Princeton University Loses Another Round in State Tax Court

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

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.

Tax Court Judge Vito Bianco yesterday rejected the University’s claim that the burden of proof in the case should be on the four residents who are challenging the tax exemption.

The lawyer for the residents, Bruce Afran, successfully argued that the burden of proof is always with the party claiming an exemption from taxation, and not with the party challenging the granting of an exemption.

“Princeton’s arguments defy firmly established precedent that `the party seeking exemption under a statute granting exemption from property taxation bears the burden of proving that the bases for it have been established,” wrote Bianco in his decision.

The burden of proof would rest on the residents if they were challenging the assessment amounts the municipal tax assessor calculated for University properties, but challenging the school’s tax exemptions is a separate issue and the same burden would not apply, the judge ruled. The burden of proof for granting a tax exemption rests on the organization seeking the tax exemption.

“According to Princeton, if it had to bear the burden of proof when, as here, its approved property tax exemption is challenged by third-parties, the long-standing principle that decisions of the assessor are afforded a presumption of validity would be abolished. The court rejects this argument,” Bianco wrote. “There is, however, a clear difference between the process for valuation assessments and that of exemption determinations. While the former involves extensive experience and first-hand knowledge of the property being assessed, the real estate appraisal process, and the marketplace, the latter is an evaluation based significantly on the reliability of representations made by the applicant in the paperwork submitted in support of the application for exemption, and of the actual use of the property for which a tax exemption is claimed.”

The University also claimed allowing such lawsuits would open the flood gates for litigation.

“Princeton’s public policy argument here is no more convincing than its previous arguments. The court finds no foreseeable danger that there will be a mass citizen uprising to usurp every tax exemption granted as Princeton seems to assert,” Bianco wrote. “The context of public policy considerations at issue here is much broader than the simplistic `flood gates of litigation’ fears raised by Princeton. In that regard, it appears to the court that the more compelling public policy concerns in these matters rest squarely on the side of the taxpayer’s right to challenge the exemption, and for Princeton to prove it meets the criteria for the exemption.”

The judge noted that Princeton could not come up with another copycat example of a similar suit even in the wake of the significant publicity surrounding this case. Universities do not seem to face frequent challenges to their tax-exempt status, except for ancillary properties that are not being used for educational purposes, Bianco wrote.

“Further, the court is not persuaded by the concerns expressed by Princeton and the Municipality over the potential cost to them of this litigation,” he wrote.

“In this court’s view, if the right of these taxpayers to appeal Princeton’s property tax exemption is to have any meaning, then public policy demands that Princeton must bear the burden of establishing it qualifies for property tax exemption under applicable law, given the more compelling public policy concern here that all property shall bear its just and equal share of the public burden of taxation,” he wrote.

Earlier this year, the same judge rejected Princeton University’s request to have the 2014 case dismissed.  The school asked 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, and the Appellate Division also ruled against the University.

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.

They contend that Princeton University should be paying property taxes on many buildings that are currently tax exempt, because the buildings have commercial functions. Their lawyer said the school has evolved into a hybrid, and 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.

Representatives for Princeton University have argued 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.