Senator STEPHEN M. SWEENEY
District 3 (Salem, Cumberland and Gloucester)
Clarifies determination of assessed value of certain petroleum refinery property subject to local taxation, appropriates funds necessary to reimburse municipalities for certain property tax refunds.
CURRENT VERSION OF TEXT
An Act designating certain machinery, apparatus and equipment of petroleum refineries as real property for property tax purposes and concerning tax refunds therefor, amending R.S.54:4-1, amending and supplementing P.L.1986, c.117 and making an appropriation.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. (New section) The Legislature finds and declares:
Prior to the enactment of the "Business Retention Act," P.L.1992, c.24 (C.54:4-1.13 et al.), all petroleum refinery property was assessed for taxation as real property. Following the enactment of the "Business Retention Act," municipal tax assessors were directed to assess the land and buildings of petroleum refineries as real property, and the machinery, apparatus and equipment directly used to manufacture petroleum products as business personal property.
This change in the assessment process from a real property approach to a combined real property and business personal property approach opened up the possibility that the assessed value of a petroleum refinery property could fluctuate, possibly leading to a decrease in the assessed value of a petroleum refinery property and a reduction in the amount of real property taxes levied against the property and collected by the county, municipality and school district supported by those real property taxes, which would wreak havoc with local budgets. If the decreased assessment was the result of a successful tax appeal by the owner of the petroleum refinery, the municipalities where such properties are located could also suffer the loss of several millions of dollars through refunds necessitated by those reductions in the assessments.
As there are fewer than ten petroleum refinery properties throughout the State, the effects of the current assessment process and the potential for the reduction in property taxes due and payable by these petroleum refineries as well as the potential loss of millions of property tax revenues resulting from successful tax appeals by these petroleum refineries are unfairly visited upon a very few New Jersey municipalities. While the issue of increased property tax burdens for New Jersey residents has become an issue all over the State, the loss by these few municipalities of property tax revenues from petroleum refinery properties would play havoc with their ability to provide essential services to local residents, and the burden of paying a property tax refund following a successful tax appeal by a petroleum refinery could well bankrupt the coffers of these municipalities. Accordingly, the State should provide the funds to municipalities required to issue property tax refunds to refineries following successful tax appeals by those refineries.
Under the provisions of the "Business Retention Act," business personal property, or business equipment, is assessed at book value, which is original cost minus depreciation, and is presumed to be not less than 20% of its original cost. However, taxable real property is valued at fair market value, which provides a more consistent and true valuation of a parcel of real property for purposes of property taxation. In order to provide local tax assessors with better tools for accurately and consistently assessing petroleum refinery property, it is therefore necessary and proper to return the assessment of business personal property used in the refinery process of petroleum products to a fair market system of real property valuation, which should include the use of the income approach, along with the other approaches to value, to determine the fair market value of these properties for the purposes of property taxation.
2. R.S.54:4-1 is amended to read as follows:
54:4-1. All property real and personal within the jurisdiction of this State not expressly exempted from taxation or expressly excluded from the operation of this chapter shall be subject to taxation annually under this chapter. Such property shall be valued and assessed at the taxable value prescribed by law. Land in agricultural or horticultural use which is being taxed under the "Farmland Assessment Act of 1964," P.L.1964, c.48 (C.54:4-23.1 et seq.), shall be valued and assessed as provided by that act. An executory contract for the sale of land, under which the vendee is entitled to or does take possession thereof, shall be deemed, for the purpose of this act, a mortgage of said land for the unpaid balance of purchase price. Personal property taxable under this chapter shall include, however, only [the machinery, apparatus or equipment of a petroleum refinery that is directly used to manufacture petroleum products from crude oil in any of the series of petroleum refining processes commencing with the introduction of crude oil and ending with refined petroleum products, but shall exclude items of machinery, apparatus or equipment which are located on the grounds of a petroleum refinery but which are not directly used to refine crude oil into petroleum products and] the tangible goods and chattels, exclusive of inventories, used in business of local exchange telephone, telegraph and messenger systems, companies, corporations or associations that were subject to tax as of April 1, 1997 under P.L.1940, c.4 (C.54:30A-16 et seq.) as amended, and shall not include any intangible personal property whatsoever whether or not such personalty is evidenced by a tangible or intangible chose in action except as otherwise provided by R.S.54:4-20. As used in this section, "local exchange telephone company" means a telecommunications carrier providing dial tone and access to 51% of a local telephone exchange. Property omitted from any assessment may be assessed by the county board of taxation, or otherwise, within such time and in such manner as shall be provided by law. Real property taxable under this chapter means all land and improvements thereon and includes personal property affixed to the real property or an appurtenance thereto, unless:
a. (1) The personal property so affixed can be removed or severed without material injury to the real property;
(2) The personal property so affixed can be removed or severed without material injury to the personal property itself; and
(3) The personal property so affixed is not ordinarily intended to be affixed permanently to real property; or
b. The personal property so affixed is machinery, apparatus, or equipment used or held for use in business and is neither a structure nor machinery, apparatus or equipment the primary purpose of which is to enable a structure to support, shelter, contain, enclose or house persons or property. For purposes of this subsection, real property shall include pipe racks, and piping and electrical wiring up to the point of connections with the machinery, apparatus, or equipment of a production process as defined in this section.
c. (Deleted by amendment, P.L.2004, c.42).
Real property, as defined herein, shall not be construed to affect any transaction or security interest provided for under the provisions of chapter 9 of Title 12A of the New Jersey Statutes (N.J.S.12A:9-101 et seq.). The provisions of this section shall not be construed to repeal or in any way alter any exemption from, or any exception to, real property taxation or any definition of personal property otherwise provided by statutory law.
The Director of the Division of Taxation in the Department of the Treasury may adopt rules and regulations pursuant to the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) as may be deemed necessary to implement and administer the provisions of this act.
In determining the value of petroleum refinery property, the income approach to value shall be used in conjunction with all other approaches to determining the value of such property.
(cf: P.L.2004, c.42, s.13)
3. Section 3 of P.L.1986, c.117 (C.54:4-1.12) is amended to read as follows:
3. a. For the purposes of chapter 4 of Title 54 of the Revised Statutes and notwithstanding the provisions of R.S.54:4-1, a storage tank having a capacity of more than 30,000 gallons is deemed to be real property. The fact that products are mixed, blended, heated or subjected to a similar non-production process within a storage tank shall not in itself render that tank personal property.
b. For the purposes of chapter 4 of Title 54 of the Revised Statutes and notwithstanding the provisions of R.S.54:4-1, the machinery, apparatus or equipment of a petroleum refinery that is directly used to manufacture petroleum products from crude oil in any of the series of petroleum refining processes commencing with the introduction of crude oil and ending with refined petroleum products is deemed to be real property. Real property shall not include items of machinery, apparatus or equipment which are located on the grounds of a
petroleum refinery but which are not directly used to refine crude oil into petroleum products.
(cf: P.L.1992, c.24, s.5)
4. (New section) A municipality that has had a reduction in the assessed valuation of petroleum refinery property as a result of the provisions of the "Business Retention Act," P.L.1992, c.24 (C.54:4-1.13 et al.), and which is required to refund property taxes paid by the petroleum refinery on that real property as the result of a tax appeal that reduced the assessment on the petroleum refinery property, shall receive from the State an amount equal to the amount of the total property tax refund due and owing to the petroleum refinery, with interest if any has been imposed, upon application therefor to the State Treasurer made within 60 days of the date of the reduction in assessment order. The State Treasurer shall pay the amount to the applicant municipality not later than the 60th day following receipt of the application.
5. (New section) There is appropriated from the General Fund to the Department of the Treasury an amount necessary to implement the provisions of section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill) as shall be determined by the Director of the Division of Budget and Accounting.
6. This act shall take effect immediately and apply to property assessments made after enactment and to all tax appeals pending at the time of enactment regardless of the tax year in question.
This bill clarifies, for purposes of local property taxation, the assessment of machinery and equipment located at petroleum refineries. The bill also requires the State to pay the total amount of any property tax refund required to be paid to a petroleum refinery by a municipality that has had a reduction in the assessed valuation of petroleum refinery property as a result of the provisions of P.L.1992, c.24 (C.54:4-1.13 et al.) and that is required to refund excess property taxes paid to the municipality by the petroleum refinery following a tax appeal that resulted in a reduction in the assessment of the petroleum refinery property.
For over 80 years New Jersey municipalities have assessed and taxed petroleum refineries as real property on the basis of their fair market value. In 1992, the Legislature enacted the "Business Retention Act," which reaffirmed that affixed business equipment is business personal property, not real property, and is generally to be excluded from local property taxation. However, the Legislature decided to continue to allow the taxation of petroleum refinery equipment under the local property tax statutes. Reference to the taxable refinery equipment was included in a section of the "Business Retention Act" law that taxes the machinery, apparatus and equipment of local exchange telephone, telegraph and messenger companies. As a result, the act inadvertently changed the method of valuing the machinery and equipment of refineries for taxation purposes by applying a scheme of tax valuation that was designed to tax only the personal property of local exchange telephone companies.
Taxable real property is valued at fair market value, whereas business personal property is assessed at book value (original cost less depreciation) and that book value of tangible property is presumed to be not less than 20% of its original cost. That manner of valuation for local property taxation purposes is inconsistent with the municipalities' prior manner of assessment and is inconsistent with the Legislature's intention to continue the previous practices of taxing the refinery equipment. This bill is intended to allow petroleum refineries and their associated equipment to continue to be assessed and taxed as real property with the measure of assessment value being fair market value, which shall be determined by using the income approach in conjunction with all other approaches to determining the value of these properties.