Townships, boroughs and cities now have another tool in the fight against blight and for economic redevelopment.
Act 61 of 2020, The Tax Exemption and Mixed-Use Incentive Program Act, was enacted on July 14, 2020, lowering barriers for localized economic development initiatives. Generally, it allows local taxing authorities to designate “deteriorated areas” within their communities, which then allows tax exemptions for new construction and improvements to existing properties in these areas. The scheme created by Act 61 supplements and mirrors those of the Local Economic Revitalization Tax Assistance Act of 1977 and the Improvement of Deteriorating Real Property or Areas Tax Exemption Act of 1971.
Before a local taxing authority can take advantage of Act 61, it must designate the deteriorated area. Deteriorated areas are to be those consisting of “blighted property,” encompassing those properties that poses a risk to the health, safety, or welfare of the public. Abandoned property, vacant lots subject to municipal liens and areas that have been designated by the Department of Community and Economic Development as impoverished areas may also be included in the defined deteriorated areas.
Once a municipality has designated a deteriorated area by ordinance or resolution, it may exempt from property taxation the total assessed valuation of all new construction and improvements to blighted property in that area, or, in the alternative, may exempt up to a specified maximum cost for such construction or improvements. Only actual costs of new construction or improvements to blighted property are eligible for exemption. A property owner seeking an exemption must file an application with the local taxing authority, after which the county assessment office will assess the completed construction and improvements and notify the taxpayer and taxing authority of the amounts eligible for exemption. The tax exemption scheme provides for a sliding scale of exemptions over a ten (10) year period: For the first three (3) years, the total eligible assessment is exempted from taxation (100%). The percentage of the assessment that may be exempted gradually decreases each year for the next 7 years, ending with 10% of the eligible assessment exempted in the 10th year.
Not So Fast:
The tax exemption is subject to several limitations. Exempted construction or improvements must conform to zoning ordinance and code requirements and must increase the value of the property by at least 25%. If the deteriorated area is zoned for mixed-use development, improvements must incorporate mixed-use housing and development that benefits the efficiency and economy of the community. In addition, properties housing certain types of establishments that pose health or safety risks are ineligible for the exemption, including gas stations, drive-throughs, adult entertainment businesses, junkyards, animal hospitals, and gun shops that are not occupied by the owner. The Act 61 exemption generally may not be combined with other tax abatements or exemptions, and a property may only receive one tax exemption under Act 61 every fifteen years. An exempted property generally may not be transferred in a way that avoids a realty transfer tax.
An exemption will be terminated – and the local taxing authority entitled to reimbursement of exempted taxes – if, within five (5) years of completion of the construction or improvements, any serious violation of State law or property maintenance code persists on the property for six (6) months after notification of violation. The local taxing authority may choose to end the exemption program if it determines that the deteriorated area has been successfully revitalized, although this will not affect the exemption of any property granted exemption prior to that time.
If you have any questions about the application of this law, the attorneys in Siana Law’s Municipal Law Group are available to assist you.
All rights reserved. This publication may not be reproduced without the express written permission of Siana Law. This publication is designed to provide general information relating to the covered subject matter. None of the information is offered, nor should be construed, as legal advice. Although prepared by professionals, the materials contained in this publication are not intended to be utilized as a substitute for obtaining legal or other professional advice. We encourage you to obtain legal or other professional guidance regarding those specific matters for which you require assistance.