Tax Law

Published on: June 13, 2014

New Jersey Property Tax Sale Certificates and Foreclosures

In New Jersey, every municipality is required by law to hold sales of unpaid property taxes at least once each year. The municipalities sell the tax liens to obtain the tax revenue which they should have been paid by the property owner. The municipal tax collector conducts the sale which allows third parties and the municipality itself to bid on the tax sale certificates (this is the document evidencing the taxes due and owing). The successful highest bidder then pays the outstanding taxes to the municipality and become the tax sale certificate holder. Then the holder records the tax sale certificate with the county clerk, who records the tax sale certificate as a lien against the property.

Purchasing the tax sale certificate is merely the first step. The tax sale certificate holder does not own the property, but merely has a lien against the property. The amount of the lien is the amount paid for the tax sale certificate plus interest (which normally accrues at a rate of 18%), costs and fees, including the certificate holder’s attorneys fees. The tax sale certificate holder must foreclose on the tax lien in order to become the owner of the property. The certificate holder has priority over any other liens against the property, including mortgages and other lien holders. The certificate holder must wait a statutorily proscribed period after the date of the sale of the certificate to initiate a foreclosure action. A municipality which purchased the certificate must wait six months; any other purchaser must wait two years.

Non-municipal tax sale certificate holders must provide thirty days written notice of their intention to foreclose before they can begin the foreclosure process on the certificate. This notice must include the amount which the delinquent property owner can pay to redeem the tax sale certificate and have the lien released. The notice must be sent by certified mail return receipt to all owners and to the municipal tax collector.

Then, if the property owner does not redeem the tax sale certificate within that 30 day period, the certificate holder is permitted to file its complaint for foreclosure. The complaint must name everyone who has a recorded interest in the property, which includes all mortgage and lien holders. The complaint must identify the property, the property owner and state the redemption amount. It must be served by certified mail return receipt. The property owner continues to have the right to redeem the tax sale certificate up until date of the final judgment. If the certificate is redeemed after a foreclosure action has been commenced, the property owner should file an Affidavit of Redemption and the foreclosure action will be dismissed by entry of an Order.
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Published on: May 18, 2014

Death Taxes: Estate and Inheritance Taxes

by Pauline M.K. Young

Both the federal and many state governments in the United States, including New Jersey, assess an estate tax upon transfer of a deceased person’s assets. Thus, while it is often begrudgingly referred to as a “death tax,” it is actually a type of transfer tax which is imposed upon the transfer of the property in the taxable estate of every decedent (the deceased) who was a citizen or resident of the United States.

The “taxable estate” can be calculated by subtracting permitted deductions from the gross estate. The “gross estate” includes the value of all property that the decedent had an interest in at the time of her death. The gross estate may also include any interest in the estate as dower or curtesy (an amount promised by one spouse to another in the event of death), items that the decedent transferred in the three years prior to death which were not sold for value or excluded as gifts, certain property that the decedent transferred but retained a life estate in, the value of property in which the decedent had a reversionary interest in excess of five percent of the property value, annuities, some jointly owned property, powers of appointment, and some life insurance policies, among other things.

Some common deductions from the gross estate, which are used to calculate the total “taxable estate,” may include funeral expenses, estate administration expenses, claims against the estate, some unpaid mortgages, certain charitable contributions, property or bequests left to the surviving spouse, interest in a qualified family-owned business, and state estate or inheritance taxes.
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Published on: April 29, 2014

Organizations Exempt from New Jersey Sales Tax

by Pauline M.K. Young

Every person or company engaged in a business, trade, or profession in New Jersey (other than as an employee), must register with the State for tax purposes. Retailers doing business in the State are required to collect sales taxes and remit them to the State. Each retailer obtains authority to collect sales taxes through a Certificate of Authority issued by New Jersey’s Division of Taxation. This Certificate must be prominently displayed at each retailer’s place of business.

However, some organizations can obtain exempt status for purchases, meaning that they do not need to pay sales taxes. These organizations must obtain an exemption certificates and must present them to retailers when purchasing goods and/or services that are generally subject to sales tax. The retailers must then keep the physical certificates for at least four years after the date of the transaction, and make them available for inspection by the Division of Taxation if it should request.
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Published on: April 17, 2014

New Jersey’s Sales Tax Exceptions and Anomalies

by Pauline M.K. Young

Sales taxes are an inevitable part of life in New Jersey, and indeed, across the country. Sales taxes make it possible for the state to fund important government programs and operations such as transportation infrastructures, aid to schools (to the extent that it supplements local property tax and other funding sources), health and welfare aid programs, licensing and compliance departments, and other general state expenditures.

However, individual taxpayers may also benefit from their payment of sales tax on a more direct basis by claiming sales taxes as an itemized deduction on their tax returns. Generally people who itemize their deductions for their federal taxes also deduct their income taxes. However, taxpayers have the option to elect to deduct any state and local general sales taxes paid during the course of the year instead.
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Published on: March 31, 2014

New Jersey’s Sales Tax

by Pauline M.K. Young

Sales taxes are imposed on all sorts of goods and services sold or provided in New Jersey. Generally the tax rate for most of those goods and services is seven percent (which was increased from six percent in 2006).

Most goods and services are taxed, including, for example, tangible personal property; digital products’ the production, installation, or maintenance of tangible personal property or digital products; storage of personal property; mail processing services; utility services; tanning services; tattooing; investigation and security services; information services; non-prescription massaging services; limousines and other transportation services; telephone answering services; radio subscription services; prepared foods (such as in restaurants); food provided through a vending machine; landscaping; entertainment (movie tickets, amusement parks, sports events, plays, etc.); gym memberships; and parking garages.
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Published on: March 25, 2014

Permissible Tax Deductions

by Pauline M.K. Young

On the federal level, income taxes, and indeed all taxes to some extent, are regulated and enforced by the Internal Revenue Service (“IRS”). While there are numerous statutes, regulations, and other laws which mandate the payment of taxes on any number of goods, services, and activities, the tax bible is the Internal Revenue Code (“IRC”). The IRC has been further expanded upon and interpreted in the regulations adopted by the United States Department of the Treasury located in Title 26 of the Code of Federal Regulations (“CFR”). The IRS also issues numerous publications in an attempt to provide further guidance for people, companies, and tax professionals, typically referred to as Internal Revenue Bulletins (“IRB”).

Oftentimes people frustrated with paying income taxes, while pulling their hair out or throwing their hands up, wonder if there is some way they can avoid the tax altogether. They might start devising some strategy to argue against the very concept of paying income taxes. However, rest assured, the power of the government to enforce the payment of income taxes is legal and valid, and its not going away.

Indeed, the very first section of the IRC imposes tax on income. The IRC goes on to define taxable income as gross income after permissible deductions are subtracted, and requires everyone (with limited exceptions) to file their tax returns every year. However, when calculating personal income taxes, there are certain ways that a taxpayer may make deductions upon the tax that they would otherwise owe. In doing so, people may either itemize their deductions or accept the “standard deduction.”
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Published on: March 19, 2014

Income and Expense Verification Requests in New Jersey Property Tax Appeals

by Jennifer C. Meusel

A law known as “Chapter 91” allows municipal property tax assessor’s to request income and expense information from a New Jersey property owner in order to assist in determining property “values” for its tax assessment. While this, standing alone, does not seem overly burdensome, if the property owners fail to respond to the assessor’s request pursuant to Chapter 91, property owners are barred from appealing their property tax assessment.

However, the law has strict provisions which must be followed by municipal assessors and taxpayers. The municipal assessor must send the request for income and expense information in writing, and the request must be sent via certified mail. The assessor must include a copy of the applicable statute with the written request. Moreover, the assessor’s request can only be made for properties which are producing income. The property owner must respond in writing to the assessor’s request within 45 days, and if he fails to do so, will not be permitted to file an appeal of the assessment. However, if the taxpayer fails to respond, the municipal assessor is still required to determine the full and fair market value of the property utilizing all available information. Additionally, the statute does include an exception, wherein if the property owner had good cause for being unable to provide the requested information, the applicable county tax board may take that into consideration.

Courts have construed the requirements imposed on the municipal tax assessor very strictly, due to the property owner’s resultant loss of the right to appeal if she fails to respond. New Jersey’s Tax Court has ruled that if the assessor does not comply with every requirement of the statute, “renders the statute inapplicable.” SAIJ Realty, Inc. v. Town of Kearny, 8 N.J.Tax 191, 197 (Tax 1986), including the provisions requiring the request be sent by certified mail and that a copy of the statute be included with the request. However, if the municipality meets the requirements of the law, the burden shifts to require the property owner to strictly comply with her obligations under the law, particularly responding in writing within 45 days.

New Jersey courts have consistently construed the law against property owners even in situations where it seems unjust. For example, even if the assessor’s request is overbroad or illegal, as long as the assessor has met the statute’s requirements, a property owner’s failure to respond can still result in loss of the right to appeal. The taxpayer is then required to respond to those requests which are not objectionable and advise the municipal assessor as to why the remaining requests are improper. Moreover, a property owner must still respond the properly sent request even if the request is made of a non-incoming producing property. The Tax Court has even held that failure to respond to a request, even when the request is made as to non-income producing property, will result in the taxpayer’s loss of its right to appeal the assessment. Furthermore, the Appellate Division of New Jersey’s Superior Court upheld the loss of the right to appeal where the taxpayer sent a response after the 45 days had expired. The Appellate Division also ruled that an appeal was properly dismissed where the requested information was provided to the attorney for the municipality, but not the assessor. These decisions were all justified because of the important governmental interest and the statute’s mandatory wording.
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Published on: March 14, 2014

Why Do I Have to Pay Income Taxes?

by Pauline M.K. Young

Taxes have been a vital part of our nation since its very founding. Indeed, even prior to the nation’s independence, local taxes were imposed upon the colonies.

Even under the Articles of Confederation, the predecessor to the United States Constitution, the states had power to tax their residents. However, that power was a loosely enforced power, and did not mandate that taxes collected be turned over to Congress. Then, with the adoption of the United States Constitution in 1787, the federal government obtained the power to “lay and collect taxes.”

However, even with the ratification of the Constitution, income taxes made up a very minimal amount of the government’s total revenue. In response to significant revenue concerns, the Sixteenth Amendment was adopted in 1913. The Amendment expanded the power to lay and collect taxes without apportionment among the states and without regard to each state’s population. However, it took time for the Bureau of Internal Revenue to organize the income tax. The need for revenue only increased with the beginning of World War I, which, even prior to the U.S.’s involvement, caused a decline in international trade and revenue. WWI thus became one of the main catalysts that molded income taxes into the general form that we recognize now.
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Published on: March 12, 2014

The Filing Deadline for some New Jersey Property Tax Appeal is changing

by Jennifer C. Meusel

If you own property in Monmouth County the property tax appeal deadline has changed. While the new date in the rest of the state remains April 1st, Monmouth County has volunteered to test out a new law changing the appeal date to January 15, 2014 or within 45 days of the bulk mailing of the municipal assessments, whichever is later. If your property is in Monmouth County and you did not file your petition to appeal your property tax assessment on or before January 15th, you will not be able to file and appeal this year unless the notice was mailed within the last 45 days or there was a town-wide revaluation.

New legislation was enacted and the governor signed into law, P.L. 2013, c. 15, creating a demonstration program which allows up to four counties to opt into the new law, two in the first two years and two more in the following two years. At the present time, only one county has opted in, Monmouth County.

This is a significant change because the deadline to file a petition to appeal a property tax assessment in the rest of the state of New Jersey remains April 1, or within 45 days of the bulk mailing of the property tax cards, whichever is later. While property tax cards are traditionally been mailed out in February, most Monmouth County municipalities have already mailed out their property tax cards. The appeals hearings in participating counties are expected to be conducted by the end of April.

The stated purpose of the new law is to establish a collaborative system of property assessment between the county board of taxation and the municipal assessors which it is hoped will result reductions in cost and increases in accuracy and consistency of assessments. The stated purpose of the change in the appeal deadline is to assist in municipal budgeting and to more evenly distribute tax losses to municipalities which result from tax appeals across the various governmental entities on whose behalf taxes are collected (i.e. school, county). However, the change appears suspiciously timed to limit property owners’ right to challenge their assessments and make more money for the towns.
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Published on: January 17, 2014

New Jersey Property Tax Appeals

by Jennifer C. Meusel

Now is the time to start thinking about appealing your property taxes.

The amount of property taxes a homeowner pays under New Jersey property tax law is determined by the municipal assessment. The lower the assessment, the lower the property taxes. While you cannot actually appeal the taxes you owe, New Jersey law allows you to appeal the assessment. The tax assessment of your property should reflect the fair market value of your home, which is adjusted by the municipality’s equalization ratio. The municipality is allowed a margin of error of fifteen percent. So, if your assessment is more than 15% over the equalized fair market value of your property, you should appeal your property taxes.

The first step is determining if your equalized assessment is more than fifteen percent above fair market value. First, you need a good approximation of the fair market value of your property – perhaps you know the sales prices of similar homes in your neighborhood, or a local realtor may be able to give you a rough estimate of the fair market value of your house, then you have a place to start. Next, you will receive a property assessment notice from the municipality which includes the assessed value of your property. Then, you need to check the equalization ratio for your municipality. Your assessment must then be equalized by applying the correct equalization ratio. Once you have applied the equalization ratio to the assessed value, you will know what the municipality believes is the fair market value of your property. If that number is more than fifteen percent above what you believe the fair market value to be, you should proceed to file a tax appeal petition.

At this point, you will need evidence to back up your assertion of your property’s fair market value. The best evidence is an appraisal by a certified appraiser who, if necessary, could testify at the tax appeal hearing. You can attempt to appeal your property taxes supported only by evidence of comparable recent sales, but the municipality can much more easily dismiss that evidence based on distinctions between your property and the each recent sale, or based upon facts surrounding the sale. For instance, it may have been a distressed sale where the seller was forced to accept a lower than market value price.
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