S2354

SENATE, No. 2354

STATE OF NEW JERSEY

INTRODUCED DECEMBER 18, 1997

By Senator LaROSSA

An Act providing a refundable gross income tax credit for the portion of school district property taxes levied on homesteads owners and attributable to tenants to fund thorough and efficient budgets of local school districts, and imposing a gross income tax surcharge, supplementing Title 54A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. This act shall be known and may be cited as the "Thorough and Efficient Education Funding Local Share Homestead Property Tax Credit Act."

2. As used in this act:

The terms "condominium," "continuing care retirement community," "cooperative," "dwelling house," "homestead," "horizontal property regime," "mutual housing corporation," "principal residence," "rent constituting property taxes," "residential rental property," and "residential shareholder in a cooperative or mutual housing corporation" shall have the same meaning as set forth in section 2 of P.L.1966, c.60 (C.54A:3A-16);

"Statewide thorough and efficient local share amount" means the thorough and efficient local share amount of all taxpayers qualifying for a credit pursuant to this act;

"Thorough and efficient local share amount" means that portion of the property taxes or rent constituting property taxes paid by a claimant on the claimant's homestead determined by multiplying a municipal thorough and efficient local share factor by the property taxes or rent constituting property taxes;

"Thorough and efficient local share factor" means that proportion, as shall be annually determined by each county Board of Taxation, of the total residential real property tax levy in each municipality in the respective county that constitutes the thorough and efficient local share levy; and

"Thorough and efficient local share levy" means that amount required to be raised through the school district's local school tax levy

to fund the portion of the district's local tax levy contained in the T&E budget as determined pursuant to P.L.1996, c.138 (C.18A:7F-1 et seq.).

3. a. A resident taxpayer shall be allowed a credit against the tax otherwise due under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., for the taxable year equal to the thorough and efficient local share amount included in the property taxes paid by the claimant in that taxable year on the claimant's homestead.

b. A credit shall be allowed pursuant to subsection a. of this section in relation to the thorough and efficient local share amount included in the property taxes actually paid by or allocable to a resident property taxpayer who is a claimant on more than one homestead, but the aggregate amount of the thorough and efficient local share amount included in property taxes claimed shall not exceed the total of the proportionate amounts of thorough and efficient local share amounts included in the property taxes assessed and levied against or allocable to each homestead for the portion of the taxable year the claimant occupied it as the claimant's principal residence.

c. If title to a homestead is held by more than one individual as joint tenants or tenants in common, each individual shall be allowed a credit pursuant to this section only in relation to the individual's proportionate share of thorough and efficient local share amounts included in the property taxes assessed and levied against the homestead. The individual's proportionate share of the thorough and efficient local share amounts included in the property taxes on that homestead shall be equal to the share of that individual's interest in the title. Title may be presumed to be held in equal shares among all co-owners, but if the conveyance under which the title is held provides for unequal interests therein, a claimant's share of the thorough and efficient local share amounts included in the property taxes paid on that homestead shall be in proportion to the claimant's interest in the title.

d. If the homestead of a claimant is a residential property consisting of more than one unit, that claimant shall be allowed a credit pursuant to this section only in relation to the proportionate share of the thorough and efficient local share amounts included in the property taxes assessed and levied against the residential unit occupied by that claimant, as determined by the local tax assessor.

e. If title to a homestead is held by a husband and wife who own the homestead as tenants by the entirety, or if that husband and wife are both residential shareholders of a cooperative or mutual housing corporation and occupy the same homestead therein, and who elect to file separate income tax returns pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., that husband and wife shall each be entitled to claim a credit based upon one-half of the thorough and efficient local share amounts included in the property taxes for which they may be jointly liable on that homestead.

4. a. A resident taxpayer whose homestead is a unit of residential rental property shall be allowed a credit against the tax otherwise due under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., for the taxable year equal to the thorough and efficient local share amount included in the claimant's rent constituting property taxes due and paid for the calendar year in which the rent constituting property taxes is due and payable for occupancy of that homestead.

b. If more than one resident, other than a husband and wife, qualify for a credit by reason of their having occupied the same unit of residential rental property as their homestead, it shall be presumed that each claimant shall be allowed a credit pursuant to subsection a. of this section only in relation to the individual's proportionate share of the thorough and efficient local share amount included in the total rent constituting property taxes paid by that claimant which credit shall be in proportion to the percentage that the total rent paid by that claimant bears to the total rent paid by all tenants of the same unit. For the purposes of a credit claimed by an individual subject to this subsection, the names and social security numbers of each co-tenant shall be reported by the claimant and the total rent paid shall be presumed to be paid in equal parts among all co-tenants.

c. If a claimant for a credit pursuant to subsection a.of this section has no other homestead in this State other than a unit of residential rental property, and that claimant was not a resident of this State for the full taxable year, but paid rent for the full taxable year for one or more units of residential rental property in this State, the claimant's total credit otherwise calculated pursuant to subsection a. of this section shall be prorated in the proportion which the number of days the claimant occupied residential rental property in this State as a homestead during the taxable year bears to 365 days.

d. A husband and wife who qualify for a credit by reason of their having occupied the same unit of residential rental property as their homestead, who elect to file separate income tax returns pursuant to the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., shall each be entitled to claim a credit based upon one-half of the thorough and efficient local share amounts included in the rent constituting property taxes for which they may be jointly liable on that homestead.

5. a. A resident taxpayer for the full tax year for which a credit is claimed, whose homestead has been other than a unit of residential rental property for a part of the taxable year and has been a unit of residential rental property for the remainder of that year, shall be allowed a credit against the tax otherwise due under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., for that taxable year equal to the sum of the thorough and efficient local share amount included in the actual property taxes due and paid by the claimant for the calendar year in which the property taxes are due and payable on a homestead that is not a unit of residential rental property and the thorough and efficient local share amount included in the rent constituting property taxes due and paid by the claimant for the calendar year in which the rent constituting property taxes is due and payable for occupancy of a homestead that is a unit of residential rental, provided however, that the thorough and efficient local share amount included in property taxes shall be subject to the limitations set forth in subsections b. through e. of section 3 of this act and the thorough and efficient local share amount included in rent constituting property taxes shall be subject to the limitations set forth in subsection b. through d. of section 4 of this act as may be applicable.

6. a. No credit shall be allowed pursuant to this act except upon annual written application therefor, in a manner and on a form prescribed by the director. The director may require a claimant to attach to the credit application a copy of the appropriate property tax bill or proof of rent paid for the taxable year. The director may require such other verification of eligibility for a credit as the director may deem necessary. The application form shall be submitted (1) as part of the claimant's gross income tax return filed pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., or , (2) on any other form and at any time as the director shall prescribe if (a) the claimant is not required to file a gross income tax return or (b) the claimant has filed an application for extension of time to file the claimant's gross income tax return. The director shall, for good cause shown, extend the time of any applicant to file a claim for a credit for a reasonable period, and in such case, the application shall be processed and crediting or payment made in accordance with the procedures established in the case of applications timely filed. The director may require sworn applications. In the event that the director waives the requirement of sworn applications, all declarations by claimants shall be considered as if made under oath and claimants, as to false declarations, shall be subject to the penalties as provided by law for perjury.

b. The director may inspect the records in the office of the tax collector of a municipality with respect to claims for credits.

c. If a credit application contains a claim for a credit that is incorrectly determined by the claimant or is based upon incorrect or insufficient information from which the director is to approve the claim, the director may determine the eligibility of the claimant for a credit and the correct amount of a credit to be paid to that claimant from such other information as may be available to the director. In addition, the director may adjust the amount of any credit to which a claimant may be entitled by any part of the amount of any previous credit erroneously claimed by and paid to that claimant.

d. In the case of a claimant whose homestead is a unit in a cooperative, mutual housing corporation or continuing care retirement community, the application shall include the name and address of the location of the property and the amount of real property taxes attributed to the cooperative, mutual housing residential unit or continuing care retirement community residential unit, as shall be indicated in an official notice which shall be furnished by the cooperative, mutual housing corporation or continuing care retirement community for the same year.

e. A credit shall be allowed pursuant to this act for a claimant whose ownership of an interest in a homestead is satisfied by the holding of the beneficial interest if legal title thereto or share therein is held by another for the benefit of the claimant.

7. The tax collector of each municipality shall, on or before March 1 of each year, furnish the director with a list of property taxpayers in the district delinquent for taxes due and payable during the year immediately preceding and the amounts of such delinquencies. The collector shall report on such list the name, lot and block number on the property tax duplicate as may be applicable, and the address of each owner to whom a delinquency is attributable together with the amount of such delinquency so identified. No credit under this act shall be allowed a property owner listed as delinquent pursuant to this section, provided however that for the purposes of this act, property which is on appeal and for which the statutory percentage of the tax as provided in R.S.54:3-27 has been paid shall not be regarded as delinquent.

8. If a credit allowed pursuant to section 3, 4 or 5 of this act reduces tax liability below zero, then the amount by which the credit reduces the tax liability below zero shall be paid to the taxpayer as a refund of overpayment pursuant to N.J.S.54A:9-7, provided however, that subsection (f) of that section shall not apply.

9. The payment of any refund authorized under this act shall not be subject to garnishment, attachment, execution or other legal process, except as provided in section 1 of P.L.1981, c.239 (C.54A:9-8.1), or except for an income withholding order issued pursuant to P.L.1981, c.417 (C.2A:17-56.7 et seq.), nor shall the payment thereof be anticipated.

10. a. Any citizen and resident of this State who has paid the thorough and efficient local share amount included in the property taxes on a homestead or whose homestead is a residential rental property but who is not required to file a return under the "New Jersey Gross Income Tax Act," N.J.S.54:1-1 et seq., shall be entitled to apply for a refundable credit pursuant to section 3, 4, or 5 as may be applicable.

b. The credit allowed pursuant to this section shall be applied as a payment of tax otherwise due under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., and the amount of any such credit not applied as a payment of tax otherwise due shall be considered as overpayment of tax subject to refund, further credit or setoff pursuant to N.J.S.54A:9-7 and N.J.S.54A:9-8 and P.L.1981, c.239 (C.54A:9-8.1 et seq.), provided however, that subsection (f) of N.J.S.54A:9-7 shall not apply.

11. a. In addition to the tax imposed pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., each taxpayer shall be assessed and shall pay a Statewide thorough and efficient local share surcharge equal to a percentage of the taxpayer's gross income tax liability for the taxable year otherwise determined pursuant to N.J.S.54A:1-1 et seq. Annually, within two days following the transmittal of the State budget message to the Legislature by the Governor pursuant to section 11 of article 3 of P.L.1944, c.112 (C.52:27B-20), the State Treasurer shall determine the Statewide thorough and efficient local share surcharge percentage. The percentage shall be set so that the surcharge will collect during the next commencing fiscal year, when combined with amounts anticipated to be collected during the next commencing fiscal year pursuant to the anticipated surcharge assessed during the subsequent taxable year, an amount equal to the Statewide thorough and efficient local share amount for that fiscal year. The surcharge shall be payable pursuant to N.J.S.54A:8-1 and administered as part of the otherwise due tax liability determined pursuant to the provisions of N.J.S.54A:1-1 et seq.

b. Upon the determination of the Statewide thorough and efficient local share surcharge, the Director of the Division of Taxation in the Department of Treasury shall issue regulations to reflect the entire increase in taxpayer liability for the taxable year in increased withholding from employee wages.

12. This act shall take effect immediately and apply to taxpayer taxable years commencing on and after enactment.

STATEMENT

This bill provides a refundable gross income tax credit for the portion of school district property taxes levied on homesteads to fund thorough and efficient budgets of local school districts. The tax credit will be available to owners of homesteads and tenants for the portion of the property taxes they pay, or that are attributable to a portion of their rent, and can be claimed as a refundable tax credit by gross income taxpayers and by residents that do not need to file gross income tax returns. The refundable credit will serve as a means to reimburse residential homeowners and tenants in New Jersey for the portion of their property taxes or rent that is paid to fund their local school district's "thorough and efficient budget" determined under the "Comprehensive Educational Improvement and Financing Act of 1996," P.L.1996, c.138 (C.18A:7F-1 et seq.). The bill thus provides a means of overcoming the State's over-reliance on residential property taxes to fund education. In effect, property taxes on residential property will no longer be used to fund a thorough and efficient education.

The "Comprehensive Educational Improvement and Financing Act of 1996" recently enacted the funding mechanism for the establishment of a thorough and efficient system of free public education (T&E) as guaranteed by the State Constitution. It establishes standards of thoroughness and efficiency and a new system for funding public education through a combination of State aid and local support. It directs the State Board of Education to review the new core curriculum content standards that will define for all students in the State the substance of a thorough education. Also the Commissioner of Education is directed to develop and establish efficiency standards which shall define the types of programs, services, activities and materials necessary to achieve an efficient education. Together these standards will define what is required to provide a thorough and efficient education and will serve as the basis for determining the amount of funding necessary to do so.

School districts' T&E budgets are the total amount of funding needed to provide a thorough and efficient education consistent with the curriculum content and efficiency standards issued by the State board and commissioner. Each school district is required to fund its T&E budget through local tax revenues up to a level based on district property wealth and district income. Any difference between the district's T&E budget and the required local share will be funded through State aid, with supplemental aid being available for certain districts where the impact of the new standards on local taxes would be excessive.

However, the local funding source still relies upon property taxes that are an increasing burden on residential property taxpayers in this State. Thus the funding mechanism has been enacted without regard to the tax burdens placed upon the citizens of this State under these revenue sources.

This bill seeks to address the inherent inequities of relying upon residential property taxes to fund T&E budgets. This reliance upon residential property taxes disregards a homeowner or tenant's ability to pay and can place similarly situated property owners in different school districts under different tax burdens. Even owners of identically valued homes, in districts that pay the same money to educate a student, can pay radically different property taxes because State aid to each district can vary widely, as can the local taxes generated by the commercial property tax base.

The refundable tax credits will approximate the amount each residential homestead owner and tenant pay in property taxes to pay for their school districts' T&E budgets. The amount of gross income tax revenue needed to offset these credits will be raised by an annual Statewide thorough and efficient local share gross income tax surcharge. In effect, through the use of the credits and surcharges, the bill replaces the inherently unfair use of residential property taxes to fund constitutionally mandated T&E budgets by means of income tax surcharges added to all taxpayers' income tax liabilities, but only in amounts necessary to offset local taxpayer payments of Statewide residential T&E budget property taxes.

The "Thorough and Efficient Education Funding Local Share Homestead Property Tax Credit Act."