Under a law that took effect last year, New Jersey municipalities can establish property tax rewards programs encouraging residents to shop at local retail establishments. The Division of Local Government Services (DLGS) recently issued a Local Finance Notice (LFN) aimed to guide municipalities in creating and implementing these new programs.
Pursuant to P.L. 2021, c. 99, the governing body of a municipality, by resolution, may authorize the creation and operation of a property tax reward program to provide annual rebates to participating customers who purchase goods or services from participating businesses located in the municipality. The goal is to encourage municipal residents and residents of nearby communities to “shop local” and drive traffic to downtowns and other commercial areas.
How Municipal Tax Reward Programs Work
Under the new law, municipalities must designate a private entity to operate their property tax reward programs. The entity, referred to as an “operator,” then solicits participation in the program from businesses located in the municipality. Businesses that elect to participate determine the amount of the reward to be provided to participating customers.
The operator must offer reward cards to municipal residents, municipal employees, persons who are employed in the municipality, and, upon request, to residents of other municipalities. The recipient of a reward card may become a participating customer by registering with the program operator to participate. When making a purchase of goods and services from a participating business, participating customers must present their reward card to earn a reward for that purchase.
Participating businesses must pay the amount of the rewards earned by participating customers to the operator, plus a separate administrative fee per transaction to the operator. The amount of the annual rebate earned by a participating customer equals the total amount of all rewards earned between May 1st and April 30th of the following year.
No later than June 1st annually, the operator must provide the municipal tax collector with a list of program participants who are property owners and the dollar amount of their annual rebate. The operator must also transfer to the municipal tax collector the total dollar value of all annual rebates earned by those property owners between May 1st and April 30th. The tax collector must then note on the property tax bill of each participating customer the amount of the annual rebate earned and paid to the tax collector, and subtract that amount from the total amount of property taxes due. Customers who don’t own property within the municipality must receive a rebate check from the operator.
Guidance Under Local Finance Notice
The DLGS’s Local Finance Notice provides guidance on several aspects of the property tax reward program. Below are a few key takeaways:
- Contracting with a program operator: Because operators are compensated through an administrative fee charged to a participating business, the procurement of a program operator fits within the Local Public Contracts Law definition of a concession. Therefore, a contract with a program operator is subject to public bidding even though the municipality is not paying the operator. Municipalities may use competitive contracting for concessions without having to obtain prior Division approval. Due to the difficulty of estimating the amount of revenue the operator may collect over the life of the contract, the DLGS recommends that municipalities in all instances procure an operator through standard bidding or competitive contracting.
- Definition of participating business: Although the definition of “participating business” does not expressly exclude wholesale establishments not generally open to the public, DLGS advises that because the objective of the law is to promote the purchase of goods and services from local public-facing businesses, the program must be geared toward these types of businesses. The LFN also notes that the law does not allow a municipality to limit program eligibility for retail establishments based on criteria such as size, product selection, or location within the municipality, and that municipalities may approve the participation of a business located outside the municipality.
- Soliciting participating businesses: The LFN notes that business participation is voluntary. Pursuant to the terms of the contract, the operator, the municipality, or both can solicit participation in the program from businesses located within the municipality. The manner of solicitation is not specified in the law, but the DLGS states that potential methods can include direct mail to individual businesses, a notice prominently posted on the municipality’s website, and outreach to local business organizations and any special improvement districts.
- Reward cards: At minimum, participating customers must have the ability to register for a reward card online, view a record of the customer’s past transactions that earned program rewards, and view the total amount of rewards earned, according to the LFN. The operator can’t charge a customer to participate in the program.
- Role of operators: The DLGS advises that the operator, and not the tax collector, should be the point of contact for an individual to participate in a property tax rewards program. Operators must have a customer service function for participating customers to contact on matters such as technical problems or disputes concerning reward amounts. The LFN also emphasizes that the authorization of a property tax reward program must not make the governing body liable in any manner for any action taken by, or omission of an action that should have been taken by, the operator authorized by the governing body to administer the program. “Any financial irregularity committed by the operator in the administration of the program shall be the sole responsibility of the operator,” the LFN states. “Any contractual terms that would shift such liability away from the operator are null and void pursuant to law. The municipal governing body shall report any irregularity, financial or otherwise, that it believes has occurred in the operator’s administration of the program, to the Director.”
- Property tax credits: The LFN advises that the property tax reward program must be identified on the tax bill as the source of the property tax credit. Like the Homestead Benefit Credit, rewards should be credited to a specific quarter (e.g., August) regardless of any delinquencies. If the credit creates an overpayment, the amount of the overpayment should be moved to the next open quarter. The DLGS strongly recommends that property tax rewards not be applied towards delinquent taxes, primarily because doing so could cause problems with property tax software functionality.
- Rewards to non-property owners: Under the new law, a governing body may authorize an operator to enroll as participating customers people who are not property owners in the municipality, regardless of whether they reside in the municipality. As the LFN advises, a participating customer who is not a property owner in the municipality must receive rewards in a form agreed to in the contract between the governing body and the operator, such as pre-paid gift cards or direct rebates. Rewards earned by such participating customers must be paid by the operator directly to that participating customer as soon as is practicable after the end of the rewards period.
Next Steps for New Jersey Municipalities
Given the number of moving parts when establishing a property tax rewards program, we encourage New Jersey municipalities to work with experienced counsel. For more information about P.L. 2021, c. 99, the DLGS Local Finance Notice, or how your municipality may be able to take advantage of the new law, please contact a member of Scarinci Hollenbeck’s Government Law Group.