State Collection Begins

State Collection Begins

In 1980, legislation passed providing for the State collection of these taxes, after which the State would distribute the funds to the municipalities. This was done for the convenience of the utility companies, so that they were able to make a single payment to the State, rather than make multiple payments to various municipalities. In addition to the change of who collected the taxes, the reforms also capped the distribution that any municipality would receive with a municipal purposes tax rate of $0.10 or less in each of the three preceding years, and further capped the distribution to all municipalities at $700 per capita. The Municipal Purposes Tax Assistance Fund (MPTAF) was established to collect the amounts that were not distributed pursuant to the caps. Essentially, before these reforms, the municipality received all monies collected, but after the reforms, the money received by a municipality was capped, and the amount distributed was formula driven rather than dollar for dollar.

By assuming the power to collect these municipal taxes, the State of New Jersey had gained access to the most important source of property tax relief dollars and applied them to other purposes.

After these major changes were enacted, the State promised to return the revenues to the host municipalities. However, in 1982, the Governor used the line-item veto of the State’s Annual Appropriations Act (for FY 1983) to divert $32 million of this funding to use for State priorities. This diversion was challenged in the courts, however, 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 this diversion. Meaning that the majority of money received from the State is a partial replacement for funds that were originally direct sources of municipal revenue. In addition to PUGRAFT, other taxes that were originally intended for municipal use but are now collected by the State are: Business Personal Property Taxes; Financial Business Taxes; and Class II Railroad Property Taxes (all of which have been folded into Consolidated Municipal Property Tax Relief Aid).