Princeton University Settles Property Tax Lawsuit
Fields v. Trustees of Princeton University will not go to trial. In the lawsuit, the plaintiffs challenged the property tax exemption granted to Princeton University claiming that the University should be paying property taxes for its campus.
Background
The University is the fourth-oldest college in the United States and operates as a nonprofit university. In 2011, the University was granted tax exemption for twenty-one individual parcels of land by the Municipal Tax Assessor. The Municipal Tax Assessor continued to grant property tax exemption on these and other parcels owned by the University in 2012, 2013 and 2014. As outlined above, the plaintiffs challenged the property tax exemption granted to the University on the basis 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.
Judge Vito L. Bianco, who also ruled on the case of Morristown Memorial Hospital v. Town of Morristown, ruled that the University bears the burden of proof in this matter since the University is the party claiming an exemption from taxation and denied the University’s motion for leave to appeal on the lawsuit by the residents of Princeton. A trial was originally set to begin on October 17, 2016.
The Settlement
The University announced that it had reached a settlement with the plaintiffs prior to the start of the trial. As a result, the University will pay more than $11 million over the next six years for property tax relief and housing needs for Princeton, New Jersey residents. With this settlement, the plaintiffs agreed to withdraw their property tax exemption challenges. In addition, Princeton has agreed to a payment in lieu of tax (PILOT) program where it will extend its voluntary payments to the municipality by $7 million.
In order to help provide property tax relief to Princeton homeowners who received a homestead rebate under the New Jersey Homestead Property Tax Credit Act, the University will pay $2 million in 2017 and $1.6 million per year from 2018 through 2022. This property tax relief fund will be shared between 869 Princeton households. Any remaining funds will be given to 101, Inc.; a local nonprofit organization which provides need-based scholarships to graduates of Princeton High School who are attending post-secondary educational institutions other than Princeton University.
In addition, the University, from 2017 through 2019, will pay $416,700 annually to the Witherspoon Jackson Development Corporation. The University will continue to make its PILOT payments of $3.48 million for 2021 and 2022; the same amount which is scheduled to be contributed in 2020; the last year of its current seven-year agreement with the municipality of Princeton.
Recent Ruling
This settlement comes on the heels of a 2015 decision in New Jersey in the case of Morristown Memorial Hospital v. Town of Morristown, wherein Judge Bianco revoked the hospital’s property tax exemption on the grounds that the operation and use of the property for which the hospital held tax exemption was conducted for profit. The Judge ruled that Morristown Medical Center (formerly Morristown Memorial Hospital) was liable for unpaid property taxes for the years 2006 through 2008. On November 10, 2015, Atlantic Health (the hospital’s parent corporation) and the Morristown town council reached an agreement to settle the Morristown Memorial Hospital property tax issue.
Atlantic Health agreed to pay the town of Morristown an upfront payment of $10 million and, in addition, annual installments for the next 10 years to cover $5.5 million in penalties and interest for the years 2006 through 2015. In addition, prospectively, approximately one-quarter of the property will be taxed at an assessed value of $40 million from 2015 to 2025 which will approximate another $1.05 million in annual tax payments; to be shared between the town and the Morris School District.
Conclusion
This situation is yet another example of why colleges, hospitals and other nonprofit organizations should be aware of property tax exemption issues. Ultimately, the settlement will lower property taxes for certain residents of Princeton, New Jersey.
In an effort to prohibit third-party appeals concerning an organization’s property tax exemption, Assemblyman Reed Gusciora (D-Trenton) and Senator Robert Singer (D-Jackson) introduced Bill No. A-3888/S-2212. This proposed legislation is intended to protect tax-exempt hospitals that have entered into a financial arrangement with the town or municipality from third-party litigation.
This proposed legislation is in addition to Bill No. A-3635/S-2329, sponsored by Assemblyman Herb Conaway (D-Burlington) and Senator Nilsa Cruz-Perez (D-Camden). This legislation would place a moratorium on any pending lawsuits between municipalities and nonprofit hospitals and establish a study commission to review and make recommendations with respect to the property tax exemption issues in the State of New Jersey.
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