Roberts: Replace Property Tax Rebate with One-Stop Income Tax Refund

ROBERTS: REPLACE PROPERTY TAX REBATE
WITH ONE-STOP INCOME TAX REFUND
Assembly Speaker Says Annual Checks 'Prime Examples of Inefficiency and Gimmickry'

(TRENTON) - Assembly Speaker Joseph J. Roberts Jr. today called for ending New Jersey's current practice of mailing property tax relief checks during election season in favor of property tax relief that would be applied directly to residents' state income tax filings.

"The annual rite of mailing property tax rebate checks is a prime example of inefficiency and gimmickry in state government," said Roberts (D-Camden). "Essential property tax relief needs to be provided in a more efficient way. Allowing taxpayers to apply for their property tax rebate through their income tax forms makes common sense."

Roberts called for creating a refundable credit on the New Jersey Gross Income Tax form that would increase a homeowners' income tax refund by the appropriate amount of property tax relief they are entitled under the Homestead Rebate program. Conversely, income tax liability would be reduced by the amount of the property tax relief. Taxpayers not required to file New Jersey Gross Income Tax due to earning income below the filing threshold would simply file a form at tax time claiming the refundable property tax credit.

In the current fiscal year, nearly two million homeowners received rebate checks that totaled $1.85 billion, but also cost the state roughly $10 million to process and distribute.

 "Every year, we are wasting millions of dollars mailing-out property tax rebates that should be reinvested in providing additional property tax relief," said Roberts.

Roberts discussed the concept of creating the tax deduction with Governor Jon S. Corzine in a meeting several weeks ago. Assemblywoman Marcia Karrow (R-Hunterdon) broached the topic with state Treasurer David Rousseau during a budget hearing earlier today.

Roberts said conversion to the income-tax-form-based program would result in a one-time delay in the delivery of property tax relief as the rebates move from being distributed in the fall to working in conjunction with the spring income tax filing process.

Legislation enacted in 2007 called for converting the program of rebates-by-mail to a credit that would be applied to directly to a homeowner's property tax bill.  However, technical issues - such as the interplay between the credits and mortgage escrow accounts and privacy issues related to income data - have stymied the effort.

Roberts said senior citizens and residents with disabilities who received rebate checks in FY 2008 would be given the ability to opt-in to the new credit program or continue to receive checks.

"Tying property tax relief to the income tax filing process would create a system of seamless, one-stop shopping that would pay immediate dividends to taxpayers," said Roberts. "This would provide the relief property taxpayers rely on to stay in their homes in a much smarter, more sensible, and more timely manner."

Roberts said he plans to introduce legislation creating the one-stop property and income tax rebate when the Legislature returns in May from its annual budget break.

-- A one-page policy background paper on the Speaker's initiative is attached. --

ONE-STOP PROPERTY TAX CUTS

Proposal:  Change existing Homestead Rebate checks to a refundable Gross Income Tax credit.

Problem:  Since its inception and through its various configurations, Homestead Rebate checks have been criticized as a political gimmick.  Checks timed to arrive in mailboxes prior to fall elections provided political fodder that at times overshadowed the property tax relief benefit of the program.  Administrative costs tied to the distribution of the checks consume tax dollars which could be better spent on additional property tax relief.  Distribution of checks in the first half of the fiscal year resulted in the need for short-term borrowing by the state as the majority of state revenues are realized in the second half of the fiscal year.

• In Fiscal Year (FY) 2008, nearly two million homeowners received rebate checks at a total cost of $1.85 billion.
• Administrative costs associated with these checks were about $10 million.
• In FY 2007 (the last year for which audited figures are available), $43.8 million was paid in interest on short-term notes.
• The Governor's proposed FY 2009 budget recommends Homestead Rebates totaling $1.6 billion for homeowners.  He has recommended eliminating rebates for homeowners earning from $150,000 to $250,000 and reducing rebates for those with incomes from $100,000 to $150,000.
• Legislation enacted in 2007 that created the enhanced rebate program called for the changeover of the program to a property tax credit.  However, technical issues - such as the interplay between the credits and mortgage escrow accounts and privacy issues related to income data - have kept this change from occurring.
• Property taxpayers currently are allowed to deduct up to $10,000 in property taxes paid from their income for determining liability under the New Jersey Gross Income Tax.

Solution:  Provide property tax relief through a refundable credit on the New Jersey Gross Income Tax form.  Rather than sending homeowners checks for the amount of property tax relief to which they are entitled under the Homestead Rebate program, homeowners would receive relief in conjunction with their income tax filing.  Income tax refunds would be increased by the appropriate amount of property tax relief.  Conversely, income tax liability would be reduced by the amount of the property tax relief.  Those who are not required to file New Jersey Gross Income Tax, due to earning income below the filing threshold, would simply file a form at tax time claiming the refundable property tax credit.

In order to avoid problems for current senior citizens and residents with disabilities who are used to receiving their rebates in July and August, those who received rebate checks in FY 2008 would continue to receive checks, but be given the ability to opt-in to the new credit program.

Changing to an income tax credit would save taxpayer dollars by eliminating the majority of the administrative costs of the current program and reducing the state's need for, and costs associated with, short-term borrowing.