Alternatives to the Property Tax

Local Option Taxes

On October 12, 2006, the Legislature’s Joint Committee on Constitutional Reform and Citizens Property Tax Constitutional Convention heard testimony presented by Judy A. Zelio of the National Conference of State Legislatures. Ms. Zelio stated that 43 states permit some form of local option sales or income tax. In some cases, the authority is limited to certain classes of municipalities only. 38 states permit local option sales taxes. 18 states permit local option income or payroll taxes. (13 states permit both, in some form.)

According to the U.S. Census Bureau figures for 2009-2010, local own source general tax revenue in the U.S. totaled $569 billion. Of that, $427 billion was generated by the property tax; $62 billion by a general sales tax; $1.3 billion by a motor fuels tax; $523 million by an alcoholic beverage tax; $436 million by a tobacco products tax; $14 billion by public utilities taxes; and $11 billion by “other selective sales” taxes. Individual income taxes generated $24 billion; corporate income taxes produced $6 billion; license taxes brought in $1.6 billion. “Other taxes” produced $20 billion.

According to the same source for the same year, New Jersey local own source tax revenue equaled $25 billion, of which $24.7 billion was produced by property taxes.

Although New Jersey does not allow local governments to levy income, wage or a general sales taxes, it does allow some local governments to tax certain things for local benefit. Among the taxes permitted in New Jersey:

• The Atlantic City Luxury Sales Tax (1991) on alcoholic beverages, entertainment charges, room rentals, hiring of rolling chairs on the Boardwalk and admission tickets to events. The rate is 3 percent on alcohol and 9 percent on other items. Revenues are dedicated for the State Sports and Exposition Authority to run Atlantic City convention facilities. Also, the Atlantic City Tourism Promotion Fee (1991) collects $2 per day for each occupied room in hotels that provide casino gambling and $1 per day for occupied rooms in other hotels. These funds are dedicated to the Atlantic City Convention Center Operating Authority. In 2011, these taxes generated $31.2 million.
• The Cape May County Tourism Sales Tax (1992) levies an additional 2 percent sales tax on room rentals, restaurant food, admission charges to amusements and cover charges in nightclubs only in Wildwood, North Wildwood and Wildwood Crest. Fees collected are used to pay principle and interest on bonds issued by the county tourism authority. In 2012, $4 million was collected. 
• A parking fee of $3 required to be charged by casino hotels in Atlantic City (1993) for use by the Casino Reinvestment Development Authority to finance public improvements in Atlantic City. In 2005, $17.8 million was available for this purpose. 
• In 2002, a 1.85 percent assessment on hotel and room rentals was authorized to provide the Greater Wildwood Tourism Improvement and Development Authority more revenue for marketing. In 2012, this impost brought in $1.7 million.
• In 2003, New Jersey joined most other states in levying hotel and motel occupancy fees. The state rate is 5 percent and local governments are allowed to levy an additional 3 percent tax. State revenues from these fees are used to promote tourism and for cultural and historical projects; local revenues remain with the municipality and are used for general purposes.

Parking Tax

Beginning in 1970, Newark and Jersey City were permitted to levy a parking tax. In 1987, by definition, the power was extended to Elizabeth. In 1991, by definition, the power was extended to all Hudson County municipalities (except Kearny, Secaucus and, at the time, North Bergen) and to Belleville, Orange, East Orange and Irvington and to Bogota, Cliffside Park, Fair Lawn, Fort Lee, Garfield, Lodi, Palisades Park and Wallington. The authority was set to expire for all in 2004, but was permanently extended, in 2004, by repeal of 40:48C-8. Further, North Bergen now has the authority, as its population density exceeded 10,000 per square mile, in the last census.

While important to the qualifying municipalities, none of these local option taxes are sufficient to address New Jersey’s property tax problem. 

State Revenue Replacement Funding

There are two main formula-driven general municipal property tax relief programs currently in use in our Garden State. Though often referred to as “State Aid” programs, these are actually Revenue Replacement programs. The revenue they replace was, formerly, generated through taxes assessed and collected locally.

The simplest to describe is the Energy Tax Receipts Property Tax Relief program. It is the direct descendant of the Public Utility Gross Receipts and Franchise Tax (PU-GRAFT). That was a tax on regulated public utilities originally assessed and collected at the municipal level. In the early 1980s, at the request and for the convenience of the tax paying utilities, the State became the collection agent for this assessment. The law that effected this change promised that the proceeds would be distributed back to the municipalities, which provide services to utility facilities and from whence come utility profits. The State of New Jersey neglected that commitment, immediately repurposing large and growing portions of the proceeds to its own general fund. Modernization and deregulation led to a major reform of utility taxes in the mid-Nineties. That reform law validated and, supposedly, capped the State’s annual percentage. It also included a ‘poison pill,’ which required the State to annually increase the municipal distribution of Energy Tax proceeds. Failure to do so would result in the forfeiture of the State’s authority to collect the tax.

Around the same time, the State decided to ‘consolidate’ a number of previously discrete municipal property tax relief programs. While some may see ‘no rhyme or reason’ to the distribution of Consolidated Municipal Property Tax Receipts Aid (CMPTRA), each of its component parts was distributed according to state established formulas. And many of those parts were, like Energy Taxes, the lineal descendants of taxes that had once been assessed and collected at the municipal level. Among its many components, CMPTRA includes the Financial Business Tax, the Business Personal Property Tax Replacement, the Railroad Class II Property Tax, the Insurance Franchise Tax, the Corporation Business Tax on Banking Corporations and a big chunk of State Payments In Lieu Of Taxes (PILOT) payments, that had been under-funded for many years, prior to being folded into the Consolidation. These are, or were, all municipal revenue replacement programs. They were not, properly speaking, State aid. They were not meant to make things better for municipal property taxpayers. They were only intended to keep things from getting worse.

In the late-Nineties, a law was passed that required both the Energy Tax and CMPTRA distributions to be annually increased by the rate of inflation. That law posed a special problem for future State budget makers. But, as those budget makers viewed the matter, the problem was not how to comply with the requirement. The problem was how to evade compliance without invoking the Energy Tax ‘poison pill.’ And how did the State increase Energy Tax distributions by the rate of inflation for five straight years without providing municipalities with one new dollar in property tax relief? It reduced the CPMTRA distribution by the same amount that it increased the Energy Tax distribution. In 2008, it did even more. That year, CMPTRA was reduced by about $62 million more than the Energy Tax was increased. In 2009, the net loss equaled about $32 million.

East Windsor Mayor and 2013 League President Janice S. Mironov leads the effort to convince State policy makers to restore this vital property tax relief funding.