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New Jersey State League of Municipalities v. Kimmelman

Decided: March 26, 1987.


On certification to the Superior Court, Appellate Division, whose opinion is reported at 204 N.J. Super. 323 (1985).

For reversal -- Chief Justice Wilentz, and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For affirmance -- None. The opinion of the Court was delivered by O'Hern, J. Clifford, J., concurring. Clifford, J., concurring in the result.


[105 NJ Page 423] In this case we must primarily resolve an apparent conflict between two provisions of the taxation article of the New Jersey Constitution. One requires taxation of all real property by uniform rules and the same standard of value, the other authorizes the Legislature to grant exemptions from taxation by general laws. The issue arises in the context of the legislative moratorium on the taxation of unoccupied, newly-constructed, single-family residences.

Consideration of the history and purposes of the two sections and the paramount focus of the Constitutional Convention on the significance of the uniformity clause to the delegates' deliberations on a taxation article leads us to accord primacy to the uniformity provision. We hold that requirement of uniformity to preclude the granting of such an exemption from the general burden of taxation. We therefore do not address the question presented to the Appellate Division of whether the act was invalid as special legislation and thus not an exemption granted by general law.


The act, N.J.S.A. 54:4-23a, was a response to a severe crisis in the housing industry occasioned by the effect of double-digit inflation and recession in the early 1980s. The act is brief and, as originally enacted in L. 1982, c. 220, stated:

Any other law to the contrary notwithstanding, no building or other structure newly constructed on any parcel of real property and intended for occupancy and use for residential purposes as a single family dwelling shall be added to the assessment list as real property subject to taxation until a certificate of occupancy or temporary certificate of occupancy has been issued and unless the building or other structure is actually occupied and used for such purposes; provided, however, that such building or structure shall be omitted from taxation for a period not to exceed 24 months. At the termination of the 24 month period or following the granting of a certificate of occupancy or temporary certificate of occupancy and the occupation and use of the building for residential purposes, the building or structure shall be assessed and taxed as of the first day of the month following the date of such use for the proportionate part of said year then remaining.

Nothing in this act shall be construed as applicable to any addition to, or improvement or alteration of, any existing building or structure. Nothing in this act shall be construed to omit from taxation any building or structure or portion of a building or structure subject to taxation prior to the effective date of this act.

In essence, the Attorney General describes the act, which became effective on December 29, 1982, as providing an exemption from the local property tax, N.J.S.A. 54:4-1 to :8.16, for a maximum period of two years for newly-constructed property for use as a single-family, residential dwelling, provided such building remains unoccupied and no certificate of occupancy

has been issued. A subsequent amendment clarified that the term "newly constructed" referred only to dwellings whose construction commenced on or after December 29, 1982. L. 1983, c. 155, ยง 1.

We shall accept as accurate and complete the recital of the background for the legislation contained in the Attorney General's brief since that recital has not been questioned. The enactment of N.J.S.A. 54:4-23a came about as a result of recommendations by the Housing Emergency Action Team (HEAT), a committee of the New Jersey State Assembly. HEAT was formed in March 1981 to seek solutions to a severe housing shortage in the State. The June 1981 report of the committee made various recommendations to address the housing shortage, including the following specific recommendations:

Reducing the Cost to Build

* Development of Reasonable Model Off-Site Improvement Standards

* Exempt Building Materials from the Sales and Use Tax

* Exempt Unsold Newly Constructed Homes from Local Property Taxes Until they are Occupied

* Encourage the Establishment of Maximum Square Footage Zones in Municipalities.

[ HEAT Report at 12 (emphasis added).]

The report suggested that unsold housing units placed no burden on the municipality while they were unoccupied and thus recommended that unsold, unoccupied residential units should be exempt from taxation during the period of vacancy as a means of reducing the ultimate cost of the home. As originally introduced, the legislation dealt only with detached single-family dwellings. In the course of its passage, it was modified to include all single-family dwellings, not just detached structures. Governor Kean conditionally vetoed the act because of a technical deficiency with respect to the period of the exemption. The Governor's statement recognized the purposes of the legislation and concurred in the conclusion that no unfairness results to municipalities and other taxpayers since little burden is placed upon municipal services by new, unoccupied residential

construction. After modification in accordance with the Governor's recommendations, the bill, in its final form, was enacted as L. 1982, c. 220. On the occasion of signing, the Governor noted that "[b]y exempting the price of the structure, but not the land, from property taxes prior to occupancy, costs to the builder, which are passed along to the buyer are reduced."

In early 1983, the present plaintiffs and others filed an action to declare the act unconstitutional as constituting a special law in violation of New Jersey Constitution (1947) art. IV, sec. 7, para. 9 (which prohibits the Legislature from passing special laws) and the taxation art., article VIII, sec. 1, paras. 1 and 2. It is paragraph 2 that specifically requires that exemptions from taxation be granted only by general laws. The Law Division held the statute constituted special legislation in violation of article VIII, sec. 1, para. 2. The court reasoned that the statute granted an exemption from taxation by a special law because it exempted from the property tax only unoccupied single-family dwelling units while failing to include other residential living units, such as mobile homes, cooperatives, and rental-type residential property. (For tax purposes, the value of the property is based upon the value of the land and the improvements. Separate evaluation of the land and improvements is but a step toward that objective. In re Appeals of Kents 2124 Atlantic Ave., Inc., 34 N.J. 21, 34 (1961).) It concluded that the classification was irrational in its exclusion from exemption of those categories of property. 197 N.J. Super. 89, 104 (1984).

The Attorney General appealed that judgment to the Appellate Division. No cross-appeal was filed by the plaintiffs. On appeal, the Appellate Division reversed the judgment of the Law Division, and held the statute to be general legislation in conformity with art. VIII, sec. 1, para. 2. In the Appellate Division's view, the trial court had erroneously interpreted the term "single-family dwelling" to exclude certain new forms of residential construction. The Appellate Division read the statute to exempt "all buildings and structures which are newly

constructed on any parcel of real property and 'intended for occupancy and use for residential purposes as a single family dwelling,'" arguably including the mobile homes, two-family dwellings, and cooperative housing the Law Division thought were excluded. 204 N.J. Super. 323, 329 (1985). The plaintiffs filed a petition for certification with this Court seeking review of that judgment and ultimately reinstatement of the judgment of the trial court. Although the procedural posture of the matter is thus somewhat tentative, we believe it essential to resolve the underlying constitutional issue. Accordingly, we granted the plaintiffs' petition for certification. 102 N.J. 384 (1985).


The relevant language of the taxation article of the constitution is as follows:


Taxation and Finance

Section 1

1. (a) Property shall be assessed for taxation under general laws and by uniform rules. All real property assessed and taxed locally or by the State for allotment and payment to taxing districts shall be assessed according to the same standard of value, except as otherwise permitted herein, and such property shall be taxed at the general tax rate of the taxing district in which the property is situated, for the use of such taxing district.

2. Exemption from taxation may be granted only by general laws. Until otherwise provided by law all exemptions from taxation validly granted and now in existence shall be continued. Exemptions from taxation may be altered or repealed, except those exempting real and personal property used exclusively for religious, educational, charitable or cemetery purposes, as defined by law, and owned by any corporation or ...

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