Judge Rejects Princeton University’s Motion to Dismiss Tax Case

Nassau Hall PrincetonFor the third time since June of 2013, a New Jersey Tax Court judge has ruled against Princeton University in lawsuits about the school’s tax-exempt status.

Tax Court Judge Vito Bianco today denied Princeton University’s request to throw out a lawsuit filed by some Princeton residents challenging the tax-exempt status of some of the school’s properties in 2014. Four Princeton residents have filed two lawsuits, one challenging the tax-exempt status of various Princeton University properties in the 2011 tax year, and the second challenging Princeton University’s tax exemption in the 2014 tax year.

Princeton University will appeal the denial of its motion to dismiss the 2014 case. The school will ask the Superior Court Appellate Division to hear an appeal concerning the “applicable legal standard” for the case while the rest of the case is still pending.

“Under New Jersey law, nonprofit universities are entitled to property tax exemption unless it is proven that their dominant motive is to make a profit,” Princeton University General Counsel Ramona Romero said.

Bruce Afran, the lawyer for the residents, said the decision to seek an appeal at this stage shows the importance of the case. He added that the New Jersey Supreme Court already issued a ruling in an unrelated case in 2011 regarding dominant motive that does not support the university lawyer’s argument.

“It sounds like a desperate move by the university to seek an appeal at this stage,” Afran said. “The most senior tax judge in the state ruled against them, and he has never been reversed. The school is wrong on the law, and they will have an uphill battle in the Appellate Division.”

In the summer of 2013, Bianco rejected a motion by Princeton to dismiss the 2011 case, and said the case could be an important one affecting nonprofits. After the filing of 2014 case, the school requested that the both cases be moved from Morristown back to Trenton. At the time, the lawyer for the plaintiffs in the case accused the school of moving the case in order to “judge shop.”

A handful of Princeton residents 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 contends that the buildings have commercial functions. He said the school is operating retail food establishments, ticketing operations and numerous other commercial operations. The school also receives royalties for patents, and some of the profits are distributed to faculty members, he said.

“The school is one of the largest commercial developers in the entire region. It has at least two dozen joint ventures with former faculty. It earns profits on licenses. When you do those things you are no longer just a charity,” Afran said. “It has evolved into a hybrid. It is a major commercial enterprise. It should pay property taxes like other commercial entities do.”

Representatives for Princeton University argue that all the money made by the school is intended to support the school’s educational mission, and thus the school should not pay taxes on any of the buildings.

“In this case, the four individuals challenging the town of Princeton’s decision to grant the University a property tax exemption for 2014 have not even attempted to claim that the University’s dominant motive is to make a profit, which of course it is not. The University feels strongly that the resources necessary to litigate such a case should not be diverted from our central mission of teaching and research, and that is why we seek clarity from the appellate court at this time.”

Romero said the state’s longstanding policy has been to provide property tax exemption to non-profit colleges, universities and schools, houses of worship, non-profit hospitals, and other charitable organizations so that they can devote their resources to the pursuit of their missions.

“The arguments made by the plaintiffs in this case potentially jeopardize all of these institutions, which is another reason we are asking the Appellate Division to review this ruling now, before this case proceeds any further,” Romero said.

Attorneys for the school argue that suit is “completely at odds with the governing statute, an unbroken line of New Jersey Supreme Court and lower court cases…and common sense” and that the statute “explicitly provides that engaging in some profit-making activity does not void a school’s exempt status for those properties and portions of properties not used in that activity.”

The lawyers for the school say the school’s tax-exempt status is determined by its dominant motive, and this case should be dismissed because “plaintiffs make no attempt to argue that they have pled, or could plead in good faith if allowed leave to do so, that the University’s dominant motive is profit.”

“Princeton’s dominant motive is, simply, to be the best educational institution it can possibly be,” Romero said. “Princeton’s mission is to educate students and conduct the scholarship and research that generate new knowledge and new ideas. That mission has not changed in the 269 years since the University was founded. Plaintiffs have not challenged that, they could not in good faith challenge that, and therefore this case should not proceed.”

The Appellate Division can decide to hear the case or reject the request for an appeal at this stage.

Please share your thoughts on this story.

  • To Judge_Dredd1961: the case against the Obama administration, to which you refer, aims to end open-ended detention at Guantanamo Bay, which Obama has also pledged to end. Aren’t your own views in sympathy with that cause?

    A comment on the University’s views, as reported in the article: according to Princeton University’s attorneys, quoted above, Afran’s suit is

    “completely at odds with the governing statute, an unbroken line of New Jersey Supreme Court and lower court cases…and common sense” and that the statute “explicitly provides that engaging in some profit-making activity does not void a school’s exempt status for those properties and portions of properties not used in that activity.”

    The line of New Jersey Supreme Court decisions is not so “unbroken.” In 1854, the New Jersey Supreme Court addressed the issue of whether the Borough of Princeton had the authority to tax certain properties of the trustees of the then College of New Jersey, lying within the Borough. Here’s part of the Court’s decision:

    “It is not to be conceived that although the houses and lots of the trustees of the College, used for the objects of the corporation, are exempted from taxation for the general use and purposes of the township, county or state, they are also to be relieved from the charge of a fair proportion of the expenses of improving the city and increasing the value of the property, and promoting to the comfort and convenience of its occupants.”

    I am not a lawyer, and I wasn’t a lawyer in 1854 either, but it sounds to me as though Princeton University is exempt from taxes that would contribute to the town’s operating budget. It is not exempt, however, from paying “a fair proportion” of the town’s capital budget! Hurray for Bruce Afran!

  • Planet Princeton – any chance you could report the number of cases Bruce Afran represents in and outside Princeton? He seems really focused on big fish.

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