Tax Abatement Considerations and Timing

Tax abatements, while a controversial subject in New Jersey for many years, have been used to encourage investment and development in many municipalities.  Two of the most common types of abatements are designed to carry out the community redevelopment and rehabilitation goals of the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1 et seq. These abatement types are permitted under the Five-Year Exemption and Abatement Law, N.J.S.A. 40A:21-1 et seq., and the Long Term Tax Exemption Law, N.J.S.A. 40A: 20-1 et seq.  Under the 5-Year Abatement and Exemption Law, an ordinance may provide for abatement and/or exemption for new construction of dwellings, conversion or conversion alteration into dwelling use, and improvement to an existing dwelling.  Commercial and industrial structures may also be eligible if an appropriate authorizing ordinance has been adopted.  Short-term tax abatements can be structured as reduced property tax bills that exclude all or part of improvement value or as payments in lieu of taxes (PILOTs).

 Pursuant to N.J.S.A. 40A:21-16, short term abatements are permitted within 30 days following the completion of the improvement or construction.  The statute provides, in pertinent part

 “No exemption or abatement shall be granted pursuant to this act except upon written application therefor filed with and approved by the assessor of the taxing district wherein the improvement, conversion alteration or construction is made.  Every application shall be on a form prescribed by the Director of the Division of Taxation in the Department of the Treasury, and provided for the use of claimants by the governing body of the municipality constituting the taxing district, and shall be filed with the assessor within 30 days, including Saturdays and Sundays, following the completion of the improvement, conversion alteration or construction.  Every application for exemption, or exemption and abatement, within a municipality adopting the provisions of this act which is filed within the time specified, shall be approved and allowed by the assessor to the degree that the application is consistent with the provisions of the adopting ordinance or the tax agreement, provided that the improvement, conversion alteration or construction for which the application is made qualifies as an improvement, a conversion alteration or construction pursuant to the provisions of this act and the tax agreement, if any. . . .”

 Although some claim that the practice should not be permitted, short term abatements are frequently applied for and approved after a development itself already has occurred. However, in these instances developers must be mindful of the strict time requirements as set forth by statute.  For more information and a thorough analysis of the benefits of tax abatements and difficulties that may arise in obtaining them, please contact our office.

– Spencer J. Rothwell, Esq.

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