Tax Court Puts Brakes on Recent Trend Limiting Religious/Non-Profit Exemptions

by Cole Schotz
Contact

In a recent tax court case, Holy Trinity Baptist Church v. City of Trenton (Docket No. 015909-2014, February 2, 2017), the court overturned the findings of the County Board of Taxation and upheld the tax exemption for religious/charitable use of properties pursuant to N.J.S.A. 54:4-6.3.  This statute exempts properties from taxation where “buildings [are] actually used in the work of associations and corporations organized exclusively for religious purposes, including religious worship, or charitable purposes.”  The Holy Trinity decision comes at a time when municipalities are aggressively attempting to challenge exemptions and return previously exempt properties to their ratable tax rolls.

Commencing with the tax court’s decision in the AHS Hospital Corp. v. Town of Morristown, 28 N.J. Tax 456 (Tax 2015), involving the Morristown Memorial Hospital, it appears that the level of scrutiny being applied to previously well-established categories of exempt users has been elevated thereby placing the exempt status of many non-profit organizations in limbo.  In Morristown Memorial, the tax court found that the hospital’s entanglement with and in for-profit activities undermined the hospital’s ability to satisfy the well-recognized three prong exemption test.  This test requires an organization to establish that:  1) The organization is a New Jersey non-profit entity; 2) The non-profit entity is acting consistent with its charter in the performance of religious/charitable functions; and 3) The activities performed on the property are not conducted for profit.  Paper Mill Playhouse v. Millburn Township, 95 N.J. 503 (1984).  In reaching its conclusion the Morristown Memorial court focused on the hospital’s failure to satisfy the third prong of the test.  In part, the court concluded that the activities conducted and services provided by the many private, for-profit physicians, utilizing the facilities on a daily basis, dictated a finding that these hospital facilities were in fact being used for profit.  The court there also concluded that it was unable to distinguish and segregate those portions of the hospital facilities where the involvement of for-profit activities did not apply.  Consequently, other than in the most distinct and limited areas (e.g., the hospital parking garage, auditorium and in-house fitness center), the Morristown Memorial hospital facilities were deemed to be taxable.

More recently, the tax court was asked to focus on the exemption afforded non-profit universities.  In Fields v. Trustees of Princeton University, a group of third-party taxpayers challenged the exemption afforded Princeton University.  Although that matter was resolved without a trial, it appears the settlement may have been precipitated by the University’s concerns with what has been widely perceived to be an increasingly unfriendly environment for the exempt treatment of non-profits in the aftermath of the Morristown Memorial decision.  No doubt, the fact that the very same tax court judge who penned Morristown Memorial was also assigned to the Princeton University case may have further influenced the University’s decision to settle the matter.  The settlement, which only temporarily resolves the ultimate exemption question, requires the University to pay over $18 million dollars in payments to third-parties and contributions to the municipality (in the form of payments in lieu of taxes) through the year 2022 when the University’s settlement obligations expire.

With this recent history and the presence of numerous pending cases specifically attacking the exemptions afforded non-profit hospitals throughout the state, the tax court’s decision in Holy Trinity may offer non-profits, at least religious organizations, some solace from what appears to be a concerted effort on the part of municipalities to challenge the efficacy of real property tax exemptions in all areas.  Importantly, the Holy Trinity court concluded that despite evidence indicating that religious activities on the subject church property had diminished (as the church purchased a new property for its operations and had already commenced the process of shifting its activities to this new location), the church continued to make actual use of the property in furtherance of its religious purposes.  In particular,  the Holy Trinity court found that the church continued its schedule of weekly meetings, made the space in question available for future meetings and gatherings, conducted receptions, and stored books at the location in connection with its religious/charitable functions.  As a result, the continued application of the tax exemption was determined to be appropriate in Holy Trinity.

The Holy Trinity court made clear that the intention to sell the property and diminished use thereof would not in of itself destroy the tax exemption. This most recent decision is in accord with City of Hackensack v. Bergen County, where the listing of the property for sale and removal of certain items to increase the marketability of the property were found to be insufficient to undermine the exemption.  Id. 405 N.J. Super. 35 (App. Div. 2009).  In addition, the Holy Trinity court also recognized that, even where a property’s use is limited to the occasional use for storage of goods used in furtherance of religious and charitable purposes, the property would still qualify for tax exempt status.  Borough of Hamburg v. Trustee of Presbyty of Newton, 28 N.J. Tax 311, 319-320 (Tax 2015).

Consequently, in the current ratable hungry environment, non-profit organizations must now be more vigilant in ensuring that their properties continue to be used for the organization’s exempt or charitable purposes.  Only by regularly reviewing the entity’s activities and documenting continued property usage for its non-profit purposes, can these organizations improve the prospect of preserving the significant benefits that flow from the continued application of the statutory exemption.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cole Schotz | Attorney Advertising

Written by:

Cole Schotz
Contact
more
less

Cole Schotz on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.