New Jersey’s PILOT tax program, short for Payment in Lieu of Taxes, lets qualifying developers in designated redevelopment areas pay a negotiated annual service charge instead of conventional property taxes for up to 30 years after a project is completed. It is authorized by the Long Term Tax Exemption Law at N.J.S.A. 40A:20-1 and following, and it is available only where a municipality has already formally declared the area to be in need of redevelopment or rehabilitation.1Justia. New Jersey Code 40A:20-9 – Financial Agreement The service charge is usually calculated as a percentage of the project’s gross revenue or of its total cost, giving the developer a predictable expense and giving the municipality a revenue stream it does not have to share with the county and schools in the usual proportions.
Who Qualifies for a PILOT
Two things have to line up: the developer and the property.
On the developer side, the statute allows only an “urban renewal entity,” which means a limited-dividend corporation or LLC, a nonprofit entity organized under New Jersey’s nonprofit statutes, or the New Jersey Economic Development Authority.2Justia. New Jersey Code 40A:20-3 – Definitions The limited-dividend form is created specifically to carry out the redevelopment project and has its profits capped by statute. An existing operating business cannot take its ordinary corporate form and apply; a new entity has to be organized for the project.
On the property side, the parcel must sit inside an area the municipality has designated “in need of redevelopment” or “in need of rehabilitation” under the Local Redevelopment and Housing Law. That designation is a separate process involving investigation, a hearing, and a resolution by the governing body.3Justia. New Jersey Code 40A:12A-5 – Determination of Need for Redevelopment Without it, a PILOT is not on the table.
The types of projects that can be built under a PILOT are broad. Housing, senior housing, commercial, industrial, health, recreational, educational, and mixed-use developments are all eligible so long as the adopted redevelopment plan supports them.4New Jersey State Legislature. New Jersey Code 40A:20-4 – Agreements for Projects
How the Annual Payment Is Calculated
The annual service charge replaces what the property would otherwise pay in conventional taxes. The statute provides two calculation methods, and the choice depends on whether the project’s gross revenue can be reasonably projected.
Percentage of Gross Revenue
The default ties the payment to annual gross revenue from rents, sales, or other income. For standard commercial or residential projects, the charge must be at least 10 percent of annual gross revenue. For affordable housing projects restricted to low- and moderate-income households, the ceiling is 15 percent.5New Jersey State Legislature. New Jersey Code 40A:20-12 – Tax Exemption and Service Charges The exact percentage is negotiated within those bounds.
Percentage of Total Project Cost
Where revenue is harder to project, the municipality can base the charge on total project cost. For affordable housing the rate cannot exceed 2 percent of total project cost; for all other projects it must be at least 2 percent.5New Jersey State Legislature. New Jersey Code 40A:20-12 – Tax Exemption and Service Charges Both sides get certainty because total project cost is fixed rather than moving with occupancy.
Payments Step Up Over Time
Whichever base is used, the financial agreement has to phase payments upward:
- The first stage runs from project completion for no fewer than 6 and no more than 15 years at the base service charge.
- The second stage lasts 1 to 6 years, at the greater of the base charge or 20 percent of full property taxes on the land and improvements.
- Subsequent stages keep raising that comparison share until the exemption ends.
The full performance of the agreement has to happen within 30 years of project completion, so the ramp prevents a sudden jump when the exemption expires.5New Jersey State Legislature. New Jersey Code 40A:20-12 – Tax Exemption and Service Charges1Justia. New Jersey Code 40A:20-9 – Financial Agreement Certain agreements entered before April 1992 that were still in force as of January 2010 may be extended to 35 years from execution by mutual consent.
The Trade-Off: Capped Developer Profits
In exchange for a decades-long tax break, a limited-dividend entity cannot earn unlimited profits from the project. The allowable profit rate is the greater of 12 percent per year or 1.25 percentage points above the interest rate on the entity’s initial permanent mortgage. If there is no permanent mortgage, the municipality uses the prevailing rate on comparable properties in the county.2Justia. New Jersey Code 40A:20-3 – Definitions
When cumulative net profits exceed the allowable amount, the excess is paid to the municipality within 120 days of fiscal year-end as an additional service charge. The entity can hold back part of the excess to fund a vacancy and unpaid-rent reserve capped at 10 percent of the prior year’s gross revenue, and that reserve is paid over to the municipality when the agreement ends.6New Jersey State Legislature. New Jersey Code 40A:20-15 – Excess Profits
How the Agreement Gets Approved
A PILOT does not exist until the municipality passes an ordinance. The mayor or chief executive recommends the agreement, the governing body introduces the ordinance at a public meeting, and the municipality holds a public hearing at which residents can review the financial agreement’s terms and testify.1Justia. New Jersey Code 40A:20-9 – Financial Agreement
Under amendments enacted in 2025, the municipality must notify the county’s chief financial officer and the clerk to the board of county commissioners of the date, time, and location of that hearing before the ordinance can be adopted.7New Jersey Legislature. P.L. 2025, c.91 If the ordinance passes, the municipality and the urban renewal entity execute the financial agreement, and a certified copy of both the ordinance and the executed agreement must be sent to the county’s chief financial officer and county counsel within 10 calendar days.8New Jersey Department of Community Affairs. Local Finance Notice 2025-12 Any later amendment goes through the same recommend-hearing-ordinance process before taking effect.1Justia. New Jersey Code 40A:20-9 – Financial Agreement
Before any of this, the entity has to submit a formal application to the municipality. The statute requires a project description confirming conformity with local ordinances and the adopted redevelopment plan, architectural and site plans, capital structure information, a fiscal plan projecting revenue and expenses, and a draft financial agreement.9New Jersey State Legislature. New Jersey Code 40A:20-8 – Application for Project Approval The draft agreement itself has to lay out how gross revenue will be computed, insurance and operating expenses, financing plans, mortgage terms, initial sale prices for any condominiums, and rental schedules.1Justia. New Jersey Code 40A:20-9 – Financial Agreement Municipalities usually charge an application fee to cover outside legal and financial review.
Where the Money Actually Goes
This is the part that draws the most attention, and it is where PILOTs depart sharply from ordinary property taxation. Regular property tax revenue is split among the municipality, the county, and the local school district. PILOT revenue is not.
For any financial agreement entered on or after July 9, 2003, the municipality remits 5 percent of the annual service charge to the county. The remaining 95 percent stays with the municipality.10Justia. New Jersey Code 40A:20-12 – Tax Exemption and Service Charges If a municipality fails to pay the county’s share, the county can sue for the unpaid balance plus interest at 1 percent per month, along with attorneys’ fees and court costs, and a municipal finance officer who willfully refuses to comply can have their certification suspended or revoked.7New Jersey Legislature. P.L. 2025, c.91
School districts get no automatic share. For years that meant residential PILOT projects could add students to a district without directly funding it, shifting the load to existing taxpayers. A 2023 law (P.L. 2023, c.311) created a mechanism to close that gap: if a municipality enters into a contract with a board of education under N.J.S.A. 18A:7G-15.1a, it must remit to the school board whatever the contract requires.10Justia. New Jersey Code 40A:20-12 – Tax Exemption and Service Charges Whether that contract exists is a local decision, so school funding from PILOT revenue is possible but not automatic.
Ongoing Reporting and Audits
The obligations do not end at signing. The urban renewal entity submits audited financial statements to the mayor and governing body within 90 days after the close of each fiscal year, prepared by a licensed CPA under generally accepted accounting principles. Those audits let the municipality verify gross revenue, confirm the allowable profit calculation, and check that the correct service charge is being paid. The entity also has to allow inspection of the property and examination of its books and records by municipal or state representatives at any time during the agreement.1Justia. New Jersey Code 40A:20-9 – Financial Agreement
On the municipal side, the municipality must include a schedule of all Long-Term Tax Exemption projects in its annual financial statement, subject to the annual audit and detailing project names, agreement dates, taxable values, the calculation basis, amounts paid, and remittances to the county or school district. For projects approved after September 21, 2009, the payment schedule also goes to the Division of Local Government Services.11Legal Information Institute. NJ Admin Code 5:30-8.8 – Reporting Requirements for Long-Term Tax Exemption Projects
P.L. 2025, c.91 added quarterly reporting on top of that. Starting with the county tax installment due November 15, 2025, the municipal chief financial officer must submit detailed information alongside each quarterly county tax payment for every Long-Term PILOT entered after July 9, 2003: project name and address, agreement dates, the quarterly service charge collected, the county’s 5 percent share, and the calculation method.8New Jersey Department of Community Affairs. Local Finance Notice 2025-12 Counties had reported that some municipalities were not consistently forwarding their share or the information needed to verify it. A separate 2025 law, P.L. 2025, c.152, effective October 20, 2026, extends payroll recordkeeping requirements to construction, demolition, and maintenance work on PILOT-exempt properties, with authority to withhold up to 25 percent of a payment (capped at $100,000) if records are not produced within 10 days of a Department of Labor request.
ANCHOR Benefits for People Living in PILOT Buildings
The state’s ANCHOR property tax relief program treats homeowners and renters in PILOT buildings differently, and it catches people off guard. Homeowners who make PILOT payments to their municipality are not eligible for ANCHOR because those payments are not considered property taxes for the program. Renters in a building operating under a PILOT are eligible to apply for the ANCHOR renter benefit if they meet the standard income limit of $150,000 or less.12NJ Division of Taxation. ANCHOR Filing Information
When a Full PILOT Is Overkill: the Five-Year Alternative
Not every project needs a 30-year Long-Term Tax Exemption. New Jersey’s Five-Year Exemption and Abatement Law (N.J.S.A. 40A:21) is the smaller-scale option. A municipality that has adopted an authorizing ordinance can exempt part of the assessed value of new construction, conversions to residential use, or improvements to dwellings more than 20 years old, for up to five years.13Justia. New Jersey Code 40A:21-5 – Limits on Exemptions and Abatements The property does not have to sit in a designated redevelopment area, the owner does not have to form a special urban renewal entity, and there is no 95/5 county revenue split. Applications go to the local tax assessor within 30 days of completing the construction or improvement.14New Jersey Division of Taxation. Property Tax Abatements and Exemptions For a smaller renovation or a single home, the Five-Year path is far simpler than a Long-Term PILOT.