Law Eases Burden of NJ Towns Facing Big Refunds for Successful Tax Appeals

John Reitmeyer | August 15, 2019 | Budget
Garden State municipalities will now have up to three years to refund local commercial property owners for tax judgments over $100,000

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New Jersey municipalities dealing with costly tax appeals have been given some new breathing room when settling with commercial property owners who successfully contest their tax assessments.

Under a new law Gov. Phil Murphy enacted earlier this month, towns now have up to three years to fully refund commercial property owners who’ve won tax appeals when the value of the judgment is more than $100,000.

According to sponsors of the legislation, the longer repayment period should help ease the burden on local governments that get hit with major tax appeals and have to refund property owners — something that’s often seen during periods of economic recession when property values tend to decline. In fact, some New Jersey municipalities in recent years have been forced to sell bonds to raise the cash needed to cover refunds due under the prior repayment deadline, which was 60 days.

A leading business-lobbying group objected to the new longer time limit, arguing residential and commercial properties should be treated equally since the 60-day deadline will remain in effect for residential property-tax judgments and for commercial property-tax judgments worth less than $100,000. Business lobbyists also took issue with new interest-payment rules in another section of the new law.

New Jersey has undergone a long period of economic expansion in the wake of the Great Recession, and the state unemployment rate recently fell to a historic low of 3.5 percent. But economists are starting to suggest another national recession may be looming, as concerns about bond yields and a potential trade war with China instigated by President Donald Trump have begun to upset financial markets.

A successful property-tax appeal can provide a boost to an individual property owner when they’re able to prove an overassessment and win a refund. But such judgments also lead to local governments owing refunds that can add up to millions of dollars, depending on the number of successful appeals and the properties involved. That, in turn, can increase pressure on local property taxes, since they are a major source of revenue for municipal governments.

Edison, Atlantic City impacted

Assemblyman Robert Karabinchak, a former member of the Edison Municipal Council, pointed to the hardships faced in his community when discussing why lawmakers sought to lengthen the repayment deadline for costly commercial property-tax refunds. Edison and Atlantic City were among the New Jersey towns that struggled to deal with major tax appeals in the wake of the last recession.

Assemblyman Robert Karabinchak (D-Middlesex)
“A township’s residents shouldn’t be on the hook for years, paying off a bond that was needed to refund money to a corporation that filed a tax appeal,” said Karabinchak (D-Middlesex). “This law enables municipalities to more responsibly manage their budgets over a longer timeline.”

Now, instead of having to cover a full refund of property-tax overpayments within 60 days of when a judgment is made, municipalities will be allowed to make three equal payments spread out over three years. The new law also eases the rules related to interest payments by allowing municipalities to pay either a 5 percent annual interest rate on owed refunds, or 1 percent above the prime rate, as determined by the Federal Reserve board of governors. The prior rules only allowed the payment of a 5 percent annual rate.

The policy changes went into effect on Aug. 9, but they will not apply to tax appeals that were filed before the new law was enacted.

A fiscal estimate from the nonpartisan Office of Legislative Services suggested municipal governments should benefit from the longer deadline by easing interest costs and also preventing some tax-appeal liabilities from being financed through long-term bonds.

Issues with longer repayments

“By extending the window for municipalities to administer tax-appeal refunds, we are giving localities an opportunity to boost their budget flexibilities and potentially reduce local costs,” said Assemblywoman Nancy Pinkin (D-Middlesex). “It’s the reasonable thing to do.”

Credit: NJBIA
Andrew Musick, vice president of government affairs for the New Jersey Business & Industry Association
But Andrew Musick, vice president of government affairs for the New Jersey Business & Industry Association, took issue with the establishment of a longer repayment window by saying communities already benefit from what can be a very lengthy tax-appeals process.

“Requiring business owners to wait this much longer to recoup their overpayments, when some have invested years in pursuing a successful property-tax appeal, is neither fair nor reasonable,” Musick said.

“This change also allows municipalities to treat residential and nonresidential tax appeals differently,” Musick said. “Traditionally, commercial and residential property taxpayers have always been treated the same (and) we remain steadfast that uniformity in repayment periods for both should remain.”