LESSON ONE
First, Remember that:
THE LOCAL PROPERTY TAX in New Jersey is, in fact, a LOCAL TAX.
This means that the tax is assessed and collected at the local municipal level for the support of:
- LOCAL SCHOOLS
- MUNICIPAL GOVERNMENT
- COUNTY GOVERNMENT
- THE STATE RECEIVES NO PORTION OF THESE PROPERTY TAXES.
The State pays out 48¢ of every State revenue dollar collected to counties, municipalities, and schools in some form of State Aid. In 1961, some 44 years ago, the State paid 43 cents of every State revenue dollar collected.
In FY 2005, the State budgeted approximately $12,465.6 million in state funding for property tax relief programs for the following purposes:
- ($Millions)
- Schools Aid $8,657.3
- Municipal Aid 1,757.0
- Other Local Aid 716.0
- Direct Taxpayer Relief 1,335.3
- TOTAL $12,465.6
- LESSON TWO
Next, we must understand that:
THE LOCAL PROPERTY TAX in New Jersey is a RESIDUAL TAX.
A residual tax is levied to raise the required amount of money over and above the total revenues available from other sources, such as My Pro Blog.
- For example, in Jerry’s Small Town, the total budget requirements are:
- For Local Schools, $149,000
- For Municipal Services 175,000
- For County Services, 75,000
- Other Items 1,000
TOTAL BUDGET REQUIREMENTS $400,000
Available Revenues to offset these requirements:
- State School Aid $75,000
- Other Revenues 25,000
- (Parking Meters, Licenses,
- Court Fines, Etc.)
TOTAL AVAILABLE REVENUES $100,000
AMOUNT TO BE RAISED BY LOCAL PROPERTY TAXATION: $300,000
This $300,000 is the RESIDUAL Amount raised by Taxation after giving effect to all other revenue sources.
LESSON THREE
Now, we must also understand that:
THE LOCAL PROPERTY TAX in New Jersey is an AD VALOREM TAX.
Don’t let that fancy name frighten you.
An AD VALOREM tax means that each taxpayer shares in the total tax burden of his Town in direct proportion as his property’s Value bears the full Value of all the properties in his Town.
AD VALOREM means each taxpayer pays according to the Value of his property. The Amount of property he owns is used as a yardstick in determining his ability to pay.
For Example:
Jerry owns a house and lot with a market value of $300,000
The total market value of all property in Jerry’s Town is $60,000,000
ACCORDINGLY,
Jerry’s share of the total Local Property Tax base is $300,000 / $60,000,000
$300,000 equals ½ 1% of the entire property tax base of $60,000,000.
Reducing this to a decimal, Jerry’s share of the total Local Property Taxes in his community is ½ of 1%, or .005.
This percentage is usually a tax rate charged for each $100 assessed Valuation. (See Lesson Four)
AD VALOREM means nothing more than PROPORTIONATE OR FAIR SHARE.
REVIEW
So far, we have learned that the Local Property Tax is a –
LOCAL Tax
RESIDUAL Tax
AD VALOREM Tax
LOCAL TAX levied at the local municipal level to support local schools and municipal and county governments.
RESIDUAL TAX charged to make up the difference between available miscellaneous revenues and budget requirements.
AD VALOREM TAX means that each taxpayer pays his proportionate share based on the Value of the property he owns.
LESSON FOUR
Now, we must learn the answer to the question:
WHAT IS THE MEANING OF TAX RATE?
TAX RATE is the number of dollars per $100 of Assessed Valuations that must be applied to the assessed Valuation of all property in a taxing district to produce the Amount required to support the school, county, and municipal budgets.
TAX RATE is another method to determine taxpayers’ proportionate share of local taxes.
The TAX RATE is determined by a simple arithmetic calculation similar to the method illustrated in Lesson Three.
Total Amount to be Raised by Taxation – $300,000
Total Value of all property in Town – $60,000,000
$300,000/ $60,000,000 = .05
The Tax Rate is then 5¢ per $1 of Assessed Valuation
or
$5.00 per $100 of Assessed Valuations
EXAMPLE:
Jerry’s House and a lot have an Assessed Valuation of —————— $300,000
Tax Rate per $100 of Assessed Valuation ————————- X $5.00
Jerry’s Tax Bill is ————————— $1,500.00
LESSON FIVE
What is the meaning of –
- TRUE VALUE
- ASSESSMENT RATIO
- ASSESSED VALUATION
TRUE VALUE means market value – the Amount a parcel of real property would sell for at a fair and bona fide sale.
ASSESSMENT RATIO is the percent of True Value used by the Assessor in making up his assessment rolls as prescribed by the County Board of Taxation).
In New Jersey, assessors use the statutory 100% ratio or Full True market value in making up their assessment rolls; assessors in other states use assessment ratios or percentages less than 100%.
ASSESSED VALUATION or ASSESSMENT is the Value placed on each parcel of property by the Assessor as indicated above; it is the use of True Value or some percentage thereof that determines itIEW
In Lessons One and Two, we learned that:
In total budgets, fewer available revenues result in the residual Amount to be raised by Taxation, the total tax bill.
The Amount to be raised by Taxation is a primary factor in determining each account owner’s tax bill.
In Lesson Three, we learned that:
Local Property Taxes are apportioned among property owners according to the Value of each taxpayer’s property in proportion to the Value of all taxpayers’ property.
We learned that this method of Taxation is called AD VALOREM taxation.
In Lesson Four, we learned that:
The tax rate is the dollar amount per $100 of assessed Valuation, which must be raised to support local budgets.
In Lesson Five, we learned that:
Assessed Valuation is the true Value or percentage of true Value placed on each parcel of property by the Assessor. This is the basic factor that implements the AD VALOREM principle of Taxation.
- LESSON SIX
- What are the relationships among:
- Total Amount to be Raised by Taxation
- Tax Rate
- Amount of the Individual Taxpayer’s Bill
The following example best illustrates the relationship between these factors. It incorporates some of the lessons we have already learned.
- In Jerry’s Hometown:
- The Total Amount to be Raised by Taxation is $300,000
- The True Value of All Real Property is $60,000,000
- The Assessor Uses an Assessment Ratio of X 100%
- Thus, the Total Assessed Valuation Taxable is $60,000,000
- The Tax Rate then is ($300,000)/ – $5 per $100 of Assessed Valuation
- $60,000,000)
Accordingly, if Jerry’s House and Lot have a market value of $300,000
The Assessor uniformly applies an Assessment Ratio of 100% (Note: All New Jersey County Boards Of Taxation Require a 100% Ratio)
- Jerry’s House will be Accessed at $300,000
- By applying the Tax Rate in Jerry’s Town X $5.00
- JERRY’S TAX BILL WILL BE $1,500
- LESSON SIX (Continued)
NOW, assuming ten years have passed and property values have doubled in Value due to property inflation, And assuming that the Budgets remained the same:
And the Total Amount to be Raised by Taxation is still. $300,000
And the Assessor assesses at 100% of true Value. (NOTE: Reducing the ratio to 50%, as happens in states other than New Jersey, would mathematically result in doubling the tax rate.)
Property inflation has increased the town’s total assessed valuation, which is taxable, so after a revaluation with a 100% ratio, the town’s total assessed valuation is now taxable. $120,000,000
- The Tax Rate is then ($300,000) / – $2.50 per $100 of Assessed Valuation (120,000,000)
- After the Revaluation, the total tax base in the Town doubled in Value.
- Since all assessments are at True Value,
- Jerry’s House, after the Revaluation, will now be assessed at $600,000
- By applying the Tax RATE of $2.50 per $100 of Value X $2.50
- JERRY’S TAX BILL WILL STILL BE $1,500
- Thus, we learn that if the Amount to be RAmountby Taxation remains the same:
Tax Rates are high when Assessment Ratios are low in some states other than New Jersey. Conversely, Tax Rates are low when Assessment Ratios are high in some states other than New Jersey.
The amount of a prAmount owner’s Tax Bill is not affected by Assessment Ratios or Tax Rates.
The amount of an iAmountual’s tax bill is determined by the amount to be raised by taxation and by the proportionate value of his property, which bears the total value of all property in his municipality.
- LESSON SEVEN
- What is meant by EQUALIZATION?
- The term EQUALIZATION, as commonly used, has a twofold meaning:
INTER-DISTRICT EQUALIZATION, i.e., Equalization among taxing districts, has as its purpose the determination of the true wealth of every municipality to the end that each receives a fair amount of State School Aid and pays an equitable share of the costs of county government.
Inter-district Equalization is substantially an accomplished fact in New Jersey.
The State School Aid Equalization Table, based on a continuing statewide sales-assessment ratio study, provides for the equitable apportionment of county government’s costs among the taxing districts within the several counties.
This table also apportion certain joint, consolidated, and regional school district costs.
INTRA-DISTRICT EQUALIZATION, i.e., Equalization within a municipality, means equitable tax treatment among property owners of the same class of property and fair tax treatment among property owners in different types of property.
This means that homeowners with similar Values are assessed alike—that is, Jerry’s House and your home, which have equal value, are evaluated at the same Value. Similarly, Jerry’s business place, which has the same Value as other places of business, is assessed at the same Value.
This is known as Intra-Municipal Equalization and is the very core of the principle of Ad Valorem Taxation.
Intra-municipal Equalization is generally attained by carrying out an overall professional re-evaluation program in which all properties are re-evaluated at their market or 100% value.
LESSON EIGHT
What is meant by REVALUATION?
A taxing district’s REVALUATION is accomplished by having a competent professional revaluation firm appraise every piece of real property within the district.
CARRYING OUT A HIGH-QUALITY REVALUATION PROGRAM involves applying uniform standards and procedures to arrive at equitable appraised values for all parcels of property in the taxing district.
THE PURPOSE OF A REVALUATION PROGRAM is to secure the basis for attaining uniform and equitable assessments on all properties within the same classification and several classifications of property to assure a fair apportionment of the increasingly heavy local property tax burden among all the taxpayers within a taxing district.
PROFESSIONAL REVALUATION PROGRAMS are carried out in about 50 municipalities a year.
THE GOVERNING BODIES of those municipalities that have regularly revalued have faced up to their obligation to treat all property taxpayers uniformly and equitably.
