Local Property Taxes In New Jersey - A Primer

LESSON ONEFirst Remember that:THE LOCALrelationship among these factors can best be
PROPERTY TAX in New Jersey is in fact a LOCALillustrated by the following example. This example
TAX.This means that the tax is assessed andincorporates some of the lessons we have already
collected at the local municipal level for the supportlearned.In Jerry's Hometown:The Total Amount to be
of:LOCAL SCHOOLSMUNICIPALRaised by Taxation is $300,000The True Value of All
GOVERNMENTCOUNTY GOVERNMENTTHE STATEReal Property is $60,000,000The Assessor Uses an
RECEIVES NO PORTION OF THESE PROPERTYAssessment Ratio of X 100%Thus the Total
TAXES.As a matter of fact the State pays outAssessed Valuation Taxable is $60,000,000The Tax
48¢ of every State revenue dollar collected toRate then is ($300,000)/ - $5 per $100 of Assessed
counties, municipalities and schools in some form ofValuation$60,000,000)Accordingly, if Jerry's House
State Aid. In 1961, some 44 years ago, the Stateand Lot have a market value of $300,000And the
paid out 43 cents of every State revenue dollarassessor uniformly applies an Assessment Ratio of
collected.In FY 2005 the State budgeted100% 100%
approximately $12,465.6 million in State funding for(Note: All New Jersey County Boards Of Taxation
property tax relief programs for the followingRequire 100% Ratio)Jerry's house will be Assessed
purposes:($Millions)Schools Aid $8,657.3Municipal Aidat: $300,000By applying the Tax Rate in Jerry's
1,757.0Other Local Aid 716.0Direct Taxpayer ReliefTown X $5.00JERRY'S TAX BILL WILL BE $
1,335.3TOTAL $12,465.6LESSON TWONext we must1,500LESSON SIX (Continued)NOW, assuming 10
understand that:THE LOCAL PROPERTY TAX in Newyears have passed and property values have doubled
Jersey is a RESIDUAL TAX.A Residual Tax is onein value
which is levied to raise the amount of moneydue to property inflation, And, assuming that the
required over and above the total revenues availableBudgets remained the same:And, the Total Amount
from other sources.For example, in Jerry's Smallto be Raised by Taxation is still. $300,000And, with
Town, total budget requirements are:For Localthe Assessor assessing at 100% of true value.
Schools $ 149,000For Municipal Services 175,000For(NOTE: Reducing the ratio to 50% as happens in
County Services 75,000Other Items 1,000TOTALstates, other than New Jersey,
BUDGET REQUIREMENTS $400,000Availablewould mathematically just result in a doubling of the
Revenues to offset these requirements:State Schooltax rate.)And, property inflation has increased the
Aid $ 75,000Other Revenues 25,000(Parking Meters,town's total Assessed Valuation Taxable,
Licenses,Court Fines, Etc.)TOTAL AVAILABLEso after a revaluation with a 100% ratio the town's
REVENUES $100,000AMOUNT TO BE RAISEDtotal assessed valuation taxable is now.
BYLOCAL PROPERTY TAXATION $300,000This$120,000,000The Tax Rate is then ($300,000) / -
$300,000 is the RESIDUAL amount to be raised by$2.50 per $100 of Assessed Valuation(120,000,000)
Taxation after giving effect to all other sources ofAfter the Revaluation the total tax base in the town
revenue.LESSON THREENow we must alsodoubled in value.Since all assessments are at True
understand that:THE LOCAL PROPERTY TAX in NewValue,Jerry's House after the revaluation will now be
Jersey is an AD VALOREM TAX.Don't let that fancyassessed at $ 600,000By applying the Tax RATE of
name frighten you.An AD VALOREM tax simply$2.50 per $100 of value X $2.50JERRY'S TAX BILL
means that each taxpayer shares in the total taxWILL STILL BE $ 1,500Thus, we learn that if the
burden of his town in the direct proportion as theAmount to be Raised by Taxation remains the
value of his property bears to the total value of allsame:Tax Rates are high when Assessment Ratios
the property in his town.AD VALOREM means eachare low in some states other than New Jersey.
taxpayer pays according to the value of theConversely, Tax Rates are low when Assessment
property he owns. The amount of property he ownsRatios are high in some states other than New
is used as a yardstick in determining his ability toJersey.The amount of a property owner's Tax Bill is
pay.For Example:Jerry owns a house and lothaving anot affected by Assessment Ratios or by Tax
market value of $ 300,000The total market value ofRates.The amount of an individual's tax bill is
all propertyin Jerry's towns isdetermined by The Amount to be Raised by
$60,000,000ACCORDINGLY:Jerry's share of the totalTaxation, and by the proportionate value of his
LocalProperty Tax base is $300,000property as it bears to the total value of all property
$60,000,000$300,000 equals ½ of 1% of thein his municipality.LESSON SEVENWhat is meant by
total property tax base of $60,000,000.Reducing thisEQUALIZATION?The term EQUALIZATION as
to a decimal, Jerry's share of the total Local Propertycommonly used has a twofold
Taxes in his community is ½ of 1%, or .005.Thismeaning:INTER-DISTRICT EQUALIZATION, i.e.,
percentage is usually shown as a Tax Rate chargedEqualization among taxing districts, has as its purpose
for each $100 of Assessed Valuation. (See Lessonthe determination of the true wealth of every
Four)AD VALOREM means nothing more thanmunicipality to the end that each receives a fair
PROPORTIONATE OR FAIR SHARE.REVIEWSo faramount of State School Aid and pays an equitable
we have learned that the Local Property Tax is ashare of the costs of county
-LOCAL TaxRESIDUAL TaxAD VALOREMgovernment.Inter-district equalization is substantially
TaxLOCAL TAX levied at the local municipal level foran accomplished fact in New Jersey.The State School
the support of local schools, municipal and countyAid Equalization Table, which is based on a continuing
governments.RESIDUAL TAX levied to make up thestatewide sales-assessment ratio study, provides for
difference between available miscellaneous revenuesthe equitable apportionment of the costs of county
and budget requirements.AD VALOREM TAX, whichgovernment among the taxing districts within the
means that each taxpayer pays his proportionateseveral counties.This Table is also used as the basis
share based on the value of the property heof apportioning certain costs of Joint, Consolidated
owns.LESSON FOURNow, we must learn the answerand Regional School Districts.INTRA-DISTRICT
to the question:WHAT IS THE MEANING OF TAXEQUALIZATION, i.e., Equalization within a municipality,
RATE?TAX RATE is the number of dollars per $100means equitable tax treatment among property
of Assessed Valuations which must be applied to theowners of the same class of property and equitable
assessed valuation of all property in a taxing district intax treatment among property owners of different
order to produce the amount of money required toclasses of property.This simply means that
support school, county and municipal budgets.TAXhomeowners having homes of similar value are
RATE is another method used to arrive at theassessed alike - that is, Jerry's home and your home,
amount of each taxpayer's proportionate share ofhaving an equal value, are assessed at the same
local taxes.The TAX RATE is determined by a simplevalue. Similarly, Jerry's place of business, having the
arithmetic calculation similar to the method illustratedsame value as other places of business, is assessed
in Lesson Three.Total Amount to be Raised byat the same value.This is known as Intra-Municipal
Taxation - $300,000Total Value of all property inEqualization, and is the very core of the principle of
Town - $60,000,000$300,000/$60,000,000 = .05TheAd Valorem Taxation.Intra-Municipal Equalization is
Tax Rate is then 5¢ per $1 of Assessedgenerally attained by carrying out an overall
Valuationor$5.00 per $100 of Assessedprofessional Revaluation Program where all properties
ValuationsEXAMPLE:Jerry's house and lot haveanare re-evaluated as to their market value or 100%
Assessed Valuation of ------------------ $300,000Taxvalue.LESSON EIGHTWhat is meant by
Rate per $100 ofAssessed ValuationREVALUATION?The REVALUATION of a taxing
------------------------- X $5.00Jerry's Tax Bill isdistrict is accomplished by having an appraisal made
--------------------------- $ 1,500.00LESSON FIVEWhat isof every piece of real property within the taxing
the meaning of -TRUE VALUEASSESSMENTdistrict by a competent professional revaluation
RATIOASSESSED VALUATIONTRUE VALUE meansfirm.CARRYING OUT A HIGH QUALITY
market value - the amount a parcel of real propertyREVALUATION PROGRAM involves the application of
would sell for at a fair and bona fideuniform standards and procedures in arriving at
sale.ASSESSMENT RATIO is that percent of Trueequitable appraised values for all parcels of property
Value used by the assessor in making up hisin the taxing district.THE PURPOSE OF A
assessment rolls as prescribed by his/her CountyREVALUATION PROGRAM is to secure the basis for
Board of Taxation).In New Jersey assessors use theattaining uniform and equitable assessments on all
statutory 100% ratio or Full True market value inproperties within the same classification and as
making up their assessment rolls; assessors in othersamong the several classifications of property in order
states use assessment ratios or percentages lessto assure an equitable apportionment of the
than 100%.ASSESSED VALUATION or ASSESSMENTincreasingly heavy local property tax burden among all
is the value placed on each parcel of property by thethe taxpayers within a taxing district.PROFESSIONAL
assessor as indicated above; it is determined by theREVALUATION PROGRAMS are carried out in about
use of True Value or some percentage50 municipalities a year.THE GOVERNING BODIES of
thereof.REVIEWIn Lessons One and Two we learnedthose municipalities that have regularly revalued have
that:Total Budgets less available revenues result infaced up to their obligation to treat all property
the Residual Amount to be raised by taxation whichtaxpayers uniformly and equitably.: Gerald 'Jerry'
is the total tax bill.It follows then that the amount toDowgin "The Property Tax Doctor" and the author
be raised by taxation is a primary factor inof the Homeowner's Assessment Review Guide ( a
determining the amount of each individual propertyformer tax assessor worked in the field of public
owner's tax bill.In Lesson Three we learned that:Localfinance at the State and local levels in New Jersey
Property Taxes are apportioned among propertyfor more than three decades until his retirement in
owners according to the value of each individual2001. As a Supervising Tax Analyst in the Office of
taxpayer's property in proportion to the value of theResearch and Statistics in the Division of Taxation in
property of all taxpayers.We learned that thisthe New Jersey Department of Treasury he worked
method of taxation is called AD VALOREM taxation.Inprincipally on local property tax issues. Then he joined
Lesson Four we learned that:Tax Rate is the dollarthe Office of Legislative Services (OLS) in 1983 and
amount per $100 of assessed valuation which mustserved as the Secretary to the New Jersey Property
be raised to support local budgets.In Lesson Five weTax Assessment Study Commission for four years.
learned that:Assessed Valuation is the true value orWhile working in the OLS, Local Government Section
percentage of true value placed on each parcel ofhe researched, drafted, and estimated the cost of
property by the assessor. This is the basic factorthe Senior Property Tax Freeze Bill which was signed
which implements the AD VALOREM principle ofonto law and worked on legislation that became law
taxation.LESSON SIXWhat are the relationshipsthat virtually stopped the tax assessment practice of
among:Total Amount to be Raised by TaxationTax"Spot Assessments" in New Jersey that had treated
RateAmount of the Individual Taxpayer's BillThemany property taxpayers unfairly.