Property Tax Resources

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Bleak Future for Business Owners?

"Under the tax court's current interpretation, most equipment used in any manufacturing process will now be taxed as if it were real estate."

In the decades prior to 1982, New Jersey enjoyed a robust industrial and commercial environment. This rosy outlook began to change about 1982, and recent events have cast a significant pall over future prospects for industrial and commercial property owners.

Since 1982, New Jersey has lost more than 22% of its manufacturing establishments, and more than 49% of its manufacturing job base. These losses outpace the country as a whole, and the declining number of establishments and jobs negatively impact New Jersey's economy. This effect rolls into the future as well because the state has lost all that real property that would have been built and the growth that would have taken place in the economy.

Recognizing the importance of maintaining that manufacturing base, in 1992 the legislature enacted the "Business Retention Act" designed to prohibit business personal property from taxation as real property. It was intended to promote business construction, expansion and acquisition.

Unfortunately, the Tax Court recently interpreted that law in a way that completely turns upside down the rationale for its passage. Under the court's interpretation, most equipment used in manufacturing will now be taxed as if it were real estate. This includes business personal property that costs millions of dollars, like process piping, conveyors, pressure tanks, paint booths and ovens, etc. Any company planning to locate a manufacturing plant here or expand an existing plant will now seriously rethink that move in light of the hundreds of thousands of dollars in additional real estate taxes they will face.

As if that action weren't bad enough, the Tax Court has thrown out the New Jersey constitution's "uniformity" clause, requiring that all real property be taxed on a uniform basis of fair market value (what a willing buyer would pay a willing seller in an arm's length transaction). This new ruling significantly increases many business' property tax assessments.

To illustrate this effect, let's take an automobile assembly plant. No plant of this type has ever sold to a new owner who used the plant to assemble cars. Thus, if the plant sold to a new owner the buyer would pay the plant's owner a substantially smaller amount than the value the plant holds for the owner assembling automobiles in it. The new owner pays market value, not the value the property has as an auto assembly plant. The court's ruling means the auto plant will now pay an assessment based on the value of the plant's use, not the value of the plant in today's market.

The auto assembly plant is just one example of a myriad of New Jersey business whose property will sell at prices far below their property tax assessments. Despite this fact, the taxing authority will assess the current owner at dollar amounts substantially above market prices. This new ruling forces business owners, even those most ardent New Jersey supporters, to look at other states for their for business expansion.

Adding insult to injury, the state assembly approved a measure convening a property tax convention to review and make recommendations for constitutional changes in the way New Jersey taxes real property. This bill awaits a vote in the state senate.For those involved in commercial real estate, it is clear this convention will recommend a change in the state constitution's "uniformity" provision. That change will probably substitute a classification system for the "uniformity" clause.

the classification system taxes commercial and industrial property on a higher percentage of value than residential. Currently, residential and business property is taxed uniformly at the same percentage of value. Under a classification system, the taxing authority could assess residential at, say, 50% of its value, while assessing business property at 100%. Clearly, a greater percentage of the tax burden would be on the business community under a classification system.

Because New Jersey fails to cut spending and rein in run away state pensions, the state will continue to hit its tax base with higher reviews. Manufacturing and other enterprises will continue to wither on the vine as the business community faces higher taxes. In an environment where other states seem to bend over backwards to provide a climate that attracts business, New Jersey has taken a completely different course. Who can take seriously the State Department of Commerce slogan, "New Jersey and You - Perfect Together"?

Garippa155 John E. Garippa is senior partner of the law firm of Garippa Lotz & Giannuario with offices in Montclair, NJ and Philadelphia, PA, New Jersey and Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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