It is critical that homeowners associations be vigilant of the way in which their municipality assesses taxes on the community’s common area. Common areas include clubhouses, pools, and recreation areas such as playgrounds and tennis courts. In New Jersey, statute N.J.S.A. 46:8B-19 states that towns and municipalities may not tax a condominium’s common elements. It is generally believed, but not technically the case, that the common areas of a homeowners association enjoy the same tax protection. Therefore, it is of the greatest importance that homeowners associations carefully review the tax assessment card sent by the town or municipality.
On or about October 1st each year, the town or municipality will assess the value of each property in order to determine its tax responsibility for the following year. Sometime during the following January or February, the homeowners association may receive a card from the town which states the tax assessment of the common property. The homeowners association must review this card to determine if the common area is taxed as a separate property.
In many situations, the town will set the value of the common areas at $1.00. The logic behind this valuation is that the value of each of the properties in the community already includes the value of the common property and the owner’s rights in it. A municipality’s tax against such common property may constitute double taxation in violation of New Jersey’s Constitution.
However, there are occasions in which a town will tax the community’s common area. In times such as these, there are multiple options for homeowner associations including, but not limited to tax appeals and litigation. Should your homeowner association find itself in such a situation contact Timothy P. Duggan to discuss your specific matter.