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The Tax Abatement Process in Jersey City, NJ: The Basics


August 21, 2015

JCwater

Developers are now flocking to Jersey City, with large projects underway both on the waterfront and in the revitalized downtown area.

Thanks to projects like Journal Squared, which will bring 1,840 units to the area, and a 95-story residential tower planned for the banks of the Hudson River which when complete will be the tallest building in New Jersey, Jersey City leads the state in multi-family residential real estate development.

The city’s attractive tax abatement system is one of the main reasons developers, businesses, and residents are flocking to Jersey City. In an effort to foster redevelopment and revitalize the city, Jersey City provides long-term tax breaks to residential and commercial real estate developers. 

Basic Framework of New Jersey Tax Abatements

Tax abatements are used throughout the country to incentivize development. Typically, municipalities enter into a written financial agreement with developers that calls for the payment of a set, lower fee for a specified period of time in place of traditional real estate taxes on improvements.

In New Jersey, tax exemptions are authorized under the state Constitution, which states that certain properties in blighted areas “may be exempted from taxation, in whole or in part, for a limited period of time during which the profits and dividends payable by any private corporation enjoying such tax exemption shall be limited by law.” In 1991, the state enacted 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. 40 A: 20-1 et seq., which statutes currently govern the abatement process. An abatement tax is technically referred to as a “Payment In Lieu Of Taxes” (PILOT).

As the name suggests, the Five-Year Exemption and Abatement Law authorizes lower tax payments for projects involving the rehabilitation of particular buildings and structures, with a maximum abatement period of five years. Meanwhile, the Long Term Tax Exemption Law is reserved for larger-scale development projects and allows for the abatement term to extend for 30 years after project completion. In either case, developers must submit abatement applications to the municipality for review, which are then approved through the adoption of a local ordinance.

Tax Abatements in Jersey City

Since taking office in 2013, Mayor Steve Fulop has revised the city’s policy on tax abatements. To help spur redevelopment in all parts of the city, the length of the tax abatement is largely determined by the location of the project. For instance, tax breaks for development in the coveted downtown area last only five years. Meanwhile, in areas where development has not yet taken a firm hold, such as Journal Square, Bergen-Lafayette and Greenville, tax abatements can last for up to 30 years.  Jersey City’s tax abatement policy also requires developers to meet other criteria in order to take advantage of the program, such as employing local workers and making payments to the Affordable Housing Trust.

For a large project, a tax abatement agreement can result in millions of dollars in abated taxes over the life of the agreement. To maximize the savings, it is imperative to work with experienced counsel who understands the abatement process and can negotiate the most beneficial tax agreement in your favor.

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