Local Property Taxes In New Jersey - A Primer
LESSON ONE
First Remember that:
THE LOCAL PROPERTY TAX in New Jersey is in fact a LOCAL TAX.
This means that the tax is assessed and collected at the local municipal level for the support of:
LOCAL SCHOOLS
MUNICIPAL GOVERNMENT
COUNTY GOVERNMENT
THE STATE RECEIVES NO PORTION OF THESE PROPERTY TAXES.
As a matter of fact the State pays out 48˘ of every State revenue dollar collected to counties, municipalities and schools in some form of State Aid. In 1961, some 44 years ago, the State paid out 43 cents of every State revenue dollar collected.
In FY 2005 the State budgeted approximately $12,465.6 million in State funding for property tax relief programs for the following purposes:
($Millions)
Schools Aid $8,657.3
Municipal Aid 1,757.0
Other Local Aid 716.0
Direct Taxpayer Relief 1,335.3
TOTAL $12,465.6
LESSON TWO
Next we must understand that:
THE LOCAL PROPERTY TAX in New Jersey is a RESIDUAL TAX.
A Residual Tax is one which is levied to raise the amount of money required over and above the total revenues available from other sources.
For example, in Jerry’s Small Town, total budget requirements are:
For Local Schools $ 149,000
For Municipal Services 175,000
For County Services 75,000
Other Items 1,000
TOTAL BUDGET REQUIREMENTS $400,000
Available Revenues to offset these requirements:
State School Aid $ 75,000
Other Revenues 25,000
(Parking Meters, Licenses,
Court Fines, Etc.)
TOTAL AVAILABLE REVENUES $100,000
AMOUNT TO BE RAISED BY
LOCAL PROPERTY TAXATION $300,000
This $300,000 is the RESIDUAL amount to be raised by Taxation after giving effect to all other sources of revenue.
LESSON THREE
Now we must also understand that:
THE LOCAL PROPERTY TAX in New Jersey is an AD VALOREM TAX.
Don’t let that fancy name frighten you.
An AD VALOREM tax simply means that each taxpayer shares in the total tax burden of his town in the direct proportion as the value of his property bears to the total value of all the property in his town.
AD VALOREM means each taxpayer pays according to the value of the property he owns. The amount of property he owns is used as a yardstick in determining his ability to pay.
For Example:
Jerry owns a house and lot
having a market value of $ 300,000
The total market value of all property
in Jerry’s towns is $60,000,000
ACCORDINGLY:
Jerry’s share of the total Local
Property Tax base is $300,000 /
$60,000,000
$300,000 equals ˝ of 1% of the total property tax base of $60,000,000.
Reducing this to a decimal, Jerry’s share of the total Local Property Taxes in his community is ˝ of 1%, or .005.
This percentage is usually shown as a Tax Rate charged for each $100 of Assessed Valuation. (See Lesson Four)
AD VALOREM means nothing more than PROPORTIONATE OR FAIR SHARE.
REVIEW
So far we have learned that the Local Property Tax is a -
LOCAL Tax
RESIDUAL Tax
AD VALOREM Tax
LOCAL TAX levied at the local municipal level for the support of local schools, municipal and county governments.
RESIDUAL TAX levied to make up the difference between available miscellaneous revenues and budget requirements.
AD VALOREM TAX, which means that each taxpayer pays his proportionate share based on the value of the property he owns.
LESSON FOUR
Now, we must learn the answer to the question:
WHAT IS THE MEANING OF TAX RATE?
TAX RATE is the number of dollars per $100 of Assessed Valuations which must be applied to the assessed valuation of all property in a taxing district in order to produce the amount of money required to support school, county and municipal budgets.
TAX RATE is another method used to arrive at the amount of each taxpayer’s proportionate share of local taxes.
The TAX RATE is determined by a simple arithmetic calculation similar to the method illustrated in Lesson Three.
Total Amount to be Raised by Taxation - $300,000
Total Value of all property in Town - $60,000,000
$300,000/
$60,000,000 = .05
The Tax Rate is then 5˘ per $1 of Assessed Valuation
or
$5.00 per $100 of Assessed Valuations
EXAMPLE:
Jerry’s house and lot have
an Assessed Valuation of —————— $300,000
Tax Rate per $100 of
Assessed Valuation ————————- X $5.00
Jerry’s Tax Bill is ————————— $ 1,500.00
LESSON FIVE
What is the meaning of -
TRUE VALUE
ASSESSMENT RATIO
ASSESSED VALUATION
TRUE VALUE means market value - the amount a parcel of real property would sell for at a fair and bona fide sale.
ASSESSMENT RATIO is that percent of True Value used by the assessor in making up his assessment rolls as prescribed by his/her County Board of Taxation).
In New Jersey assessors use the statutory 100% ratio or Full True market value in making up their assessment rolls; assessors in others states use assessment ratios or percentages less than 100%.
ASSESSED VALUATION or ASSESSMENT is the value placed on each parcel of property by the assessor as indicated above; it is determined by the use of True Value or some percentage thereof.
REVIEW
In Lessons One and Two we learned that:
Total Budgets less available revenues result in the Residual Amount to be raised by taxation which is the total tax bill.
It follows then that the amount to be raised by taxation is a primary factor in determining the amount of each individual property owner’s tax bill.
In Lesson Three we learned that:
Local Property Taxes are apportioned among property owners according to the value of each individual taxpayer’s property in proportion to the value of the property of all taxpayers.
We learned that this method of taxation is called AD VALOREM taxation.
In Lesson Four we learned that:
Tax Rate is the dollar amount per $100 of assessed valuation which must be raised to support local budgets.
In Lesson Five we learned that:
Assessed Valuation is the true value or percentage of true value placed on each parcel of property by the assessor. This is the basic factor which implements the AD VALOREM principle of taxation.
LESSON SIX
What are the relationships among:
Total Amount to be Raised by Taxation
Tax Rate
Amount of the Individual Taxpayer’s Bill
The relationship among these factors can best be illustrated by the following example. This example incorporates some of the lessons we have already learned.
In Jerry’s Hometown:
The Total Amount to be Raised by Taxation is $300,000
The True Value of All Real Property is $60,000,000
The Assessor Uses an Assessment Ratio of X 100%
Thus the Total Assessed Valuation Taxable is $60,000,000
The Tax Rate then is ($300,000)/ - $5 per $100 of Assessed Valuation
$60,000,000)
Accordingly, if Jerry’s House and Lot have a market value of $300,000
And the assessor uniformly applies an Assessment Ratio of 100% 100%
(Note: All New Jersey County Boards Of Taxation Require 100% Ratio)
Jerry’s house will be Assessed at: $300,000
By applying the Tax Rate in Jerry’s Town X $5.00
JERRY’S TAX BILL WILL BE $ 1,500
LESSON SIX (Continued)
NOW, assuming 10 years have passed and property values have doubled in value
due to property inflation, And, assuming that the Budgets remained the same:
And, the Total Amount to be Raised by Taxation is still. $300,000
And, with the Assessor assessing at 100% of true value.
(NOTE: Reducing the ratio to 50% as happens in states, other than New Jersey,
would mathematically just result in a doubling of the tax rate.)
And, property inflation has increased the town’s total Assessed Valuation Taxable,
so after a revaluation with a 100% ratio the town’s total assessed valuation taxable is now. $120,000,000
The Tax Rate is then ($300,000) / - $2.50 per $100 of Assessed Valuation
(120,000,000)
After the Revaluation the total tax base in the town doubled in value.
Since all assessments are at True Value,
Jerry’s House after the revaluation will now be assessed at $ 600,000
By applying the Tax RATE of $2.50 per $100 of value X $2.50
JERRY’S TAX BILL WILL STILL BE $ 1,500
Thus, we learn that if the Amount to be Raised by Taxation remains the same:
Tax Rates are high when Assessment Ratios are low in some states other than New Jersey. Conversely, Tax Rates are low when Assessment Ratios are high in some states other than New Jersey.
The amount of a property owner’s Tax Bill is not affected by Assessment Ratios or by Tax Rates.
The amount of an individual’s tax bill is determined by The Amount to be Raised by Taxation, and by the proportionate value of his property as it bears to the total value of all property in his municipality.
LESSON SEVEN
What is meant by EQUALIZATION?
The term EQUALIZATION as commonly used has a twofold meaning:
INTER-DISTRICT EQUALIZATION, i.e., Equalization among taxing districts, has as its purpose the determination of the true wealth of every municipality to the end that each receives a fair amount of State School Aid and pays an equitable share of the costs of county government.
Inter-district equalization is substantially an accomplished fact in New Jersey.
The State School Aid Equalization Table, which is based on a continuing statewide sales-assessment ratio study, provides for the equitable apportionment of the costs of county government among the taxing districts within the several counties.
This Table is also used as the basis of apportioning certain costs of Joint, Consolidated and Regional School Districts.
INTRA-DISTRICT EQUALIZATION, i.e., Equalization within a municipality, means equitable tax treatment among property owners of the same class of property and equitable tax treatment among property owners of different classes of property.
This simply means that homeowners having homes of similar value are assessed alike - that is, Jerry’s home and your home, having an equal value, are assessed at the same value. Similarly, Jerry’s place of business, having the same value as other places of business, is assessed at the same value.
This is known as Intra-Municipal Equalization, and is the very core of the principle of Ad Valorem Taxation.
Intra-Municipal Equalization is generally attained by carrying out an overall professional Revaluation Program where all properties are re-evaluated as to their market value or 100% value.
LESSON EIGHT
What is meant by REVALUATION?
The REVALUATION of a taxing district is accomplished by having an appraisal made of every piece of real property within the taxing district by a competent professional revaluation firm.
CARRYING OUT A HIGH QUALITY REVALUATION PROGRAM involves the application of uniform standards and procedures in arriving at equitable appraised values for all parcels of property in the taxing district.
THE PURPOSE OF A REVALUATION PROGRAM is to secure the basis for attaining uniform and equitable assessments on all properties within the same classification and as among the several classifications of property in order to assure an equitable apportionment of the increasingly heavy local property tax burden among all the taxpayers within a taxing district.
PROFESSIONAL REVALUATION PROGRAMS are carried out in about 50 municipalities a year.
THE GOVERNING BODIES of those municipalities that have regularly revalued have faced up to their obligation to treat all property taxpayers uniformly and equitably.
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: Gerald ‘Jerry’ Dowgin “The Property Tax Doctor” and the author of the Homeowner’s Assessment Review Guide (http://www.propertytaxdoctor.com) a former tax assessor worked in the field of public finance at the State and local levels in New Jersey for more than three decades until his retirement in 2001. As a Supervising Tax Analyst in the Office of Research and Statistics in the Division of Taxation in the New Jersey Department of Treasury he worked principally on local property tax issues. Then he joined the Office of Legislative Services (OLS) in 1983 and served as the Secretary to the New Jersey Property Tax Assessment Study Commission for four years. While working in the OLS, Local Government Section he researched, drafted, and estimated the cost of the Senior Property Tax Freeze Bill which was signed onto law and worked on legislation that became law that virtually stopped the tax assessment practice of “Spot Assessments” in New Jersey that had treated many property taxpayers unfairly. Fort Worth CPA Tax Accounting If you own a small business and haven’t kept up your bookkeeping, don’t worry. We’ll prepare your bookkeeping for the year, prepare a full business tax return, and your individual taxes.
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