Property Tax Challenge
Center Files Second Amicus Brief in Princeton Property Tax Exemption Case
Updated October 17, 2016
On January 5, 2016, the Superior Court of New Jersey, Appellate Division, denied Princeton University's motion to appeal of a ruling regarding the burden of proof in the Fields vs. Trustees of Princeton University property tax exemption case. In December 2015, the Center for Non-Profits, represented by pro bono counsel Lowenstein Sandler LLP and joined by five other organizations, filed an amicus (friend of the court) brief in support of a motion filed by Princeton University in the challenge to its property tax exemption, a case now making its way through the courts that could have implications for many non-profits in New Jersey.
Although the Court granted the Center's request to join as friends of the court in the most recent filing, it more importantly denied the University’s motion to appeal, which means that the burden is still on the University to (re)prove its property tax exemption as the case goes to trial. That trial is set to begin on October 6, 2016.
The University's most recent appeal was filed in response to Tax Court Judge Vito Bianco’s November 5, 2015, ruling that the University has the burden of re-proving its property tax exemption in response to the residents’ challenge, even if it has been deemed by the municipal tax assessor to be tax exempt. The Center is deeply concerned that this standard, which appears to have little substantiation in existing case law, would make all non-profit property owners highly vulnerable to challenges from disgruntled residents that would be extremely costly and time consuming to defend, siphoning scarce resources away from their charitable programs. The Center was joined in this brief by the Alliance for the Betterment of Citizens with Disabilities; Eva’s Village; New Jersey Association of Community Providers; New Jersey Association of Mental Health and Addiction Agencies; and Volunteers of America Delaware Valley.
In Fields v. Trustees of Princeton University, a case attracting national attention, four Princeton residents are seeking to revoke the entire property tax exemption of Princeton University based on a far-reaching set of grounds, including the University’s investments; the payment of patent royalties to some of its faculty pursuant to federal statute; and certain fee-based operations such as cafés.
Since 2001, New Jersey law has provided for a prorated property tax exemption structure under which a property owned by a charitable organization that is used for mixed purposes, both charitable and non-charitable, is only subject to tax on the non-charitable portion. Yet the plaintiffs in the Princeton case are seeking to revoke the University’s property tax exemption in its entirety based on allegations surrounding some of the University’s properties, without regard to their proportion in relation to the University’s mission or other exempt functions. Unlike many of the other property tax challenges across the nation, in this case the municipality is named as a co-defendant.
Princeton University’s motion to dismiss the entire case was denied by the Tax Court on February 12, 2015. The university filed a separate motion asking the Superior Court of New Jersey, Appellate Division, to hear its appeal or at least to narrow the legal scope of the case by affirming established New Jersey case law. On March 16, 2015, the Center for Non-Profits, represented by pro bono counsel Lowenstein Sandler LLP and joined by the Alliance for the Betterment of Citizens with Disabilities; Eva’s Village; New Jersey Association of Community Providers; Pro Bono Partnership; Supportive Housing Association of NJ; and Volunteers of America Delaware Valley, filed an amicus brief in support of the University's request. On April 15, 2015, the Appellate Division denied our motion to file an amicus brief in the University's request to appeal, and also denied the University's motion to appeal, sending the case back to the Tax Court.
On November 5, 2015, Tax Court Judge Bianco ruled against a motion by the University to establish that the residents who are challenging the tax exemption of the University have the burden of proving that the tax assessor erred in granting property tax exemption to the university. In his opinion, the judge ruled that the burden of proof for claiming property tax exemption always rests with the exempt organization even in cases of appeal, rejecting Princeton’s argument that if the tax assessor has already granted tax exemption, the burden should fall to the residents to prove that the exemption was granted inappropriately. According to the judge, only in valuation assessments would the burden of proof shift away from the organization. The judge also specifically rejected the argument that requiring the exempt organization to retain the burden of proof in third party appeals would make many non-profit property owners vulnerable to litigation - a primary concern that prompted the Center's involvement in this case (see below).
The University's latest appeal, filed November 25, 2015, and our second amicus brief, filed December 7, 2015, focused specifically on the burden of proof question.
Why we became involved
The Center for Non-Profits has a well-established, board-approved public position, through prior testimony, public statements, and other communications, in support of non-profit property tax exemptions as an essential part of the public/private compact between government and non-profits, an accommodation in exchange for the public benefit function that non-profits serve. We are deeply concerned about the potential implications of this case for thousands of charitable organizations of all types and sizes throughout the state that own property. It’s no secret that non-profit organizations are straining under the weight of skyrocketing demand for services and resources that have not kept pace with the steadily escalating costs of providing programs and services that our communities need. Added to these pressures are growing challenges to the tax exemptions that non-profits have historically been granted in recognition of their substantial contributions to the public good.
In recent years, local governments have become more aggressive in mounting challenges to non-profit property tax exemptions – some for no other reason than an organization charging fees for services – in an attempt to extract revenue from organizations. The Princeton case is also troubling because it has been brought not by the municipality, but by a group of residents who disagree with the exemption determination already made by the municipal tax assessor. We are convinced that this suit, especially given the breadth of its claims and in light of Tax Court Judge Bianco's November 5 opinion shifting the burden of re-proving their tax exemptions back to non-profits, could make non-profit property owners of all sizes – particularly those that may be considered controversial – vulnerable to challenges which would be extremely costly and time-consuming to defend.
What happens next?
With the New Jersey Superior Court, Appellate Division's rejection of the the University's motion to appeal Tax Court Judge Bianco's November 5, 2015, ruling regarding the burden of proof, the case is now back in the Tax Court for arguments, with the burden on the University to (re)proving its exemption. The trial will begin on October 6, 2016. Meanwhile, efforts are underway to enact legislation to address the vulnerabilities created by the November 2015 ruling.
Although Princeton University’s motion to appeal the burden of proof ruling was denied, the fact that the Center's motion to join was granted can be seen as a hopeful sign for our acceptance as amicus curiae in a subsequent submission, should one become necessary. We believe that our involvement has helped to provide to the Appellate Division valuable perspectives regarding the property tax challenge and its broader implications for the non-profit community.
The Center continues to watch this case closely and will share updates via e-mail, social media and our website as they become available. We are deeply grateful to Lowenstein Sandler LLP for taking this case on our behalf, and to all of the organizations that joined in the brief.
If you have questions or would like more information about the Center's involvement in this or any other non-profit issue, contact Linda Czipo at the Center.
For more information:
Related Articles from the Center:
Princeton University Settles Property Tax Exemption Lawsuit
Localities look to Scale Back Property Non-Profit Tax Exemptions
Tax Court Rules Against Hospital in Morristown Property Tax Case
Legislation to Protect Non-Profits from Arbitrary Tax Exemption Challenges by Third Parties Advances
Front and Center blog: Non-Profits and Tax Policy: Not a One-Sided Equation
Dodge Blog: Are You Watching the Court Rulings on Property Tax Exemptions? Maybe You Should
"Is Non-Profit Property Tax Exemption Sound Public Policy?" Presentation slides of Center executive director Linda Czipo to 4/15/2016 Seton Hall University School of Law conference
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