S4915

An Act imposing tax on certain investment purchases of certain residential properties, including single-family and small multi-family residences, and supplementing Title 54 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. P.L. , c. (C. ) (pending before the Legislature as this bill) shall be known and may be cited as the “End Hedge Fund Control of New Jersey Homes Act.”

2. As used in P.L. , c. (C. ) (pending before the Legislature as this bill):

“Applicable date” means the last day of the first full calendar year after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), or, in the case of an applicable taxpayer that newly becomes a hedge fund taxpayer after the end of the calendar year of the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), the last day of the calendar year in which the taxpayer becomes a hedge fund taxpayer.

“Applicable entity” means a partnership, corporation, real estate investment trust, limited liability partnership, limited liability company, or other commercial entity, and including any affiliate or subsidiary entities. An applicable entity shall not include a nonprofit entity, or an organization primarily engaged in the construction or rehabilitation of residential property.

“Applicable taxpayer” means an applicable entity that manages funds pooled from investors, and is a fiduciary with respect to such investors.

“Covered residence” means a residential property in this State consisting of one to four dwelling units, except as provided in subsection b. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

“Director” means the Director of the Division of Taxation in the Department of the Treasury.

“Dwelling unit” means a single-family living space, including a single-family home, or an apartment, room, or rooms within a two-family or multiple-family building, that is occupied or intended to be occupied for sleeping or dwelling purposes by one or more persons living independently of persons in similar dwelling units.

“Hedge fund taxpayer” means an applicable taxpayer which has $50,000,000 or more in pooled net value or assets under management on any day during the calendar year.

3. a. An applicable taxpayer shall be taxed for the acquisition of a covered residence, in an amount equal to 50 percent of the fair market value of the residence.

b. The tax imposed pursuant to subsection a. of this section shall not apply to the acquisition of a residential property by an applicable taxpayer if:

(1) the number of covered residences owned by the taxpayer is equal to or less than the maximum permissible units, determined pursuant to section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill), as of the end of the calendar year in which the purchase occurs;

(2) the ownership interest acquired in a covered residence consists of less than 50 percent of the value of the covered residence;

(3) the acquired covered residence remains unoccupied while owned by the applicable taxpayer and the acquisition occurred through a foreclosure;

(4) the acquired covered residence is used as the primary residence of any person who has an ownership interest, other than a negligible stock interest, in the applicable taxpayer; or

(5) the acquired covered residence has been constructed, acquired, or operated with funding sources appropriated by the federal government, or other public funding sources that, pursuant to the rules and regulations adopted by the director pursuant to section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill), render the residence as not subject to the tax.

c. A covered residence which is sold or transferred by an applicable taxpayer during the calendar year shall be treated as a covered residence which is owned by the applicable taxpayer as of the last day of such calendar year if the sale is to:

(1) a corporation or other entity engaged in a trade or business; or

(2) an individual who owns any other covered residence at the time of the sale or transfer.

d. (1) The director shall require the reporting of information as the director deems necessary and appropriate to carry out the purposes of this section, including reporting with respect to whether, for the purposes of paragraph (2) of subsection c. of this section, any person acquiring a covered residence from an applicable taxpayer owns any other covered residences at the time of the acquisition.

(2) A person who fails to timely report information that the director requires pursuant to this subsection or who fails to include complete and accurate information shall be subject to interest and penalties that are provided for under the provisions of the State Uniform Tax Procedure Law, R.S.54:48-1 et seq. The director may waive penalties and interest if the person demonstrates to the director by clear and convincing evidence that the failure is due to reasonable cause and not to willful neglect.

4. The maximum number of units permitted to be owned pursuant to paragraph (1) of subsection b. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill), with respect to an applicable taxpayer for a calendar year avoiding taxation pursuant to that section shall be determined pursuant to this section. In the case of:

a. the first full calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 90 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 90 percent of the number of covered residences owned by the taxpayer on the applicable date;

b. the second calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 80 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 80 percent of the number of covered residences owned by the taxpayer on the applicable date;

c. the third calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 70 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 70 percent of the number of covered residences owned by the taxpayer on the applicable date;

d. the fourth calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 60 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 60 percent of the number of covered residences owned by the taxpayer on the applicable date;

e. the fifth calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 50 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 50 percent of the number of covered residences owned by the taxpayer on the applicable date;

f. the sixth calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 40 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 40 percent of the number of covered residences owned by the taxpayer on the applicable date;

g. the seventh calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 30 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 30 percent of the number of covered residences owned by the taxpayer on the applicable date;

h. the eighth calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 20 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 20 percent of the number of covered residences owned by the taxpayer on the applicable date;

i. the ninth calendar year beginning after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be 10 percent of the number of covered residences owned by the taxpayer on the applicable date; and

(2) the maximum permissible units for any other applicable taxpayer shall be 50 plus 10 percent of the number of covered residences owned by the taxpayer on the applicable date;

j. any calendar year beginning more than nine years after the applicable date:

(1) the maximum permissible units for a hedge fund taxpayer shall be zero units; and

(2) the maximum permissible units for any other applicable taxpayer that is not a hedge fund shall be 50 units.

5. On or before the first day of the fifth month next following the date of enactment of P.L. , c. (C. ) (pending before the Legislature as this bill), the Director of Division of Taxation in the Department of the Treasury shall adopt, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations to effectuate the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill).

6. This act shall take effect on the first day of the fifth month next following enactment, except that the Director of Division of Taxation may take any anticipatory administrative action in advance as shall be necessary for the implementation of this act.

STATEMENT

This bill establishes the “End Hedge Fund Control of New Jersey Homes Act.” The bill imposes a tax on certain purchases of residential properties, including single-family homes and small multi-family residences by certain commercial entities for investment purposes.

The bill requires the imposition of a tax on an applicable taxpayer for the acquisition of a covered residence, as defined in the bill, in an amount equal to 50 percent of the fair market value of the residence. The bill defines an “applicable taxpayer” as an entity that manages funds pooled from investors, and is a fiduciary with respect to such investors.

The bill establishes certain exceptions to the application of the tax. One exception is provided if the number of covered residences owned by the taxpayer is equal to or less than the maximum permissible units prior to taxation, determined in accordance with a formula established in the bill. Under the formula, the maximum permitted units are fewer if the applicable taxpayer is also a “hedge fund taxpayer,” defined as possessing $50 million or more in pooled net value or assets under management on any day during the calendar year. The maximum permitted units for both hedge fund taxpayers and all other applicable taxpayers gradually reduces over the course of 10 years from the effective date of the bill, or from the formation of the commercial entity, if formed after the effective date. Even after 10 years, if an applicable taxpayer is not a hedge fund taxpayer, the formula does not permit the tax to apply if the taxpayer owns 50 or fewer properties.

Other exceptions to the application of the tax consist of circumstances in which:

· the ownership interest acquired in a covered residence consists of less than 50 percent of the value of the residence;

· the acquired residence is unoccupied and the acquisition occurred through a foreclosure;

· the acquired residence is used as the primary residence of a person who has an ownership interest, other than a negligible stock interest, in the applicable taxpayer; or

· the acquired residence has been constructed, acquired, or operated with funding sources appropriated by the federal government, or other public funding sources that, pursuant to the rules and regulations adopted by the Director of the Division of Taxation in the Department of the Treasury (director), render the residence as not subject to the tax.

The bill authorizes the director to require the reporting of information necessary to carry out the purposes of the bill. A person who fails to timely report information that the director requires, or provides incomplete or inaccurate information is to be subject to interest and penalties that are provided for pursuant to the State Uniform Tax Procedure Law, R.S.54:48-1 et seq. However, the director may waive penalties and interest if the person demonstrates by clear and convincing evidence that the failure is due to reasonable cause and not to willful neglect.

The bill requires the director to adopt rules and regulations to effectuate the provisions of the bill on or before the first day of the fifth month following the date of enactment. The bill is to take effect on the first day of the fifth month following the date of enactment.