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Department of Taxation and Finance

Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update

STATE OF NEW JERSEY

1. Basis for taxation:

Public utilities are subject to locally assessed ad valorem taxes on lands and buildings at the same rate and manner as other corporations and individuals. Public Utilities under the jurisdiction of the New Jersey Board of Public Utilities must annually pay two separate charges to cover the costs of (1) the New Jersey Board of Public Utilities and (2) the New Jersey Division of the Ratepayer Advocate. Each of the two annual charges shall not exceed 1/4 of 1% of the gross operating revenue derived from intrastate operations during the preceding calendar year, except that the minimum amount for each of the two annual charges shall be $500.00. Railroad operating property is subject to ad valorem and franchise taxation by the state.

Energy (electricity and/or natural gas) public utilities and telephone public utilities, as of January 1, 1998, are no longer subject to Franchise and Gross Receipt Taxes (F&GRT). Effective January 1, 1998, the energy public utilities are subject to Corporation Business Tax (CBT), Sales and Use Tax on energy and the transportation of energy (S&U-EN), the Transitional Energy Facility Assessment (TEFA), and the Uniform Transitional Utility Assessment (UTUA). The telephone public utilities are subject to the CBT and the UTUA.

Transitional Energy Facility Assessment (TEFA): The Transitional Energy Facility Assessment is a temporary, partial substitute for the Public Utility Energy Unit Tax (Public Utility Tax) previously assessed against public utilities engaged in the sale and/or transmission of energy (kilowatt-hours of electricity or therms of natural gas). Currently, TEFA is scheduled to expire on December 31, 2006.

Uniform Transitional Utility Assessment (UTUA): The Uniform Transitional Utility Assessment is assessed against energy public utilities engaged in the sale and/or transmission of energy (kilowatt-hours of electricity or therms of natural gas) and against telephone public utilities that were subject to the Public Utility Franchise and Gross Receipts Tax (F&GRT) under the provisions of P.L.1940, c. 4 as of April 1, 1997. The UTUA is assessed against the public utility energy public utilities and the telephone public utilities, or their successors or assignees, and is due May 15th of each year.

Disposition of Revenues: Revenues from the CBT, TEFA and UTUA remitted by the energy public utilities, the telephone public utilities and their successors or assignees are deposited into accounts that are used to fund the Energy Tax Receipts Property Tax Relief Fund, which is distributed to municipalities in accordance with P.L. 1997, c. 167.

2. Property subject to taxation:

Realty: Real estate owned or held by sewerage and water public utilities, energy (electricity and/or natural gas) public utilities, telephone public utilities, and other public utilities shall be assessed and taxed at local rates in the manner provided by law for the taxation of similar property owned by other corporations or individuals. Class II operating railroad property is also taxable, but facilities used in passenger service are exempt. The "main stem" of railroads (road bed up to 100 feet in width) is also exempt.

"Real estate" for current or former remitters of the Transitional Energy Facility Assessment (TEFA), which are the energy (electricity and/or natural gas) public utilities formerly subject to the Public Utility Energy Unit Tax (F&GRT) under the provisions of P.L.1940, c. 5 prior to January 1, 1998, means lands and buildings, but shall not include items of the type as set forth in the list of scheduled property for gas systems and electric light, heat and power systems in section 10 of P.L.1940, c. 5, which was in effect prior to January 1, 1998. As provided in that list, railways, tracks, ties, lines, wires, cables, poles, pipes, conduits, bridges, viaducts, dams and reservoirs (except that the lands upon which dams and reservoirs are situated shall be included as real estate), machinery, apparatus or equipment, notwithstanding any attachment thereof to lands or buildings owned by current or former remitters of the TEFA, are not real estate.

Personalty: Pursuant to the provisions of N.J.S.A. 54:4-1, the tangible goods and chattels, exclusive of inventories, used in business of local exchange telephone, telegraph and messenger systems, companies, corporations or associations that were subject to Public Utility Tax (F&GRT) under P.L.1940, c. 4 as of April 1, 1997 are subject to tax by the local municipalities in which the personal property is located. As used in this section, "local exchange telephone company" means a telecommunications carrier providing dial tone and access to 51% of a local telephone exchange. As a general rule, except as previously set forth, utility personalty is not taxed in New Jersey.

3. Classification (if applicable):

Not applicable.

4. Level of government which determines basis for tax liability - ad valorem property tax:

Localities determine the value of real estate of most utilities, non-operating railroad property, and the value of tangible personalty of local exchange telephone companies. However, railroad-operating property is both valued and taxed by the State Division of Taxation.

The Corporation Business Tax, the Transitional Energy Facility Assessment and the Uniform Transitional Utility Assessment imposed on the energy public utilities, and their successors or assignees, the funds from which are used for state and local purposes are administered by the State Division of Taxation.

The Corporation Business Tax and the Uniform Transitional Utility Assessment imposed on the telephone public utilities, and their successors or assignees, the funds from which are used for state and local purposes, are administered by the State Division of Taxation.

5. Report filing and valuation method(s) required by statute for ad valorem taxation:

Realty: All real property subject to assessment and taxation for local use shall be assessed according to the same standard of value, which shall be the true value of such real property and the assessment shall be expressed in terms of the taxable value of such property, which taxable value shall be that percentage of true value as shall be established by each county board of taxation as the level of taxable value to be applied uniformly throughout the county. True value is usually the current market value of the real property.

Personalty: The standard of value according to which tangible personal property used in business subject to taxation shall be assessed shall be the true value thereof. Such assessment shall be expressed in terms of the taxable value of the property. The true value of taxable tangible personal property used in business owned by a taxpayer shall be presumed to be the original cost of such property less depreciation as of the assessment date, as shown by the books and records of the person assessed, provided that the true value of depreciable property shall, so long as such property remains in use or is held for use, be presumed to be not less than 20% of its original cost. On or before September 1, any person owning tangible personal property used in business subject to taxation on the preceding assessment date shall prepare and file with the assessor of the taxing district where the property is located a return of such taxable personal property.

ALL THE FILINGS DESCRIBED BELOW IN THIS SECTION ARE WITH THE STATE DIVISION OF TAXATION:

Corporation Business Tax (CBT): Each energy (electricity and/or natural gas) public utility and telephone public utility, which are subject to CBT, must file a Corporation Business Tax Return by the 15th day of the fourth month following the end of its fiscal period. Transitional Energy Facility Assessment (TEFA): Each energy (electricity and/or natural gas) public utility, which are subject to TEFA, must file a report by February 1 setting forth the number of units of energy (kilowatt-hours of electricity or therms of natural gas) sold or transported for sale to ultimate consumers in this State for the preceding calendar year. Each company has a different report since the number and classes of energy, as established by the New Jersey Board of Public Utilities, are different for each energy public utility. TEFA expires December 31, 2006 under current law, with the final TEFA report due February 1, 2007.

Uniform Transitional Utility Assessment (UTUA): Energy public utilities and their successors or assignees must file a report by April 20 of each year estimating their Corporation Business Tax (CBT) and their Sales and Use Tax on Energy and its Transportation (S&U-EN) for the current year. Fifty percent of the estimated CBT liability and fifty percent of the estimated S&U-EN liability is the UTUA for the current year, which is due May 15.

Telephone public utilities and their successors or assignees must file a report by April 20 of each year estimating their CBT for the current year. Fifty percent of the estimated CBT liability is the UTUA for the current year, which is due May 15. Railroad taxpayers must file on or before March 1 annually with the State Division of Taxation.

6. Practical application of valuation method(s):

Realty: Real property is required to be assessed at some percentage of "true value" or market value established by the county board of taxation in each county. The true value of any real estate cannot be determined with any exactitude since there are numerous factors which must be considered. Also, it is not practical to determine the market value of each property in each taxing district each year. Class II railroad structures are valued according to reproduction cost new less depreciation, using means cost tables. Rate tables are used to value rails; comparables in each locality are used to value lands.

7. Valuation treatment of large facilities such as power plants, dams, or rail yards:

The various components of power plants owned by current or former remitters of the Transitional Energy Facility Assessment (TEFA), which are the energy (electricity and/or natural gas) public utilities which were formerly subject to the Public Utility Energy Unit Tax (F&GRT) under the provisions of P.L.1940, c. 5 prior to January 1, 1998, are not taxable for local municipal purposes if the items comprising the power plant include items of the type as set forth in the list of scheduled property for gas systems and electric light, heat and power systems in section 10 of P.L.1940, c. 5, which was in effect prior to January 1, 1998. The land on which the power plant is located, any associated buildings, and any personal property comprising the power plant affixed to the real property and not on the previously described list of scheduled property which qualifies as real property is assessed by the local municipalities in which the properties are located at their taxable values. The taxable value is a percentage of true value (market value), the percentage established by each county board of taxation. Dams owned by sewerage and water corporations are not taxable for ad valorem purposes. Rail yards are assessed in the same manner as other operating railroad property.

8. Apportionment method(s) required by statute:

As a result of the passage of P.L.1997, c. 162 and P.L.1997, c. 167, the proceeds of the taxes paid to the State by the sewerage and water corporations, the energy (electricity and/or natural gas) public utilities and the telephone public utilities are no longer apportioned to the municipalities based on the value of scheduled property located therein. The aforementioned apportionment was replaced by the establishment of an "Energy Tax Receipts Property Tax Relief Fund," the funds from which are distributed to the municipalities in accordance with the provisions of N.J.S.A. 52:27D-439 (amended to provide for annual inflation adjustment for fiscal year 2003 and for each fiscal year thereafter). The Energy Tax Receipts Property Tax Relief Fund stabilized funding to the municipalities whereas before, a municipality could receive less funding in a current year than received in a previous year. Under current law, a municipality receives more funding each year. Revenues collected by the state on operating railroad property are directed to the states general fund.

9. Practical application or apportionment requirements:

While the amount to be distributed to each municipality from the Energy Tax Receipts Property Tax Relief Fund is established by statute, there is a need for practical adjustments as in the possible case of one municipality being absorbed by one or more other municipalities.

10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:

As a result of the passage of P.L.1997, c. 162 and P.L.1997, c. 167, the portions of the values of large facilities such as power plants or dams which are not defined as real estate under New Jersey statutes are no longer used as a basis to apportion the proceeds of the taxes paid to the State by the sewerage and water corporations, the energy (electricity and/or natural gas) public utilities and the telephone public utilities to the local municipalities. The aforementioned apportionment was replaced by the establishment of an "Energy Tax Receipts Property Tax Relief Fund," the funds from which are distributed to the municipalities in accordance with the provisions of N.J.S.A. 52:27D-439 (amended to provide for annual inflation adjustment for fiscal year 2003 and for each fiscal year thereafter).

The portions of the values of large facilities such as power plants or dams which are defined as real estate under New Jersey statutes are assessed and taxed by the local municipalities in which they are located. The State does not receive any of the local taxes collected; however, the State uses the assessed value of the real estate and the assessed value of the personal property in each municipality to establish a Table of Equalized Valuations. The Table of Equalized Valuations is basically a table establishing the true or market value of the real and personal ratables in each municipality. The State uses this Table of Equalized Valuations as a basis for apportioning and distributing State school aid and other State funds as provided by statute to each of its municipalities.

11. Description of assessment appeals system:

Personal and real property subject to assessment by local municipalities: The specific remedy for property tax complaints is by appeal of the property's assessment to the County Tax Board and the various courts. Appeals must be filed with the County Board of Taxation on or before April 1 of the tax year or within 45 days from the date the Assessment Notifications are mailed by the taxing district, whichever is later. If a taxpayer is dissatisfied with the judgment of the County Board of Taxation, an appeal may be filed with the Tax Court within 45 days of the date of the final judgment.

If the property's assessed valuation is greater than $750,000, the taxpayer or taxing district may bypass the County Board of Taxation and file a petition of appeal called Form of Complaint with the Tax Court by April 1 of the tax year. Appeals from Tax Court judgments may be carried to Superior Court, Appellate Division within 45 days.

Railroad property owners may seek review with State Division of Treasury. Further appeal may be made to Tax Court and to Superior Court.

12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:

Electric deregulation is still in process in New Jersey. New Jersey electricity consumers have a choice as to whether an energy marketer (non-utility) or a public utility will supply their commodity. Because of the passage of the "Electric Discount and Energy Competition Act" (EDECA) in 1999, electric public utilities had to reduce their electricity rates by at least 10% with at least a 5% rate reduction on August 1, 1999. Not only were the rates reduced but also they were capped for four years. The energy marketers could not compete with reduced and capped rates of the energy public utilities because wholesale energy prices have risen sharply. Accordingly, most New Jersey consumers still have a public utility as their electricity supplier. This mandated rate reduction expired on August 1, 2003 and all of the larger electric public utilities have filed with the New Jersey Board of Public Utilities for rate increases to recover deferred balances (losses incurred by public utilities when the cost of purchasing electricity exceeded the capped rates they were allowed to charge customers) and other costs. This may result in more competition, depending upon wholesale energy prices, when some consumers switch to energy marketers offering lower prices.

Electric generation restructuring has almost been completed in New Jersey. Most of the largest electric public utilities have either sold their electric generating facilities to affiliated companies or to unrelated companies.

Before most of the deregulation and restructuring of electric public utilities began in New Jersey, P.L.1997, c. 162 and P.L.1997, c. 167 were enacted which changed the method of distributing the State taxes generated by the sewerage and water corporations, the energy (electricity and/or natural gas) public utilities and the telephone public utilities. See the response to item #8 for additional details.

13. State Government Staffing:

Staff consists of the equivalent of eight employees working full time.

Law Source(s):     N.J.S.A. 48:2, 52:27, 54:4, 10A, 30A, 32B

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