PRINCETON: Judge’s decision could impact tax-exemption lawsuit

By Philip Sean Curran, Staff Writer
A landmark tax court decision last month saying Morristown Memorial Hospital had failed to qualify for a property tax exemption was made by the same judge who will rule on a similar challenge to Princeton University’s exemption.
Judge Vito L. Bianco, in a 91-page ruling that is expected to be appealed, concluded the hospital property was “substantially” used for for-profit activity. The suit arose out of a dispute between the hospital and the town of Morristown, which denied granting a property tax exemption from 2006 to 2008.
“By entangling its activities and operations with those of for profit entities, the Hospital allowed its property to be used for profit,” the judge wrote.
The decision caught the attention of the lawyer for the four Princeton residents suing to get the university’s tax-exemption thrown out.
Public interest attorney Bruce I. Afran said Tuesday that the university should consider the impact of the ruling and start settlement discussions to resolve the lawsuit before trial.
“I would hope that they would realize the nonprofit world has changed since Judge Bianco’s decision,” he said.
For its part, the university this week downplayed any significance of the Morristown ruling. University vice president and secretary Robert K. Durkee said Tuesday that the facts and circumstances of the hospital case are different from Princeton’s.
“It’s a different situation,” he said.
At stake for the university and the community at large is whether the Ivy League school would have to pay $40 million to $60 million in property taxes if the entire campus were to be taxed. In such a scenario, residents would see their tax bills go down.
The university says on its website that it already pays $10.1 million in property taxes to the town, making it the largest taxpayer in the community. The amount does not include the $2.86 million that it had agreed to provide in 2015 voluntarily as part of a seven-year agreement to contribute money to the town.
Mr. Afran stopped short of saying the hospital ruling was a surefire indicator of how the judge will rule in his clients’ case, although he said there are “many common elements” between the university and hospital cases.
In court papers, the Princeton residents have argued that the university runs as a profit-making commercial business, complete with revenue sharing with faculty on the patent royalties from their research, among other things.
In the Morristown case, lawyers for the hospital used the same legal argument that the university’s lawyers have made: that the “dominant motive” of an institution must be profit making for it not to qualify for a tax exemption. That “dominant motive” phrase comes out of a 1949 state Supreme Court decision regarding a challenge to the tax exemption of the Kimberly School in Montclair.
But in his ruling on the hospital, the judge concluded that relying on that 1949 case was a legal road to nowhere. “Clearly, there is more recent, more relevant, and more authoritative case law since Kimberly School,” he wrote.
The university has so far been unable to get the legal challenge thrown out or to have the case assigned to a different judge.
“We’re preparing for trial,” said Mr. Durkee by phone.
For their part, four members of the Princeton Council met on Monday in closed session with the attorney representing the town in the litigation to get an update on where the lawsuit stood. The municipality is technically a defendant in the suit, because the tax assessor is the one who granted the university the tax exemption. The university has done all of the legal work fighting the suit.
Councilwoman Jo S. Butler said Tuesday that the meeting was an opportunity for officials to ask questions and get an update. She said the town is “neutral in this case.”
Mayor Liz Lempert, whose husband works for the university, and Councilwoman Heather H. Howard, who works for the school, had recused themselves and did not attend Monday’s meeting. Councilman Lance Liverman was not there either due to a family-related conflict with his schedule.