2)the cost of
municipal and county programs and services; 3)the costs of your local public schools; 4 the availability of other
revenues to cover those costs; 5) the extent of the presence of tax exempt properties in your municipality and;
6) by the total value of all the taxable properties in your municipality.
If your property was to become more valuable due to an event such as structural additions or renovations, and
all other properties remained unchanged, your tax liability (bill) gets bigger. Increased value beyond average
appreciation means that your property represents a larger portion of the value of the municipality and therefore
it is assigned a larger portion of the “amount to be raised through property taxation.” If it costs more to deliver
local government services and programs and to educate our public school kids or if the State and Federal governments
impose new demands on local institutions and/or reduce funding back to local government, all else being equal,
your tax bill gets bigger. If your local governments and school districts cannot count on other revenues keeping pace with
inflation, all else being equal, your tax bill gets bigger. If the State exempts certain classes of property from local taxation or
if previously taxable property is now being used for property tax exempt purposes, all else being equal, your tax bill gets bigger. And, if a large local industrial operation relocates or a big commercial business closes, all else being equal, your tax bill gets bigger.
All else rarely remains equal. In fact, more often than not, the things that we want to stay level, in order to keep property taxes down, go up. And the things we want to go up, stay level. To better understand New Jersey property taxes, consider the following.
Our local property tax goes back to the colonial period. In 1670, a levy of one half penny per acre of land was imposed for the support of the central
government. Until the middle of the 19th Century, property taxes were levied on real estate and certain personal property at arbitrary rates within certain limits,
referred to as “certainties.”
The Public Laws of 1851 brought to New Jersey the goals of uniform assessments based on actual value and a general property tax This meant that all
property classes were to be treated the same for the purpose of taxation. In 1875 the concept of uniform assessments was enshrined in the State Constitution. Our Courts held that the amendment, however, permitted the classification of property for tax purpose and the exemption of certain property classes from
taxation. A long period of the erosion of the “general property tax” concept followed.
In 1884, a State Board of Assessors was created to assess the value of railroad and canal property. The State, thereby, inserted itself into the local property tax
As a local tax, this levy is, generally, locally assessed and collected for the support of municipal and county governments and local school districts. No part of
it supports State government, but a large part of it supports functions that the State has imposed on local units. All taxable property is assigned a value—
assessed—by a local assessor in each municipality. An assessment is given as “taxable value,” except in the case of qualified farmland, which is specially
valued. The amount of the tax is annually determined each year, in every municipality, to provide sufficient revenues to meet the budgeted expenditures of
municipalities, counties and school districts, minus revenue available from other sources.
Each year school districts, municipal governing bodies, and county governing bodies notify the County Tax Boards of their budgetary requirements through
submission of adopted budgets. The various levies are totaled to represent the “amount to be raised by taxation” for each taxing jurisdiction.
The tax levy is divided by the total assessed value of all taxable property within the municipality—or the tax base - to determine the general tax rate. The general tax rate is then applied to the assessed value of each individual parcel of property to determine the property owner’s tax liability. Local budgets,
assessed value and the availability of other revenues, then, are the prime determinants of each taxpayer’s burden. The rate is annually adjusted to account
for these factors. Because of this, you will see our property tax referred to as a “residual tax.”
PROPERTY TAX EXEMPTIONS
Intangible personal property was exempted from the tax base in 1945. Our State’s 1947 Constitution contains the famous “uniformity clause,” which states that:
“Property shall be assessed for taxation under general laws and by uniform rules. All real property assessed and taxed locally or by the State for
allotment and payment to taxing districts shall be assessed according to the same standard of value, except as otherwise permitted herein, and
such property shall be taxed at the general tax rate of the taxing district in which the property is situated, for the use of such taxing district.”
This section was based on an 1875 amendment to New Jersey’s 1844 Constitution. And the next paragraph similarly ‘grandfathered’ all property tax exemptions
“validly granted” (under the 1844 Constitution) “and now in existence.” But it subjected those exemptions to future legislative amendment or repeal, “except
those exempting real and personal property used exclusively for religious, educational, charitable or cemetery purposes….” Further, it granted the legislature
the power to enact other exemptions “only by general law.” The Constitution also allowed the legislature to permit municipalities to grant exemptions or
abatements in areas in need of redevelopment and rehabilitation.
In 1953 the Constitutional property tax deduction for veterans who served in time of war or emergency was extended to widows of those who died on duty. In 1960 an Amendment was approved which allowed a property tax deduction for senior citizens. In 1963 the Constitution was amended to permit the
assessment of farmland at its value for agricultural purposes.
In 1966 non-business personal property was exempted by the legislature,
along with business inventories and the taxation of other business
personal property was circumscribed. The 1966 law also rescinded
the Retail Gross Receipts Tax, the Corporation Business Tax,
the Business Personal Property Tax and the
Unincorporated Business Tax and provided for level
State ‘hold-harmless’ funding to compensate
local taxing units for these revenue losses.
In addition to these provisions other exempt
properties include those used by governments
or public authorities, those used by
certain youth associations or veterans’
associations or fraternal organizations,
parsonages, those occupied by district
superintendents of religious rganizations,
certain historic properties,
conservation or recreation land owned
by non-profits, property owned by
medical service corporations or dental
service corporations or the New Jersey
School Boards Association and dedicated
The total 2012 estimated market value of all
exempt property in New Jersey was over $136
Billion. The net value of all taxable land and
improvements in that same year was just over
ASSESSMENTS AND PROPERTY VALUES
The basic duty of an assessor is spelled out in New Jersey statutory law:
“The assessor shall…after examination and inquiry,
determine the full and fair value of each parcel situated in
the taxing district (the municipality) at such price as, in his
judgment, it would sell for at a fair and bona fide sale by
private contract on October 1 next preceding the date on
which the assessor shall complete his assessments…“ [CITE]
The assessor locates and causes to be mapped every parcel of property
within the boundaries of the municipality. The assessor, by virtue of
training or with the aid of a state-approved revaluation firm, values all of
the property within the municipality at its “market value” as of October 1
of the year prior for the current tax year and assigns tax exempt classification
The NJ assessment system, as with most property tax systems in the United
States, is an “ad valorem” system, which requires property to be assessed
“according to its market value”. Over the years various laws and regulations
have been created to deal with the fact that maintenance of individual
assessments through annual district-wide reassessments are not cost
effective, and are more labor intensive than local governments can afford.
When assessments are made by different persons in different places there
is always room for variations in judgment. New Jersey has 21 counties
comprised of 565 municipalities. With the exception of Gloucester
County’s 24 municipalities, each has its own local tax assessor. In
Gloucester a pilot program authorizes the County Assessor to conduct all
assessments. “Equalization” is the process of insuring that each property
carries its fair and legal share of the tax burden in every taxing district.
Equalization in property taxation can mean either ensuring a just assessed
value is placed on individual properties as compared to other properties
within a taxing district or that true values assigned to entire municipalities
are fair and just. In other words, equalization seeks to establish equity
both within municipal borders and within county borders.
As early as 1799 all township assessors were directed by law to equalize
assessments at an annual meeting in order to fairly spread the cost of
county government. Various other administrative devices to achieve
the same end were tried during the nineteenth century, but
apparently with little success. In 1906 county boards of
taxation were established having equalization as one
of their principal responsibilities. Nevertheless,
real equalization seldom, if ever, was obtained.
Each local assessor was under pressure to
keep his assessments low, for the lower the
rate at which he assessed the lower the
proportion of the cost of county overnment
which his taxing district had to pay.
This became known as “competitive
under assessment”. In the twentieth
century a further pressure for competitive
under¬assessment was introduced by
the formula used for distributing State
financial aid to local school districts.
The formula granted a larger amount of
State aid to districts with low assessed
valuations. Under assessment became
even more competitive and assessments, in
most cases, dropped far below the legal true
value level. In the mid 1950’s the Legislature
empowered the Director of the Division of
Taxation to determine the “ratio of aggregate
assessed to aggregate true value” of real estate in every
taxing district in New Jersey. Not long after the Director of
the Division of Taxation implemented the “assessment-sales ratio
program”, (which is the study of comparing recent sales-prices to the properties
assessment to determine what percentage the assessment is relative
to the properties market value) the New Jersey Supreme Court instructed
county boards of taxation to take official notice of the Director's aggregate
assessed to aggregate true value ratios in their equalization functions.
Equalization as among individual properties within a municipality is an
ongoing function. It is an important concern since its aim is to stimulate a
continuous striving to ensure each individual parcel of property bears its
just share of the property tax burden. Government property assessment
professionals exercise this function in many ways, including carefully
studying and watching assessment-sales ratios and coefficients of deviation
calculated from sales occurring in each municipality, and ordering municipalities
to revalue or to reassess based on the results of statistical analysis
or lack of records. Where assessments or assessment practices are improper
a county board of taxation may cause the assessor to change his assessments
(or may, on their own initiative, hold hearings and change assessments) to
ensure a more equitable basis. All this is done to promote equalization
among individual parcels of taxable property in a municipality.
“Equalization in the aggregate” is another way of saying equalization
among municipalities within a county. At the present time the equalization
program is conducted for two major purposes: the distribution of State
school aid, and use by the county board of taxation in apportionment of
the costs of county government and of school districts covering more than
one taxing district. The principal part of the work of equalization lies in
determining the aggregate true value of all real property in each of the
state's 565 taxing districts. The assessment-sales ratio program involves a
comparison of the sales prices of parcels of real property which have been
sold with the assessed values of these properties. The object of the program
is to discover at what ratio of true value real property is being assessed in
each municipality within the time frame of a fiscal year, July 1 to June 30.
Once this ratio is determined the aggregate taxable value of real propertyin a municipality may be raised to true value through use of the ratio so
determined. The aggregate true value of real property, together with the
value of second class railroad property and the assessed value of locally
assessed business personal property is known as the "equalized valuation." Equalized valuation is used as a measure of the wealth of the taxing
district. As a matter of law, a township’s wealth is the sole factor on which
its proportionate share of county taxes is determined.
Prior to the 2008 recession the problem had been that certain sectors of the
real estate market, such as residential property, were outpacing other
sectors at break-neck speed. Another issue is that appreciation experienced
in parts of a taxing district, such as the waterfront or the business district,
can outpace other parts of the taxing district. Over time the disparity can
become legally impermissible. The correction of this disparity within the
district by means of a district-wide revaluation often leads to huge shifts in
tax dollars. Cynical of the motives of the revaluation process, people often
ask “what do you do with all of the EXTRA money?” Factually, there is no
EXTRA money. For every dollar that someone pays in additional tax, there
is a person within the district paying a dollar less in tax. Through the
reassessment of all properties to their market values, the scales become
balanced, and tax burdens are accurately reassigned.
The assessor is responsible for tracking the ownership and use of each
individual parcel, and for providing that information to the rest of the
municipal structure. As such, the assessor’s records provide the foundation
for all other municipal functions. All municipal functions including
building permits, planning/zoning board applications, code enforcement,
engineering, are driven by the block and lot parcel identifiers established
and maintained by the local assessor.
There once was a time when municipalities had direct
access to a number of revenue sources aside from
the general property tax. In 1966, the State became
the collection agent for property taxes on
Class II Railroad properties and agreed to
hold municipalities harmless, by annual
appropriation. Until 1968, when the State
became the collection agency, municipalities
also collected the Business
Personal Property Tax. When it assumed
collection, the State pledged to return
the revenues to local government.
In 1970, the Financial Business Tax,
which had formerly been equally
divided between the host municipality
and the host county, was doubled, and
the new revenue distribution was 50% for
the State, 25% for the host county and 25% for
the host municipality. In 1980, major changes in
Public Utility Gross Receipts and Franchise Taxes
were enacted, but the State promised, once again, to return
the revenues to the host municipalities.
That promise was soon forgotten. In 1982, the Governor then in office
used the line item veto of the State’s Annual Appropriations Act (for FY
1983) to skim $32 million of Public Utility Gross Receipts and Franchise
Tax funding from the appropriation intended for municipalities, and to use
that money for other State priorities—priorities other than property tax
relief. The then-Assembly Speaker and the then-Senate President went
to bat for our property taxpayers. This skim was challenged in Court.
But, in the case of Karcher v. Kean, the State Supreme Court sanctioned
this practice. Throughout the ‘80’s and into the ‘90’s, every State Budget
featured an annual diversion of some of the funding dedicated by permanent statutes to municipal property tax relief, and the use of that
funding for different State purposes
So the lion’s share of the monies that municipalities receive from the State
as Energy Tax Receipts Property Tax Relief and as Consolidated Municipal
Property Tax Relief Aid are only a partial replacement for funds that were
originally direct sources of municipal revenue. Municipalities originally
collected, for example, Public Utility Gross Receipts and Franchise Taxes,
Business Personal Property Taxes, Financial Business Taxes and Class II
Railroad Property Taxes. These revenues were intended for municipal use
from their beginnings. When the State, at the request and for the convenience
of the taxpaying businesses, became the collection agent for these taxes,
it pledged to redistribute the funds back to local governments. So, from
our perspective, these do not constitute new “aid” from the Treasurer of
New Jersey. Instead, we see them as local revenues, temporarily displaced.
In the 1990’s, Legislators in both parties and in both Houses recognized the
fact that increases in population, prices, wages and employee benefits—
increases over which mayors and governing bodies have little, if any,
control - erode the ability of local officials to keep a lid on property taxes
with “level funding.” Appreciating that fact, they put laws on the books
that were supposed to preserve the property tax relief benefits of the most
significant of these programs into the future.
For the past decade, however, the Legislature has decided that it could not
honor its statutory commitment to full municipal property tax relief funding.
With the passage of this past year’s budget, over those ten years the State
has denied local property taxpayers, statewide, over $3.4 billion of relief.
LOCAL GOVERNMENT COSTS
The Division of Local Government Services in the State’s Department of
Community Affairs uses a nationally recognized standard to
gauge the increasing costs of local government programs
and services. This Implicit Price Deflator measures
the impact of inflation on local budgets, just as
the Cost of Living Index measures its impact
on family budgets.
From September, 2000 to September, 2012,
the costs of local government increased
44.3%. For several years during the
last decade the State provided municipalities
with ‘level funding’ of major
property tax relief programs. In 2008,
2009 and 2010, because of State
budget problems, the appropriation
was significantly reduced. What had
been a distribution of $1.58 Billion in
2001, became only $1.294 Billion in 2011.
This under-funding has forced municipalities
to rely almost exclusively on the property tax to
adjust to the cost increases.
Governor Christie’s 2010 “Special Session” was the third
major attempt at property tax reform in the last decade. In 2004
Governor McGreevey’s “FAIR” (Fair And Immediate Relief) plan included
relief for our hardest hit taxpayers; stricter spending caps; and a plan to
advance towards a Citizens’ Convention for Property Tax Reform
Convention bill.. Today, all that remains of that plan is the caps. In 2006
Governor Corzine’s Special Session for Property Tax Reform produced
property tax credits that have been reduced, and property tax caps that
have been tightened.
The centerpiece of Governor Christie’s “toolkit” reforms has been the new
2% levy cap. The cap does nothing to enforce discipline on State budget
makers and reduce State reliance on local funding. But the new levy cap was followed by major pension and benefits reforms and by a temporary
cap on arbitration awards for public safety personnel. Other cost saving
measures may advance.
Since the enactment of the ‘toolkit’ reforms local property tax increases
have been held to 2.4% in 2011 and to 1.4% in 2012. Keeping property
tax increases down to such low levels over the past two years would not
have been possible without real bi-partisan reforms enacted by the
Governor and the Legislature. For things like the 2% cap on arbitration
awards and pensions and benefits reforms, the Governor and Legislative
leaders deserve our thanks and recognition. It took political courage to
advance those reforms. Last year’s increase in school aid was also welcome.
Mayors working with local governing bodies all around the State also
deserve credit for making the tough decisions in tough times. They have
pruned budgets, pursued savings, engaged in tough negotiations, reduced
the workforce, shared services, cut spending, applied best practices,
emptied reserve accounts, and deferred investments. They did this as
property values declined, tax appeals increased, development and
economic activity stalled, employment slumped, and property tax relief
funding was diverted to the State budget.
Operating under the 2% levy cap municipalities are allowed certain
common sense exceptions. Hopefully, many of the ‘Sandy’ emergency
costs will be off-set through FEMA reimbursements. But pension costs, as
well as ‘inside the cap’ costs like insurance premiums, utility bills, reserves
for uncollected taxes, funding of tax appeals and motor fuels, continue
to rise by much more than 2%. Likewise, the costs of State mandates
continue to add up.
In 2013, as in every year, the municipal budget maker has to be concerned
with all costs, whether inside the cap or not. So for the vast majority of
municipalities that do everything they legally can to control costs there
are only three alternatives. They can cut essential services. They can ask
the voters, already facing their own family financial concerns, to approve
higher property taxes. Or they can be given the Energy Receipts specifically
meant for property tax relief.
That would give municipalities more of the resources they need to meet
constantly increasing costs, without asking voters to sacrifice either
financially or in terms of effective municipal services.
Fair-minded people now recognize that the next advance in property tax
relief has to involve ending the State’s taking of Energy Tax Receipts
and CMPTRA funds that are meant to be distributed to municipalities for
property tax relief.
These are the key factors that have driven New Jersey property taxes
higher. We hope that this analysis will help to answer the question that
the paradigmatic New Jersey taxpayer asked in the opening paragraph.
“How come my property taxes are so high?” We also hope that it will help
our readers to evaluate any proposals designed to provide them with real
property tax relief that will be sustainable for years to come.
We want to acknowledge long-serving municipal tax assessor Bernard C. Haney for his work
on this brochure. Thank you, Mr. Haney. We could not have done this without you.