A4104

An Act imposing a State tax on the investment ownership of single family residences in this State by certain entities for purposes other than single family ownership, providing for down payment assistance for family ownership of such residences, and supplementing Title 54 of the New Jersey Statutes.

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

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

"Controlled group" means one or more chains of corporations connected through stock ownership with a common parent corporation if stock possessing at least 50 percent of the voting power of all classes of stock of each of the corporations is owned directly or indirectly by one or more of the corporations; and the common parent owns directly stock possessing at least 50 percent of the voting power of all classes of stock of at least one of the other corporations.

“Covered taxpayer” means any business, including but not limited to, a hedge fund, private equity investor or private equity group, real estate investment trust, individual, partnership, corporation, a controlled group of corporations, limited liability company, or any other form of business entity; or, as applicable, an affiliate, subsidiary, or holding company of a hedge fund, private equity investor or private equity group, real estate investment trust, individual, partnership, corporation, a controlled group of corporations, limited liability company, or any other form of business entity, that with respect to a tax year owns more than 20 single-family residences in this State as determined on the first day of the tax year. “Covered taxpayer” shall not include a mortgage note holder that owns a single-family residence through foreclosure, a nonprofit organization, corporation, or association that is qualified for exemption from federal taxation pursuant to section 501 (c)(3) of the federal Internal Revenue Code, 26 U.S.C.s.501(c)(3), a person primarily engaged in the construction or rehabilitation of single-family residence, or a person who owns federally subsidized housing.

“Hedge fund” means a firm, foreign or domestic, that provides investment management services to third parties, pursues an absolute return strategy, may use leverage as part of its investment strategy, does not offer the placement of investments in the hedge fund to the general public, and charges performance-based fees as part of its remuneration. “Hedge fund” includes a domestic “investment company,” as defined in Section 3(a)(1) of the “Investment Company Act of 1940,” Pub.L. 76-768 (15 U.S.C. s.80a-3), that claims an exemption under Section 3(c)(1) or Section 3(c)(7) of that act and whose offering of securities is deemed to be transactions not involving any public offering under Section 230.506 of title 17, Code of Federal Regulations and Section (4)(2) of the “Securities Act of 1933,” Pub.L. 73-22 (15 U.S.C. s.77d).

“Own” means, with respect to a single-family residence, having a direct majority ownership in the single-family residence, regardless of the percentage of that ownership interest.

“Single-family residence” means a residential property consisting of one to four dwelling units.

“Tax year” means the calendar year in which a single family residence is owned by a covered taxpayer.

2. a. There shall be imposed an annual State tax on a covered taxpayer that owns over 20 single-family residences in this State as of the last day of a tax year in an amount equal to the product of

(1) $20,000, and

(2) the number of single-family residences owned by the covered taxpayer as of the last day of the tax year that are in excess of 20 single-family residences;

b. (1) Provided however, that a covered taxpayer shall not be liable for the tax for any tax year if the number of single-family residences owned by the covered taxpayer as of the last day of the tax year is equal to or less than 90 percent of the number of single-family residences owned by the covered taxpayer as of the first day of the tax year,

(2) Except, further that sales or transfers by a covered taxpayer to a corporation or entity engaged in a trade or business, to a group of more than two individuals, or to a person who owns any other single-family residence at the time of such sale, shall not count toward this end of tax year percentage reduction in ownership that may exempt the covered taxpayer from the tax for the tax year.

c. The tax year liability for the tax imposed in this section shall be reported and paid by a covered taxpayer on or before the first day of the first calendar quarter after the end of a tax year in a manner prescribed by the Director of the Division of Taxation in the Department of the Treasury. The director shall collect and administer the tax imposed pursuant to this section. The tax imposed pursuant to this section shall be governed by the provisions of the State Uniform Tax Procedure Law, R.S.54:48-1 et seq.

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 any person acquiring a single-family residence from a covered taxpayer owns any other single family residences at the time of the acquisition.

(2) A person who fails to timely report information that the director requires under 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., and an additional penalty of $20,000 per report. 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.

(3) The reporting requirements pursuant to this section shall include a certification from each individual to whom a single –family residence is sold or transferred from a covered taxpayer that states:

(a) The name and address of the purchaser or transferee;

(b) That the sales is not a sale described in paragraph (2) of subsection b. of this section; and

(c) That the purchaser or transferee will be subject to the penalties imposed under paragraph (2) of subsection d. of this section for any false certification.

e. The State tax revenue collected pursuant to this section, and any penalties and interest collected thereon, shall be annually credited by the State Treasurer to the New Jersey Housing and Mortgage Finance Agency to establish new programs or supplement existing programs that award grants to provide down payment assistance to families purchasing homes within the State. Grants awarded pursuant to this section by the agency shall give priority to families seeking assistance to purchase any single-family residence that is sold or transferred by a covered taxpayer.

f. Notwithstanding any provision of P.L.1968, c.410 (C.52:14B-1 et seq.) to the contrary, the director may adopt immediately upon filing with the Office of Administrative Law such regulations as the director deems necessary to implement the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill), which shall be effective for a period not to exceed 180 days following enactment of this section.

3. This act shall take effect immediately and shall apply to tax years beginning on and after January 1 next following enactment.

STATEMENT

This bill imposes an annual State tax on investment ownership of more than 20 single family residences in this State by certain entities for purposes other than for single family ownership. The revenue from the tax will be credited to the New Jersey Housing and Mortgage Assistance Agency to provide for down payment assistance for single family home ownership.

The tax will serve as an economic disincentive to hedge funds and other investors from owning large portfolios of homes in this State, often obtained by large cash offers, and motivated primarily by long-term returns on investment. The holding of these homes in many developing, stable residential neighborhoods keeps them off of traditional residential markets that are accessible to family purchasers who must pursue standard down payments and purchase money mortgage financing during a tightening residential real estate market.

Hedge funds are likely to hold a portfolio of residential properties for 5 to 10 years, but when they decide to sell, it is unlikely that those homes will show up on family accessible local real estate service platforms. Because the homes have been bundled, the hedge funds more likely will sell to other funds. This transforms residential properties into an asset class to be traded among institutional investors. Similar bundling is happening in cities to multi-family rental units, as private equity has been buying market-rate properties and raising rents.

Once homes get bundled into a fungible asset, families are not going to be able to buy individual properties from that bundle. Some of those homes may become part of the rental market and will be unavailable to prospective homebuyers. To allow for an orderly exit from the housing investment market, this bill allows hedge funds and other investors to sell the homes they own for single family home ownership over a period of time, reducing their portfolio annually by at least 10 percent of the 20 or more homes they own at the start of a year, in order to avoid the annual tax at the end of the year. To ensure the tax focuses on problematic actors, the bill excludes nonprofit organizations, public government subsidized housing, as well as home builders. The bill includes a certification process for a purchaser to confirm that they do not own a majority interest in any other single family residential real estate.

Grants provided by the New Jersey Housing and Mortgage Assistance Agency to provide for down payment assistance for single family home ownership from the tax revenue will prioritize support to families purchasing single-family residences from any taxpayer subject to the State tax.