PL1991, c.431 with final retroactive amendments effective August 5, 1992 consolidated, into one more flexible law, the various long-term tax exemption laws under which municipalities can agree with private entities to undertake redevelopment projects in return of tax exemptions.
PL1991, c.441, effective for the first full fiscal year beginning after its enactment on January 18, 1992, consolidated the various five-year tax exemption and reduction laws into one more standardized law to govern all reductions and tax exemptions, regardless of the type of structure
Long Term Tax Exemption Act
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 Corporation and Association Act of 1961,” commonly known as Fox-Lance, 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 for 15 to 20 years, with profits in excess of the limit utilities returned to the municipality, or 30 to 35 years for condominium projects. Condominium projects were given 30-35 years to provide a realistic period for permanent financing. In addition, prior to 1993, under the provisions of NJSA55:16-1 et seq., the “Limited Dividend Nonprofit Housing Corporation or Association Act,” a qualified municipality could reduce taxes on newly built homes for up to 50 years. built. Additionally, under NJSA55:14I-1 et seq., a qualified municipality could reduce taxes on newly constructed senior housing for up to 50 years. Finally, prior to 1993, under the provisions of NJSA40:55C-77, the “Urban Renewal Nonprofit Corporation Act of 1965,” essentially the same types of properties and projects as the Fox-Lance Act could be reduced during 20 to 25 years with all benefits returned to the municipality. In all cases, under these property tax exemption laws, payments in lieu of taxes were 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 manner as the pre-1993 law did with the following notable exceptions:
A new, flexible formula in lieu of taxes was established with a gradual introduction of payments in lieu of taxes under both the percentage of gross rent formula and the percentage of total project cost formula.
The formulas for calculating the payment in lieu of taxes were changed for both office projects and housing projects. The minimum annual service charge for office buildings has been reduced from 15 percent to 10 percent of the annual gross receipts of the project or project units. Municipalities retained the option to compute the payment in lieu of taxes at no less than 2 percent of the total cost of the project 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 project’s annual gross revenue or from a minimum of 2 percent to a maximum of 2 percent of the cost total project cost or total project unit cost.
The payment-in-lieu-tax formula remains basically unchanged for all other types of industrial, commercial, or cultural projects.
Five Year Waiver and Reduction Act
Prior to 1993, which was the first full year of operation under the new Five Year Mitigation and Exemption Law, there were three types of property to which a qualified municipality (a municipality with “areas in need of rehabilitation”) could grant a concession partial exemption and reduction for a period of five years.
These types of properties include:
Homeowner improvements (including additions and extensions) made to one- or two-unit residential dwellings that are more than 20 years old. As determined by the ordinance, the first $4,000, $10,000, or $15,000 of increase in value due to the improvement of 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 a 30% increase in building volume) may have the full assessed value of the improvement exempt with payments in lieu of taxes made at 2% of the cost of the project or at 15% of annual gross income or a gradual payment in lieu of taxes. (see NJSA 54:4-3.94-3.112).
Improvements to multiple dwellings or the conversion of other types of structures to multiple dwellings may be exempt up to 30% of the total value of the alteration of the improvement or conversion. Payment in lieu of taxes was not required (see NJSA 54:4-3121 to 3129).
Beginning in 1993, the provisions of NJSA 40A:21-1 et seq., the “Five Year Abatement and Waiver Act,” which consolidated all provisions of the previous five year abatement statutes, allowed a qualified municipality grant exemptions and partial reductions on residential dwellings, non-residential structures, and multiple dwellings in the same manner as the pre-1993 law, with the following notable exceptions made to the new law:
A new, single definition of “areas in need of rehabilitation” was established to govern all exemptions and reductions that, if elected, could allow an entire municipality to be designated as an area in need of rehabilitation (thereby 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-family and multi-family dwelling units and non-residential structures rather than just improvements or additions to such properties.
The new law also increased the maximum allowable value-added tax exemptions for an improvement from $4,000, $10,000 and $15,000 to $5,000, $15,000 and $25,000, respectively, as specified by city ordinance.