Phillipsburg Riverview Organization, Inc. v. Town of Phillipsburg

26 N.J. Tax 167 (2011)
  • Opinion Date: December 16, 2011

TAXATION — Even though a property might otherwise be eligible for an exemption from real property taxes, if it is not being used exclusively for non-profit, tax-exempt purposes such as by being rented out for profit to persons or entities using the property for their own profit, the tax exemption will not be granted.

A corporation challenged the loss of its property’s real estate tax exemption. It was formed as a not-for-profit corporation to promote, among other things, public interest in local architecture and history, arts, and culture. It was exempt from federal taxes since it qualified as a charitable organization under Section 501(c)(3) of the Internal Revenue Code. It also qualified for an exemption from local real estate taxes through the 2009 tax year.

Its property was used primarily as an arts center. It was open to the public, and its mission was to support and promote the arts by providing affordable studio space and to present community-based arts programs. A small portion of the property was used as an environmental resource center whose purpose was to discourage improper land usage and to protect natural resources. Beginning in 2010, the property was used by several dance troops and girl scout troops, and for artists to display their work.

In order to obtain its initial real estate tax exemption, the corporation was required to file a statement for exemption from real estate taxes pursuant to N.J.S.A. 54:4-4.4. It was granted. In order to maintain the exemption, it was required to submit renewal statements every three years. For 2010, the corporation failed to provide a required renewal statement on time, and the property’s tax exemption was denied. A purported officer of the corporation filed a pro se appeal of the tax assessment with the tax board, but on the hearing date an attorney for a rival faction within the organization claimed that the “officer” was not an officer and lacked standing to file the tax appeal. Based on that attorney’s letter, the tax board dismissed the appeal with prejudice.

The property owner appealed, and the Tax Court reversed in part. The Court noted that while a county tax board is normally entitled to a presumption of correctness, that was not the case here since the county tax board’s decision was not based on the merits of the case. It was based on an unsworn, uncorroborated statement of an attorney claiming to represent a rival faction within the corporation. The tax board should have tried to sort out the facts before dismissing the matter with prejudice. The Court then reviewed the tax appeal and determined that the corporation was not entitled to a exemption for most of its property, only for the small portion dedicated for use as an environmental resource center.

The Court noted that in order for a property to be tax exempt, its owner must be organized exclusively for a tax-exempt purpose, the property must be actually and exclusively used for the tax-exempt purpose, and the operation and use of the property cannot be for profit. Here, it found that, based on its organizational documents, the corporation was organized to promote public interest in arts and culture, and therefore was organized “for the moral and mental improvement of men, women, and children” within the meaning of the statute. However, even if the organization qualified, the property still had to be used exclusively for that tax-exempt purpose. As to that, the Court found that the arts center was not being used exclusively for non-profit, tax-exempt purposes because it was rented out to artists and instructors who conducted classes for profit and the corporation profited from the fees collected. Since the corporation presented no evidence that the artists operated as non-profit entities, the activities at the arts center were deemed to be conducted for profit, thus disqualifying the arts center for tax-exempt treatment. That, however, was not the case with respect to the educational resource center, which the Court found to operate exclusively for its stated mission of encouraging proper land usage and protecting natural resources. Thus, the Court found that the area exclusively used as an educational resource center was exempt from property taxes.