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City of Newark v. Essex County Board of Taxation

309 N.J. Super. 476, 707 A.2d 493 (App. Div. 1998)

MUNICIPALITIES; TAXATION—The legislature constitutionally adopted P.L. 1991, Chapter 469 which serves to allow rehabilitated properties that had benefitted from a five year real property tax abatement to be gradually returned to full taxation. As the law was written, it did not constitute a continuation of the abatement beyond the five year limit set forth in the New Jersey constitution.

Article VIII, Paragraph 6 of the New Jersey Constitution gives the state legislature the power to enact laws under which municipalities may adopt ordinances “granting exemptions or abatements from taxation on buildings and structures in areas declared in need of rehabilitation…[E]xemptions shall be for limited periods of time…but not in excess of 5 years.” In 1989, the state legislature invoked this Paragraph and passed a tax abatement law to encourage the construction and improvement of residential units in urban areas. Pursuant to this state law, the City of Newark enacted an ordinance creating a 5 year abatement program. In 1991, the legislature recognized that its abatement program presented a problem because abated properties would be assessed differently at the end of the 5 years than would similar, older properties. Because older properties remain assessed at a fraction of market value, the legislature concluded that, after expiration of the 5 year abatement period, newly constructed properties would be forced to pay higher property taxes than owners of older homes. It believed that the effect of this disparity would be to discourage new development because the short term tax abatement benefit would be outweighed by the long term detriment of paying substantially higher taxes. As a result, the legislature amended its statute by enacting what is known as Chapter 469, which created a transitional program to ease re-entry of abated properties onto the tax rolls and included a provision which states that after the 5th year, by financial agreement, the owner of the previously abated property shall pay, “the equalized taxes otherwise due.” Through a complex taxation formula referred to as Chapter 123, the new structures would gradually be assessed and taxed in the same way, and at the same amount, as older properties. Newark amended its ordinance to incorporate the provisions of Chapter 469. The Newark amendment also permitted the tax agreements to be extended for up to 25 years. However, the state Attorney General issued an interpretation of Chapter 469 to the Essex County Board of Taxation (County) which stated that, after the final year of tax abatement, previously abated properties should immediately be treated the same as all of the other properties in Newark. Newark disagreed and claimed that Chapter 469 provided a distinct methodology for treatment of previously abated residential properties, including two applications of the Chapter 123 formula. Newark claimed that only in this manner would newer properties receive the same treatment as older ones. The County sought summary judgment and a declaration that Newark’s interpretation violated Paragraph 6 of the Constitution by extending the abatement, by the financial agreement, beyond 5 years.

The Tax Court considered the meaning of “equalized taxes otherwise due,” and determined that Newark’s interpretation was correct. However, the judge also ruled that to the extent any tax relief is granted for more than 5 years, it violated the New Jersey Constitution. Accordingly, the judge granted the County’s motion. Newark challenged the tax court’s judgment declaring Chapter 469 unconstitutional.

The Appellate Division agreed with Newark and the Tax Court that the plain language of Chapter 469 required two applications of the Chapter 123 ratio. The Court also held that this reading was consistent with the legislative intent behind enactment of Chapter 469. To agree with the County’s position would result in previously abated property being taxed more heavily than surrounding property that had not been recently revalued.

Next, the Court considered the Tax Court’s conclusion that Paragraph 6 of the New Jersey Constitution limits abatements to 5 years. The plain words clearly state that “exemptions” shall not be for more than 5 years, and does not include abatements in the 5 year limit clause. However, the County argued that: (1) an abatement is a type of exemption and the two terms are used interchangeably; (2) long standing legislative construction of Paragraph 6, and the common sense of the situation, both support application of the 5 year limit to abatements. After considering Black’s Law Dictionary, other statutes enacted by the legislature pursuant to this paragraph, and other tax statutes, the Appellate Division agreed with the County and held that an abatement is a partial exemption, and is therefore subject to the 5 year limit.

Finally, the Court addressed whether the provisions of Chapter 469 constitute an abatement. Unlike the County and the Tax Court, the Appellate Division did not read Chapter 469 as evidence that the legislature mistakenly thought that abatement could extend beyond 5 years. The Appellate Division found evidence from the legislature’s statement of intent and its use of language that Chapter 469 was not enacted with the intention of creating an abatement, but set forth a transitional phase-in program for previously abated properties. Without such a program, the abatement scheme could not succeed because the benefit would quickly be taken back in the form of disproportionately higher taxes upon expiration of the abatement period. The Court declared that this scheme was within the power of the legislature and reversed the Tax Court’s holding that Chapter 469 was unconstitutional.


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