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New Legislation May Impose Fees and Reduce Tax Refunds on Industrial Properties Undergoing Environmental Cleanups

August 9, 2012

Recent legislation signed into law may have significant financial implications for industrial property owners conducting certain government-ordered cleanups in New Jersey. This legislation requires municipalities to pay property tax refunds ordered by the county tax board or the state tax court for vacant or underutilized industrial sites or complexes to the New Jersey Department of Environmental Protection ("NJDEP") if there is an ongoing cleanup. The new law also allows towns to impose charges to ensure the completion of cleanups in certain circumstances.

On July 9, 2012, Governor Christie signed S-1460 into law, which amends the property tax appeal process to require deposits of tax refunds with NJDEP under certain circumstances. A refund from an appeal for a property that is a constituent part of an industrial site or complex that is currently underutilized or vacant and is subject to any federal or state court order, administrative action or order for environmental remediation ("Cleanup Order"), must be deposited by the taxing district with the Commissioner of NJDEP to be used to ensure required site remediation. Once the site has been remediated, any remaining refund amounts must be returned to the taxpayer within 30 days after completion of remediation.

The legislation also allows a municipality to assess a charge for remediation for industrial properties that are subject to any Cleanup Order. A municipality is allowed to make such a charge when the industrial property becomes vacant or underutilized. The charge shall not exceed the difference between the amount of taxes paid on the property during the last year of full industrial operation and the amount of property taxes paid on the property during the current year. Those charges become a lien on the property and can be collected similar to collections of property taxes. Any funds collected, however, also go to NJDEP and are credited against the property owner’s liability.

Press reports indicate that the legislation was introduced as a result of a pending property tax refund at the former Sunoco Eagle Point Refinery located in Westville, New Jersey. That site is undergoing a remediation and there has been a dispute as to the speed of the cleanup.

The breadth of the law’s applicability to properties could be significant. The new law does not define an "industrial site or complex" nor does it define what is considered as an "underutilized" property. While there are other statutes that have definitions of an "industrial establishment" (such as the Industrial Site Recovery Act) or the types of property that are considered brownfields (which are traditionally defined as properties that are underutilized), none of these statutes are referenced in the new law.

While there is an exception under the law for those cleanups conducted with a remediation trust fund as a remediation funding source, its applicability is limited. Specifically, neither the deposit of tax refunds to NJDEP nor the imposition of a charge can be applied to those properties for which a remediation trust fund has been established pursuant to New Jersey’s Hazardous Discharge Site Remediation law. However, the new law does apply even if an industrial owner is using other forms of remediation funding sources, such as a self guarantee. Further, since the new law is specific to remediation trust funds established pursuant to New Jersey law, it is unclear whether trust funds established under federal law for federal cleanups will prevent a municipality from either depositing a tax refund with NJDEP or from assessing a charge under this statute.

The legislation may also have some unintended consequences from a real property taxation perspective. For instance, the provision for an annual municipal charge was undoubtedly intended not only to ensure prompt remediation of contaminated property but also to prevent a property owner from realizing a "tax windfall" from closing operations on a contaminated property. However, read literally, the municipal charge actually could constitute a "super tax" on the property if, for instance, taxes went up from the last year of full operations as a result of factors unrelated to value, such as an increased tax rate.

There is also a contradiction between the language of the statute and the accompanying Senate statement that suggests that a municipality may save interest on tax refunds by depositing the "refund" with the Commissioner of NJDEP. Because the refund is calculated in accordance with the statute as written prior to this recent amendment, no municipality should expect to save interest; however, any affected tax payer should expect to be deprived of interest on the monies deposited during the remediation period.

Owners and operators of industrial property undergoing cleanups will likely need to consider this law in determining whether to prosecute a property tax appeal. More fundamentally, those same industrial property owners who are considering shutting down, or even scaling back, operations will have to consider the financial ramifications of that decision, which may result in a town imposing a remediation charge under the new law.

For more information, please contact:

John G. Valeri, Jr. | Member of the Firm | (973) 530-2030 | jvaleri@wolffsamson.com

John F. Casey | Member of the Firm | (973) 530-2017 | jcasey@wolffsamson.com

Robert H. Crespi | Member of the Firm | (973) 530-2060 | rcrespi@wolffsamson.com