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Judge Says Suit Challenging Tax-Exempt Status of Princeton University Properties Can Move Forward

A state tax court judge today denied Princeton University’s request to throw out a lawsuit challenging the tax-exempt status of some of the school’s properties.

New Jersey Tax Court Judge Vito Bianco said the case could be an important one affecting nonprofits.

Some residents, represented by Princeton lawyer Bruce Afran, challenged the tax exempt status of various Princeton University properties after examining the results of the 2010 Princeton property revaluation.

Afran contends that Princeton University should be paying property taxes on many buildings that are currently tax exempt, because he said the buildings have commercial functions. He said the school is operating retail food establishments, ticketing operations and numerous other commercial operations.

“In 2011 Princeton University received $118 million in patent royalties and distributed $30 million from the profits to faculty members,” Afran said. “Under the law they are not even entitled to a tax exemption because they are engaged in commercial patent licensing, and the school give out a percentage of profits to faculty. Under the law in New Jersey,  if a nonprofit gives out profits, it is not entitled to an exemption at all.”

Afran said to his knowledge the case is the first challenging a university’s right to a tax exemption.

“It could be a very important case that will affect the future of universities and other nonprofits,” he said.  “The judge agreed it is a groundbreaking case and he declined to grant the university’s arguments.”

Representatives for the university argued that all the money made by the university is intended to support the school’s educational mission, and thus the school should not pay taxes on the buildings.

Afran said the school sometimes operates like a for profit entity. For example, Afran said the university has a licensing agreement with Eli Lilly for the chemotherapy drug Alimta. Eli Lilly and the trustees of Princeton University filed a lawsuit against Israeli drug company Teva Pharmaceutical Industries to block the company from manufacturing a generic version of the drug.

“In many ways these modern universities have become commercial enterprises,” Afran said. “If we prevail in this suit, it would change the entire tax base and it could mean tens of millions of dollars in tax payments every year for our community.”

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