How is property tax calculated in New Jersey

Know why, what, and how much are you paying

by Sharleen Yuan

According to ATTOM Data Solutions 2018 property tax analysis of more than 87 million US single family homes, property taxes levied on single family homes in 2018 amounted to $304.6bn, a 4% increase from $293.4bn in 2017 - an average of $3,498 per home and a 1.16% effective tax rate. Essex County ($12,161) and Bergen County ($11,771) are number 4 and 5 in property tax collections in the country.

Every year, we pay thousands of dollars of property tax. We all know it is important to keep our payments current, as property tax claims are superior to any other claims, even mortgages. But why are we paying property tax? How is the revenue being utilized? How do I know if the property tax bill is fair? If not, what should I do?

How is property tax calculated

There are four tiers of government: federal, state, county, and municipal governments. Property tax is determined by the lowest tier of government - municipality. Each year, municipalities will develop budgets to fund schools, fire departments, libraries, or other local public servicing institutions. After subtracting other revenue sources (state aid, sales tax, parking fees, etc.) from the budget, the deficit is fulfilled by property tax collections. The property tax rate of the town is calculated as property tax revenue divided by assessed value.

Total Property Tax Revenue Needed = Town Budget - Other Revenue Sources

Property Tax Rate = Total Property Revenue Needed / Total Assessed Value

Your Tax Bill = Property Tax Rate * Assessed Value of Your Home

How is my assessed value calculated

As you can see in the formula above, the tax rate is the same to everyone living in the municipality. However, what makes property tax bills different from one home to another, even if they are in the exact same neighborhood, is the assessed value, determined by the municipal tax assessor. So what is the assessment and how does the tax assessor come up with the number? Are they accurate?

Assessment is BASED ON, but NOT necessarily EQUAL TO market value. There is a “ratio” being applied to the market value of your home.

Assessment = Market Value * Ratio

The ratio is different for every home. Some could be higher, and some could be lower, leading to diverging assessments even for houses in the exact same neighborhood with the same layout. It is homeowners’ responsibility to verify if their assessment is fair and that the ratio being applied is within boundary limits (see links in the following paragraph).

Average ratios for each municipality are published by its belonging county annually, along with lower limits (15% above the average ratios) and upper limits (15% below the average ratios). If your ratio exceeds the upper limit, you should consider a tax appeal.

Bergen County Common Level Ranges - Download

Hudson County Common Level Ranges - Download

What proves your ratio is high

To prove your ratio is too high, you need a list of comparable, arms-length transactions that indicate what the true market value is for your home. Knowing a realtor may come in handy when you need the transaction history based on MLS. It could also be more convincing than piecing information together from random websites. After all, your need to build a solid case to secure a property tax adjustment.